The Australian Railway Association (ARA) has just released its annual rail industry report and overall the findings are good news for shareholders in companies exposed to the rail industry.
The report finds that the use of rail is growing strongly, not just in freight but also in passenger and light rail use too. Freight volumes on rail increased by 8.2% year on year to June 2012 with iron ore and coal the major contributors to that growth while urban heavy rail passenger journeys grew by 7.6 million or 1.3% on the prior year.
The report also found that (incredibly) only 5% of freight is being moved by rail between Melbourne, Sydney and Brisbane. As the CEO of the ARA states, "rail has the capacity and is ready to take more freight between the capitals and free up our congested highways."
The findings are good news for rail freight operators Asciano (ASX: AIO) and Aurizon (ASX: AZJ). They are both major transporters of coal on the eastern seaboard and also the best positioned operators to provide increased rail freight services between the capital cities.
Increased rail freight also means increases in demand for locomotive maintenance and rail-related goods and services. Three companies that have established strong positions in these spaces are Bradken (ASX: BKN), Downer EDI (ASX: DOW) and UGL (ASX: UGL).
Bradken specialises in the design, manufacture and supply of freight rolling stock with a specific focus on the iron ore, coal, bulk and intermodal sectors. Bradken's capabilities include the manufacture of wagons for transporting bulk resources and the provision of spare parts.
Downer is a leading provider and maintainer of passenger and freight rolling stock with over 100 years' experience. According to Downer, its rail division currently supplies approximately 60% of active mainline locomotive fleet in Australia.
UGL is a leading manufacturer and asset service supplier to the rail sector. UGL's offering includes manufacture of locomotives, passenger cars and wagons as well as maintenance of above and below rail infrastructure.
Foolish takeaway
With the potential for rail freight volumes to grow at rates above those of the general economy, partially thanks to an increasing focus on low carbon emission forms of transport, means exposure to the rail freight industry by investors could be a wise move.
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More reading
- Rio Tinto completes first step of expansion
- Aurizon, Asciano and Qube Holdings want more rail in Moorebank
Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
