Rail Investment Opportunities in the UK

Rail Investment Opportunities in the United Kingdom
Joseph Schlais, June 2004 Page 1
1. Executive Summary
A. Although the railways owe their existence to the successes of private capital
and entrepreneurial ingenuity, they’re justified in blaming their downfall on
neglect, industry decline, and government interference.
B. However, the disaster stories obscure the reality; which is that rail is
experiencing a virtual renaissance, particularly in the freight sector. In the past
decade the freight sector has grown by 50%, and attracted more than £1.5
Billion of private sector investment. Perhaps the greatest affirmation of the
success of rail freight is that leaders are now asking that the successful
features of the freight model be applied to the passenger sector; pointing to the
potential to harness market forces and create incentives for private investment.
C. The rail alternative is becoming increasingly attractive from both an economic
and social perspective. Manufacturers and logistics companies are increasingly
concerned over cost and time increases in the road alternative, especially with
the introduction in 2005 of the EU’s Working Time Directive, which is
expected to add £1.5 billion to the UK hauliers’ costs per annum. Safety is
another concern, with statistics showing that lorries are responsible for 18% of
the more than 3000 deaths on Britain’s roads each year. This means that
during 1999, when the Paddington rail disaster left 31 dead, lorries caused 617
out of 3423 road fatalities
D. Industry is returning to rail, with companies such as Argos, ASDA, IKEA,
Danone, Marks & Spencer, Safeway, Superdrug and Tesco investing heavily
in the rail alternative. With growing congestion, the superior reliability and
speed of rail means it will continue to win against the road alternative.
E. Whilst we’ve seen how barriers to entry have been reduced, everyone agrees
the main challenge remains finding terminal capacity. The acceleration of the
shift in manufacturing to the Far East has resulted in an increase in
containerised imports. Such increased maritime traffic places further
constraints on inland terminal capacity. In considering the geographic location
of such facilities in the UK, there are two corridors of development; the West
Midlands and the North. Characterised by rail-served warehouses, ample
storage space, and a wide array of value-added services, these facilities have
emerged as the pre-eminent industrial property type.
F. These requirements combine to form a facility that could easily be anchored to
the stable freight flows of a manufacturer, with supplemental revenue being
provided by tenants in adjacent warehouse space.
G. Unlike a residential community or office tower, the upgrades to industrial sites
are relatively inexpensive and the primary asset remains the valuable, highly
liquid, B8 zoning of the industrial property, with revenue from operations
covering the capital expenditure associated with its acquisition and
development. On the safer end of investment opportunities in rail, yields of 7 -

10% can be achieved, whilst investors with an appetite for greater risk can
achieve yields of 10 – 25% via “short-line” opportunities.
H. Whilst such facilities have often been financed by developers, manufacturers
are no longer willing to sign the long-term leases which enable developers to
secure funds. It would be wrong to assume that the unwillingness on the part
of manufacturers to sign such leases is due to lack of confidence in their
businesses. Rather, fallout from the Enron debacle has left a general hesitancy
to employ any kind of off-balance sheet financing.
I. In conclusion, terminal properties present attractive acquisition and financing
opportunities because they possess rail-access, proximity to major highways,
and zoning for a wide range of alternative industrial uses. In the event that
these properties can no longer be leased to manufacturers or distributors, they
represent attractive redevelopment opportunities for commercial or residential
uses. But again, the most compelling element of the opportunity to invest in
terminals is that as global freight rises and logistics plays an increasingly
important role in global commerce, the underlying B8 zoning of a rail facility
means the value of the property will increase.

2. Rail has a bad reputation; the perception is that the industry is in a grave
state.
The Legacy of Britain’s Railways
Whilst the saga of the railways as penned in the 19th
century was one of
celebration of the achievements of private capital and entrepreneurial ingenuity, the
events of the 20th
century have left the railways with a legacy characterised by
neglect, industry decline, and government interference.
Since the 1960’s, the rail industry has been faced with a series of problems. First,
unprofitable rail routes were closed with few being protected for potential re-use.
Then, this derelict railway and rail accessible land was recycled for non-rail purposes,
leaving a severely reduced number of rail accessible sites. Today, we have new
industry and warehousing that could strengthen rail but which has unfortunately been
developed in road-only locations.
Even worse has been the damage done to rail’s commercial reputation through the
unsuccessful attempt to privatize and then hasty re-nationalization - from private Rail
track in 1996 to national Network Rail in 2002.
Also driving rail’s poor reputation have been the rare, but highly publicised
disasters. In 1999 a Thames train passed through a red signal and collided with a
Great Western train coming into Paddington station, leaving 31 dead. In 2000, a
broken rail caused the rear eight coaches of an intercity express train to come off the
rails at Hatfield, just North of London. Of the 200 passengers on board, four were
killed. If these two events weren’t enough, a freak accident in Selby in 2001 was the
final straw. In a series of events that resembled a Hollywood action film (a car coming
off a bridge, sliding down an embankment, and deflecting one train into another
travelling in the opposite direction) 10 people were killed.

