From small beginnings in 1996, Mitsui's railway transportation leasing business has grown to encompass more than 200 locomotives and 13,000 freight wagons, operating in the United States, Europe and Brazil. Carrying everything from soybean and steel to coal, cement and automobiles, Mitsui's engine and wagons travel thousands of kilometers every day, connecting countless industries, cities and countries via the iron road.

MRC's coal-wagons running into a power plant yard (North America)

With the rise and rise of trucking and airfreight over the past decades, rail freight networks have perhaps taken a back seat in the public consciousness. But behind the scenes, rail transportation has been the focus of considerable attention, supported by advances in technology, international standardization, and changes in the global economy and business environment that have rekindled awareness of rail transportation as an attractive, sustainable business sector to operate in.

One of the biggest trends is the upsurge in freight demand, driven by a world hungry for the kind of mineral and energy resources and agricultural products that can only be transported economically across land by rail, and by booming international trade in general merchandize transported by containers. At the same time, regulators in various countries are legislating to promote the use of rail as an environmentally friendly, cost-effective form of transportation.

For the railways, steelmakers, mining companies and myriad other businesses looking to make increased use of rail freight, however, getting on the bandwagon is not so easy. Just purchasing a single locomotive can require capital to the tune of $4 million, and running a rail freight program involves complex logistical, maintenance and capacity utilization issues that have to be managed on a daily basis.
That's where Mitsui steps in, with comprehensive operating lease options that let clients get on with doing what they do best.

MRCE's locomotive location administration service with GPS (Europe)

Mitsui's leasing strategy is based on developing high value added operating lease services that incorporate Mitsui's unique capabilities and business experience in financial technology, logistics technology and information technology. Operations in each country are run from wholly owned overseas subsidiaries, and Mitsui endeavors to generate leasing business opportunities throughout its global network. Services are customized to the needs of each client, including contract periods, maintenance, insurance or other peripheral requirements, scheduling and other logistics-related management of the goods being transported.

Locomotives and freight wagons are acquired from a range of different manufacturers and cover a variety of design classes, including coal and cement gondolas, grain hoppers and vegetable oil tank cars, hauled by diesel or electric locomotives.

About 40% of rail freight business in the U.S. involves the transportation of coal for power generation plants. Half of all power generation in the U.S. is from coal-fired generators, and this coal has to be shifted from mine to plant over sometimes immense distances. Travelers crossing the nation's plains and deserts can often glimpse these iconic, mile-long coal trains steadily hauling their loads across the landscape.

Other major users of the U.S. rail network include steel, paper, construction and container companies. Mitsui's first lease contract --for 50 freight cars in 1996-- was actually with a railroad company needing to transport beer. Since then, Mitsui Rail Capital LLC (MRC, Mitsui's rail lease entity in the U.S.) has gone from strength to strength, building on the stability and steady growth exhibited by the sector. MRC currently leases around 10,000 cars in the U.S., and expects this to have reached 20,000 cars within a few years. As Mitsui's reputation and expertise in this industry sector have grown, typical customer leasing contracts have also broadened: many power generation clients, for example, not only lease wagons but now also take advantage of Mitsui's comprehensive logistics services to ensure that their coal train is navigated expeditiously through the complexities and bottlenecks of the nation's 270,000 kilometers of railroad track.

Dispolok Locomotive hauling automobiles

Having developed a successful business model in the U.S., in 2004 Mitsui turned to Europe, looking to transplant its U.S. business model and build on the extensive contacts and business experience accumulated from many years of trading in the region.

Since the early 90s, the EU has been working to revitalize rail freight transportation as a way to meet growing traffic demand between eastern and western European countries and as an effective measure against road congestion and air pollution created by trucks. A key element of the EU's approach has been to liberalize the industry by separating railways infrastructure from railways operations, opening the door for the development of a more competitive and dynamic rail freight sector. As a result, more than 100 new rail freight operators have emerged, many of which have become important leasing clients of Mitsui.

Other operators have been quick to take up the challenge, but Mitsui ranks the top locomotive lease operator in a field showing promising growth . And thanks to its alignment with the EU directive and the compelling environmental benefits of rail freight over road transportation, Mitsui's business development in the region has qualified for EUR 200 million in financing by the European Investment Bank.

Mitsui's leasing operations in Europe began with the establishment of Mitsui Rail Capital Europe B.V. (MRCE) in 2004, and in 2006 Mitsui acquired German locomotive leasing company Siemens Dispolok. At the same time as this acquisition, Mitsui contracted with Siemens to purchase 50 new electric locomotives for approximately ¥25 billion.

MRCE Locomotive departing from a container yard

Following three years of growth, Mitsui's locomotives and wagons now haul freight along much of Europe's more than 230,000km of track, from Sweden in the north to Italy in the south, with routes linking France, Poland and elsewhere. Another of the challenges of running rail freight operations in the EU is having to deal with incompatible power and safety systems in neighboring countries. The EU is working towards regional unification of standards, but in the meantime multi-system units such as those Mitsui is acquiring from Siemens allow locomotives to switch seamlessly between four different voltages and signal mechanisms.

MRCLA wagons carrying soybean oil

Mitsui's third major leasing region is Brazil, where the situation is quite different. Brazil's railway sector has lacked private sector capital investment, and demand for rolling stock is growing substantially, driven by strong markets for soybean and mineral resources. Mitsui entered the market in 2004 with the establishment of Mitsui Rail Capital Participacões Ltda. (MRCLA), and created Brazil's first rolling stock rental business model. This again was a transplant based on the experience gained in the U.S. market, adapted to the unique circumstances in Brazil. Mitsui began by renting freight wagons, and will soon be adding locomotives to its rental fleet.

Dispolok Locomotive running the Alps line

So what's next for Mitsui's rail sector leasing business? The primary factors driving the industry are unlikely to change in the near term, with strong economic growth in emerging countries, global demand for mineral and energy resources and agricultural products staying at high levels, and environmental issues set to remain on the agenda. Secondary factors, such as market risk management, core business specialization and capital optimization, are also hallmarks of the modern 'lean and mean' business, and are likely to be influential for the long haul.

The potential for further leasing business development in Mitsui's existing markets is good: in the U.S., for example, more than 50% of new freight wagons produced every year are acquired by means of leasing, while leasing in Europe is building momentum from a relatively small base. And in Brazil, where Mitsui has related business interests in mineral resources, agricultural products and domestic logistics, there are opportunities to create synergies with other business units --not to mention new demand arising from the increasing global interest in ethanol.

There is still significant untapped potential to add value by moving towards providing full-chain logistics services in existing areas, and Mitsui is naturally also looking to replicate its success in new markets, particularly in the so-called BRICs countries --Brazil, Russia, India and China-- that are typified by burgeoning industrial development, high populations, continental geographic scales, and rapidly expanding infrastructure.

The global range of these existing and potential markets highlights the fact that Mitsui's locomotive and rolling stock leasing operations are truly international --that is, they are supported by Mitsui's intellectual and financial capital and motivated by Mitsui's drive to develop as an international business facilitator, but they operate entirely outside of Japan from strong local businesses in each market. They therefore serve as a vivid example of Mitsui realizing its vision of becoming a global business enabler, meeting the needs of customers throughout the world.

The posted information is as of the date of issuance. The information may change without notification.