THE GROWTH AND REVIVAL OF RAIL FREIGHT IN VICTORIA

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THE GROWTH AND REVIVAL OF RAIL FREIGHT IN VICTORIA Powered By Docstoc
					THE GROWTH AND REVIVAL OF
RAIL FREIGHT IN VICTORIA
AdvocAcy pAper prepAred for the
victoriAn freight And Logistics counciL         feBruAry 2010




      Victorian Freight and Logistics counciL
prefAce
this paper aims to explore the renaissance of interest in rail freight
in victoria. the focus is on rail freight investment and operations as a
complementary mode with other modes in servicing goods movement.
The Victorian Freight and Logistics Council (VFLC) has commissioned the development of this
report to highlight the successes of freight movements in Victoria when road and rail combine
together to achieve outcomes for freight customers.


the paper aims to detail:
1. Recent public and private sector investment in rail infrastructure, facilities, systems
   and equipment;
2. How and why rail works for customers (actual case studies);
3. The changing culture and technology of rail supply;
4. How rail performs in terms of energy and greenhouse emissions;
5. How customers perceive rail can improve, based on real experience; and
6. How rail and road complement each other.
Some commentary on the difficulties associated with the use of rail will also be provided. However,
the aim of this paper is not to focus and examine everything that is still a problem, or still needs
improvement. This is not a “glass half empty” paper. This paper aims to look at the revival of rail
transport. There is a “glass half full” story to be told, and this paper aims to focus on that story.     1
In a few years time maybe a rail freight story can be told about a glass nearly full to the brim.
In summary, the principal orientation of this paper is on the revival and improvement of the rail
freight sector and on freight which utilises rail focused intermodal facilities.
An intermodal facility is any infrastructure which facilitates storage, distribution and freight
exchange between differing transport modes. For example, using road transport to bring freight
to a central area to load to rail is “intermodal”. Using a port facility to discharge rail freight and
then load the freight onto a ship is “intermodal”. Container freight, bulk freight (e.g. grain) and
break bulk (e.g. steel) all commonly use intermodal facilities. Some analysts confine “intermodal”
to discussion of container facilities only, however “intermodal” is by definition any freight task that
utilises more than one transport mode.
This paper was prepared with the assistance of Sampraz Limited.
contents
Preface...............................................................................................................1
Executive Summary.........................................................................................4
1.      Intro and methodology .............................................................................7
2.      The wider Victorian rail freight system ..................................................8
3.      Government development policies for rail and
        intermodal systems .................................................................................9
4.      Recent public and private sector investment in rail
        infrastructure, facilities, systems and equipment ..............................10
5.      How and why rail works for customers ...............................................14
6.      The changing culture and technology of rail supply ...........................18
7.      How rail performs in terms of energy
        and greenhouse emissions ...................................................................20
8.      How customers perceive rail can improve,
        based on real experience ......................................................................24
9.      Difficulties associated with the use of rail ...........................................25
10. How rail and road complement each other.........................................26
11. The broad economic benefit of freighting by rail ................................28
                                                                                                                          3

Tables and Figures
T1      How rail investment can be recognised to
        achieve economic growth benefits .......................................................30
T2      How the benefits of rail are distributed spatially ................................31


Maps
M1 Victorian Network Map ..........................................................................32
M2 Rail Sector Classification and Upgrading ............................................33
    eXecutive suMMAry

         rail transport of freight is undergoing a significant revival of its
         fortunes. previously starved of investment for a long period of time,
         rail is now seeing significant investment at a government level and
         at the private level. the Australian rail track corporation (Artc) is
         undertaking major investment in the national intercapital rail track
         corridors. the victorian government has invested major capital since
         repurchase of the broad gauge track. in total over $1.2 billion has
         been invested in under wheel track and rail operations in victoria.
         Business has also invested substantially in rail related activities,
         particularly in intermodal hubs and the associated distribution
         centres. current and proposed investment exceeds $3 billion.



    At the national level rail investment is typically   Overall or total volumes have tended to hold
    focused on the iron ore and coal export              steady for rail over time, but rail has missed out
    markets. Despite being short haul, rail is much      on participating in the large growth of the total
    more successful than road transport for these        freight task.
    markets and movement tasks. Victoria does not
                                                         Heavy congestion costs, greenhouse emissions
    have major heavy commodity export tasks like
                                                         and higher accident rates are now creating a
    NSW, QLD and WA, rather Victoria is the centre
                                                         climate for re-consideration of rail as a co-
    of the national container import and export task,
                                                         modal solution alongside road. That said, the
    warehousing and both the aggregation and
4                                                        profits from road transport are still typically
    distribution of goods across Australia. Victoria
                                                         higher than the profits from rail transport, so
    is the logistics heartland of Australia.
                                                         it seems likely that road related congestion,
    For a good number of these tasks road is             greenhouse and accident costs will increase
    more flexible and adaptable than rail, and the       further in Victoria.
    road market share has grown accordingly.
                                                         The key societal and practical task for the
    However, rail has a major role to play in a
                                                         renaissance of rail is how to ensure that the
    number of these market segments and has
                                                         profits from rail freight transport are higher
    a crucial role to play in the future. There
                                                         than the profits from road freight transport.
    firstly has to be sufficient re-investment in
    the rail network and operating systems to            It is beyond the scope of this paper to comment
    ensure that rail performs to expectations            on the methods by which this may be achieved.
    and customer requirements.                           Rather, this paper seeks to look at the public
                                                         and private investment on rail related freight
    This re-investment task is substantial and
                                                         activities for the wider Victorian region and
    much work remains to overcome the deficits
                                                         provide some examples of where customers
    of expenditure. For example, the Federal
                                                         use rail to help achieve business success.
    Government allocated $43 billion for the
    national road networks between 1975 and 2001,        Rail freight can only be a success where all
    but only $2 billion was allocated for rail. It is    modes integrate cleverly to achieve good
    not hard to see why rail’s market share has          outcomes for the supply chain requirements of
    declined in many areas. Rail currently holds         business and society. Support and enthusiasm
    a 15% market share for interstate freight (5         for the use of rail freight is there – it’s time to
    million tonnes per annum) and a similar share        make it happen.
    for inter-regional freight within Victoria.
A key question pondered by many in the freight
sector relates to strong forecast growth – is       The System
there a better way to maintain current supply       Three interconnecting systems comprise the
chain and economic activity while allowing for      Victorian rail freight system. Each requires
strong future growth?                               select planning and investment strategies and
Rail transport would seem to hold the potential     each has a future role in goods movement in
to be a significant part of the solution. The       the State.
need to take practical steps to address global      The ARTC manages 1,213 km of interstate
climate change – to reduce the carbon intensity     high capacity standard gauge rail, the metro
of our economic systems – adds to the appeal        system comprises 400km of urban network
of increasing the level of rail freight usage in    which the freight system utilises in part, and
our economy.                                        the inter-regional rail system is predominantly
The supply chain sector of the Australian           broad gauge with 3,278 km on non urban rail
economy – road freight, rail freight, air freight   network franchised to V/Line.
and shipping, along with the people and
systems within businesses that deal with the        Key Findings:
supply chain, account for 15 % of all economic
activity. Achieving this level of activity with a   Government Policies
better balance of modal use and environmental       The Victorian Government now has
outcomes is a very important challenge for all      some planning and investment frameworks
of us. Governments and private enterprise are       around rail freight, with an intermodal
now re-investing in rail. Much more can be          strategy imminent.
done and achieved. This paper aims in a small
way to point to some of the successes.              Nationally, the Australian Government is
                                                    developing a National Intermodal Strategy
To look at successes does not deny the very         and national regulatory framework.
substantial difficulties that rail still faces.
Timeliness and reliability – particularly in the    These developments support a more certain
north-south, east coast corridor to Sydney and      policy environment for private investors.
Brisbane, remain major hurdles. The ARTC has
a strong investment program occurring to help
                                                    Private Investment
overcome these difficulties; the aim is to grow                                                          5
the north-south trade to a total of 10 million      For every 1 dollar invested by government,
tonnes per year.                                    the private sector has invested 2 dollars to
                                                    complement the public sector investment.
Within regional Victoria the main hurdle
relates to the critical need to standardise the     Another $800 million in new private sector
broad gauge freight network and have access         investment is underway.
charges similar to ARTC mainline charges.           Specialised suppliers of rail forwarding, new
Having a standardised network with good             rail operators and intermodal hub investors
train running speeds and competitive axle           are emerging.
loadings will make a major difference to rail
                                                    The market offering is improving.
freight activities. Once this standardisation is
completed, the rail freight task should be able
to demonstrate substantial growth.                  summary of Private sector rail
                                                    oriented investments
                                                                                         $ Million
                                                    Regional areas                                 790
                                                    Melbourne intermodal                           800
                                                    Melbourne portside                             370
                                                    Rail operations                                350
                                                    Total                                      2310
                                                    Future planned expenditure                     800
                                                    Total current plus future                  3110
    Rail is Working for Customers                        Difficulties Associated with Rail
    Rail offers a 3PL option which has set               Rigid cut off times can assist in driving
    timeframes and windows for port delivery.            discipline into your supply chain and suppliers.
    Rail can provide high capacity movements             Procedures that appear antiquated are being
    for bulk products.                                   modernised and made nationally consistent.
    Heavy containers lend themselves to a                Limited choices mean customers and
    rail solution.                                       rail suppliers need to work closely to drive
                                                         service levels.
    On-site, value-added logistics combined with
    a rail-road choice can future-proof supply           Customers using rail need strong
    chain investment.                                    commitment to the arrangement, but this
                                                         can deliver benefits.
    Rail forwarders able to optimise the rail
    containers can deliver lower costs for line
    haul tasks.                                          Road and Rail Complement through
                                                         Intermodal Hubs
    Changing Culture and Technology                      Intermodal hubs are the key interface
    in Rail                                              via which road and rail complement the
                                                         respective strengths of each mode.
    The rail system now has a number of private
    operators – the old ways are changing.               Rail works best on the heavy, longer haul
                                                         tasks. Typically road focuses on the shorter
    More flexibility means better operations.
                                                         haul, time sensitive tasks and moving freight
    Labour relations and appropriate staffing            to, or from intermodal hubs.
    flexibility have improved dramatically.
                                                         Specialised regional hubs can be developed
    A number of operations have modern fuel              for $12 million. Large hubs may require
    efficient and reliable train fleets.                 $200 million or more including land and
    Modern communications technology is                  extensive warehousing.
    starting to make a real difference.
                                                         Broad Economic Benefits of Freighting
6                                                        by Rail
    Energy and Greenhouse Emissions
                                                         Assessing the economic and societal benefits
    Rail’s lower emission and energy consumption
                                                         of rail investment may require a model that
    profile makes it ideal to substitute road
                                                         effectively takes into account –
    haulage for inter-capital tasks.
                                                         • The “lumpy” nature of rail infrastructure
    By using rail for journeys over 300 kilometres,
                                                           investment;
    a shipper can save more than one third of fuel
    costs and generate 40% less greenhouse gas           • The progressive capacity unlocked by
    per container.                                         staged upgrades and the cumulative
                                                           nature of benefit streams accruing from
    Higher productivity vehicles will build scale to
                                                           early upgrades;
    be replaced by trains where rail is available.
                                                         • The broader social and environmental
                                                           benefits; and
    Improvements Desired by Customers
                                                         • The spatial distribution of benefits across
    Customers want hassle free, cost effective,
                                                           local, regional and national jurisdictions.
    on-time delivery of their supply chain
    requirements.
    Hassle free is never truly achieved by any
    transport mode, but rail can perform strongly
    in terms of timely and cost effective meeting
    of supply chain needs.
    Good management of the warehousing and
    intermodal facilities is a key part of this, along
    with a disciplined and focused rail operator.
1. intro & MethodoLogy