3. However, the disaster stories obscure the reality; which is that rail is
experiencing a virtual Renaissance, particularly in the freight sector.
Since 1994, there has been a 50% growth in freight on rail, which means every
year over 400 million lorry miles have been removed from Britain’s congested roads.
Since 1995, the freight rail sector has attracted more than £1.5 Billion of private
sector investment in locomotives, wagons, facilities, and systems. Rail has 12% of the
UK surface freight market showing 7% growth since last year, and between Q3 of
2003 and 2004, total freight lifted increased by 4% with domestic intermodal freight
increasing by 6%.i
Whilst break-even distances are market specific, and rail is an economically viable
option for shorter distances of time-sensitive goods, the traditional market for freight
rail remains the movement of goods over long distances. This is more good news
when you consider that changing market conditions over the past decade have seen
the average distance of goods travelled increase by 24%.ii
Although there is a general sense of despair over the state of the passenger sector,
there are signs of renewed strength, with total passenger journeys up 4% in the past
year, and total passenger kilometres up 3%.iii
Ultimately, the government will have to
confront the complex system that has been constructed haphazardly over the years,
and decide on the appropriate balance between public and private enterprise. Clearly,
that balance has not yet been found. Or has it?
Perhaps the greatest affirmation of the success of rail freight is that leaders are
now asking that the successful features of the freight model be applied to the
passenger sector. The question then becomes, which features are responsible for the
transformation of rail freight in the UK (in a little more than a decade) from a sluggish
monopoly characterised by high costs and poor efficiency, to a thriving industry
where four active operators have attracted over £1.5 Billion of private sector
investment?
The success of the freight sector: how the introduction of market forces created
opportunities for private sector investment
Prior to 1993, when the railways were nationalised, rates, volumes, and wages
were negotiated on the basis of relative bargaining power. In this regulated
environment, rail freight wasn’t truly competing with road transport, and there were
no incentives for private investment in alternatives.
However, in 1993 the freight business of British Rail was broken up and sold
outright to private bidders, thereby causing a change in the underlying market
economics of rail freight. Commercial pressures drove the private operators to
decrease costs and improve efficiency. Then as prices dropped and performance
improved, customer confidence returned. There was also a reduction of barriers to
entry, including regulatory adjustments to track access charges, and financial
incentives for terminals development schemes. The final result was that rail became a
truly attractive alternative to road, creating an environment in which there was a real
incentive for private investment.
This incentive for private investment forms the basis of a long-term, sustainable
solution, as opposed to the short-term fix of demanding yearly cash injections from
the government. In conclusion, the success of rail freight points to harnessing market
forces and creating appropriate incentives rather than regulatory or structural change
as the way to improve performance.iv

