UNDERSTANDING THE QUEENSLAND FREIGHT CHALLENGE AND WHY OUR NATIONAL HIGHWAYS WILL CONTINUE TO BE AN ESSENTIAL PART OF THE OVERALL FREIGHT SOLUTION

DERRICK HITCHINS National Sector Leader Traffic and Transport Planning, SMEC Australia Pty Ltd derrick.hitchins@smec.com TOM CASTOR Manager Rail VIC, SA, WA & TAS, SMEC Australia Pty Ltd Thomas.Castor@smec.com DAVID FREER Principal Transport Planner, SMEC Australia Pty Ltd david.freer@smec.com UNDERSTANDING THE QUEENSLAND FREIGHT CHALLENGE AND WHY OUR NATIONAL HIGHWAYS WILL CONTINUE TO BE AN ESSENTIAL PART OF THE OVERALL FREIGHT SOLUTION The Queensland agriculture, horticulture and grain sectors are mature industries, due in part to large arable tracts of land being set aside for mass dry-land and irrigated cropping. Major road investment is aimed at improving the freight carrying capacity of the vast Queensland road network in support of this industry mainly through the upgrade of aging infrastructure and improving flood resilience. By comparison, mining is a price-driven commodity industry with the development of significant coal resources and coal seam gas fields still in the early stages of implementation and discovery. Coal continues to dominate the freight industry and underwrites virtually every decision to expand the available road and rail freight network. Major rail infrastructure investment continues to be aimed at increasing required capacity of the links to Hay Point, the Port of Brisbane and the Port of Gladstone, mainly on the back of the future demand for coal. This report leverages off prior studies and publically available information to develop a greater understanding of the challenges facing the freight industry in Queensland. It recommends that a more pragmatic approach is required when considering what the right transport solution for Queensland needs to be, and what role the rail transport system could play, especially since the road freight sector would appear likely to continue to dominate the market based on supply chain complexity, service and price. It is the view of the author that for this reason alone, our national highways will continue to be an essential part of the overall freight solution. 1. Introduction Queensland's freight task is rising rapidly, and is forecast to increase from 870 Mtpa in 2010/11 to 1,700 Mtpa by 2026. Transport and Main Roads (TMR) is planning for this growing challenge with Moving Freight, a 10-year strategy which identifies a number of actions to improve the movement of freight across Queensland. More specifically, Moving Freight outlines the Queensland Government s strategy to develop a multi-modal freight network that is both sustainable and productive, with reference to both road and rail. It also outlines a short, medium and long-term strategy to move freight onto rail and improve the efficiency of road freight, recognising that the road network clearly represents by far the largest proportion of the transport task. 1 1 Moving Freight. Department of Transport and Main Roads, Queensland. December 2013. AITPM 2015 National Conference, Brisbane, Australia 1