Rail freight transport in the wider Victorian        The rail infrastructure base for both regional
region has experienced a very mixed history          and interstate operations is improving following
over the past 20 years. For much of this             recent government investment and re-
period the network was starved of capital as         investment. This is providing a more sustainable
major improvements to the road networks              base for customers and rail operators. There
received priority. During the last 10 years          is a real enthusiasm to reinvigorate rail freight,
privatisation of rail has also been implemented.     particularly as the challenges of reducing
Operations remain privatised, but the under          greenhouse emissions become more pressing.
wheel investment and operational control of          Less road congestion and accidents and other
many aspects of the network is back in the           amenity benefits for people also strongly flow
public domain. There has been a progressive          from a range of rail freight solutions.
realisation that road transport cannot, or should
not be the sole mode of reliance for freight. Rail
must play its proportionate role in key freight
tasks and investment must be made which
allows this to occur.


Methodology
preparation of this paper involved –

1. refining the scope with vfLc and progressive review with the
   vfLc’s infrastructure Working group;
2. progressive development of a comprehensive discussion template
                                                                                                          7
3. discussions and interviews with a considerable number of
   industry participants
4. review of a wide range of reports and data along with materials
   provided by vfLc
5. Web based research and general research
6. economic review and work with dr robert noakes
7. documentation
    2. the Wider victoriAn rAiL
       freight systeM
        three interconnecting systems comprise the victorian rail freight
        system. each requires select planning and investment strategies and
        each has a future role in goods movement in the state.



    interstate                                        Freight task
    The westwards system to Adelaide and Perth        The interstate freight task (5 million tonnes
    and the northern system to Sydney and Brisbane    per year) is evenly balanced with the
    comprise the major interstate corridors. This     inter-regional task (also around 5 million
    standard gauge system is managed by the           tonnes per year).
    Australian Rail Track Corporation (ARTC) under
                                                      Unlike some interstate systems, there is no
    long term leases. The ARTC manages 1,213 km
                                                      large iron ore or coal requirement to underpin
    of track in Victoria, which also includes some
                                                      the rail freight task in Victoria.
    other standard gauge sections.

                                                      intermodal terminals
    inter-regional/intrastate
                                                      Intermodal terminals are necessary for the
    The inter-regional rail system is predominantly
                                                      rail freight function. These terminals utilise
    broad gauge with 3,278 km of non urban
                                                      road to accumulate freight at one end and
    rail network – franchised to V/Line. V/Line
                                                      typically utilise road once again to distribute
    manages the under wheel infrastructure and
                                                      freight at the other end. Typically, major
    train pathways for freight as well as operating
                                                      warehouse and distribution centre functions
    regional passenger services.
                                                      are undertaken in association with these
8
                                                      facilities. Road and rail need to work in a
    Metro                                             cooperative and complementary fashion for
    The metro system comprises 400 km of urban        these supply chain functions.
    network with MTM operating the passenger
    service from December 2009. Rail freight
    utilises portions of the urban network for the
    freight task.
3. governMent deveLopMent poLicies
   for rAiL And interModAL systeMs
    the victorian government now has some planning and investment
    frameworks around rail freight, with an intermodal strategy imminent.
    nationally, the Australian government is developing a national
    intermodal strategy and national regulatory framework.
    these developments support a more certain policy environment for
    private investors.



A substantial body of strategic and policy       • National Transport Links
work has been undertaken at both the              Growing Victoria’s Economy
national and State level in terms of guiding      Victoria’s Infrastructure Australia rail bids
the development of the road and rail transport
systems in Victoria, along with ports and        • ntc studies
relevant intermodal hubs.                          Rail Productivity, Intermodal Capacity and
of particular relevance to this rail focused       Supply Chain Performance Pilot
study are the following:
                                                 The VFLC biennial publication Freight Forward
• national transport Plan                        is also very pertinent.
  National market, national regulation,
  national network

• Victorian Transport Plan                                                                        9
  Major rail projects for passenger/urban
  congestion, response to Eddington

• Freight Futures and Port Futures
  Victorian Freight Network Strategy
     4. recent puBLic And privAte
        sector investMent in rAiL
        infrAstructure, fAciLities,
        systeMs And equipMent

          for every 1 dollar invested by government, the private sector has
          invested 2 dollars to complement the public sector investment.
          Another $800 million in new private sector investment is underway.
          specialised suppliers of rail forwarding, new rail operators and
          intermodal hub investors are emerging.
          the market offering is improving.



     The Victorian and Australian Governments have supported the rail freight sector in Victoria with
     a total investment in the order of $1.2 billion. This encompasses recent expenditure such as the
     repurchase of the broad gauge network, upgrade of the Mildura line, commitment to upgrade gold
     and silver grain lines, the dual track standardisation of the Melbourne – Sydney line from Seymour
     to Albury and a range of other key rail initiatives and upgrading. There is also a very large historical
     investment in rail infrastructure in the wider Victorian region.
     the following provides more detail of this investment.

10   public sector investment in rail
     standard gauge intercapital                           regional Fast rail
     Main Line                                             While this program was focused on passenger
     Major investments in dual tracking (Seymour           movements between Melbourne and regional
     to Albury), in passing loops, train running/          centres, the rail upgrades do permit improved
     signalling and in resleepering to improve axle        freight running. However, better pathing access
     loadings and running speeds.                          for freight is required.