4. More particularly, the rail alternative is becoming increasingly attractive
from both an economic and social perspective.
The Economic Perspective
Manufacturers and logistics companies are getting concerned over the potential
cost and time increases in the road alternative. Estimates vary, but it’s clear the
industry suffers from a shortage of between 60,000 and 80,000 drivers. The main
reason for this is that fewer people are willing to enter careers as lorry drivers. The
new Working Time Directive will place further constraints on the competitiveness of
road hauliers, severely limiting the number of hours drivers can work. Recent research
conducted by Usdaw, one of the UK’s largest road transport trade unions, reveals that
almost half of all lorry drivers work 55 or more hours a week, and one in four work
60 or more.
Given the introduction in 2005 of the EU’s Working Time Directive, limiting the
working week of drivers to a maximum of only 48 hours, costs of shipping by road
are expected to rise dramatically.v
Logistics experts who want to illustrate the
implications of such legislative changes point to a typical case in which hauliers who
are now able to use a single driver for a journey from London to Manchester and
back, will now be forced to switch their drivers in Birmingham (only halfway back to
London) due to the limits on daily driving hours. The new legislation promises to add
£1.5 billion to the UK hauliers’ costs per annum.
The Social Perspective
Also important are the social costs of the road alternative. Looking at safety, we
see that since the start of 2004, more than 1500 people have been killed on Britain’s
roads,vi
and statistics show that each year more than 3000 people die in total.vii
This
equates to more than 9000 deaths during the 3 year span in which the rail disasters
occurred, and more than 18,000 deaths extending through 2004. Naturally, these
deaths are less widely publicized because the accidents are far less spectacular and
typically involve neither the massive number of people, nor the massive cost in repair,
that set apart rail accidents. Even more astonishing is the role that lorries play in these
deaths. Although accounting for only 6% of vehicle kilometres travelled, lorries are
responsible for 18% of road deaths. This means that during 1999, when the
Paddington rail disaster left 31 dead, HGVs caused 617 out of 3423 road fatalities.viii
Anyone who has ever been late for a meeting because of traffic will tell you that
the social costs of road congestion don’t stop with motorway deaths. Although
difficult to quantify, it’s estimated that traffic congestion costs business around £20
billion per annum.ix
And despite the recent success of shifting freight from road to
rail, lorry traffic is still set to grow by 9 - 18% with van traffic by 25%. To top it all
off, the road hauliers are now lobbying for 50 tonne HGV’s, dubiously claiming it
will allow them to remove the number of their vehicles from the roads. Given that 40
tonne, 5 axle lorries which are currently in use cause over 10,000 times more damage
to road surfaces than an average car, the real cost of lorry traffic reappears in the way
that public taxes effectively subsidise the maintenance of their network.x
It’s no
longer surprising for the EU to claim that per tonne carried, rail produces around 80%
less carbon dioxide than road and is 27 times safer. xi

Can industry bring a return of the Golden Age of rail?
But advocates of rail aren’t limited to government, academia and environmentalist
groups. Indeed, the smart money in industry is rapidly choosing the rail alternative, as
illustrated by recent decisions by the world’s leading retailers, manufacturers, and
logistics companies.
Companies such as Argos, ASDA, IKEA, Danone, Marks & Spencer, Safeway,
Superdrug and Tesco have all invested heavily in the rail alternative. With growing
congestion, the superior reliability and speed of rail means it will continue to win
against the road alternative, especially where demanding time schedules make it
essential that the supply chain operates on a just in time basis. As an integrated part of
the production line, rail moves semi-finished goods from one factory to another
without being encumbered by over-turned lorries on the motorway.
Rail has long been the preferred mode where fragile prestige goods such as cars
need to be delivered in perfect condition. For instance, all Jaguar X-type exports
travel by rail, BMW's new MINI moves by rail from Oxford to Purfleet, and body
panels for MG Rover move from Swindon to Longbridge by rail.

5. So if rail is clearly more competitive than road, and represents the future
of transport from both a logistics and investment perspective, what is it
about the barriers to entry that have restrained the shift?
Whilst we’ve seen how barriers to entry have been reduced, much work remains.
The industry no longer suffers from a lack of equipment, which includes locomotives,
wagons and other rolling stock. Indeed, the investment in equipment has been so
heavy that in some cases locomotives and wagons sit unused. To some extent, access
remains an issue because rationalization of the railways in the 1960’s has left Britain
with a reduced number of rail lines, and thus rail-served sites. Complexity is also an
issue. With the reputation rail has for complicated service arrangements or track
access rites, many business have chosen to play it safe by remaining loyal to road
hauliers.
Volume can also be considered a barrier because rail operators have historically
preferred the operational simplicity of focusing on business that allows them to fill
complete trainloads, with the result being that the segment of the market that ships
smaller volumes of freight (a growing segment of the market with substantial revenue
opportunities) has been left to road hauliers.
However, the central element supporting a shift to rail remains facilities. Whilst
there are over two dozen rail freight terminals in the UK, it’s generally accepted that
the single largest impediment to putting more freight on rail is finding terminals. Why
is it, then, that the UK is facing over-capacity of key terminals when so many others
remain under-utilized? The answer to this question lies in the procurement, design and
location of the facilities themselves.

