Rail Freight in Australia
Good morning everyone. I want to thank ARA, CEO Danny Broad and Informa for putting on this important conference.
Before I begin I think it’s worthwhile briefly explaining Infrastructure Australia’s role.
Infrastructure Australia is the nation's independent infrastructure advisor.
We're the ones behind the scenes looking at the evidence, doing the research and determining which projects are in our national interest.
Infrastructure Australia has the responsibility to strategically audit Australia's nationally significant infrastructure, and develop 15-year rolling Infrastructure Plans that specify national and state level priorities.
We also maintain the nation's infrastructure priority list—the point of reference for Federal, State and Territory Governments in making infrastructure funding choices—and evaluate project business cases for Commonwealth investments greater than $100m.
A key objective for Infrastructure Australia is to build momentum within the political sphere and the broader community for action on the key reform challenges identified in the Australian Infrastructure Plan.
A big focus of our work in recent years, especially since the publication of the Australian Infrastructure Plan, has been encouraging and advocating for a more comprehensive, joined-up approach to the planning of our nationally significant infrastructure.
It's critically important that we get the right infrastructure, at the right time and in the right place to ensure we can maintain our much envied quality of life.
The recent announcement that Melbourne has once again been awarded the accolade of most liveable city, for the seventh year in a row no less, is a testament to the importance of good planning.
This extends to our national freight supply chain network, which is an issue that will be discussed I'm sure in great depth over the course of this conference.
The Australian Infrastructure Plan acknowledges that Australia's economic competitiveness is closely linked to the quality of our national supply chain infrastructure—the ports, railways, roads and airports that link Australian goods and services to domestic and overseas markets.
However, as the Plan points out, in the coming years we are facing a number of challenges, including population growth, increased demand in the movement of people and goods and technological changes.
We will see substantial growth in the national freight task over coming decades, with the total domestic land freight task projected to grow by 80% between 2011 and 2031.
Faced with these growth challenges, our national supply chains and infrastructure need to evolve to support our economic productivity, and we need to get the planning and reform settings right.
Without investment and reform to increase capacity and better manage demand, the annual cost of congestion in our capital cities could exceed $53 billion by 2031.
Growing demand from our trading partners
Another important factor affecting our freight and supply chains is continued growth in the booming economies of China and South-East Asia, which will be home to two thirds of the world's middle class in the next few years.
Projections by the OECD suggest that Asia's share of the global middle class will grow from around 35% in 2015 to 80% by 2050.
These increasingly wealthy consumers will want high quality products, including fresh produce, as quickly and as cheaply as possible.
At present, six of Australia's top 10 largest export markets are in Asia—Japan, the Republic of Korea, Singapore, Malaysia, Thailand and China.
Already 75% of our goods exports, minerals, resources and agricultural products, are going to Asian countries.
Our proximity to the region, combined with our reputation for high quality exports has the potential to be a strong driver of economic growth for Australia.
However, Australia is losing market share in some of these markets. Our share in agricultural markets, especially into Asia, is falling.
Research by the Australian Farm Institute found that over the period 1996–2014, food importsby countries in Central and South Asia, Africa and the Middle East grew at more than 14% per annum.
Yet our agricultural exports over the same period grew by only 5.2% per annum.
Efforts to maintain or grow our market share will need action on many fronts. However, it is indisputable that more efficient agricultural supply chains are required to keep Australia cost competitive.
Another factor impacting our freight and supply chain planning is technology. Australia's freight networks are already being impacted by the advent of big data and digital technologies, and we must also prepare for the impact of new developments such as automation, distributed production, 3D printing and drones, amongst others.
Not to mention the impact that online and mobile shopping has had on how Australian businesses manage their supply chains, since inventory availability and shipping times greatly influence purchasing decisions.
With global players such as Amazon entering the Australian market, it is likely that we will see further acceleration in the growth of online shopping. This could impact our domestic freight task in a number of ways.
For example, there is the question of how further growth in online shopping would affect small goods vehicle movements. Would we see fewer, more predictable car movements replaced by less predictable but more efficient white van movements? Or would it generate a net increase or net reduction in movements?
ABS data shows that between 2006 and 2014, the number of light commercial vehicles grew by 35%—almost twice the rate of passenger vehicles (19.1%) and rigid trucks (20.785). This happened for a reason, and it speaks to the importance of urban supply chains in a growing services economy.
National Freight and Supply Chain Strategy
Currently, ownership, operation and oversight of Australia's freight networks is fragmented across governments and private providers. Freight planning is being undertaken by all levels of government. But it is usually not well-integrated with other land-use, transport and strategic planning frameworks.
Many of these strategies lack a wider national and international, freight and supply market perspective. And they tend to have a short to medium term focus.
Key issues, such as freight movements within cities, are not addressed as well as they could be, particularly in light of the significant population growth I have just described.
Building something in the order of 3 million new dwellings in our capital cities over the next 15 years will itself generate a large amount of freight and construction-related traffic.
In addition, most of these strategies address infrastructure and individual modes rather than focusing on the supply chains that are necessary for the freight sector to support Australia's economic development.
And finally, these strategies have not kept pace with developments since they were initially formulated, both in terms of policy changes and the availability of new analytics tools which allow for a more detailed and sophisticated examination of supply chains.
That is why, as I mentioned earlier, in the Australian Infrastructure Plan, we recommended that a National Freight and Supply Chain Strategy should be developed to guide investment and reform.
We were therefore very pleased that when the Australian Government committed to undertake an inquiry in advance of developing a National Freight and Supply Chain Strategy.
The National Freight and Supply Chain Strategy also needs to be attuned to the economic importance of Australia's cities and take appropriate steps to support growth in the urban freight task.
