Published on March 12, 2014
Constraints to Capacity Growth Limiting Factors on the Australian Heavy Haul Rail Sector Heavy Haul Rail 2013, July-2013 Ken Devencorn, Technical Director - Rail, Aurecon
2 Australia’s rail history dates back to 10-Dec- 1831 when the Australian Agricultural Company opened Australia's first railway located at the intersection of Brown & Church Streets, Newcastle Rail and the Australian Economy HH Rail is an Intrinsic part of the Australian Economy • Although only operating 1t payload wagons, the gravity rail hauled export coal (from Hebburn Colliery) down the hill to the Port of Newcastle • Australia’s economic fortunes are very closely reflected in that of its Railways
3 Australia’s economic fortunes and HH Rail - • Around 1900 Australia had the highest level of labour productivity in the world • By 1950 Australia’s GDP had slipped to 81% of the USA, and ranked 4th among the top 20 economies • By 1983 this decline had accelerated with Australia slipping to 14th place (Dean Parham, “Microeconomic reforms and the revival in Australia’s growth in productivity and living standards”) Labour productivity is closely linked to the cost of transport Australia’s HH Railways are most often the “path to market” for Australia’s export economy Mining productivity is for nothing if the product can’t be competitively provided to the end user customer Rail and the Australian Economy A “rail history” of Australian Economics
4 Australia has enjoyed the benefits of an economic revolution, again reflected in rail – but it could have been very different - • By the end of the 1980s there was a strong lobby to divest government ownership in rail – in favour of road • The 1991 Council of Australian Governments (COAG) provided a direction to the Australian Federal Government to initiate competition policy reform • The subsequent Hilmer Review proposed wide-ranging economic and social reform on the basis that - “Where effective, competition can be relied upon to improve performance”. Rail and the Australian Economy Economic Reform
5 In terms of rail, the 1991 Industry Commission Report (The Hilmer Report), saw each of the Australian Governments interpret the reforms slightly differently - o Queensland – retained a single integrated railway but opened to Third Party Access o New South Wales – separated State Rail Authority into 4 separate businesses o Tasrail - was sold to a private operator Australian Transport Network o Australian National Railways – was purchased by a private operator Australian Southern Railroad o V/Line was sold to Freight Victoria Rail and the Australian Economy The Competition Revolution
6 What followed was an economic revolution Privatisation was seen by many Governments to be the most efficient means by which to achieve Hilmer reforms Concerns that Government ownership leads to – • Political interference in timetabling and Industrial Relations, • Anti-competitive freight rates because Governments are not bound to a commercial return, • Interference in management decision-making, • A short-term focus linked to the election cycle, and • Irregular and non-specific investment planning But such was not the case with Queensland Rail – the exception which highlighted that no one remedy can be applied to all Rail and the Australian Economy The Competition Revolution
7 Queensland Rail Coal and Freight firstly became QR National and then subsequently privatised as Aurizon • Aurizon Holdings Limited has emerged as a top-50 ASX- listed company offering rail and road-based freight transport and infrastructure solutions across Australia • It now successfully competes head-to-head in-market with other private companies Queensland Rail Passenger was a Government Owned Corporation (GOC), has just recently become a Statutory Authority Rail and the Australian Economy Success stories and turnaround
8 Australia’s economic turnaround in Rail has been nothing short of spectacular There is now increased competition between rail firms (“in- market competition”) for HH Rail business - • “In some cases, such as export coal by rail, this has led to massive investment in new infrastructure, and rail freight costs falling up to 42% in the latter half of the 1990s” (Rod Sims, Chairman of the Australian Competition & Consumer Commission, Apr-2013) Dynamic results such as this are driven out of long-term investment in better and more economical use of existing assets, and continuing investment to drive costs down Rail and the Australian Economy Success stories and turnaround
9 Australia’s economic revolution is being closely studied by developing countries hoping to stimulate economic growth through increased competition – and HH Rail is a key element The UN’s Africa Review Report on Transport (Aug-2009) found – • Transport is a key driver of economic development and poverty reduction • The “Cost to Market” of resources is hampered by reliance on road transport • International competitiveness is linked to the availability, reliability, and cost of transport Rail Regulatory Reform Around the World The pressure upon developing countries
