The logistics company formerly known as Toll has signed an 11-year, $1.8 billion contract with Australia's largest rail operator, Aurizon.
Team Global Express and Aurizon announced the contract on Monday, with Aurizon describing it as its biggest-ever non-coal contract.
Under the deal Aurizon will use seven weekly train services for TGE's services: five east-west (Sydney-Melbourne-Adelaide-Perth) and two north-south (Brisbane-Sydney-Melbourne). TGE cargo is expected to account for 70 per cent of capacity of these trains, based on historical volumes.
"The contract delivers to Aurizon a high-volume contract with a tier one customer, closely matched to our national footprint and our network of assets," said Aurzion managing director and CEO Andrew Harding.
The company bought the 2,200km Tarcoola to Darwin railway last July and has ambitions to double the earnings of its bulk business over the decade in a bid to shift its fortunes away from coal.
RBC Capital Markets analyst Owen Birrell said in a research note that while this motivation was understandable, diversifying from coal into bulk cargo would "undoubtedly come at the expense of group margins and portfolio return". RBC reaffirmed its underperform rating on Aurizon.
But investors on Monday seemed initially enthusiastic, with Aurizon shares up 0.9 per cent to 3.45 at 2.22pm AEDT.
TGE is currently with a different rail operator and will shift to Aurizon beginning this April, with a ramp-up to full service by April 2024.
"Our partnership with Aurizon is game-changing for Team Global Express customers, securing them important extra capacity and more choice, in what to date has been a very limited rail market, with restricted capacity and rising tariffs," said TGE CEO Christine Holgate.
"The weather events of recent years have demonstrated how important both choice and capacity on major routes are, to ensure important freight, including food, can still be delivered at times of great need."
