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Short-term rail solutions prove effective in African markets

  01 Feb 2016

Operating in emerging markets offers both challenges and opportunities. In Africa, there is currently a drive towards greater investment in infrastructure, particularly in terms of rail networks. These are viewed as the backbone of transport infrastructure and countries are seeking to replace ageing rail equipment while developing new networks. This is no easy feat, however, given the pressures on the global economy, volatile currencies and / or political instability in many African countries and the complex and sometimes muddy tender processes involved. Many governments lack the capital budgets to invest sufficiently in new rolling stock, and volatility in the commodities market makes long-term planning difficult even for private sector players.

This is where short-term railway leasing offerings have proven effective. Ranging from three months to two years, short-term leases of rolling stock – from wagons to locomotives – offers a useful stop-gap for operators in the African rail sector.

Jacques de Klerk, CEO of GPR Leasing Africa, a joint venture between Grindrod Freight Services and the Pembani Remgro Infrastructure Fund (PRIF), says that since the launch of the company in 2014, there has been a marked increase in demand for its short-term rail leasing services.

“GPR Leasing Africa was created to meet the asset financing requirements of the burgeoning rail market on the African continent, and we can see that we are definitely meeting a market need,” he says.

De Klerk notes that key benefits of short-term solutions are speed to market and flexibility in terms of leasing terms and financing. “Developing nations need to be agile, and we’ve found that our services have a place because we generally have stock available and we are positioned to meet rail needs throughout the continent. We work in tandem with regional operators and providers, and we offer a range of financing options.”

The applications for short-term rail leasing solutions are fairly broad. De Klerk notes that where capital budgets preclude operators from purchasing new stock, short-term leasing offers the ability to fulfil rail requirements on an annual basis, with leased assets being managed under operating budgets instead.

“We’ve had situations where operators are busy refurbishing their own rail equipment and require rolling stock on a temporary basis for the duration of that process, or where there’s been an accident and there’s a short-term need for a locomotive or wagons until repairs or procurement processes for new rolling stock have been completed,” says De Klerk. “We’ve found that shifting weather patterns and commodity volatility are also affecting supply and demand in many sectors. Short-term rail leasing can assist operators and business in managing those peaks and troughs.”

Other applications for short-term rolling stock rental include trialling new locomotives or wagon types, providing a stop-gap while permanent stock is acquired, or sourcing rolling stock for specific short-term projects or needs.

Benefits of a leased solution include the fact that the operator does not need to take the asset finance risk itself, but can instead free up balance sheet capacity and focus on core business activities.

“In the case of GPR Leasing, we manage on-site maintenance of the assets and offer performance guarantees, ensuring our customers have complete peace of mind. We take the risk and we manage redeployment of the rolling stock at the end of the lease term,” says De Klerk. “We firmly believe that we are well positioned to serve Africa’s growing rail market, and we look forward to continuing to assist operators throughout the continent in meeting their short-term rail needs.”