D E R I V I N G T R A F F I C F L O W S & A S S E S S I N G R A I L A C C E S S I B I L I T Y ( E X A M P L E : B O T T L E D W A T E R )

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1 D E R I V I N G T R A F F I C F L O W S & A S S E S S I N G R A I L A C C E S S I B I L I T Y ( E X A M P L E : B O T T L E D W A T E R )

2 1. Large Market. Measured by Tonne-Kilometres, by 29 the Bottled transportation market (all modes) is forecast to be a third of the current rail market for coal. A relatively high density (for a consumer good) and a rapid growth rate, result in significant tonnages Density 9, 8, 7, 6, 5, kg/m3 4, 3, 2, 1, Steel Cold Roll Wheat Maize combined with an average 65 km length of haul Iron Ore Rock Cement Coal Woodpulp Bottled 4, 3,5 3, 2,5 2, 1,5 1, 5 Volumes 99 Consumption (Mlitres) Consumption (Kilotonnes) Total Movements (Kilotonnes) Exports 1,22 1,415 1,59 and a proportionally large transportation market. 1,76 2,7 2, ,2 Estimate 2,5 2,7 2,9 3,1 Length of Haul Bottled Relative Market Size Billion Tonne-Kilometres (BTK) BTK on Road BTK on Rail 5 4 km Steel Cold Roll Iron Ore Rock Cement Coal Wheat Maize Woodpulp BTK in France BTK in UK Bottled Coal Metals Petroleum Bulk Commodities (24) On April 3, 26, Zenith International stated that 25 sales totalled 2,17 million litres and forecast a growth rate of 6-8% to almost 3, million litres by 21. Apart from Bottled, distances are from road transport and are taken from commodity s parent category (e.g. Steel Cold Roll s parent is Iron & Steel Products) Sources: Simetric.co.uk; Transport Statistics Great Britain 25; A Guide to the UK Bottled Market from Highland Spring 25; Datamonitor Industry Market Research: Overview on Bottled, Feb 24; team analysis Page 7

3 2. Transportation Costs Important. Freight cost is a significant proportion of product value for Bottled. Relatively low value combined with a long LOH results in a product value/tonne-kilometre lower than several bulk commodities. Soft Drink Prices Per Litre 1.64 Product Value per Tonne-Kilometre Lemonade Unflavoured Mixers Cola Fruit Juice Fruit Drinks Sports Drinks Steel Cold Roll Cement Wheat Iron Ore Woodpulp Bottled Maize Bituminous Coal rock Sources: AC Nielsen Take Home JAN 25; World Bank; team analysis Page 8

4 Industry and pack size concentration, together with long haul, imply both trainload and wagonload friendly traffic provided at least one end of each flow has a rail connection. As large natural springs are rare, industry concentration in Bottled is relatively high Relative Industry Concentration 2,5 Breakfast Cereal Automobile with the result that top 7 production locations (accounting for 6% of total tonnes and 7% of tonne kilometres) ship more that 5 tonnes/day. Total UK Bottled Movements Top 7 Origins 3, 25, 1, tonnes/day 2, Soap & other detergent Concentrated 2, 75 tonnes/day 1,5 1, 5 Pulp Railroad rolling Bottled stock water Soft drink News -print Paper mills Paper -board Moderately Concentrated Iron & Steel Petroleum Refineries Tonnes 15, 1, 5, Trainload? Wagonload? 5 tonnes/day Note: Selected commodities, US Data; 1997 Manufacturing Census Sawmills Evian Blackford Armathwaite Campsie Spring Note: Assumes 25 shipping days/year Buxton Volvic Vittel K E Y P A C K A G E S I Z E S Anecdotal evidence suggests that pack sizes are also concentrated, making a high proportion of homogeneous pallet shipments likely for these major producers. Other 49% Retail (Ireland) 2 Litre 25% Other 12% Pubs (UK) 33 ml 69% 5 ml 26% 5 ml 9% 1 Litre 1% GBFM suggests 5 tonnes/day as divider between wagonload and trainload traffic given at least one rail connection Levels considered by US Department of Justice for antitrust purposes; transactions that increase Herfindahl by more than 1 points presumptively raise antitrust concerns. Sources: A Guide to the UK Bottled Market from Highland Spring 25; Zenith International; flavourhouseireland.com; team analysis Page 9

5 A P P E N D I X 1 H E R F I N D A H L I N D E X The is a preferable measure of industry (or product) concentration than the combined market share of top firms (or products). Comparing 2 situations in which the top six firms both have a combined 9% market share Market Share Distribution 1 Major 5 Minor 1 Minnows 6 Minor 1 Minnows shows a much higher for the situation in which one firm is dominant. 1, 9, 8, Monopoly 7, 6, 5, 4, 3, 2, 1, A B A B For relatively low industry concentration, top firm market share is a satisfactory measure. Correlation: to Market Share However, as industry concentration increases combined market share can become misleading. Correlation: to Market Share 3,5 3, 3,5 3, R 2 = ,5 2, 1,5 1, R 2 = ,5 2, 1,5 1, Top 4 Firm Market Share Top 4 Firm Market Share Herfindahl = sum of squares of market shares; e.g. if there are two firms each with 5% market share, Herfindahl = = 5 Sources: United States 1997 Manufacturing Census; team analysis Page 18