On track to becoming a heavyweight

January 2017 – The idea of the open road has become somewhat of a joke over the years thanks to the traffic on our highways. It is more important than ever to build up and expand rail-based freight and passenger transport. HSH Nordbank has a long tradition of financing investment in the logistics industry. A recent success story is the expansion of the Railpool Group. The Munich-based company leases locomotives and railcars to railway companies.

A glance inside Railpool GmbH's main spare parts warehouse in Munich makes one thing clear: When it comes to railway technology, everything is one size larger and heavier. Stacked high on massive shelves, there are spare parts in this warehouse for the company's many electric locomotives, currently numbering 160: everything from electronic components such as card modules and control units, through to a complete, approx. 14-ton bogie. The latter is what railroaders call the steel frame under a locomotive, to which the axes and drive technology are attached. The value of all these spare parts on the company's balance sheet is about as weighty as the actual bogie. “They're worth an eight-digit figure altogether,” says Railpool CEO, Torsten Lehnert. “But it's money well invested,” he assures us.

This because warehouse, repair and spare parts services are, alongside the locomotives, the centerpiece of Railpool's business model. Lehnert and his now almost 50 employees lease locomotives and self-propelled trains to railway companies and support mostly private operators in competition with state-owned ones. Railpool's unique selling proposition is in wet leasing – leasing locomotives with all maintenance and emergency services included. This makes for an all-round, carefree package. The benefits for customers are obvious: With leased rolling stock, they can put trains into service immediately instead of having to wait the usual one year or more for a new locomotive to be supplied. They can adapt the leasing period to the length of their concessions and can reckon on a single, fixed price without having to take on risk and buy rolling stock themselves for millions of euros. In the end, they barely even have to take care of any of the technology, instead receiving a mobility guarantee. If a locomotive fails, Railpool provides repair work or a replacement at short notice.

From newcomer to market leader


Since being founded as a joint venture between HSH Nordbank and KFW IPEX-Bank in 2008, Railpool has been able to establish itself as a stable market power, and is now considered one of the three most important providers in Europe. “We're a market leader in Scandinavia and Poland,” says Lehnert. Railpool locomotives are in service for around 30 customers in 13 European countries in total – from Norway or Sweden to Italy and from Belgium to Poland, Czech Republic and Hungary.

“The impressive flexibility of our locomotives is the second main argument for our leasing model, after our service quality” the CEO explains. The overhead wiring of European railway networks uses different voltages that depend on the country. In Belgium, Italy and Poland, for example, direct current (DC) electricity is used, while on the other hand alternating current (AC) is used in Germany, Denmark, Eastern Europe and even Turkey. Railpool locomotives are built so that they can run across various networks. They are also compatible with a country's respective signaling and train control systems. “A country package like this can quickly cost many hundreds of thousands of euros,” says Lehnert. “Operators have to think very carefully about whether they need to equip their own locomotives for this if they don't know how the traffic situation will develop.” When leasing, on the other hand, the lessee simply returns the locomotive when their concession expires. They can also exchange it for a differently equipped train. The Railpool CEO is thus confident that, with the increasing number of private railway companies involved in freight transport, the demand for leased rolling stock will also continue to increase. In 2007, private operators handled just 20% of freight traffic in Germany. In 2015, this figure had already risen to 38% – basically double 2007.

Private railway companies gaining ground

Market share for rail-based freight traffic in Germany between private companies and DB AG from 2007 to 2015

DB Private
2007   80% 20%
2008   79% 21%
2009   75% 25%
2010   75% 25%
2011   72% 28%
2012   70% 30%
2013   67% 33%
2014   66% 34%
2015* 62% 38%

Source: Statista (Federal Statistical Office of Germany; Federal Network Agency of Germany; Deutsche Bahn)

Sustainable growth

“Railpool is truly a great success story,” Dr. Marcus Kleiner adds. As Head of Origination Infrastructure & Logistics at HSH Nordbank, he has overseen the company's development for some time. “Right from the start, we believed that there was demand for such a service as a result of railway privatization”, says Kleiner. This belief has not changed, even after Railpool's sale to investor Oaktree Capital in 2014. The sale was instead more of a logistical development, to widen the company's base. “It was always clear to us that we would eventually step aside as equity investor while continuing to have a robust relationship as an external creditor,” says Kleiner. Today, HSH Nordbank is still Railpool's second-largest banking partner – and there's no end to this partnership in sight.