6. Facilities…every rail movement requires two
Essentially, terminals are facilities at which goods can be loaded or unloaded, and
processed or stored for further shipment. Revenue comes from handling (ie lift-on,
lift-off handling of containers, or drive-on, drive-off handling of finished vehicles)
and storage. Furthermore, the main forms of charging for handling include unit rates,
differential unit rates, and fixed plus variable rates.
At this point, it’s important to differentiate between terminals. In the early 1990’s
the rush to spend public money brought grossly exaggerated freight forecasts, leaving
a legacy of over-specified, open-access terminals that have remained, rather
embarrassingly to those responsible for their development, half empty. Rather than
having been built where there was a recognized traffic flow, these large distribution-
hub facilities that fall into the SRA’s “Strategic” category of RFI’s, were built to
attract new business and effectively create a large market where only a small one
existed.
The Shape of Modern Terminals
These modern distribution centres reflect a fundamental shift in the global
logistics industry. As companies consolidate their logistics and distribution activities,
large “distribution hubs” are appearing around the globe. Characterised by rail-served
warehouses, ample storage space that improves the flow of the entire logistics
network, and a wide array of value-added services for both rail and road traffic, these
multi modal and multi user facilities have emerged as the pre eminent industrial
property type. Whilst they are most effective when combined with first rate highway
access, and have manifested themselves in warehouse parks that follow highways as
they loop around cities, their chief attributes include A) their gearing towards
handling high volume, B) their adaptability to multiple kinds of users, and C) the fact
that they are typically master planned with expansion in mind so that development
can occur in phases as demand warrants.
Also, since the economics of terminals are strongest when they can act not only as
a modal shifting point, but also a stockholding point, adjacent storage space in the
form of warehousing is essential. These requirements combine to form a facility that
could easily be anchored to the stable freight flows of a manufacturer, with
supplemental revenue being provided by tenants in the adjacent warehouse space.
The SRA’s SRFI (Strategic Rail Freight Interchange) Policy separates RFI’s (Rail
Freight Interchanges) into 6 categories.

1 Hectare = 2.47 Acres
Strategic RFI Major interchange with significant intermodal and
warehousing, located at nationally strategic sites
proximate to major conurbations
100 – 400 Ha
Non-
strategic,
sub-regional
RFI
Large interchange with significant intermodal and
warehousing, located at important sites within
regions
20 – 250 Ha
Intermodal-
only
Interchange handling only intermodal traffic, often
located at key points in urban areas
10 – 30 Ha
Rail-linked
warehouse
Single warehouse unit providing rail services 10 – 30 Ha
Bulk terminal Bespoke terminal for single bulk product types
such as aggregates and minerals, often linked to a
manufacturing or processing
facility. Also includes car, automotive and waste
terminals
5 – 10 Ha
CAR
terminals
Bespoke terminal for handling cars on rail
transporter vehicles
8 – 10 Ha
xii
In considering the geographic location of such facilities in the UK, there are two
corridors of development. Representing the geographic, industrial, and economic
heartland of Britain, the West Midlands contains the largest concentration of
manufacturing and engineering companies in the UK. The North, in turn, is
recognized as a centre for automotive manufacturing that carries with it the
accompanying suppliers of components and services.
UK Terminals in a global context
Widening the perspective to see how UK terminals fit within the global flow of
freight reveals the importance of these two corridors of inland terminal concentration.
The acceleration of the shift in manufacturing to the Far East has resulted in an
increase in containerised imports. Such increased maritime traffic, particularly the
growing congestion at the major deep-sea container ports of Felixstowe and
Southampton, places further constraints on inland terminal capacity. The number of
containers transported through the Port of Felixstowe by rail reached an all-time high
in April of 2004 - over 7,000 containers in a week. Over the last two years, Hutchison
Ports (UK) Limited, who manage the port, have seen a 14% increase in the number of
containers transported by rail.
This maritime container traffic is shifting to inland terminals because ports are
nearing capacity. It’s not uncommon for London-bound freight to arrive in
Southampton, then go by rail to a distribution hub in the Midlands, before being
shipped by lorry to London. Whilst it would seem natural for the freight to be shipped
directly to London by rail, the reality is that the lack of terminal capacity in London
(due to both storage and throughput limitations) makes this nearly impossible. GB
Railfreight recently placed a £4.1 million order for 93 new wagons, 30 of which will
be used just to carry containers between Felixstowe and inland terminals.