2. Economic and Transport Opportunities 2.1 Export and Import Freight Demand Queensland generated 19.5% of Australia's gross domestic product in the 2008-09 financial year. The economy is primarily built upon mining, agriculture, tourism and financial services. Queensland's main exports are coal, metals, meat and sugar. Other exports include aluminium, copper, copper ores, fertilizers, animal feed, zinc ores and lead ores. Imports include crude petroleum, refined petroleum, goods vehicles, civil engineering equipment & parts, rubber tyres, treads & tubes, mechanical handling equipment & parts. 2 Export and Import Freight activity is extensive across the state, supported by multiple trading ports which connect industry to international markets. Land use planning decisions, such as the permitted locations for industry has a significant impact on the type of freight activity and the routes used by trucks and trains. Rail corridors are aimed at moving freight to the ports, whereas the road network forms a north-south and east-west grid, including connections to the ports. Table 1 below provides an overview of the exports that make up the Queensland economy and their magnitudes relative to the overall freight task. Of this amount, the majority (75%) of the products leave Australia via the ports at Hay Point, Gladstone and Brisbane. The reminder of Queensland continues to be serviced by road. Table 1 - Queensland International Exports 2012-13 Commodity Group Million Tonnes per Annum Percentage Share Coal 179.9 84.2 Metalliferous ores and metal scrap 16.3 7.6 Food, beverages, tobacco, live animals 3.2 1.5 Crude materials inedible except fuels 1.9 0.9 Grains, cereals, and cereal preparations 2.7 1.3 Manufactured goods including metals, machinery 1.5 0.7 Chemicals and related products 0.6 0.3 Animal and vegetable oils, fats and waxes 0.3 0.1 Commodities not classified elsewhere 7.4 3.5 TOTAL 213.7 100 Source: OESR: Overseas exports by commodity and volume, Queensland Ports Department of Transport and Main Roads, Trade Statistics for Queensland Ports 2.2 Queensland s Freight Network The primary freight network comprises 13,600km of road and 9,550km narrow gauge and standard rail line. Any inefficiency is generally passed on through the supply chain via and increased cost resulting in a loss in competitiveness which can in turn be capitalised on. The responsibility for managing, maintaining and growing the Queensland road and rail network is increasingly being shared between infrastructure owners, regulators, transport operators, and freight consumers. Figure 1 provides an overview of the two networks relative to each other so that the current inefficient interconnectivity of the rail network can be appreciated. 2 Department of Foreign Affairs and Trade. Commonwealth of Australia. November 2009. AITPM 2015 National Conference, Brisbane, Australia 2

Figure 1 Queensland road versus rail network comparison Source: Department of Transport and Main Roads, December 2013 AITPM 2015 National Conference, Brisbane, Australia 3

Based on the typical handling characteristics of commodities, the type of freight moved in Queensland can be broadly categorised as follows: Bulk Freight Single commodity items, mostly from a single source, moved in high volumes over long distances. Examples include coal, cement, grain, sugar and bauxite. General Freight Commodities moved individually or in containers on pallets or as bound packages. Typical items include wholesale and retail products, manufactured goods, fresh food and beverages, personal items, plant and machinery and building materials. While the growth in exports will continue to be driven by strong economic activity including population growth and international trade, the reduction in manufacturing in Australia will add to the increased demand for imported goods. This will lead to an increased demand on our existing road and rail links along Queensland s coastal corridor as well as the interstate corridors and links to the southern states. Table 2 - Estimated total freight volumes for key commodity groups Commodity Group Million Tonnes per Annum 2016 2021 2026 (low) 2026 (high) Bulk Export Coal and Gas 216 282 378 378 Bulk Export Minerals 40 57 68 76 Agricultural Produce and Livestock 9 11 13 13 General Freight 830 1,016 1,185 1,274 TOTAL 1,095 1,366 1,644 1,741 Source: Pekol Transport and Traffic 2013 and TMR aggregation 2.3 Bulk Export Coal and Gas Queensland has significant oil and gas potential. However, coal is clearly the dominant freight generator in Queensland with the main destinations being Hay Point, the Port of Gladstone and the Port of Brisbane. The increase in global demand for coal over time with the rise of developing economies such as China has seen a rapid rise in the development of coal mining in south-east Queensland, particularly in the Surat, Bowen and Clarence-Moreton Basins. Coal in this region is predominantly thermal, used primarily for energy generation. Key locations likely to experience expanding freight activity and demand as a result of the growing mining industry include: Surat Basin - thermal coal, LPG, natural gas, coal seam gas, crude oil, gold and iron ore. Bowen Basin - coal North West Queensland zinc, copper, lead, phosphate, silver and gold North East Queensland - zinc, copper, lead, silver and gold Cooper Basin natural gas, crude oil, LPG These can be seen in Figure 2 below. AITPM 2015 National Conference, Brisbane, Australia 4