     repurchase of the Broad                               Port access
     gauge network                                         Road over-passes and new rail track for much
     This was a vital pre-condition for the                improved operations and port access.
     continuation of the rail revival program.
                                                           Broad gauge standardisation
     regional rail revival in                              This program has recommenced with the
     Broad gauge                                           scheduled standardisation of the Seymour to
     Led by the Mildura line upgrade and revival,          Albury and Oaklands to Benalla lines.
     this will return running speeds and axle loads
     to reasonable levels. This program is being           intermodal hubs
     followed by gold and silver line upgrades to          Provision of support and funding to allow the
     the grain networks.                                   better development of intermodal hubs and
                                                           greenfield developments as may be required
                                                           to facilitate freight onto rail.
private sector investment in rail
The private sector has significant capital          Cost or value estimates summarised in
committed to the rail freight sector in Victoria.   this section are necessarily broad brush. A
Work to date suggests that this investment          combination is used between estimates put
exceeds $2.3 billion. For example, a regional       forward by the rail and intermodal operators
intermodal container hub providing hardstand        themselves, and further estimates undertaken
areas, warehousing, container packing and a         by the author of this paper. A much more
range of other key services would typically need    detailed evaluation could be made if additional
a capital investment in the order of $20 million    resources were devoted to the task. Typically
to reach reasonable efficiencies and economies      the question posed to the operators was this:
of scale.                                           “If you were to replace, or relocate the core
                                                    facilities you currently have in place – how much
In terms of the structure of rail investment,
                                                    capital would you need to expend?” By definition
the largest single value is the land and rail
                                                    this is a broad brush approach. A balance sheet,
infrastructure (track and equipment) resident
                                                    analyst or share market valuation would often
on that land. This investment is overwhelmingly
                                                    yield quite different answers.
owned by State and Federal governments
through various agencies. Like the road system,
the values would be very large. Privately owned     summary of Private sector rail
rail track tends to be in the form of a limited     oriented investments
number of yards and short sidings. Most sidings
and yards are publicly owned.
                                                                                          $ Million
                                                     Regional areas                             790
Stabling and maintenance facilities for
both locomotives and wagons are a major              Melbourne intermodal                       800
component of rail operations, as is a wide range     Melbourne portside                         370
of track maintenance machinery.                      Rail operations                            350
Signalling and train control systems represent       Total                                     2310
a large total investment. Private rail operators     Future planned expenditure                 800
must mesh with these systems, which can vary
                                                     Total current plus future                 3110
across Australia. For intermodal operators the
largest systems investment lies in the complex                                                          11
stock control, tracking and scheduling systems.
Equipment needs vary significantly across
the private sector intermodal investments,
depending on the products handled. Heavy duty
container moving and reach stacking equipment
are large expense items. Container loading
and unloading equipment is often specialised
and costly. Bulk product systems require high
capacity elevating equipment and frequently
utilise expensive over rail bin storage.
     regional intermodal Facilities –                      inter-capital intermodal
     $790 million                                          This is the largest rail freight investment and
     As previously noted, intermodal refers to any         principally utilises both interstate facilities at
     arrangement where more than one mode                  one end and wider Melbourne region facilities
     of transport is used to perform a particular          in Victoria. The wider Melbourne region
     supply chain and logistics task. In relation          intermodal facilities are typically large scale and
     to rail freight, intermodal primarily relates         capital intensive. Altona/Laverton and Dynon
     to the necessary road task in accumulating            precincts feature strongly here. Significant
     products to a rail hub, and then the distribution     efforts are underway to separate the port-
     of products at the receiving hub. For export          related import/export rail freight trade from the
     pathways, this receiving hub is typically the         domestic and interstate rail freight activities.
     export terminal and associated yards and
     facilities. Intermodal facilities are often focused   rail operations – $350 million
     on the container trades, but are equally relevant
                                                           The locomotive and wagon fleet servicing
     for bulk trades like grain.
                                                           the interstate and regional trade is extensive.
     There are ten container focused intermodal            Specialist wagons have an important role
     facilities in the wider Victorian region with a       to play in much of this trade but container
     regular and solid trade. Typically they have          wagons dominate. Interstate train consists
     significant warehousing facilities and commonly       are frequently 1.5 km in length. The Victorian
     support surrounding areas and businesses up           proportionate share of rail running facilities
     to a 100 km radius. Frequently such facilities        alone (locos and wagons) exceeds $350 million.
     are 300 km or more in rail distance from
     Melbourne.                                            Melbourne Port side – $370 million
     A regional intermodal container hub providing         The Port of Melbourne itself is the single largest
     hardstand areas, warehousing, container               intermodal facility in South East Australia,
     packing and a range of other key services would       supporting rail, shipping and road transport.
     typically generate a capital investment in the
                                                           Where non government ship loading facilities
     order of $20 – $30 million to reach reasonable
                                                           and terminals are present to fully or partially
     efficiencies and economies of scale. Facilities
                                                           service rail operations (exports and imports),
     with less warehousing can still perform
12                                                         then a proportionate estimate needs to be made
     effectively, but with a lesser capital requirement
                                                           of the capital value. The proportionate share is
     – maybe $10 to $12 million. Significant
                                                           estimated to exceed $370 million.
     practical and financial support for development
     of intermodal facilities has been provided by         Containers and bulk products dominate in this
     the Victorian Government through Regional             rail handling task.
     Development Victoria.
     In addition to container focused facilities,
     there are over 30 major intermodal bulk grain
     handling facilities. These facilities can receive
     grain all year round, provide major warehousing
     and storage and can load to rail rapidly.
     Regional port facilities are a further significant
     component of the intermodal picture with
     Geelong, Portland and Westernport providing
     intermodal facilities for a range of commodities.
     The estimated capital value of the rail focused
     component of these regional intermodal
     facilities exceeds $790 million.
Wider Melbourne intermodal –
$800 million
As noted, the intercapital intermodal facilities     The substantial majority of freight moved in
are large scale and capital intensive. Some          the wider Melbourne area does not fall into any
facilities are owned and operated by the state,      of these categories. There is a large category
others are leased to private enterprise. Some        of freight which does not readily lend itself
of these facilities are multi purpose – they are     to rail movement or operations. It needs to
set up in a dual mode to service regional trains     be accepted that a wide range of freighting
plus interstate/intercapital and potentially some    tasks will always be better performed by road
urban hub movements as well.                         transport.
A number of wider Melbourne rail and                 Notwithstanding this, there is a strong case for
intermodal hub facilities have been constructed      perusing metro rail movement of containers.
and some further facilities are planned.             Substantial policy and implementation study
Warehousing and distribution is a key or             work is underway in relation to the metro hub
critical element of such facilities. At the          concept, including the use of electric freight
moment the owners of these facilities are            shuttle trains on the broad gauge network.
building movement volumes up by utilising            These operations may mimic passenger
road transport. When volumes exceed 100,000          services.
standard container movements per annum
                                                     There is a strong potential for future growth of
(TEU’s), then it is expected that rail operations
                                                     wider Melbourne intermodal facilities – even
will be viable.
                                                     if initially they are road based. Substantial
The value of the various non government              expenditure on warehouse and distribution
rail connected intermodal hubs in the wider          centre activities could easily exceed $800 million
Melbourne region exceeds $800 million. Land          in these domains.
and warehousing is a substantial component of
this value.
It needs to be remembered that wider
Melbourne intermodal facilities primarily
support movements to and from the Port of
Melbourne, to regional intermodal facilities, and                                                         13
to interstate/ intercapital intermodal facilities.
     5. hoW And Why rAiL Works
        for custoMers
          rail offers a 3pL option which has set timeframes and windows for
          port delivery.
          rail can provide high capacity movements for bulk products.
          heavy containers lend themselves to a rail solution.
          on-site, value-added logistics combined with a rail-road choice can
          future-proof supply chain investment.
          rail forwarders able to optimise the rail containers can deliver lower
          costs for line haul tasks.



