Monday 24th Sep, 2018

INDUSTRY OPINION: Why extra rail capacity isn’t enough

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AUSTRALIA’S State and Federal Governments are allocating record investment towards adding capacity to our port rail networks. But with road transport still the most competitive transport mode of choice, how will we ensure that this extra capacity is utilised?

Undoubtedly, rail services at our major ports are still subject to significant interface cost and efficiency disadvantages when compared to road access. In nearly all cases, road services remain overwhelmingly more price competitive than rail services. And as most logistics service providers know, cargo owners are simple creatures, we follow the cost savings. Historically, companies like CRT, who ran a port rail shuttle service directly into the Port of Melbourne, have found this out the hard the way, discontinuing the service largely due to high operating cost differentials with road. Much of their high operating costs were attributed to the port interface and stevedore fees.

At the same time, “freight on rail” has become a key feature of State and Federal transport policy. In Victoria alone projects include the Port Rail Shuttle Network (PRSN), the Murray Basin Rail Project, and, of course, the Federal Government’s big-ticket item, Inland Rail.

The Victorian Government was hoping to correct modal cost discrepancies through the Mode Shift Incentive Scheme (MSIS), a $20M Transport for Victoria scheme which served to subsidise lift and other rail transport costs for regional rail users into the Port of Melbourne. Current recipients served to subsidise rail movements for the Tocumwal Corridor, the Horsham Corridor, the Warrnambool Corridor and the Mildura Corridor.

The MSIS has been a key factor in the recent revival of rail mode share growth in Victoria.

The MSIS funding commitment was made in 2014-2015 and is due to expire this June. We understand that the continuation of the scheme is currently being considered by cabinet.

The case for the continuation of the MSIS
Aside from obvious benefits for urban de-congestion, the MSIS has delivered real and measurable trade outcomes. Many of our members have attributed the MSIS as a significant contributor to their growth in export volumes by placing downward pressure on supply chain costs and allowing them to grow their rail volumes, which they consider to be the most efficient transport mode.

We have received similar feedback from our logistics service provider members, including the Port of Melbourne, SCT, DP World Australia, Interport Intermodal, and others, who are unanimous in their support of the programme.

If the continuation of the programme is to be considered, Transport for Victoria should build on the success of the programme by ensuring:

  • that future commitments to the MSIS are extended beyond one year;
  • that the MSIS be open to metropolitan cargo; and
  • that the MSIS be open to cargo originating from outside of Victoria (if a majority of the journey is within Victoria), to attract interstate cargo volumes to the Port of Melbourne.

The case for an expanded MSIS
The expansion of the programme would further increase Victoria’s rail mode share, as well as attracting interstate cargo volumes. With increasing competition between NSW Ports and the Port of Melbourne for “contestable trade” in the Riverina and other regions, this is more important than ever. Casella, based in Griffith, NSW, are an Australian Peak Shippers Association (APSA) member and the largest wine exporter from the Port of Melbourne, is a good example of this.

The continuation and expansion of the MSIS would also enhance Victoria’s ability to compete with Flinders Ports for South Australian cargo, via SCT at Penfield.

Interstate case studies
There are many examples of similar programmes stimulating export volumes in other states. This includes the success of the amended Tasmanian Freight Equalisation Scheme (TFES), which has played a significant role in growing international export freight volumes both in Tasmania and through the Port of Melbourne.

Another example is the West Australian rail subsidy, renewed by the State Labour Government to $50 per TEU as of 1 January 2018. The aim of this subsidy is to achieve 20% rail mode share (currently 15%) into the Port of Fremantle.

Continuation of the MSIS will support outcomes for the Port Rail Shuttle funding and other initiatives
The allocation of $58M to the Port Rail Shuttle Network (PRSN) should not replace the MSIS. In fact, MSIS funding would complement the PRSN by ensuring that additional capacity added to the Port of Melbourne rail network via investment in the PRSN is utilised. State and Federal investment in the PRSN will not deliver returns or corresponding increases in rail freight where road freight costs remain more attractive than rail freight costs. Subsidisation through the MSIS will help to correct rail-road competitiveness and will encourage use of the extra capacity. This is equally true for the Murray Darling Basin rail upgrade, where the facility may provide another modal option for local exporters, but it will not guarantee that it is a better and low-cost modal option when compared to road transport.

* Travis Brooks-Garrett is secretariat at Australian Peak Shippers Association





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