Figure 2 Major Mineral, Petroleum and Energy Operations in Queensland Source: Department of Employment, Economic Development and Innovation, Map and information 2010 What this map shows is a significant reliance on the major east-west rail corridors to transport coal and minerals from inland to the coastal ports of Brisbane, Gladstone, Mackay and Bowen (i.e. Hay Point). These ports provide the interfaces with Australia s major trading partners and act as the link between the land and the sea. Virtually all of the rail corridors run like spines through the middle of the various coal fields collecting and transporting this low value high volume commodity to the ports. The network of trains is operated by a variety of parties, some commercial, some governmental in the knowledge that these ports are an extremely important part of national freight flow. Other outgoing and incoming goods are carried overland to and from the port by trucks and trains. High value, low volume exports are transported by trucks to the major cities along the coast or rapidly transported interstate or overseas by air. AITPM 2015 National Conference, Brisbane, Australia 5

2.4 Bulk Export Minerals Queensland is one of the world s outstanding mineral and energy producing regions. Within its boundaries, a wide variety of economically important mineral and energy resources can be found. The best known resource regions are the: Surat Bowen basins (southern central Queensland) coal and coal seam gas Weipa region (north Queensland) bauxite North West Queensland Mineral Province base metals, phosphate and gold Charters Towers region (north-east Queensland) gold and limestone South-west Queensland region (Cooper and Eromanga Basins) oil and gas. According to the Department of Employment, Economic Development and Innovation, in 2008 09 the region produced commodities worth more than $49 billion. These minerals share the same supply lines as coal and gas and are mainly transported by rail. 2.5 Agricultural Produce and Livestock Agricultural commodities and their derivatives, including livestock, are an important Queensland market. Even though making up only 3% of the Queensland export market by volume, the total amount of agricultural produce and livestock exported overseas during 2012-2013 was valued at over $8 billion; second only to coal exports in terms of dollar value. The value of these commodities is expected to grow and will continue to be an important economic driver for the regional and rural communities of Queensland. 3 2.5.1 Grain On average, there is around 1.5 Mtpa of winter crops grown annually, including wheat, barley and maize. Around 750,000 tonnes, being 50% of the average winter harvest is moved by rail in bulk to ports for export, the balance is moved by road as bulk or in containers. Most of the flow to the domestic market is by road due to the dispersed network of suppliers and comparatively small order quantities. Rail transport could achieve a higher mode share of the export bulk volumes depending on seasonal variations and the availability of extra train paths. In some cases, grain can also be transported in shipping containers which means these consignments could be more easily transported to suitable intermodal terminal in the region where they can be loaded onto rail. 3 Moving Freight, Transport and Main Roads, December 2013 AITPM 2015 National Conference, Brisbane, Australia 6

2.5.2 Cotton Cotton is a significant broadacre crop and in Queensland is grown mostly in the south in the Darling Downs, St George, Dirranbandi and Macintyre Valley regions. Cotton exports are an outstanding commodity for carriage by rail, all other factors being equal. Presently rail transport cannot complete due to infrastructure constraints, mainly because of a number of low height tunnels that impede the movement of high volume low mass containers. Currently between 5,000 and 15,000 TEU s are carried by rail from Goondiwindi to the Port of Brisbane each year. 2.5.3 Sugar Queensland produces 94% of Australia's total raw sugar production. Sugar cane is harvested in coastal areas from Far North Queensland to the southern border and is the state's biggest rural commodity. To support future growth in this sector, the Queensland Government has outlined an Agriculture Strategy, which aims to double the value of Queensland s food production by 2040. This will require increasing emphasis on the development of existing agricultural regions across the state, with a particular focus on the north. 4 2.5.4 Livestock While the total volume of livestock being transported is significant, very little of this volume is readily contestable by rail transport. This is mainly due to the inconsistent demand and dispersed nature of the Queensland rail network. While a small proportion livestock is transported from northern Queensland to the south by rail, rail transport over this relatively short travel distance is not commercially viable without further financial support from Government such as during times of drought. 5 In addition, choosing between markets is difficult, especially when transport costs vary by distance and truck type. 2.6 General Freight 2.6.1 Intermodal Container Freight There is a considerable volume of freight (grain and cotton exports) that have an affinity with rail transport given the overall volume and density of the goods. Intermodal freight across the southwest of Queensland is largely limited to the eastwards movement of 10,000 to 15,000 TEUs per annum between Goondiwindi and the Port of Brisbane, but apart from the terminal at Goondiwindi, there are no strategically located and adequate terminal facilities across the region to compete for a greater share of the road freight. 4 Moving Freight, Transport and Main Roads, December 2013 5 NSW Department of Primary Industries, http://www.dpi.nsw.gov.au/agriculture/livestock/stockmovements/cattle-transport-costs-calculator-instructions AITPM 2015 National Conference, Brisbane, Australia 7