     The Heinz Company provides a good case study        Case example –
     in how rail can assist in the provision of a high
     service and efficient distribution network. The
                                                         export of dried milk products
     major national distribution centre for Heinz is     Warrnambool has an intermodal hub providing
     on site at the SCT intermodal complex at Altona.    logistics solutions for the milk products export
     Some of the input products for the Heinz lines      industry. Dried milk products in bagged and
     come from New Zealand and are imported              palleted form produce heavy weight containers.
     through the Melbourne container port facilities.    A Patrick Portlink train operates six days a
     The containers are moved by road to the Altona      week delivering empty food grade containers
     distribution centre. All Perth bound product        to Warnambool and returning with loaded
     then forms part of the SCT train services to WA.    containers ready for export.
14
     A whole range of other products for different       There is a significant amount of private capital
     clients also form part of such freight trains to    invested in the bulk warehousing systems. This
     Perth using an array of specialised wagons.         capital cost does not have to be carried on the
     From Melbourne to Adelaide the train is             books of the milk processing companies and a
     typically 1.5 kilometres in length, and added to    benefit is achieved by all parties.
     in Adelaide to make it usually 1.8 km in length
                                                         The intermodal hub operator provides a full
     and weighing over 6,000 tonnes.
                                                         suite of services focused on warehousing,
     Agricultural based exports from the wider           storage and container loading for all the milk
     Victorian region have held up well during the       product companies based in Warrnambool.
     current world economic downturn.                    Those costs and problems are taken off
     Patrick Portlink is a part of the Asciano Group     the companies shoulders and they know that
     that is focused on delivering containers            their export markets will be reliably serviced
     efficiently to ports and central hubs. Efficient    by this supply chain. They can focus on the
     rail services to regional centres are a core        production and marketing aspects of their
     part of this task. It is worthwhile looking more    business, confident in the knowledge that
     closely at how this works for several of the        the export supply chain side of their operations
     regional intermodal hubs.                           is being well attended to.
Warrnambool cheese and                         Case example –
Butter Factory                                 export of wine from Australia
The Warrnambool Cheese and Butter Factory
is one of three major producers of export      australian Vintage Ltd
milk based products in the highly productive
                                               Australian Vintage Limited produces and
Warrnambool district. As noted, a feature of
                                               exports wine from the North West of Victoria to
the supply chain arrangements in this area
                                               the demanding markets in Europe, primarily
is the use of warehouse facilities which are
                                               to the UK. The company uses the intermodal
coordinated and organised through the local
                                               facilities at Merbein near Mildura.
intermodal terminal.
                                               Wakefield Transport runs the intermodal hub.
“We find the local intermodal
                                               Full length trains depart for Melbourne three
arrangements for storing, packing              times a week to service the wine, fruit and other
and export of our products to be most          agricultural based sectors of the Mildura region.
beneficial and quite cost effective. The
specialist warehouse alongside of the          “Our winery is located near Mildura in the
intermodal facility supplies all our           heart of the sunshine country in North
warehousing and storage needs for the          Western Victoria. We have a great export
dried milk powders that we produce             business and because of this we need to
for export. This same warehouse also           handle the export of 2,000 containers of
stores dried milk powder for other             wine each year, primarily to the UK.
manufacturers in the area, providing           Warehouse space is limited at the winery,
economies of scale and scope in this           so we lease two warehouses from
warehousing function. Storing products         Wakefield’s intermodal terminal. Our staff
off site like this ensures high quality,       undertake the loading of both 20’ and 40’
cost effective storage.                        containers in an exacting manner. Product
The dairy industry and the associated          condition on arrival in the UK is critical,
milk products industry typically goes          and doing our own packing allows us
through substantial highs and lows over        total control.
the medium term. Profiting from the            Our intermodal operator is highly                   15
highs and surviving the lows is quite a        professional at container handling, so
challenge. Independent off site intermodal     we know that loading onto the train to
storage works well for us in this              Melbourne will be done well and everything
fluctuating business environment.              will work as planned to meet our required
Packing of containers is done to the           sailings with the shipping lines. Trains can
various export orders and requirements.        obtain access to the ports even when road
                                               access is congested, so we know that the
Typically one train per day is dispatched      correct containers will get onto each ship.
to the Port of Melbourne, so we know that
our supply chain export requirement will       The total system is competitive with road,
be met with a minimum of fuss. I would         but we have better control and less hassle
encourage other logistics managers to          by using the intermodal rail option. I would
consider the benefits of using rail and        encourage other logistics mangers to
intermodal facilities as a component of        look at the control and benefits of using
their supply chain solutions.”                 intermodal terminals and rail to handle
                                               their export containers. Having warehouses
Maria Gerritsen, Logistics Coordinator,
Warrnambool Cheese and Butter
                                               as part of the intermodal terminal is a
                                               significant plus – it can save you time,
                                               worry and money. In addition you don’t
                                               have to worry about trucks arriving late at
                                               night and demanding a quick turnaround.”
                                               Steve Fallon – Export and Logistics Manager,
                                               Australian Vintage Ltd
     Case example – movement                             “AWB is a major customer for rail freight
     of grain for domestic and                           services and we use a range of rail
     international customers                             providers across Australia. In South East
                                                         Australia we provide many of the services
                                                         from our in-house freight group which
     aWB Limited                                         I lead. We are currently operating four
     AWB Ltd is a major domestic buyer and trader        train consists along the east coast of
     of grain, as well as being a major exporter. AWB    Australia. We move our train services to
     requires highly effective freight services. As a    wherever the organisational requirement
     major customer of road and rail freight services,
                                                         is greatest.
     AWB has a diverse range of transport needs.
                                                         AWB does use road to supplement the
     “One of the key challenges in maintaining
                                                         movement tasks as required, but rail
     and servicing key international customers
                                                         provides the core of the movement
     is the ability to quickly and efficiently move
                                                         services. AWB has recently commissioned
     grain from up country to port in order to
                                                         the construction of 84 standard gauge
     meet customer shipping requirements.
                                                         bulk grain wagons in China. These are
     The deregulated environment has put                 now in service and allow us to operate
     more pressure on this aspect given the              two high efficiency bulk freight services
     multiple entities shipping out of any given         utilising these new wagons.
     port in any month. AWB has found that
                                                         Within Victoria these wagons operate
     rail is the most reliable, cost effective
                                                         on any standard gauge line section,
     and efficient means of performing this
                                                         so haulage from the AWB Dimboola
     task. By accessing the rail that our freight
                                                         intermodal facility to export, or domestic
     group has secured, we are well placed to
                                                         customers, is straightforward.
     ensure we can move the large volumes
     required for our customers shipping in              In a similar manner, AWB is looking
     the 2 – 3 week time windows that are                forward to the commissioning of the
     available at port.                                  newly standardised line section running
                                                         from Benalla to Oaklands. AWB has
16   In addition to servicing export customers
                                                         a major intermodal grain facility at
     with rail, we have also successfully
                                                         Oaklands and we will now be able to
     delivered large quantities of feed grain to
                                                         operate this very effectively.
     the Victorian domestic market in recent
     low production years in Victoria. This              Running grain from our NSW intermodal
     grain has been moved from northern                  hubs to Victorian destinations is a similar
     NSW and was delivered to Melbourne on               straightforward task.
     rail, as this represented the best transport        Better rainfall is promising improved
     mode to move large volumes of grain at              harvests in Central and North Western
     a competitive freight cost.”                        Victoria. Our intention is to commission
     Mitchell Morison – General Manager                  a broad gauge train to operate from
     Commodities, AWB                                    our intermodal facilities on the broad
                                                         gauge network.
                                                         Rail offers the capacity to move large
                                                         volumes of product quickly, and this
                                                         very much suits our business needs. I
                                                         would strongly recommend that logistics
                                                         managers look closely at the benefits
                                                         that intermodal hubs and rail can offer”
                                                         Matt Watt – Freight Manager, AWB
grainFlow                                           common questions from
GrainFlow manages the intermodal facilities for     Logistics Managers on rail
AWB Ltd with 22 intermodal facilities in total,     and intermodal
with 5 major intermodal facilities focused on the
Victorian rail freight network.                     In addition to the all important question of cost
                                                    in comparison to other modes, the following are
“Like many industries, the grain industry           typical questions asked by customers:
requires an efficient supply chain that
                                                    • Service frequency
incorporates large warehouse and
distribution centres that can efficiently           • Transit times
and effectively interface with transport            • Recovery plans in the circumstance of a
carriers to move product to market. The               service interruption
AWB GrainFlow centres were established
                                                    • Capacity available
to do just that.
                                                    • Who else can offer a comparable service
Grain is accumulated into our intermodal              in the event of service failure or price
hubs by road transport at peak rates                  pressures? Will the supplier provide
during harvest periods. Our large scale               road backup service in the event of rail
storages hold and assemble the product                service failure?
lines of grain. When our customers
                                                    • Is the government going to continue its
require an export shipment we move
                                                      support for freight on rail? Government is
the grain to port as efficiently and cost             currently providing a drought relief subsidy.
effectively as possible. High capacity,               What will happen when it ceases?
efficient rail loading infrastructure is
                                                    • Why is there not a bigger discount for
essential to achieving this goal. We can
                                                      rail transport?
fully load a 2,500 tonne train in under two
hours and so achieve a fast turnaround              • How reliable is the hook and pull supplier?
for our rail carriers. Moving 50,000 tonnes         • Can I get my empties picked up the same day
of product from our country sites to port             the train departs Melbourne? (regional hub)
in 2 – 3 weeks is quite achievable when
                                                    • Why can’t you leave later to avoid the need to
using rail. It is far more difficult to achieve       send some containers by road?
                                                                                                        17
this volume reliably, with the required
responsiveness and flexibility, using               • Why can’t we have a daily service like road?
road transport.                                     • Why do they have two drivers for one train?
                                                      (Deadman switch explained)
In summary, we use road transport to
accumulate the product and then use                 • Why can’t you mix bulk and break bulk with
rail to move it reliably, quickly and cost            containers to make our freight cheaper?
effectively to market. The combination of
the two transport modes with an efficient
interface in the middle, works brilliantly.”
Andrew Gregor – Manager, GrainFlow
     6. the chAnging cuLture And
        technoLogy of rAiL suppLy
         • the rail system now has a number of private operators –
           the old ways are changing.
         • More flexibility means better operations.
         • Labour relations and appropriate staffing flexibility have
           improved dramatically.
         • some operators have modern train fleets – more reliable and
           fuel efficient.
         • Modern communications technology is starting to make
           a real difference.



     increase in private operators –                    increased flexibility leading to
     the old ways are changing                          better operations
     A dramatically increased focus on service          Increased labour flexibility means that higher
     has developed since more rail operators have       utilisation can be achieved from the expensive
     entered the market. In turn this has required      fixed assets. It is now feasible to invest in
     a dramatic improvement in labour flexibility       new wagons because the increased annual
     in order to achieve this increased focus on        throughput allows a positive business case to
     service in a cost effective manner. Many users,    be made for such investment. Wider fields of
     freight forwarders and intermodal operators        operations, potentially spanning a number of
18   are now contracting trains on a take or pay        states, means that assts are not stranded if
     basis – this enables a better selection on the     there is a downturn in one of the
     amount of service versus the cost of               market segments
     that service.
     For example, Patrick Port Link is achieving        Labour relations and
     strongly focused outcomes for its rail clients.    appropriate staffing
     El Zorro is similarly achieving good flexibility   New entrant operators such as El Zorro have
     and outcomes for AWB bulk grain movements.         been able to negotiate very effective labour
     Pacific National is revising and enhancing its     relations with their staff. Multi state operations
     rail freight offering for container, bulk and      and the training that goes with such operations
     break bulk customers.                              are the norm. SCT has long had highly effective
                                                        staffing and operations for the Melbourne to
                                                        Perth services.
                                                        New safe working systems are also being
                                                        rolled out in many areas.
Modern train fleets – more reliable                   Modern communications technology
and fuel efficient                                    Very significant investments are now being
SCT is a shining example of the benefits that         made by under wheel rail providers to
can be gained from a modern fleet of                  improve train control and signalling. ARTC
locomotives and specialised wagons. Good              is progressively rolling out new 3G signalling
service, high reliability and good fuel efficiency    and control systems to dramatically improve
are achieved as result of this. AWB investment in     the functioning of its network. Significant
new bulk wagons for grain haulage is a further        investments are also being made by V/Line.
example of the capacity and reliability benefits to   Strong ICT systems and technology
be gained from new rolling stock. Rolling stock                                                        19
                                                      improvement are also being achieved by freight
leasing firms have developed strongly to provide      forwarders, intermodal operators and rail
such benefits to many parties.                        operators. Better customer service and much
The potential for electric operation of an            improved supply chain information and general
urban focused Metropolitan Freight Terminal           function are being achieved.
Network (MFTN) for Melbourne is under
active consideration.
     7. hoW rAiL perforMs in
        terMs of energy And
        greenhouse eMissions
         rail’s lower emission and energy consumption profile makes it ideal
         to substitute road haulage for inter-capital tasks
         By using rail for journeys over 300 kilometres, a shipper can save
         more than one third of fuel costs and generate 40% less greenhouse
         gas per container.
         higher productivity vehicles will build scale to be replaced by trains
         where rail is available.