I have already mentioned the projected population growth and infrastructure demand in all Australian cities. The Australia Infrastructure Audit found that our capital cities contributed $854 billion to our economy in 2011 and are projected to contribute $1,621 billion in 2031.
The majority of economic activity occurs in our major cities—so urban freight will be as important for our future growth as traditional long-distance freight that typically plays such an important role in our current strategies.
The scale of potential growth in freight in some urban areas and along some corridors in cities is such that there will be a greater need to operate freight networks much more intensively in off-peak periods.
This is likely to encounter strong resistance from affected communities, which means that the strategy should also provide some guidance on how industry can establish their ‘licence to operate’ in a changing economy—that is, how operators can strike a balance between meeting community expectations and customer demand.
I understand that the Hon. Minister Chester will report on the progress of the National Freight & Supply Chain inquiry tomorrow.
Corridor protection was identified in the Australian Infrastructure Plan as another key area of reform worth mentioning.
Infrastructure Australia recently released a paper demonstrating the huge savings in capital costs that can be achieved if governments can work together to protect corridors for new infrastructure.
Five of the seven corridors we assessed, are aimed at providing for rail freight. The corridors are:
- Western Sydney freight line and intermodal terminal
- Port of Brisbane rail freight connection
- The outer metropolitan ring and Western Intermodal Freight Terminal in Melbourne
- Hunter Valley rail freight re-alignment
- The outer Sydney orbital (which has been proposed as including a freight line)
Not forgetting the other Rail corridor on the IPL for High Speed Rail on the East Coast.
Using reasonable assumptions, our modelling shows that protecting corridors for these corridors could save $6.1 billion in discounted $2016.
In undiscounted terms, the saving is $31.6 billion in $2016. These figures exclude the further savings that can be secured by avoiding the higher maintenance and operational costs associated with tunnels.
Savings of this order are too large to ignore. That's why we encourage all governments to pursue joint corridor protection efforts as a genuine productivity-enhancing reform.
We need to do more than protect corridors for future rail lines and sites for future intermodal terminals. We also have to protect the operational integrity of our existing and future freight networks.
This means we have to more effectively manage land use change around those networks. With our cities expected to become both larger and denser, this will become an increasingly important priority.
The importance of scenario planning
I have already mentioned some of the major drivers and influences that will impact our freight and supply chain networks over the next 15 years, such as increasing demand from our trading partners in Asia and technological changes.
But while some trends follow a fairly stable trajectory, things can also change rapidly. Our freight and supply chain networks need to be able to adapt a range of different eventualities, and that means thinking through the possible scenarios to minimise risk and maximise opportunities.
The range and scale of change and the level of uncertainty presents real challenges for governments and industry when making investment and regulatory decisions.
When it comes to our global freight and supply chain planning, this suggests that investments and reforms need to be relevant across a range of different scenarios that may impact future demand. That's why we strongly recommend introducing a scenario planning dimension to the Inquiry's work.
Progressing road market reform
A major overhaul of the way we fund our road networks is another one of Australia's most pressing opportunities for infrastructure reform—but it requires the strategic context provided by a National Freight and Supply Chain Strategy.
The link between usage and charging in our current system of road funding is very weak. What we pay is only loosely related to what we use and how our use of vehicles impacts other users, and this is particularly true of heavy vehicles.
Because heavy and light road users do not receive price signals to minimise their impact on other users and the broader network—we now have a road network which is chronically congested for portions of the day, but with excess capacity across most of the 24-hour cycle.
Today fuel excise raises less than half of what Australian governments of all levels spend on roads, and this fall in revenue will accelerate over coming decades as we see greater uptake of electric and more fuel efficient vehicles. This means we will be collecting less from users while the costs to build and maintain the roads continue to grow.
Given the freight challenge I have just outlined, we need to take action now to ensure we a have a secure, sustainable source of revenue to fund the building and maintenance of our roads.
That's why the Plan recommends moving to direct user charging for all vehicles within 10 years, and introducing direct heavy vehicle charging within the next five years.
This reform must include the removal of all existing registration and usage charges and the introduction of supporting regulatory and investment frameworks—including a cohesive, national freight and supply chain strategy.
Extracting more efficiency from our current system
If we want to keep Australia cost-competitive on the international stage, we also need to drive greater efficiency from our existing systems and networks.
We know that across suburban and intercity rail networks, automatic train control and signalling systems like ETCS can improve efficiency and safety.
McKinsey Global Institute found that intelligent transport systems (ITS) can triple the use of an asset through better management of networks.
New technologies reduce the scope for human error, automatically detect faults and allow trains to travel at shorter intervals, enabling the safe scheduling of more frequent train services.
We can drive the same efficiency improvements on our freight network if we integrate better management and monitoring system technology.
On urban roads, management and monitoring systems can also improve traffic flows by collecting, storing and analysing data on traffic counts, travel times, congestion, incidents and faults through sensors at intersections.
In summary, there is a clear need for a long-term National Freight and Supply Chain Strategy to guide infrastructure investment and reform. And given the challenges I've just described, it is clear the stakes are high.
It is important then that National Freight and Supply Chain Strategy is well considered and informed. That is why I wholeheartedly support the Federal Governments ongoing consultation and collaboration to get this Strategy right.
It is also important that we improve the sophistication of our long term planning and importantly integrate our land use and transport infrastructure planning.
We also need to get back to preserving critical corridors to keep our options open to meet future infrastructure needs at an affordable cost.
Finally, getting the most out of our existing systems is a high priority. This needs a stronger engagement across the rail sector to identify the opportunities for modest investments often with high returns that will materially improve the utilisation from our existing assets.