No product moves westerly from Brisbane into the region by rail for a range of reasons, not the least of which is a constrained narrow gauge rail corridor capacity, and an adverse commercial position relative to the price and flexibility offered by road freight. Northbound and southbound interstate freight associated with the proposed Melbourne to Brisbane Inland Rail project include: Capturing a high proportion of cotton, grain and meat exports. Handling the inbound logistics and staging associated with current and future coal mine and gas developments across the Surat Basin (as non-bulk mine inputs) Westbound flows into the region of consumer, agricultural and industrial goods The Australian Government Bureau of Transport and Regional Economics estimated that Australian ports that serve containerised cargoes in major capital cities including Adelaide, Brisbane, Melbourne, Perth and Sydney would handle the increase demand in containerised cargoes between 100 % and 300 % by 2025 compared with the current containerised cargoes handled by these ports in 2004/05. 6 Any potential freight terminals along the Inland Rail route also will need to consider the requirements for the ultimate 3,600m long train proposed by the Australian Rail Track Corporation (ARTC) as well as associated loading/unloading and storage facilities, and road network connections and future capacity. 2.6.2 Queensland Mining Operations While considerable attention is generally given to the scale and impact of mining outputs, the inbound logistics transport task can also be significant, particularly given that the inbound flows are almost exclusively carried by road transport. Several studies have identified that the scale of inbound logistics to mine sites can vary from 2-3% for steady state operations up to 5% of forecast output during set-up and construction. The current coal mining task is around 14mtpa and an inbound task at 3% is around 420,000 tonnes per annum or 8,000 tonnes per week equivalent to 200 inbound loaded trucks weekly, with a similar number returning empty. Inbound logistics to a mine site will typically include: Earthmoving equipment, which is generally transported as oversized loads Fuel for plant and equipment Ammonium nitrate for explosives Construction and maintenance consumables (steel, cement, etc.) These freight tasks include not just the procurement of materials and components, but also the services that traditionally have been provided in house. This has been particularly evident in the mining industry where the provision of transport, warehousing, and inventory control is increasingly 6 Queensland University of Technology, Freight Intermodal Terminal Systems for Port of Brisbane, Melbourne and Sydney, 2006 AITPM 2015 National Conference, Brisbane, Australia 8

subcontracted to specialists or logistics partners who are able to provide a just in time service to the mine sites. 3. The Road versus Rail Debate 3.1 Moving More With Less Since the 1990 s Australia s freight challenge has been growing at rate that will see it double every 15-20 years. Access to and use of infrastructure by efficient freight vehicles is a priority not merely to immediately boost productivity, but to ensure that design of future infrastructure allows realisation of Australia's freight potential. The table provides an indication of this latent future demand. The 2007 Productivity Commission into Road and Rail Infrastructure found that as a result of the inherent differences in the service offering of road versus rail, only about 10-15 per cent of the freight task is considered contestable across the two modes. This means that most of the freight that is currently being transported by truck cannot be easily transported by rail and vice versa. Not surprisingly, this strong growth forecast in road freight is leading to increasing transportation costs; the reason being that road access for heavy vehicles continues to be constrained mainly because of: Maintenance backlog leading to road deterioration Low prioritisation of freight infrastructure bottlenecks Road owner imposed access constraints (particularly local governments) 7 7 Frontier Economics Pty Ltd, Presentation to IPART, September 2014. AITPM 2015 National Conference, Brisbane, Australia 9