     Transport in Australia is going to need to         In any comparative analysis of the broader
     undertake a significant change in focus,           economic efficiency of road versus rail
     direction and operations in order to reduce the    versus sea for freight transport, the concept
     carbon intensity of both current operations and    of economic efficiency needs to reflect (i)
     future growth. Road transport will continue to     financial, (ii) social, and (iii) environmental
     generate productivity gains and to tackle energy   costs. Historically, only the narrower financial
     consumption and emission generation; however       costs associated with inputs of fuel, labour,
     the sheer size of the transport task indicates     capital and services were included in direct
     scope for additional modes to supply. Rail has     operating cost estimation. From a public
     a key role to play in this transition to a lower   sector perspective (local, State and Federal
     carbon lifestyle and economy.                      jurisdictions), all three cost components
20
                                                        comprising the Triple Bottom Line (TBL) need
     Rail transport typically generates significant
                                                        to be estimated.
     savings in total fuel used and energy expended
     to perform typical transport functions. For        In particular, emissions costs need to be
     example, a typical train running between           directly compared to fuel consumption costs
     Melbourne and Sydney will use 45,000 litres less   and labour rates. By including emissions costs,
     fuel and generate 135 tonnes less greenhouse       the total efficiency of modes is more clearly
     gasses than the 145 road haul semi trailers that   evident and mode diversions of freight become
     would otherwise be needed to perform the task.     more significant. The importance of rail relative
                                                        to road is more clearly recognisable with a
     B Doubles and higher productivity vehicles
                                                        TBL approach.
     (HPVs) use less trips to complete the task,
     are more fuel efficient and generate less
     CO2 than 6 axle articulated trucks, but are
     still a long way short of the rail efficiency
     figures. Fuel consumption can be twice that
     consumed compared to rail for the equivalent
     end-to-end task. Using more rail capability for
     goods transport in Australia is a key path and
     requirement for the future.
A. financial costs (fuel)                                         B. social costs
                                                                     (time costs of Labour)
direct Fuel costs1 to transfer one                                An important aspect of freight cost movements
20’ teu (container)                                               are time costs associated with labour
i. Long distance (1,500-1,600 km) 2                               requirements. AustRoads (and Vic Roads) road
                                                                  travel time costs are based on ABS Average
   ii. By road           $7903
                                                                  Weekly Earnings. However, these costs include
                         (24 hours elapsed time)
                                                                  PAYE tax components. The following time costs
   iii. By rail          $4474                                    reflect 2009/ABS data, net of taxes and inclusive
                         (40 hours elapsed time)                  of superannuation contributions by employees
   iv. By sea            $1185                                    and industry-based time costs, for transport-
                         (5 days)                                 related activities.

i. short distance (300 km – 350 km)                                                                            $ per hour

   • By road             $1466                                     a. road transport driver costs
                         (direct operating)                        • Rigid trucks (urban-based)                         22.90
   • By rail             $867                                      • Articulated trucks
                                                                                                                        24.60
                         (excluding idling time)                     (inter-urban, urban-rural)
                                                                   b. rail transport drivers
   • By sea              $248
                                                                      (24 hour pro-rated)
                         (excludes at berth idling)
                                                                   • Inter-urban/rural network                          28.60
[All fuel costs are based on (a) US$72 per barrel
or $1.40 per litre of diesel for road, $0.97 per                   c. sea freight (daily prorata)
litre for rail and (b) bunker fuel oil for shipping                • Captain/First Mate                                 55.40
of $420 per tonne].                                                • Ordinary Seamen                                    29.00
In both (i) and (ii), the direct fuel costs are a
                                                                  These values of time are appropriate for
key part of the total operating costs. They
                                                                  application to transport investment appraisals
exclude all fuel consumption costs associated
                                                                  where delay times represent significant
with the transport to/from the collection point
                                                                  penalties. Conversely, job creation allowing                   21
of the TEU. Due to the fixed steel shell of the
                                                                  for additional freight movement by mode
typical TEU, utilisation of B-Doubles with three
                                                                  involve social benefits of different magnitudes,
TEU-equivalent volumes per truck using ‘soft/
                                                                  depending on the specific mode.
pull down’ sides has been excluded. Hence,
the cost of road transport is at the ‘high’ end of
the fuel cost range. However, in the context of
the contestable market for freight over 300-350
km and above, direct fuel cost comparisons
between road, rail and sea must reflect use of
conventional TEUs.



Assumptions:
1 estimated financial cost of diesel as derived from all direct operating costs. assumes a fuel cost of us$72 per barrel.
2 Based on a route leg of 1,600 km.
3 Based on trucking cost for a truck carrying 2 teus equivalent (for a major australian trucking company); 48 litres per hour
  of diesel at $1.40 per litre.
4 Based on estimated direct fuel costs for a 48-teu unit train (2 locomotives); 14 litres per km and $0.97 per litre. includes
  rail locomotive idling time.
5 Based on utilisation of a 200 teu container vessel (11 tonne per day bunker fuel consumption at $420 per tonne).
6 assumes that over a distance of < 350 km, an average of 2 teus can be carried by road (with backloading). assumes a
  direct time of 3.75 to 4 hours.
7 assumes an elapsed time period of 7.5 to 8 hours, with 48 teu per unit train.
8 assumes a direct short-sea voyage of 22 hours (0.92 days) with 200 teu per voyage.
     c. environmental costs                             a. road Freight Movements
                                                           (1 teu) (300 km)
     A fundamental environmental issue emerging
     with land and sea transport of freight relates                                        $ Cost
     to the broader economic externality costs
                                                        i. small truck (1 teu or less)
     associated with ‘fuel burn’ emissions and
                                                           [assumes 60,000 km per year]
     related climate change effects.
                                                        • 5.4 tonnes of CO2 per annum
     At issue for the freight transport sector is how
     to cost this externality. The precise nature of    • Average cost of $25 per
     Australia’s greenhouse gas emissions policy          tonne to 2015/16;                135.00
     framework has yet to be determined. However,         $40 per tonne after 2016/17
     based on data from the Commonwealth                  reflects indexation               216.0
     Government Office of Climate Change and the        • Average emissions cost
     Office of Sustainability Victoria in Victoria, a     per km per 1 TEU to 2015/16        0.23
     range of indicative environmental costs can        • Average emissions cost per
     be considered in relation to alternative freight     300 km per TEU to 2015/16         69.00
     task modes.
                                                        ii. Articulated truck (2 teus)
                                                            [assumes 60,000 km per year]
                                                        • 9.1 tonnes of CO2 per year
                                                        • Average emissions cost
                                                          of $25 per tonne to 2015/16      227.50
                                                        • Average emissions cost
                                                          of $40 per tonne after 2016/17
                                                          [reflects indexation]            364.00
                                                        • Average cost per km                0.36
                                                          for 2 TEUs                         0.18
                                                        • Average cost per 300 km for      108.00
                                                          2 TEUs                            54.00

22
b. rail Freight Movements                                          d. summary of total triple
   (1 teu) (300 km)                                                   Bottom Line (tBL) costs for
                                                                      transport of 1 teu9
                                                    $ Cost
                                                                      For 300-350 Km
 i. 48 teu freight train
                                                                                                                 $ Cost
 • 142 litres per km
                                                                    (a) road:
 • 24 tonnes of of CO2 per year
                                                                    Economic (Energy) [per TEU]                   146.00
 • Average km per year of
   90,000/240 km per day                                            Social (per hour)                               24.50
 • Average TEUs of 17,520 per year                                  Environmental (per TEU)                         54.00
 ii. Average emissions cost                                         (b) rail:
     per km per teu                                     0.07        Economic (Energy) [per TEU]                   125.00
 iii.Average emissions cost
                                                                    Social (per hour)                   36.00 to 48.0010
     per 300 km per teu                               21.00
                                                                    Environmental (per TEU)                         21.00
                                                                    (c) sea:

c. sea Freight Movement                                             Economic (Energy) [per TEU]                     22.00
   (1 teu) (300 km)                                                 Social (per hour)                   29.00 to 55.0011
                                                                    Environmental (per TEU)                         24.00
                                                    $ Cost
 i. 200 teu shipment
    (260 teu capacity)
 • 500 litres per hour of bunker
   fuel for 22 hours
 • Average km per year of 216,000
   (conversion from knots)
 • Average of 64,000 TEUs per year
   (320 voyage days)                                                                                                         23
 ii. Average emissions cost
     per km for 1 teu                                   0.08
 iii. Average emissions cost
      per 300 km-teu                                  24.00




9 does not cover the full economic costs by mode (i.e. does not cover the capital and maintenance costs of the assets, and
  related insurance/service costs. these would be highest on a teu basis for road, than for rail or sea).
10 additional costs per hour related to crewing ‘doubles’ for part shifts.
11 $55 refers to captain; $29 for First Mate certificate rating.
     8. hoW custoMers perceive
        rAiL cAn iMprove, BAsed on
        reAL eXperience
          customers want hassle free, cost effective, on-time delivery of their
          supply chain requirements.
          hassle free is never truly achieved by any transport mode, but rail
          can perform strongly in terms of timely and cost effective meeting of
          supply chain needs.
          good management of the warehousing and intermodal facilities is a
          key part of this, along with a disciplined and focused rail operator.