10 • Politicians tell us that we are facing the “end of the mining boom” • Miners tell us that the benefits of that boom have been squandered It is the case though that whilst project investment might decline in the coming years, many new projects are coming on-line and the task of HH Rail is yet to really begin Rail and the Australian Economy The “End of the Boom” and HH Rail HH Rail serves the mining and resource industries
11 Rail and the Australian Economy The “End of the Boom” and HH Rail HH Rail has served the resource industry despite other cost increases Cost of transport has actually declined (on a relative basis) during the mining boom – “Estimated Australian average export thermal coal FOB cash costs (2006-2012)”
12 HH Rail Supply Chains are complex, and constitute inter-related networks For these Chains to operate safely and efficiently, there has to be co-operation, coordination, and integration of purpose The supply chain is there solely to service the product Rail and the Australian Economy HH Rail is an Intrinsic part of the Australian Economy
13 • Strong demand still exists for Australia’s resources, and many are yet to be developed • The Galilee Basin is a case in point – an example of where HH Rail is intrinsic to the resource solution • Potentially the largest coal producing region in Qld, if not Australia – 14Billion tonnes of (mainly) high quality thermal coal - combined export “projects” of more than 200Mtpa Rail and the Australian Economy The “End of the Boom” and HH Rail
14 The problem is not with the quality of the resource, nor the ability or capability to develop and export it • The Galilee Basin is being developed on Hilmer “competition is good” supply chain arguments • Despite the significant economies of scale of a dedicated “Multi-User” HH Rail line Rail and the Australian Economy The “End of the Boom” and HH Rail
15 HH Rail capacity constraints are changing away from “steel wheels and steel rail” to the cost of accommodating export resource development within the community • Investment in smarter ways of co-existing HH Rail within the urban environment Barriers to HH Rail Capacity Growth The Economics of HH Rail is Changing • HH Rail increasingly has to evolve and re- invent itself within the urban environment • Unless this can be achieved, the HH Rail supply chains will become more and more constrained
16 In many notable cases the value of existing infrastructure assets has been eroded over time as urban growth competes with the resource economy The capacity limitation is thus not with rail but rather imposed by the community it seeks to serve Barriers to HH Rail Capacity Growth The Economics of HH Rail is Changing • Alternative HH Rail supply chains • Tunnels under suburbs to protect the community from the effects of coal dust, noise, vibration • A change in the economics of HH Rail
17 Road is not the solution – only HH Rail supply chains provide the capacity throughput necessary to make many resource developments commercially viable Road imposes many of the same problems which HH Rail is now facing – but often to a much greater degree Rail and the Australian Economy The “End of the Boom” and HH Rail
18 Australian expertise in HH Rail has been a major contributor to the economic growth of Australian – and Australia’s export economics are reliant upon HH Rail • Technology has improved - longer, heavier, more powerful, and more cost- effective trains • HH Rail serves the resource industry – hence a downturn in Australia’s resources sector is keenly felt in rail • A downturn in HH Rail – a move from rail to road – will have a significant impact upon the Australian economy Rail and the Australian Economy HH Rail is an Intrinsic part of the Australian Economy
19 China is one of the world’s largest economies and its growth is suffering as a result of its infrastructure - • China’s rail network spans 93,000km, yet a significant amount of bulk materials are still transported by road • Economic growth has seen start-up mining firms using existing state roads to get their product to market HH Rail expansion cannot keep pace with resource developments, causing massive road traffic jams, and environmental and social issues Rail and the Australian Economy HH Rail is an Intrinsic part of the Australian Economy
20 Constraints to HH Rail productivity growth - • Lack of clear Government policy, planning, and leadership • Uncertainty in the resources sector • Inefficiencies in Intermodal (mine-port- terminal) interfaces • Asset utilisation, management, and productivity • Labour utilisation, education, and training • Inadequate and aging business and operational systems • Availability of investment capital • “Technology commitment” Rail and the Australian Economy Issues Affecting HH Rail Productivity
21 Thank you, Questions and Discussion
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