The industry s response to this challenge has been to call for development of bigger and longer trucks to keep up with the road component of the projected future freight task. Based on the strategy of Moving More with Less, this new approach addresses both volume and mass limited freight because of their different impact on the infrastructure and also gives industry more flexibility to select the most suitable vehicle configuration to transport their goods. 8 The majority of Queensland s State Controlled Roads in Surat Basin currently have higher than average heavy vehicle proportions with many roads having heavy vehicle percentages in excess of 20% of AADT. With the rationalisation of rail freight services, grain crops and beef cattle are increasingly being transported using multi-combination vehicles (MCV) taking advantage of higher mass limits (HML) and freight efficiency. The volume of heavy vehicles using Surat Basin roads is expected to increase with the growing mining and gas industry. These industries will utilise MCVs but will also require vehicles operating under permit for excess dimensions and/or excess mass including heavy load platform (HLP) vehicles. The majority of agricultural produce from the region is transported by road. 9 3.2 The Who makes the Decision Argument Future decisions about which mode of transport to invest in are largely up to state governments who are responsible for preparing the business cases which are put up for funding to organisations such as Infrastructure Australia. In the way that our federal funding model works, it means that any decisions about what gets built first and what gets built next is a decision of the government. However, the reality is that transport networks are complex and multi-modal by nature and require a more integrated approach to achieving the most efficient movement of freight. Any serious freight strategy therefore needs to take a big picture, integrated view that includes smart land-use and development as well as efficient rail, truck, and shipping transport solutions. 8 https://www.nhvr.gov.au/ 9 Surat Basin Regional Transport Strategy. Part 3. Existing Transport System Issues. March 2011. AITPM 2015 National Conference, Brisbane, Australia 10

The projected growth in Australian freight over the next few decades will continue to place pressure on both infrastructure and communities. To address this concern, Infrastructure Australia released a National Land Freight Network Strategy Discussion Paper in 2011 to promote debate about providing the necessary infrastructure for freight in the future, the point being that the key to securing productivity gains on a national basis is effective integration of freight policies with transport and land use planning across all of the states. Key initiatives identified in this discussion paper as a way towards getting a national land freight strategy to work included: I m very keen for this not to be a road-vs-rail debate because I believe that if our cities and our nation are to function effectively. It s not road or rail; it s road and rail, he said. I also happen to think that large cities can t function properly unless they ve got the right mix of road and rail infrastructure. Infrastructure Chairman. Sir Rod Eddington (BRW) September 2013 standardised track on general freight railways unified governance of general freight railway commercially operated high productivity road networks within cities and to ports. 10 Infrastructure Australia has already recommended a number of freight related projects including new road links in all of the states and supports significant investment in Australia's rail freight network. 11 3.3 Optimum Haul Distance A key to securing productivity gains is effective integration of transport and land use planning with freight policies. This involves the development of long term plans which can demonstrate to government how an investment in future capacity can lead to a more efficient freight industry. There are two aspects to efficiency that need to be considered in the context of such a plan. One is the actual operating costs of trucks (i.e. fuel, maintenance, licencing and taxes) and the other is the appropriateness of the vehicle to the task. Table 3 below provides an indication of how this might work. Table 3 - Freight task versus optimum haul distance Freight Task Origin or Destination Most Appropriate Mode Optimum Haul Distance General freight, Between major urban areas Rail and road as complements, > 1,500km interstate line haul and industrial centres and as substitutes Bulk minerals Mining regions to ports Rail, shipping, pipelines 800km 1,300km Agricultural produce Regional Australia to urban Road and rail as complements, 400km 900km and livestock areas and ports and as substitutes, shipping, and some aviation Industrial freight Between major industrial Road and rail as complements 150km 500km centres and as substitutes, shipping General freight, urban distribution Urban centres Road Less than 100km 10 National Land Freight Strategy Discussion Paper. February 2011. 11 Press Release - National Land Freight Strategy, June 2011 AITPM 2015 National Conference, Brisbane, Australia 11

