Balance in freight sector easier than you think

Traffic congestion resonates with readers, it gets us talking about the daily grind on our roads and how it robs us of precious hours – in the workplace, at home with family or at the footy or netball field.  IA’s publishing of individual road and corridor statistics was smart. The numbers were shocking too: congestion could be costing Australia north of $50 billion a year in lost productivity by 2031.

There were calls for tolls and new user charges because the existing funding model isn’t working and governments, with constrained budgets, just can’t be expected to stump up more and more. What follows will be a lively debate because road user charges and other more aggressive measures such as congestion taxes have been a very hard sell in Australia.  We take comfort in our “free” roads and rarely demand transparency on how they are funded and maintained by taxpayer money.

Infrastructure Australia, under its remit from the Federal Government, is now working on a 15 year infrastructure plan to be presented by late 2015. A period on consultation will happen with stakeholders and the community. The final result will be a recommended pipeline of projects to promote long-term productivity: the right projects, for the right reasons, and delivered at the right time.

Major players in the Australian freight industry are very interested in the substance of the IA Audit (and key findings such as those listed below), and how policy reform and new models of funding and risk sharing might play out between government and the private sector.

• The current level of public sector expenditure – especially in the transport sector, which remains largely funded by government rather  than user charges – may be unsustainable in the face of increasing budget pressures to fund welfare and health services. (Finding 27)
• Current arrangements for the funding of land transport represent the most significant opportunity for public policy reform in Australia’s  infrastructure sectors. (F 28)
• As well as being the largest infrastructure sector, transport is also the most challenging, with relatively high projected growth in demand, a low proportion of user-based funding and market-based pricing mechanisms, challenges with project selection processes … (F62)

The message is clear: more and more public spending is not always the panacea, nor is the building of more and more roads by government. In reality we’ve got to pull a range of levers. In freight transport, we must look more to policy reform and the private sector for funding, and insist that rigorous, independent cost-benefit analysis be the basis for all public infrastructure investment.

Take for example, our general freight corridors on the eastern seaboard, the heavily trafficked and populated strip stretching from Melbourne to Brisbane. The freight carried interstate on these corridors accounts for about 60% of Australia’s total interstate freight flows. Here rail, usually the heavy-lifter for long-distance freight in modern market-based economies, remains seriously underweight. Between Melbourne, Sydney and Brisbane, trucks account for about 90% of all freight transported – rail’s share has been in constant decline over the past 40 years.

The rail freight industry has worked to reduce transit times and improve reliability. But where rail freight operators pay a direct user charge to access infrastructure, truck operators primarily pay for road use through fuel excise. The combination of low increases in excise and improved fuel technology means heavy vehicle operators are paying less in real terms for the access they are getting to improved infrastructure that delivers them a commercial benefit. It is the opposite of the way it works in other sectors including rail.

Although it is not the only reason for a major imbalance, this difference in pricing is an important factor. As a result, we are not realising the productivity and social benefits that freight rail could deliver were it to be given a genuine opportunity to play to its main strengths, including long-haul interstate freight and port-shuttle services where rail offers substantial productivity and social benefits. I’m not diminishing the role of the heavy vehicle sector, but this imbalance inevitably means more traffic congestion and accidents, a bigger carbon footprint and more intensive use of fuel.

Compare this to the North American rail freight sector, revitalised in the last three decades through sustained reform, deregulation and private investment.  It’s estimated that freight rates in real terms have fallen 30-40%; modal share has climbed to 35%, and almost $500 billion re-invested by the private sector. The North Americans are considered the world’s most efficient and competitive railroads, to the benefit of industry, consumers and the economy.

While not pretending we have the scale of North American economies, there’s opportunities for reform and investment in the Australian freight sector.

• Incentivise more private sector investment in freight infrastructure in commercially-oriented projects that share risk between government and the private sector.  A good example is the proposed Moorebank Intermodal Terminal, west of Sydney, where the Commonwealth is working with Qube / Aurizon to create a nationally-significant and largely privately-funded freight asset that will be open access and multi-user.
• Be targeted, strategic and ‘play the long-game’ in freight infrastructure investment to deliver productivity and economic benefit. This includes existing “brownfield” infrastructure that merits investment to lift efficiency, remove bottlenecks or build capacity.
• Implement road pricing for heavy vehicles where direct user charges genuinely reflect the cost of infrastructure, its maintenance and expansion, and ultimately, drive the best investment decisions. Distance-based charging for heavy vehicles has been used in New Zealand since the 1987.
• Plan and secure suitable freight corridors, as part of urban planning, and ensure provision of efficient road, rail and port interfaces. The Federal Government’s seed funding and securing of corridors for the Inland Rail project is a good illustration.
• Further develop the rail modal share targets that some state governments have identified, and back these up with substantial policy changes that will enable them to be met. For example, New South Wales has set a target to double the proportion of freight carried on rail on key freight corridors by 2020. Such an approach is consistent with policy initiatives in the Europe and the United States.

I look forward to an increasingly robust debate about Australia’s future infrastructure requirements, and particularly how we identify, fund and execute on most productive, long-run reform and investment opportunities. This is critical to improving Australia’s international competitiveness.

Lance Hockridge is the managing director and chief executive of Aurizon. He has 30 years’ experience in the transportation and heavy industrial sectors, and he will be providing his insights on the biggest challenges facing the Australian transport infrastructure sector at the AFR National Infrastructure Summit. View the full speaker line-up and register at: http://bit.ly/1LJvfW4