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High levels of taxation and track access charges are making rail freight uncompetitive with other modes, even on long hauls where speed and volume should give rail a natural advantage.
Australia’s interstate rail freight operators are having a hard time at the moment, with volumes declining steadily as a result of unbridled competition from other modes. Recently released market share data has confirmed a worrying trend for those operating in the long-haul interstate market.
The Australasian Railway Association has long argued that rail needs to play a greater role in meeting the country’s growing freight task, describing it as ‘one of the most significant challenges facing governments in Australia’. According to official figures, domestic freight tonne-km increased by 50% in the 10 years to 2016, and ARA anticipated that the freight task would grow by a further 26% in the decade to 2026.
Insisting that ‘achieving modal shift to rail is critical to increasing economic growth, improving the liveability of our cities and supporting regional communities’, ARA has been working with governments and industry to get more freight on to rail, and to improve the efficiency and productivity of Australia’s rail freight supply chains. Unfortunately, however, the truth is that rail freight has been in decline for a number of years in some of the country’s most important corridors.
North-south and east-west
Operators have been warning for some time that freight volumes have been moving off the tracks, both along the eastern seaboard where the interstate market is dominated by road haulage and perhaps more surprisingly on the lengthy east-west corridor serving Western Australia where foreign shipping companies continue to erode rail’s historic dominance.
To a large measure, it has been down to the policy of governments from both sides of politics that allows foreign ships to indulge in coastal cabotage, moving domestic traffic between Australian ports alongside their international lading. The lower rates offered by international shipping lines continue to attract new business that has traditionally moved by rail.
Recent market share estimates published by ARTC unfortunately don’t match the reality for rail freight operators. In years gone by the rail industry touted its successful position on the east-west corridor with a market share of flows from Sydney, Melbourne and Adelaide to and from Perth running at close to 90%. But figures released by the Australian government’s Shipping Business Unit for traffic up to May 25 confirmed what rail operators have known for some time.
The report confirmed that a staggering 70 000 TEUs were transported by ship to Western Australia in 2019, almost entirely on foreign-owned vessels. Alarmingly, shipping’s container volumes have increased by 48% since 2014. Over the same period, SCT saw its dry freight volumes decline by 8%. Conversely, SCT’s temperature-controlled volume increased by 22% in 2014-19, in a market which is not conducive to sea.
ARTC suggested rail’s share on the east-west corridor was holding at 80%. This contrasts with Pacific National’s estimate that rail’s market share has dropped to 57% with sea increasing to 23%. Unfortunately the ARTC figures include return volumes and access revenue in WA from domestic flows where foreign ships don’t compete. One consequence of east to west volumes transferring to sea is that the historic freight imbalance is reversing, with eastbound traffic becoming the dominant flow.
If you are looking for proof of what is happening look no further than the demise of Aurizon Intermodal. In the last decade, there used to be three rail operators competing on the east-west corridor — Pacific National, Aurizon and SCT. That has now declined to two, with Andrew Harding winding up Aurizon’s intermodal business shortly after taking over as CEO in 2017.
According to Harding, closing the intermodal division was a fairly straightforward decision, with reported losses in excess of A$600m from less than 10 years of competing in the interstate rail market. The challenge of declining volumes faced by other operators including SCT ultimately proved insufficient for Aurizon to maintain its presence in the general freight market.
The interstate rail sector handles traffic valued at around A$26bn a year, and contributes 1·2% of Australia’s national GDP. The national freight task has been growing overall as a result of increased economic activity, and rail’s productivity has improved with the introduction of double-stack container operation alongside the traditional wagonload business. It seems logical to attribute much of Aurizon’s demise to the continued strength and market share gain of international shipping.
“If unchecked, this policy could eventually disadvantage Australian freight trains out of existence”
Peter Smith, Chairman, SCT Group
As founder and owner of Australia’s largest privately owned rail freight operator, SCT Chairman Peter Smith says he is not surprised by the latest numbers. ‘We’ve been advising rail authorities and government for a number of years of the threat posed by Australia’s coastal shipping policy. No other country in the world allows international ships to decimate their domestic landside logistics companies. If unchecked, this policy could eventually disadvantage Australian freight trains out of existence.
‘International ships certainly weren’t there to assist with filling our supermarkets and replenishing supplies through the Covid-19 pandemic. Foreign ships stopped coming and dropped the ball on moving our domestic freight. God help us if our nation’s supply chains are reliant on international shipping companies when the next crisis presents itself, which it will.
‘The illogical part of all this is that the majority — if not all — of the price advantage that foreign shipping companies have over rail is achieved through avoidance of the track access charges and tax revenues that we pay to the government. It is difficult to see the logic in that for Australia.’
East Coast battle
Interstate rail freight faces a similar battle for north-south business along Australia’s eastern seaboard, where it has always had a much weaker position in the face of intense competition from road haulage benefiting from substantial public investment in new and upgraded highways. Coastal shipping is also eating into that market, with foreign-owned ships operating on shorter hauls such as Melbourne to Port Kembla or Sydney to Brisbane. The latest market share analysis confirms that 87% of freight volumes on this corridor now travel by road, with rail and shipping sharing the balance.
‘The movement of freight by rail between our two major capitals, Melbourne and Sydney, has all but ceased, as larger High Productivity road trucks offer ever-increasing fuel efficiency’, reports Pacific National CEO Dean Della Valle. ‘Credit to the road industry, their regulation process allows them to streamline the approval process for larger trucks and increase their productivity and competitiveness year on year.
‘Ultimately our cost position increases each and every year while the road industry effectively gets cheaper’, says Della Valle. ‘Charges for access to the rail network constitute around 30% of our total cost base, and the rates are adjusted upwards annually. The reality is that we pay around two or three times more to the government in access charges than the road hauliers on a per-tonne basis. The gap is growing, and our market share is declining.’
Pacific National is ‘holding out for the completion of the Inland Rail project’, he says, as that will provide a productivity gain in increasing train sizes over the longer Melbourne – Brisbane route, but that is still several years away .
Levelling the playing field
There is generally a positive narrative around interstate rail in most forums I attend, as moving freight by rail is safer and more environmentally friendly compared to road. Most rail freight networks operate at or near full cost recovery, yet the industry is in decline. The road sector is far more effective and outspoken in demanding and achieving better outcomes, as exemplified by the process by which larger trucks are approved so seamlessly. More equitable road pricing reform is often discussed, yet rarely addressed.
Now rail’s heartland on the east-west interstate corridor is under threat. We don’t allow international airlines to decimate our domestic markets so why aren’t our rail companies afforded the same protection? We pay full tote odds in track access, corporate and personal taxes, and employ tens of thousands of people. Where was the outrage when so many jobs were lost when Aurizon closed its interstate business at the hands of foreign shipping? It’s hard to see the road or construction industries readily accepting that situation.
Around A$50m of track access revenue and an additional A$45m in wages and taxes that should be in government hands is being lost to foreign shipping. Effectively our government subsidises the rates offered by sea through this lost revenue and the avoidance of paying Australian taxes and labour rates. At a time when job creation and preservation has never been more important, maybe it is time for Australia to revisit its foreign shipping policy.
This article first appeared on www.railwaygazette.com
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