In addition, lorry drivers, many of whom have now become independent drivers in
order to avoid strict industry regulations governing working hours, have become
increasingly wary of accepting freight loads from ports. Massive congestion has
resulted in inconsistent times for pick-up and lorry drivers aren’t willing to accept
loads originating at ports if there is a high possibility they will be forced to wait 10
hours due to delays.
7. A Property-based Investment Approach
In recent years, the economic equation for the profitable development of terminals
has been driven largely by the availability of UK grants such as the FFG (Freight
Facilities Grant) and TAG (Track Access Grant). The recent suspension of these UK
grants has stunned private sector investors at a time when the primary challenge has
been to find, plan, and connect new terminals.
One of the main differentiators of terminals from other forms of property
investments is that the primary assets in terminals are not the upgrades to the site.
Unlike a residential community or office tower, the upgrades to industrial sites, such
as tarmac, fencing, or lighting, are relatively inexpensive and can be built or removed
quickly. As a result, the primary asset remains the value of the land, with revenue
from operations covering the capital expenditure associated with its acquisition and
development.
Yields for typical investment properties are as follows, with the advantages of
rail-based industrial property being clear:
Retail 4 – 6%
Office 5 – 7%
Industrial 7 – 10%
Rail 10 – 25%
On the safer end of investment opportunities in rail, yields of 10% can be
achieved through the development of modest, dedicated terminals that fit into the
SRA’s Non-strategic category of terminals. The attached case study on the Castle
Bromwich facility for Jaguar provides a brief overview of the innovative way in
which Bride Parks has applied this model. For investors with an appetite for greater
risk, however, yields of 20 – 25% can be achieved through short line opportunities.
The structure of the deal
The economics of rail freight terminals dictate that the most attractive occupiers
are manufacturers with steady and consistent freight flows. Furthermore, such
occupiers are not limited to auto manufacturers or even the suppliers to those
manufacturers. The ideal tenant could just as easily be a manufacturer of washing
machines that could realise savings shipping via rail at a dedicated terminal rather
than by road.
There are three main ways in which terminal development deals are typically
structured; lease, throughput, and take-and-pay. With a standard lease deal, a
developer finances the development of the terminal and then leases it back to the
tenant – a manufacturer or distributor – at a market-based rent. Due to the nature of
terminals, however, a more innovative structure is one that takes advantage of
throughput. These throughput deals see the developer being paid on a unit basis – a

certain amount for every X-type that Jaguar ships through its Castle Bromwich
terminal, or for every container that comes into Halewood carrying vehicle
components. The final way in which deals are structured is a take-and-pay contract,
where the developer simply negotiates to build a terminal for a given amount, and is
paid on successful delivery.
Whilst such facilities have often been financed by developers, effectively
removing the capital cost from the balance sheet of the manufacturer, manufacturers
are no longer willing to sign long-term leases for the use of the terminal. Without this
guarantee of a five to seven year lease, developers are unable to secure funds.
Furthermore, it would be wrong to assume that the unwillingness on the part of
manufacturers to sign such leases is due to lack of confidence in their businesses.
Rather, fallout from the Enron debacle has left a general hesitancy in the industry to
employ any kind of off-balance sheet financing.
From an investment perspective, the strengths of terminal investments extend
beyond the obvious triple-net leases and cash flow stability. Other advantages to be
considered include the short construction periods, minimal capital expenditures and
an often Blue-chip tenant base that is both diversified and creditworthy. Terminal
properties present attractive acquisition and financing opportunities because they
possess rail-access, proximity to major highways, and zoning for a wide range of
alternative industrial uses. In the event that these properties can no longer be leased to
manufacturers or distributors, they represent attractive redevelopment opportunities
for commercial or residential uses.
But again, the most compelling element of the opportunity to invest in terminals is
that as global freight rises and logistics plays an increasingly important role in global
commerce, the underlying B8 zoning of a rail facility means the value of the property
will only increase.
Short line opportunities
In principle, the short line concept is simple. An abandoned stretch of rail is re-
instated, with revenue being generated on a usage basis. The demand for new rail
lines is growing because existing lines face increasing congestion as both freight and
passenger traffic inexorably rises. In practice, though, the commercial structure is
complex and often mysterious to those unfamiliar with the niche.
In the US, where long distances and high freight volumes have fostered the
successful privatisation of the railroads under the Staggers Act of the early 1980’s, the
short line concept is most highly evolved. Operating 46 railroads over 12,000 route
miles in the US, Canada, and Australia, RailAmerica is the world’s largest short line
operator and a prime example of the commercial success of the model. With a strong
acquisition record and total assets in excess of $1.2 Billion, they achieved EPS in
2003 of $0.77 on revenue of $358 million and operating expenses of $277 million.
Whilst the lower volume of freight in the UK represents an obvious obstacle in
achieving the scale of RailAmerica, such a hurdle is offset by another opportunity for
revenue that the US model does not have – stable and rising passenger traffic. The
commercial success of the short line model may be based on freight alone in the US,
but in the UK its success can be matched through basing revenue on both freight and
passenger traffic. Furthermore, the rationalization of the railways beginning in the
1960’s has left many rail lines throughout the UK abandoned, and thus ripe for
reinstatement. Clearly though, only so many lines remain and development will occur