Source: Bureau of Infrastructure, Transport and Regional Economics and the Office of the Infrastructure Coordinator, Infrastructure, Transport and Regional Economics and the Office of the Infrastructure Coordinator, July 2010. To date, most freight-related policy in Australia has been mode-specific. Similarly, bulk commodity movements tend to be region specific. Most freight journeys include a land transport segment, so there are many more truck movements than train or ship movements in localities with greater population and economic growth. However, what is clear is that the use of road transport is preferred across all of the freight tasks and is likely to remain so for the foreseeable future unless a number of basic issues are addressed. The relative cost structure between road and rail and the volume to be transported are significant factors in mode choice. Error! Reference source not found. shows the general relationship between average freight costs and haulage distance for Australian inter-capital road and rail freight. Figure 3 - Average freight cost comparison for Australian inter-capital road and rail freight Source: BAH (2001, Appendix C) and BITRE estimates. (PUD=Pickup and Delivery) In general, rail has a lower line-haul cost than road. This is especially the case when large volumes and longer distances are involved. However, pick-up and delivery (PUD) costs add significantly to the average door-to-door cost of moving freight and for this reason the door to door cost to transport goods for distances less than 1500 kilometres by road remains the most attractive option in most states. As most Australian capital cities are more than 1500km apart, rail is able to be more competitive once the delays associated with pickup and deliveries are addressed. The impact of this distortion is strongest in general freight market with relatively long distance line hauls which run parallel to rail lines, including to the urban ports. 3.4 Flexibility and Service Quality The choice of transport mode generally involves a trade-off between cost and several service quality factors. In most cases you need a truck to deliver freight to the commercial or industrial premises front door. Trucks don't require their own infrastructure, and are therefore capable of reaching any destination without advance notice. Trucks are also able to travel a more direct route. The main downside to rail is the lack of timely pickup and delivery, a near non-starter for companies that demand just-in-time logistics.. Foodstuffs, refrigerated and chilled freight and other perishables tend AITPM 2015 National Conference, Brisbane, Australia 12

to be very time-sensitive. The need to put things in storage makes rail particularly difficult for rail to compete. Key freight service quality factors include transit time, reliability, availability and frequency and can be loosely characterised as making up the following product offering: 12 Express - Next day or earliest possible business day Economy - Day-definite door-to-door delivery (2 5 working days) General - Non-time-definite delivery Customised - Non-standard mass and/or dimension freight or dangerous goods. Table 4 provides examples of the current travel time savings that can be realised by choosing road over rail. For the Melbourne and Brisbane corridor, door-to-door rail transit times for rail are up to 50 per cent more than for road, and rail services are less frequent and generally less reliable than road. 13 Table 4 - Typical Freight Transit Times (door to door) Source: BAH (2001), BITRE (2008b) and Lloyds ship movements database (2005) One option to improve the attractiveness of rail is to expand the use of rail intermodal systems, where trains move shipments over medium to long distance and trucks move the goods to their final destinations. The infrastructure for this is already in place on the trucking end whereby trucks are increasingly able to pick up intermodal containers directly from the customer and deliver these directly onto the trains. Allowing for pick-up and delivery within terminal operations, means the door-to-door transit time differential between road and rail can be greatly reduced. 3.5 Improved Vehicle Safety The B double is currently Australia s safest and most efficient mainstream heavy freight vehicle. Developed in the 1990 s, it has single-handedly managed to keep up with the rate of growth of Australia s national freight task. However, just as the introduction of the B-double produced a quantum leap in the ability of the road freight sector in the 1990 s, there is increasing pressure on Road Controlling Authorities to allow even higher and longer trucks to start using our roads. 14 These higher and longer trucks are typically referred to as High Productivity Vehicles (HPV), Multi Combination Vehicles (MCV) and Performance Based Standards (PBS) Vehicles. 15 Road Controlling Authorities will not stipulate any particular High Productivity Freight Vehicle (HPFV) design. Rather, it is left up to the industry to respond with designs that suit their industry s 12 Ernst & Young (2006) 13 Ernst and Young 2006) 14 Moving More with Less. VicRoads, Freight Week 2013 15 Advantia Transport Consulting AITPM 2015 National Conference, Brisbane, Australia 13