     There is widespread desire among end                 For example, the Melbourne Perth rail
     customers and supply chain participants to           corridor now has a relatively good standard of
     increase the level of rail usage for the transport   infrastructure. New locomotives, wagons and
     of goods and materials in Australia. This desire     technology have been developed or adopted for
     is also shared by the wider Australian population.   the corridor. An improving modal market share
     People are looking for ways to ease traffic          has led to strong economies of scale. Services to
     congestion, traffic incidents and reduce general     end customers are delivered in a timely manner.
     pollutants and greenhouse gas emissions. Rail is     The regulatory coverage of the task has been
     seen to provide a key opportunity or mechanism       progressively improved and ARTC management
     for achieving these ends.                            has simplified the task for operators.
24   The core aspects of any sustained improvement        Further infrastructure improvements are
     in any transport mode are high quality               planned (more concrete sleeper sections,
     infrastructure and a high rate of adoption of        new rail) as well as technology improvements
     new technology. The basis of world competitive       (signalling systems based around GPS and 3G
     performance exists when this is combined             communications). In short, the corridor is in
     with strong economies of scale, timely               good shape and getting better.
     performance of the task and a supportive
     regulatory environment.
     each of the major rail tasks or corridors
     needs to be evaluated against these criteria:
     1. High quality infrastructure
     2. A high rate of adoption of new technology.
     3. Strong economies of scale
     4. Timely performance of the task
     5. A regulatory environment that supports
        and encourages (doesn’t hinder)
9. difficuLties AssociAted
   With the use of rAiL

    rigid cut off times can assist in driving discipline into your supply
    chain and suppliers.
    procedures that appear antiquated are being modernised and made
    nationally consistent.
    Limited choices mean customers and rail suppliers need to work
    closely to drive service levels.
    customers using rail need strong commitment to the arrangement,
    but this can deliver benefits.



Each mode of transport has its inherent             Large steps are now being taken by both public
strengths and weaknesses. In addition, each         and private rail companies to evolve into a
comes with its own history and cultural norms.      modern, innovative service-focused logistics
                                                    service. However, patience and perseverance
Supply chain managers used to the choice or
                                                    is required to get the best out of a rail solution.
responsiveness of road transport often struggle
                                                    While the system is less flexible at the outset,
for a while to cope with the more structured
                                                    it can deliver high levels of structure which
approach required for rail. It also needs to be
                                                    assist in execution and generate higher levels
recognised that rail has an inherent tendency
                                                    of certainty once the system is adopted.
towards monopoly market characteristics.
Economies of scale are crucial for rail and there   Those who do have the patience to adapt can be
is often only one operator servicing a particular   rewarded with good cost and service outcomes.         25
area or region.
There is also the issue of cultural history,
which can often be perceived as rigidity in staff
and people issues, unions and labour relations.
All state rail systems were state monopolies
until 10 years ago. Infrastructure investment
went increasingly towards road as the dominant
mode. Rail became somewhat ossified in terms
of planning and infrastructure investment,
regulation and cultural practices.
     10. hoW rAiL And roAd
         coMpLeMent eAch other

     Rail plays a vital part in sustaining the             “Intermodal” is frequently crucial for rail to
     competitive advantage of Australian industry.         be able to play a role in Australian societal
     This factor is most crucial in the high intensity     transport needs. The only time this is not true
     heavy haul industries such a coal and iron            is in some major mining operations where rail
     ore. However the same is significantly true           takes the product directly from mine site to
     for a wide range of other industry sectors –          port. For virtually all other traffics, rail requires
     rail is important to keep Australian industry         pick up and delivery to customers by road.
     competitive. Heavy haul agricultural produce          Fundamentally, rail cannot survive without road.
     (milk powder, wine, fruit, and grain) is an
                                                           The converse is frequently valid as well. Road
     example where rail plays a strong role. The
                                                           would greatly struggle to achieve all required
     capacity to move large volumes quickly is a very
                                                           transport tasks if rail did not exist. Current
     important part of the Australian export effort
                                                           road infrastructure is a finite resource. Fuel is
     and rail is particularly suited to this task.
                                                           expensive. Driver shortages have meant that
     However, other important needs must also              operators are frequently struggling to keep all
     be met. Products must be delivered on time,           required vehicles operating. Congestion and
     in good condition, and the transport charges          delays at key points of the road network would
     must be cost effective. The costs effectiveness       increase substantially – hindering all users.
     must apply to small lots as well as large
                                                           The scenario of higher productivity vehicles
     consignments. Road has a particular advantage
                                                           establishing the scale required for rail to “take
     in many distribution tasks – retail distribution is
                                                           over” the linehaul task is evident on tasks
     just one example. Small lot distribution is also
                                                           such as the Melbourne-Sydney inter-capital
     a particular strength of road. The “just in time”
                                                           container task.
     demands of modern distribution practice can
     often only be met by road transport.
26
     A picture is therefore emerging of certain
     transport tasks which are better served by rail,
     and other transport tasks which are better
     served by road. The two modes can compete
     with one another on a limited range of traffics,
     but often their role is complementary.
     This complementary nature of the two modes is
     the basis of “intermodal” supply chains. The two
     modes working together can achieve more than
     the individual modes in their own right.
road and rail complement                           The following illustrates a potential capital
through intermodal hubs                            expenditure program for a regional hub.

The growth and expansion of rail requires                                                          $
the growth and expansion of intermodal hubs.
                                                    Land                                     600,000
As previously outlined, effective rail transport
typically relies on road cartage at both the        Rail sidings and connections           2,000,000
origination and destination ends of the rail        Highway interconnection                  500,000
journey. In turn this requires highly effective     Internal roads and hardstand           1,500,000
intermodal hubs.
                                                    Warehousing and
                                                                                           6,000,000
Metropolitan hubs are typically a great deal        handling equipment
broader in scale and scope, involving a wider       Services                                 300,000
range of activities than regional hubs, which
                                                    Office, ICT and systems                  400,000
have a predominance of export functions.
A metropolitan hub can vary from a simpler          Planning approvals                       200,000
smaller design and land area footprint, to          Other                                    500,000
a very large hub with considerable land to          Total                                12,000,000
allow extensive expansion of warehouse and
distribution centre activities. A smaller hub
would typically require the expenditure of
around $40 million of capital, a large hub
with extensive land and warehousing would
commonly involve the investment of $250
million or greater. Much of this expenditure
would be privately made by the parties                                                                 27
building the warehousing and distribution
centre facilities.
Medium sized regional facilities would
commonly involve a capital expenditure of
$10 to $12 million. Larger facilities would
be in the order of $20 to $30 million. Once
again, much of this additional capital is
required for the warehousing and both the
aggregation and distribution centre activities.
     11. the BroAd econoMic
         Benefit of freighting
         By rAiL
           Assessing the economic and societal benefits of rail investment may
           require a model that effectively takes into account –
           • the “lumpy” nature of rail infrastructure investment;
           • the progressive capacity unlocked by staged upgrades and the
             cumulative nature of benefit streams accruing from early upgrades;
           • the broader social and environmental benefits; and
           • the spatial distribution of benefits across local, regional and
             national jurisdictions.