on a first come first serve basis, and only with a compelling commercial model to
support them.
A successful commercial model for supporting the short line concept in the UK
has been the transfer of waste. Bristol and Bath Councils have used rail since the
1980’s, EWS carries Manchester’s waste on daily services to Roxby near Scunthorpe,
and the East London Waste Authority (ELWA) in partnership with Freightliner Heavy
Haul and Shanks, commenced in May a daily service from Dagenham to Calvert
which will remove over one hundred lorries from north London roads each day.xiii
Short lines as a catalyst for Corridor Development
On a grander scale, the vision is to use the commercial potential of the short line
concept (the privatisation of stretches of rail) to underpin the redevelopment of entire
corridors. Governments wishing to encourage regional economic development will be
interested in these methods because they create a commercial model that promotes
private investment in rail corridors.
A government cash injection is still required for improvements and maintenance
of massive projects such as the East or West coast mainlines, there is no reason why
the private sector shouldn’t invest in profitable commercial opportunities on a smaller
scale. After all, the reinstatement of these corridors and “feeder lines” provides further
revenue-generating traffic that improves the fiscal health of the overall rail network –
considered on their own, each short line operation in the US is insignificant, yet
considered together they originate or terminate more than 25% of all railroad freight,
and make up 14 - 20% of the bottom line for Class 1 railroads. This illustrates the
potential for short lines to transform the rail freight market in the UK.
Further industrial, residential, and commercial development can then take place
along the corridor, using the initial transportation infrastructure investment as a
catalyst. Stations that were abandoned in the 1960’s could again have a purpose, and
towns which could only leave citizens with a road commute, could now offer them a
rail alternative, spurring further residential growth and job creation.

8. Case Study: Castle Bromwich, UK
Operational Background
The automotive industry is perhaps the most global, with activity affecting every
continent on Earth, and requiring vast numbers of both inter and intra-continental
shipments of vehicles and parts. Global demand for new vehicles is steadily rising,
and at 1.6 million vehicles, the UK accounted for 4% of global passenger car
production in 2003. Automotive is the UK's largest manufacturing sector, accounting
for nearly 10% of total output, and making up over 11% of total UK exports.xiv
As the
industry becomes even more global, there is an increasing need to transport vehicles,
equipment, parts, and materials to all corners of the globe.
Terminals make all this possible. Terminals include facilities located directly at
assembly plants (“Plant to rail” facilities), inland distribution centres or “ramps” as
they’re sometimes called, or ports such as Southampton or Felixstowe in the UK, and
Halifax or Vancouver in North America. All terminals share a common characteristic,
the movement of a vehicle from one mode of transport to another.
Since the profitability of the facility is determined by several factors, including the
safe and efficient throughput of vehicles, the time span in which the terminal can be
developed, and the effective management of the engineering and construction process,
the overall development of such facilities requires highly specialized knowledge.
The sites themselves, usually in 24/7 operation, require high-security, and need to
be sufficiently large to handle several hundred cars. The standard in the UK is roughly
450 vehicles per Ha, which equates to about 2 – 3 trainloads, with another Ha for a
fully serviced administration building. Corby Eurohub, for instance, covers 18 Ha in
Northamptonshire, providing the space through which 150,000 cars can pass per year.
Castle Bromwich
One such “Plant to Rail” terminal is located at Jaguar’s assembly plant at Castle
Bromwich. Each week, Castle Bromwich receives over 140 containers filled with auto
components from Bridgend, Halewood, and Thamesport. Also during a single week,
the terminal ships over 1400 vehicles to Southampton, Dagenham, and Purfleet. Over
600 of those vehicles come from Jaguar’s Browns Lane plant.
Valued at over £6 million, the Castle Bromwich facility generates rental
income of nearly £.5 million, producing a yield of over 8%.
The Auto-Industry
The sheer scale and momentum of the auto-industry present unique investment
opportunities. Demand and production figures suggest that over the next 5 years, 300
million vehicles will need to be shipped from factories around the world and delivered
to customers, while over the next 10 years, 690 million will need to be shipped, 225
million in greater Europe alone. This means that regardless of the year-by-year
fluctuation in vehicle production, a market for the movement and storage of vehicles
will be around for years to come.
The majority of these vehicles are shipped by rail or steamship, representing an
industry in its own right. For instance, at $525 million, the shipment of finished