needs. All vehicle designs must however be approved under the Performance Based Standards (PBS) Scheme before being allowed to travel on the public highways. Under the PBS Scheme, new designs are assessed against sixteen safety-related and four infrastructure-related performance standards. These include Acceleration and braking Rollover stability High speed dynamic stability Low speed turning capability General on-road tracking behaviour Impact on road pavement Impact on bridge structures As a result of this rigorous accreditation process, vehicles satisfying these criteria are known to have a higher level of safety than the average non-pbs vehicle of earlier years. Preliminary research conducted by Austroads has produced some interesting results. Based on crash data compiled by National Transport Insurance since 2005, Austroads found that with the larger size vehicles there is actually a greater level of safety. Table 5 below is an extract from this report. Table 5 -Truck size versus crash history comparison Crashes per 100 million kilometres Crashes per 10,000 vehicles Single Semi-trailer 20.6 146 B-double 7.3 121 B-triple 4.3 99 One reason cited for this significant improvement in the crash history is the safer performance of High Performance Freight Vehicles (HPFV) in comparison with the older standard vehicle configurations. An alternative view is that this is simply due to increased levels of enforcement. A significant number of these larger and heavier vehicles also participate in the Intelligent Access Program (IAP) whereby heavy vehicle operators agree to remotely track the movement and location of their vehicles using GPS in return for access or less restrictive access to the road network. AITPM 2015 National Conference, Brisbane, Australia 14

4. Moving towards User Pays 4.1 Road User Charges Revenue from heavy vehicle charges covers the operation and maintenance of the national road network, and future capital expenditure as directed by the federal government. Vehicle registration and diesel excise is the currently mechanism for recovering the cost of providing and maintaining Australia s roads. However, any analysis which looks towards the increased impact of heavy vehicles on our existing roads also needs to account for the increased savings in both agency and user costs due to the reduction in the number of heavy vehicles (because of the introduction of higher and longer trucks) and reduced pavement wear. 16 Because of the continued efficiency gains in the B-double and road train fleet, these vehicles receive an average cross subsidy of between $5,500 and $7,500 per annum from other heavy vehicles, mainly the rigid heavy vehicles which tend to overstate their costs. 17. Delaying the implementation an alternative and more equitable method of collecting this pseudo road access charge simply continues to undermine competition between rail versus road. 4.2 Rail Access Charges Interstate train operators are charged a rail access charge to use the Australian Rail Track Corporation s (ARTC s) rail infrastructure. Very much like a taxi, the operator is charged a flag-fall and then a gross tonne kilometre charge. 18 Revenue generated from this access charge is used to cover infrastructure operating and maintenance costs, fixed overhead costs and to make a contribution towards capital expenditure. For interstate routes, such as the north-south rail corridor, charges are close to the floor price because of price competition from road transport. For heavily used coal routes such as in the Hunter Valley, rail access charges are close to the ceiling. To further complicate this arrangement some private rail operators employ a take or pay policy whereby customers are forced under contract to purchase their required train paths in advance so as to secure sufficient capacity on the line to get their product to the ports. This has the effect of shutting out any new players in the market and/or preventing the less profitable mining operations from gaining access to the ports for their product. 4.3 Levelling the playing field Each mode faces its own challenges, and infrastructure requirements, but in terms of actual operating costs, the biggest economic advantage that trucks have over trains is the benefit of a significantly skewed tax and revenue structure. These difficulties are magnified by the long standing approach to the provision of new road transport infrastructure, funded largely from vehicle registrations and fuel excise revenue, including an outdated predict and provide regime. The opposing view is that this paradigm should be revisited and that the settings changed towards a strategy which is focussed more on maintaining our existing road infrastructure to a fit for purpose 16 Austroads, High Productivity Vehicles and Pavement Economic Impacts: Network Level Assessment Approach, AP-T116-09 17 Draft Regulatory Impact Statement Summary for the Third Heavy Vehicle Pricing Determination, National Transport Commission, October 2005. 18 ARTC website (http://www.artc.com.au/about/reference.htm) AITPM 2015 National Conference, Brisbane, Australia 15