     It is important to be able to recognise the          Important considerations in reviewing the
     fundamental strength of the relationship             appropriateness of public sector infrastructure
     between rail upgrading as a form of national         investment such as standard gauge rail
     infrastructure investment and economic               upgrading include:
     growth. Economic growth at the local, regional
                                                          (i)   The relative narrowness of the scope of
     and state level from rail modernisation
                                                                cost-benefit analysis (CBA) conducted for
     (improved speed, increased rail unit productivity,
                                                                rail appraisals. Traditional CBA techniques
     improved safety/reduced derailments) can be
                                                                are required to focus only on direct,
     expected due to the existence of a number of
28                                                              quantifiable benefits and costs. Broader
     positive preconditions:
                                                                issues of the distribution of benefits, or the
     (i)   Availability of both private and other               range of secondary or multiplier effects
           public sector investment funds to further            often are largely ignored;
           utilise the rail investment (new industrial,
                                                          (ii) In rail infrastructure investments, a
           residential and service precincts);
                                                               significant proportion of the capital
     (ii) A well trained labour market to support              investment is irreversible. They become
          economic activity (manufacturing, trade              sunk costs. This is largely due to:
          and logistics chains); and
                                                                a. the use of the land corridor for the
     (iii) Supportive political/governance factors                 right-of-way; and
           (legal, organisational and institutional
                                                                b. the legal and political commitments
           policies and procedures in place, to further
                                                                   involved, once the investment is made.
           utilise and promote the rail investment).
(iii) Rail investment is a typically lumpy               (iv) Rail investment to upgrade specific
      investment. It is possible only to complete             sections of an existing rail corridor
      specific engineering components. Thus, the              represents a ‘linked’ investment, with
      capacity improvement, which is a stepped                the benefits of the upgrading being
      increase. At the beginning, the capacity                distributed through the remainder of the
      can well exceed demand. Optimisation                    origin-destination link. The benefits of the
      of the investment decision thus requires                initial upgrade thus pass through to all
      additional or secondary benefits (such as               subsequent upgrading, as a cumulative
      local or regional employment, induced                   investment gain. This has important
                                                                                                             29
      investment in manufacturing, service                    implications for supply chain management
      industries or residential development) to               and in planning the progressive upgrading
      justify the initial rail upgrading decision; and        of long distance rail corridors. The full
                                                              estimation of the benefits of any later
                                                              or final links which have been upgraded
                                                              thus becomes most important, in terms
                                                              of reporting the public benefits of the
                                                              upgrading. It is possible to underestimate
                                                              the economic contribution of the upgrading
                                                              of earlier components, when examining
                                                              the benefits of more recent upgrading.
     TABLE 1: hoW rAiL investMent
     cAn Be recognised to Achieve
     econoMic groWth Benefits
     table 1 provides a summary of how rail               (ii) multi-criteria analyses (MCAs)
     investment can be highlighted or recognised
                                                          (iii) impact statements (IS)
     to achieve a broad range of economic growth
     impacts. It is important to recognise that           (iv) accounting-based analyses
     the benefits of rail upgrading need to be                 a. total cost analysis
     captured and reported in both cost-benefit
     analyses and in broader complementary                     b. project life cycle analysis
     economic development appraisals. These can                c. financial statements of costs
     be completed by a range of approaches. It is                 and revenues
     possible to consider all rail investment appraisal
     approaches in four separate categories:              Each of these different approaches is relevant
                                                          for recognising the economic development
     (i)   benefit-cost comparisons (including            effects of rail infrastructure projects.
           cost-effectiveness analyses)

      Traditional cost-benefit analysis
      • Identification of user transport benefits (savings in time, costs of delivery, convenience, safety)
      • Costs of investment (savings in maintenance costs, increased productivity)

      Complementary economic development appraisals
      • Value adding for the local/regional economies
           – Employment gains (incomes skills)
           – Welfare expenditure savings
30
           – Productivity increases (time, energy)
           – Improvements in environmental conditions
              › Reduced CO2 emissions
              › Reduced noise
              › Limitations to amenity value losses (no additional losses of open space)
              › Sustainability outcomes become accepted targets for growth
      • Network/multiplier effects
           – Generation of second-order economic impacts (second and third tier economic
             activity stimulus)
           – Utilisation of previously underutilised infrastructure and private/public assets
           – Stimulus to additional local area growth and investment with population in-migration
             and small-scale investment
           – Increased land values and rents
           – Improved levels of social equity and upgrading of social infrastructure
TABLE 2: hoW the
Benefits of rAiL Are
distriButed spAtiALLy
table 2 – provides a listing of how rail investment benefits have been distributed spatially, in
terms of various economic variables across local, regional/state and national jurisdictions. The
distribution of the impacts is considerable. Many are frequently overlooked when discussing the
economic gains of rail infrastructure investment within Australia, involving the standard gauge
and broad gauge rail assets.

 Economic Factor       Local Level               Regional/State Level       National Level
 • Economic growth     • Employment gains        • Changes to               • Increased public
   and development                                 accessibility              sector performance
                       • Productivity
   effects                                                                    (taxation revenue)
                         improvements            • Changes to industrial/
                                                   manufacturing/service    • Debt servicing
                       • Skill upgrading
                                                   performance and
                                                                            • Savings in welfare
                       • In-migration/limited      output
                                                                              payments
                         out-migration
                                                 • Changes to housing
                                                                            • Reduced income
                                                   and retail balances
                                                                              inequality
 • Economic            • Increased local         • Spatial relocation       • Agglomeration of
   investment output     revenue/expenditure                                  investment
                                                 • Industrial
   effects               flows
                                                   agglomeration            • Welfare
                       • Increased State GSP                                  improvements
                                                 • Service hierarchy
                         payments                                             across borders
                                                   upgrading
                       • Increased land                                     • Increased GDP
                                                 • Increased GST/other
                         values and service                                   output
                                                   state revenues                                  31
                         charges
                                                                            • New education/
                                                                              training courses
 • Scale and nature    • Increase in the       • New rail links          • New interstate rail
   of transport          value of local                                    links
                                               • Upgraded existing links
   infrastructure        infrastructure assets
                                                                         • Savings in energy
   investment                                  • New intermodal
                       • Improvements in                                   levels
                                                 terminals
                         local performance
                                                                         • Improvements in
                         standards of rail     • Limitation/elimination
                                                                           interstate trade
                         assets                  of safety issues
                                                                         • Contributions to
                       • Upgrading of          • Additional intermodal
                                                                           greenhouse gas
                         logistics and supply    investment
                                                                           abatement
                         chain components
                       • Increased
                         productivity of road
                         and service assets
                                                                                                       32
                                         Yelta
                                         Yelta
                                         Yelta
                                         Yelta
                                         Yelta
                                                  Mildura
                                                  Mildura
                                                  Mildura
                                                  Mildura
                                                  Mildura
                                                  Mildura
                                                    Red Cliffs
                                                    Red Cliffs
                                                    Red Cliffs
                                                    Red Cliffs
                                                    Red Cliffs


                                                                      Robinvale
                                                                      Robinvale
                                                                      Robinvale
                                                                      Robinvale
                                                                      Robinvale                                                                                                         Cootamundra
                                                                                                                                                                                        Cootamundra
                                                                                                                                                                                        Cootamundra
                                                                                                                                                                                        Cootamundra
                                                                                                                                                                                        Cootamundra
                                                                                                             New South Wales
                                                                                                             New South Wales                          Narrandera
                                                                                                                                                      Narrandera
                                                                                                                                                      Narrandera
                                                                                                                                                      Narrandera
                                                                                                                                                      Narrandera

                                                            Kulwin
                                                            Kulwin
                                                            Kulwin
                                                            Kulwin
                                          Ouyen
                                          Ouyen
                                          Ouyen
                                          Ouyen
                                          Ouyen                                      Piangil
                                                                                     Piangil          Moulamein
                                                                                                      Moulamein
                                                                                                      Moulamein
                                                                                                      Moulamein
                                                                                                      Moulamein
                                                                                                                                                                                         Wagga Wagga
                                                                                                                                                                                         Wagga Wagga
                                                                                                                                                                                         Wagga Wagga
                                                                                                                                                                                         Wagga Wagga
            Panitya
            Panitya
            Panitya
            Panitya
            Panitya
Pinnaroo
Pinnaroo
Pinnaroo
Pinnaroo
Pinnaroo
                                                                                          Swan Hill
                                                                                          Swan Hill
                                                                                          Swan Hill
                                                                                          Swan Hill
                                                                                          Swan Hill
                                                                      Sea Lake
                                                                      Sea Lake
                                                                      Sea Lake
                                                                      Sea Lake
                                                                      Sea Lake                                                Deniliquin
                                                                                                                              Deniliquin
                                                                                                                              Deniliquin                Oaklands
                                                                                                                                                        Oaklands
                                                                                                                                                        Oaklands
                                                                                                                              Deniliquin
                                                                                                                              Deniliquin                Oaklands
                                                                                                                                                        Oaklands                                                     ACT
                                                                                                                                                                                                                     ACT
 South
 South                                   Hopetoun
                                         Hopetoun
                                         Hopetoun
                                         Hopetoun
                                         Hopetoun                   Woomelang
                                                                    Woomelang
                                                                    Woomelang
                                                                    Woomelang
                                                                    Woomelang
                                                                                                                                           Tocumwal
                                                                                                                                           Tocumwal
                                                                                                                                           Tocumwal
                                                                                                                                           Tocumwal
                                                                                                                                           Tocumwal
                              Yaapeet
                              Yaapeet
                              Yaapeet
                              Yaapeet
                              Yaapeet
Australia
Australia                                                                                                                   Strathmerton
                                                                                                                            Strathmerton
                                                                                                                            Strathmerton      Cobram
                                                                                                                                              Cobram
                                                                                                                                              Cobram
                                                                                                                                              Cobram
                                                                           Birchip
                                                                           Birchip
                                                                           Birchip
                                                                           Birchip
                                                                           Birchip
                                                                           Birchip
                                                                                                                           Barnes
                                                                                                                           Barnes
                                                                                                                           Barnes
                                                                                                                           Barnes
                                                                                                                           Barnes                                              Albury
                                                                                                                                                                               Albury
                                                                                                                                                                               Albury
                                                                                                                                                                               Albury
                                                                                                                                                                               Albury
                                                                                              Boort
                                                                                              Boort
                                                                                              Boort
                                                                                              Boort
                                                                                              Boort
                                                                                                               Echuca
                                                                                                               Echuca
                                                                                                                                                                                                                                 netWork MAp