„Railpool is truly a great success story. “Right from the start we believed that there was demand for such a service as a result of railway privatization.“

Marcus Kleiner, Head of Origination Infrastructure & Logistics at HSH Nordbank

And why? Lehnert and his employees hardly need any more proof that they are masters in their business. Railpool has just been able to hand over its first locomotives for the customer BLogistics. The privatized freight subsidiary of the National Railway Company of Belgium is leasing 36 locomotives for the coming decade. Contracts such as this make Lehnert and Kleiner optimistic. “Railpool is growing sustainably,” the banker says. Which means: Whenever the company purchases new locomotives, the investments are usually already backed up with new orders. Another 28 locomotives are on order for 2017, with service commencing by the end of the year. These will include 18 of the Bombardier model TRAXX AC Last Mile.

The seemingly inconspicuous "Last Mile” suffix, however, reveals another feature that distinguishes Railpool from other rolling stock leasing companies. “We are the only leasing company who has this model in their portfolio,” says Lehnert. And what's so special about that? With the Last Mile, users really can drive the train the proverbial last mile. This is important because the overhead wiring on train tracks usually ends before reaching the freight terminal in order to make loading and unloading easier. Consequently, conventional electric locomotives cannot go any further. The trains they are powering then have to be taken over by a diesel shunting locomotive. “There's two options for this: First, service providers can take care of the shunting, though sometimes charge highly for it. Or second, our customers can use their own shunting locomotives stationed at the terminal or brought along with the train,” Lehnert explains. The TRAXX AC Last Mile makes this unnecessary. The locomotive is a hybrid, and thanks to an auxiliary diesel motor and battery can operate self-sufficiently for up to eight hours without overhead power. “This is the perfect solution for customers who primarily use small and medium-sized terminals. They now no longer need the shunting locomotive or service provider, and can accept orders they previously would have refused due to the low margin,” Lehnert is happy to report.

Relief for roads

Freight transport performance in Germany by mode (in billion ton-kilometers)

Freight transport performance in Germany by mode (road, railway, inland vessels)

Sources: Federal Statistical Office of Germany, Planco Consulting; BVU; IVV Engineering Society for Traffic Planning

Attractive for both freight and passenger transport

Parallel to its fleet investment, Railpool is expanding its network of service workers and workshops. The company now employs nine of its own technicians. As proven experts for the technology in the modern Siemens and Bombardier locomotives in their portfolio, they train staff in their partner workshops all across Europe and provide support for more unusual repair jobs. To ensure rapid provision of spare parts, smaller external warehouses in Oslo, Gdánsk, Rotterdam and Antwerp have been set up alongside the main warehouse in Munich.

Lehnert describes the quality of Railpool's service in a manner that is just as self-confident: “If, for example, a locomotive has problems with its wheels, we fix it just like they do at the Formula One,” he says. Using a lowboy trailer, a complete bogie is delivered on location to the partner workshop. Technicians there then hoist up the almost 85-ton machine, disassemble the faulty bogie and put the new one in. “This takes two days and then the locomotive is ready to go again,” Lehnert explains. Given this timeframe, the comparison with motor racing might seem a little far-fetched. Taken overall, however, it makes sense. If Railpool did not simply replace the entire component and instead first looked for the specific failure on the faulty bogie, disassembled it and repaired it, the locomotive would then spend two or three weeks in the workshop instead of just two. "We minimize downtime. Our customers value that and that's why they're loyal to us,” says Lehnert, confident that Railpool is well-positioned for continued growth in freight transport.

Nevertheless, the railway leasing company wants to diversify its product offer over the coming years – and acquire more orders for passenger transport. Railpool has already obtained contracts in public and long-distance transport in Denmark, Germany and the Netherlands, to name a few. With concessions lasting ten years on average and the average service life for rolling stock being up to 30 years, the same advantages can be experienced as in freight transport. “Wet leasing, of self-powered trains for example, is also incredibly attractive for passenger transport companies thanks to the quality of our service,” says Lehnert, and signals: Railpool is ready for investment should additional orders come in. After all, the company knows it has a strong financing partner at its side with HSH Nordbank.