standard and then exploring alternate funding options, including partnerships, to expand and improve the competing rail network. Attracting freight to rail will also greatly benefit the road network by minimising future maintenance and development demands associated with heavy vehicles as well as provide broader safety and environmental benefits. Opportunities exist to attract freight volumes to rail for agricultural and general freight tasks via alternative train operating models, enhancing contestability and promoting the use of latent infrastructure demand. So while it is agreed that we should be increasing truck efficiency in the short-term, the benefit of drastically expanding our rail infrastructure in the long term and increasing its utilisation cannot be ignored. 5. Opportunities for Change The composition of the Australian heavy vehicle fleet has changed significantly over time and no doubt will continue to change in response to the ongoing pressure to maximum economic return. Considering the predicted doubling in the road freight task by 2020, it is recognised that there is an increasing need to modernise the vehicle fleet and to maximize the benefit of each mode of transport depending on the relative strength or weakness of the competing market. All indications are that rail will continue to be best suited to transporting bulk freight, especially coal and iron ore. However, to be sustainable, the overall objective of the freight industry needs to be focussed on developing strategies to support the planning and development of a transport system that meets all of the economic, social, environmental and safety objectives of the government and the community it serves. Road freight is more suited to the carriage of smaller and less heavy consignments between dispersed locations and in accordance with the seasonable demands of industries such as cotton, grain, sugar and livestock. Where the two modes do compete, the choice between roads versus rail will depend not only on the particular economic activity involved but also on the relative modal costs associated with each mode. Projects such as the Melbourne to Brisbane Inland Rail project which will help rail to compete with road will also contribute to a more competitive road freight transport market. This will undoubtedly lead to lower long haul transport costs and a greater percentage of freight being transported by rail. Ongoing infrastructure investment will improve the efficiency of freight transport and influence the competitiveness between the various modes. This will enable the Queensland government to make informed decisions over the future road infrastructure development for the region. Ultimately, it is agreed, that Australia s freight task will continue to evolve and in doing so involve a mix of road, rail, sea and air. AITPM 2015 National Conference, Brisbane, Australia 16

6. References Advantia Transport Consulting Australian Rail track Corporation (ARTC) website http://www.artc.com.au Austroads, High Productivity Vehicles and Pavement Economic Impacts: Network Level Assessment Approach, AP-T116-09 Bureau of Infrastructure, Transport and Economics, Greenhouse gas emissions from Australian transport: projections to 2020. Working Paper 73. Department of Infrastructure, Transport, Regional Development and Local Government Canberra, Australia. December 2009 Department of Employment, Economic Development and Innovation, Queensland Government, Queensland s mineral, petroleum and energy operations and resources, Map and information 2010 Department of Infrastructure, Transport, Regional Development and Local Government, BITRE, Road and Rail Freight, Competitor or Complements, April 2009 Department of Transport and Regional Services, North South Rail Corridor Study, (Ernst and Young 2006) Frontier Economics, Presentation to IPART, September 2014 Infrastructure Australia and the National Transport Commission, National ports strategy, Background paper, December 2010 Moving Freight, Transport and Main Roads, December 2013 National Land Freight Strategy, Discussion Paper. February 2011. National Transport Commission, Draft Regulatory Impact Statement Summary for the Third Heavy Vehicle Pricing Determination, October 2005. National Land Freight Strategy, Press Release - June 2011 National Transport Commission, Performance-Based Standards Scheme Network Classification Guidelines July 2007 Queensland Transport and Main Roads, Surat Basin Regional Transport Strategy. Part 3. Existing Transport System Issues, GHD. March 2011. Queensland University of Technology, Freight Intermodal Terminal Systems for Port of Brisbane, Melbourne and Sydney. Piyapatroomi, Noppadol and Bunker, Jonathan M. and Ferreira, Luis (2006) VicRoads, Moving More with Less. Freight Week 2013 AITPM 2015 National Conference, Brisbane, Australia 17