                                                                                                               Echuca
                                                                                                               Echuca
                                                                                                               Echuca                                                      Wodonga
                                                                                                                                                                           Wodonga
                                                                                                                                                                           Wodonga
                                                                                                                                                                           Wodonga
                                                                                                                                                                           Wodonga
                                                                                                                                                                           Wodonga
                                                                                     Charlton
                                                                                     Charlton
                                                                                     Charlton
                                                                                     Charlton
                                                                                     Charlton
                                                                                                                                           Dookie
                                                                                                                                           Dookie
                                                                                                                                           Dookie
                                                                                                                                           Dookie
                                                                                                                                           Dookie
 Wolseley
 Wolseley
 Wolseley
 Wolseley
 Wolseley                                                                                                                   Shepparton
                                                                                                                            Shepparton
                                                                                                                            Shepparton
                                                                            Donald
                                                                            Donald
                                                                            Donald
                                                                            Donald
                                                                            Donald             Korong Vale
                                                                                               Korong Vale
                                                                                               Korong Vale
                                                                                               Korong Vale
                                                                                               Korong Vale
                                                                                               Korong Vale                  Shepparton
                                                                                                                            Shepparton
                                                                                                                            Shepparton
                             Dimboola
                             Dimboola
                             Dimboola
                             Dimboola
                             Dimboola                                                                                                  Toolamba
                                                                                                                                       Toolamba
                                                                                                                                       Toolamba
                                                                                                                                       Toolamba
                                                                                                  Inglewood
                                                                                                 Inglewood
                                                                                                 Inglewood
                                                                                                  Inglewood
                                                                                                 Inglewood
                                                                                                 Inglewood
                                                                                 St Arnaud
                                                                                 St Arnaud
                                                                                 St Arnaud
                                                                                 St Arnaud
                                                                                 St Arnaud                                                            Benalla
                                                                                                                                                      Benalla
                                                                                                                                                      Benalla
                                                                                                                                                      Benalla
                                                                                                                                                      Benalla
                                                                                                                                                                                                                                 MAP 1: victoriAn




                                                             Murtoa
                                                             Murtoa
                                                             Murtoa
                                                             Murtoa
                                                             Murtoa
                                                                                                              Bendigo
                                                                                                              Bendigo
                                                                                                              Bendigo
                                                                                                              Bendigo
                                                                                                              Bendigo
                                                                                               Dunolly
                                                                                               Dunolly
                                                                                                                                     Mangalore
                                                                                                                                     Mangalore
                                                                                                                                     Mangalore
                                                                                                                                     Mangalore
                                                                                                                                     Mangalore
                                                                              Maryborough
                                                                              Maryborough
                                                                              Maryborough
                                                                              Maryborough
                                                                              Maryborough                                           Seymour
                                                                                                                                    Seymour
                                                                                                             Castlemaine
                                                                                                             Castlemaine
                                                                                                             Castlemaine
                                                                                                             Castlemaine            Seymour
                                                                                                                                    Seymour
                                                                                                                                    Seymour


                                                                  Ararat
                                                                  Ararat
                                                                  Ararat
                                                                  Ararat
                                                                  Ararat                                                                                   Victoria
                                                                                                                                                           Victoria
                                                         Maroona
                                                         Maroona
                                                         Maroona
                                                         Maroona
                                                         Maroona                                  Ballarat
                                                                                                  Ballarat
                                                                                                  Ballarat
                                                                                                  Ballarat
                                                                                                  Ballarat
                                                                                                             Bacchus Marsh
                                                                                                             Bacchus Marsh
                                                                                                             Bacchus Marsh
                                                                                                             Bacchus Marsh
                                                                                                             Bacchus Marsh
                                                                                                                     Marsh
 Mt Gambier
 Mt Gambier
 Mt Gambier
    Gambier
 Mt Gambier                                                                                                                                                                                Bairnsdale
                                                                                                                                                                                           Bairnsdale
                                                                                                                                                                                           Bairnsdale
                                            Hamilton
                                            Hamilton
                                            Hamilton
                                            Hamilton
                                            Hamilton                                                                                                                                       Bairnsdale
                                                                                                                                                                                           Bairnsdale
                                                                                                                                                                                           Bairnsdale
                                                                                                                              Melbourne
                                                                                                                              Melbourne
                                                                                                                              Melbourne
                                                                                                                              Melbourne
                                                                                                                              Melbourne
                                                                                                                              Melbourne

                                                                                                         Gheringhap
                                                                                                         Gheringhap                  Dandenong
                                                                                                                                     Dandenong
                                                                                                                                     Dandenong
                                                                                                                                     Dandenong
                                                                                                                                     Dandenong
                                Heywood
                                Heywood                                                                                                                                          Sale
                                                                                                                                                                                 Sale
                                                                                                                                                                                 Sale
                                                                                                                                                                                 Sale
                                                                                                                                                                                 Sale
                                Heywood
                                Heywood
                                Heywood                                                                         Geelong
                                                                                                                Geelong
                                                                                                                Geelong
                                                                                                                Geelong
                                                                                                                Geelong
                                                                                                                                                                                                               0    25    50km
                                                                                                                                                                   Traralgon
                                                                                                                                                                   Traralgon
                                                                                                                                                                   Traralgon
                                                                                                                                                                   Traralgon
                                                                                                                                                                   Traralgon
                               Portland
                               Portland
                               Portland
                               Portland
                               Portland
                                                          Warrnambool
                                                          Warrnambool
                                                          Warrnambool
                                                          Warrnambool
                                                          Warrnambool
                                                          Warrnambool                                                                               Leongatha
                                                                                                                                                    Leongatha
                                                                                                                                                    Leongatha
                                                                                                                                                    Leongatha
                                                                                                                                                    Leongatha

                                                                                                                                                                                                      ARTC interstate network
                                                                                                                                                                                                      V/Line passenger rail
                Department of Infrastructure                                                                                                                                                          Freight only network
                Policy and Intergovernmental Relations Division
                Mapping and Design Services

                File No: G:\...\Cadd\FL&M\Misc\FLM01_048.wor
                Date: 24 July 2007
                                       Yelta
                                               Mildura
                                                Red Cliffs


                                                                   Robinvale
                                                                                                                                                                                      Cootamundra
                                                                                                            New South Wales
                                                                                                                                                    Narrandera

                                                        Kulwin
                                         Ouyen                                   Piangil             Moulamein
                                                                 Manangatang                                                                                                           Wagga Wagga
            Panitya
 Pinnaroo
                                                                                      Swan Hill

 South                                                              Sea Lake                                                Deniliquin                                                                          ACT
                                                                                                                                                       Oaklands
Australia                           Hopetoun                     Woomelang
                              Yaapeet                                                                                                    Tocumwal
                                                                                     Quambatook                                            Cobram
                            Rainbow                                                                                       Strathmerton
                                                                      Birchip
                                                                                                                         Barnes
                                                                                             Boort                                                                           Albury
                                                                                                              Echuca                                                     Wodonga
                                   Warracknabeal                                  Charlton
                                                                                                                                         Dookie
                                                                       Donald                Korong Vale                  Shepparton
 Wolseley
                            Dimboola                                                                                                 Toolamba
                                                                                St Arnaud       Inglewood
                                                         Murtoa                                                                                   Benalla
                                                                                                          Eaglehawk                                                                                         0     25        50km
                                                                                                           Bendigo
                                                                                             Dunolly
                                                                                                                                   Mangalore
                                                                                                                                                                                                                                   MAP 2: rAiL sector




                                                                          Maryborough                                             Seymour
                                                                                                           Castlemaine
                                                                                             Moolort      Maldon Jcn
                                                                                                                                                                  Victoria
                                                             Ararat
                                                       Maroona
                                                                                               Ballarat
                                                                                                            Bacchus Marsh
  Mt Gambier                              Hamilton                                                                                                                                       Bairnsdale
                                                                                                                            Melbourne

                                                                                                                                   Dandenong
                                                                                                       Gheringhap
                                                                                                                                                                               Sale                   “Platinum” rail lines
                              Heywood                                                                        Geelong
                                                                                                                                                                 Traralgon                            “Gold” rail lines
                              Portland
                                                                                                                                                                                                      “Silver” rail lines
                                                      Warrnambool
                                                                                                                                                  Leongatha                                           “Bronze” rail lines

                                                                                                                                                                                                      ARTC interstate network
               Department of Infrastructure                                                                                                                                                           V/Line passenger rail
               Policy and Intergovernmental Relations Division
               Mapping and Design Services
                                                                                                                                                                                                      Freight only network
               File No: G:\...\Cadd\FL&M\Misc\FLM01_048B.eps
                                                                                                                                                                                                                                   cLAssificAtion And upgrAding




               Date: 1 December 2007




                                                                                                       33
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