vehicles generated 9% of CN’s revenues in 2003. Wallenius & Wilhelmsen, a major
steam shipper specializing in vehicles, shipped over 2 million last year.
Another aspect of the auto-industry that presents unique opportunities is the trend
for outsourcing. Recognizing the opportunity to redeploy capital and focus on their
core business, many manufacturers spun off their components and logistics divisions
years ago. For instance, at the Integrated Logistics Center that Bride Parks built at
BMW’s MINI plant at Cowley in Oxford, where body panels are delivered from
Swindon and Solihull, and engines shipped directly to the assembly area in specially
designed containers, the coordination and management of 62 suppliers is carried out
by a separate company named Infast. It should also be noted that 45% of the MINI’s
parts come from 10 “Just in Time” suppliers who use the plant’s Integrated Logistics
Center.
The Security of Stability in Terminal Investment
The terminal investment concept is an innovative property idea that grew out of
the specialized development and capital needs within the automotive industry.
Manufacturers need capital to continue expanding, thereby creating opportunities to
outsource the development of infrastructure. As competition increases, and they push
their logistics operations to their limits, terminals present areas in which time and cost
savings can be realised. This, in turn, makes plants with terminals much more
valuable, and less likely to be closed.
There is a fundamental security associated with owning the land beneath one of
the most permanent and logistics-intensive industries in the world. For instance, when
a lease comes to term, and a highly calibrated, global supply chain depends on
precisely timed movement of goods (ranging from incoming door panels in containers
from the Far East, to outgoing finished vehicles on their way to board a Wallenius
Wilhelmsen steamship bound for a North American port) an auto-manufacturer is
highly unlikely to discontinue their use of a terminal.
Another advantage to the terminal investment concept lies in the nature of the
automotive shipping business. While the manufacturing business can be volatile, the
shipment business is steady. When manufacturers pump up demand in a slow
economy with gimmicks like no-interest financing, their profits may suffer but they
must still ship vehicles, thereby providing stable demand for terminals.
In short, investment in terminals has the potential to overcome the traditionally
cyclical nature of both the real estate and auto-manufacturing businesses, and provide
returns that are higher than nearly all other property types.

i
Freight on Rail
ii Environmental and Social Costs of Heavy Goods Vehicles and Options for Reforming the Fiscal
System, Oxford Economic Research Associates, report prepared for English Welsh and Scottish
Railway, January 1999
iii SRA, “National Rail Trends, 2003-04 Q3’
iv
“Making Markets Work in Rail Freight,” Julia Clarke, Address to the Transport Economists Group,
February 2004
v “Lorry Drivers suffering at hands of long-hours culture,” Personnel Today, February 2004
vi UK Road Safety
vii Road Accidents Great Britain 1999, DETR 2000
viii Road Accidents Great Britain 1999, DETR 2000
ix Confederation of British Industries, estimate January 2000
x
Design Manual for Roads and Bridges, Highways Agency, 1994
xi
Environmental and Social Costs of Heavy Goods Vehicles and Options for Reforming the Fiscal
System, Oxford Economic Research Associates, report prepared for English Welsh and Scottish
Railway, January 1999
xii
“Strategic Rail Freight Interchange Policy,” The SRA, March 2004
xiii
Freight on Rail, Case study: Waste by Rail
xiv
The Society of Motor Manufacturers and Traders Ltd., Facts 2004

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