The Winston Churchill Memorial Trust of Australia JOCK CARTER Churchill Fellow. Fellowship Study Tour Report

The Winston Churchill Memorial Trust of Australia JOCK CARTER 2008 Churchill Fellow Fellowship Study Tour Report ‘Future opportunities for short li...
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The Winston Churchill Memorial Trust of Australia

JOCK CARTER 2008 Churchill Fellow

Fellowship Study Tour Report

‘Future opportunities for short line rail operations in regional Australia’

“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to its close. In its place we are entering a period of consequences.” Winston Churchill, 1936

I understand that the Churchill Trust may publish this Report, either in hard copy or on the internet or both, and consent to such publication. I indemnify the Churchill Trust against any loss, costs or damages it may suffer arising out of any claim or proceedings made against the Trust in respect of or arising out of the publication of any Report submitted to the Trust and which the Trust places on a website for access over the internet. I also warrant that my Final Report is original and does not infringe the copyright of any person, or contain anything which is, or the incorporation of which into the Final Report is, actionable for defamation, a breach of any privacy law or obligation, breach of confidence, contempt of court, passing-off or contravention of any other private right or of any law.


Dated .............................................................

13th October 2009 ..............................................

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

Contents Introduction .......................................................................................................................... 3 Executive Summary ............................................................................................................... 5 Fellowship Programme.......................................................................................................... 6 Regional rail landscape in Australia ....................................................................................... 7 Definition of ‘Short haul’.................................................................................................... 8 The relevance of rail in regional general distribution ......................................................... 8 Why is it important? .......................................................................................................... 9 What are the key issues? ................................................................................................. 10 Our state based history ................................................................................................ 10 Terminals ..................................................................................................................... 11 Innovation and Investment .......................................................................................... 11 North America and Europe .................................................................................................. 12 Relevance to the Australian Context ................................................................................ 12 North America ................................................................................................................. 13 UK ................................................................................................................................... 17 Europe ............................................................................................................................. 18 Innovation ........................................................................................................................... 20 Transloading .................................................................................................................... 21 Terminals......................................................................................................................... 22 Trailers on rail .................................................................................................................. 22 Swap bodies .................................................................................................................... 24 Technologically advanced equipment .............................................................................. 25 Road Transferable Locomotives ....................................................................................... 25 Conclusions ......................................................................................................................... 26 Recommendations .............................................................................................................. 29 Regulatory Framework .................................................................................................... 29 Branch Lines .................................................................................................................... 29 Innovation ....................................................................................................................... 29 Terminal Access ............................................................................................................... 30 Rolling Stock .................................................................................................................... 30 Page | 2

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

Introduction Australia faces a unique combination of challenges in relation to transport with a relatively small population base occupying one of the largest countries on the planet. Often the ‘tyranny of distance’ is quoted as a justification for poor transportation outcomes. Whilst this explanation maybe expedient, it is not accurately reflect the Australian freight task. Interestingly, the road transport sector has flourished in Australia whilst volumes of freight moved by rail have diminished. Technically rail should have a commercial advantage in a country beleaguered by the ‘tyranny of distance’. The failure of rail to maintain volumes is a reflection of the relatively short distances that much of the urban and interregional freight travels. Rail is the natural transport mode for long distance transcontinental container movements and movement of significant bulk commodities like coal and iron ore. However distribution in regional Australia by its nature is relatively short haul and rail has steadily lost volume and relevance in these markets. With the population base predominantly located in coastal regions with a strong urban concentration most freight does not travel great distances. This makes rail transport difficult for general freight requirements. When this is combined with many years of underinvestment in rail infrastructure and the combination of different state based gauges and regulatory regimes rail has struggled to compete. Even bulk products like grain are struggling to sustain viable regional rail services. However Australia faces significant challenges in relation to future distribution challenges. Freight volumes are estimated to double by 2030. This has been reaffirmed recently in July 2009 by BTRE. Even in the face of the Global Financial Crisis the forecast growth is significant. With traffic congestion a major issue in all major Australia cities and surrounding metropolitan areas, the cost of fuel rising significantly, labour availability more constrained and growing recognition of the importance in reducing greenhouse emissions efficient transport systems have a critical role to play. Integrated transport strategies which incorporate rail and road will be key to the future. Traditionally the different modes of transport have been fiercely competitive and protective over freight volumes. However in the face of these forecasts Australia has no option but to embrace the reality that both modes play a vital role and this will be more critical into the future. The purpose of the fellowship was to travel through North America and Europe to ascertain different approaches to management of short haul and regional rail tasks in other parts of the world. In particular examining the interfaces between rail and road operations and understanding opportunities for innovation in the technology employed in rail operations

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Churchill Fellowship 2008 - Future of Short Haul Regional Rail

The fellowship enabled me to investigate the ways different companies and governments have sought to address these issues. Rail tends to evoke strong emotive responses around the world. In many ways connection to the train line was the source of economic and social development. Moving both passengers and freight it is closely integrated into the social fabric of most western societies. The Churchill Fellowship is a unique opportunity to engage with others from around the world, that have a common interest in transportation both road and rail. I found that when meeting people as a representative of the trust engendered a frankness and honesty that enabled insight into the major issues and opportunities facing the industry across different regions. Finally I would like to express my thanks and appreciation to my significant support crew, in particular my wife Suzie, Ellie and Archie, my parents and broader family and friends who all went out of their way to help make this possible for me.

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Churchill Fellowship 2008 - Future of Short Haul Regional Rail

Executive Summary Name: Address: Phone: Project Description:

Jock Carter 15 Vernon St Cammeray NSW 2062 0427 283 999 Email: [email protected] To assess opportunities to enhance short haul rail distribution in regional Australia across North America, UK, Germany and France.

Highlights Canadian Pacific, Calgary Canada – In depth meeting with senior executives from CP one of the largest rail businesses in Nth America and was given an insight from Class 1 railroad perspective on short line operations. I was also able to visit the CP Expressway operation in Toronto. Carry Transit & Bulkmatic, Chicago – Met with senior executives from two competing industry leaders and advocates of transloading from rail to road. I was also able to visit each of their terminal operations and experience transloading first hand. Saskatchewan, Canada – Ed Zsombor who led the regulatory team that pioneered the renaissance in short line grain operations in Sask. I was able to visit grower co-op, local trucking business and original short line rail operator as well as the home of the Brandt Road Railer. Freightliner, UK – Met with management and terminal tour of what I found to be the most progressive rail business that I have encountered. Modalohr, France – Met with the President and was able to see the entire Modalohr concept in operation one of the most innovative and complex logistics solutions I have seen. Major Lessons 1. The EU has managed to achieve co-operation across national boundaries for open access and standardisation of regulatory processes for the rail industry. There must be hope that we might also be able to overcome Australia’s state boundaries. 2. Deregulation and competition in the rail industry in every region has led to positive outcomes for both customers and railroads. 3. Access to terminals and rolling stock are key to a vibrant competitive rail industry. 4. Short line operations in both Europe and North America have been growing strongly. 5. There are a number of key innovative road / rail interfaces which could have application in Australia.

Dissemination and Implementation I have already engaged with a number of parties in relation to different opportunities some of the innovations in this report might bring. In addition I am working on a key project to create greater terminal access for rail operators in the grain industry. In addition to this I have already provided an industry brief and will be addressing a number of agricultural and transport industry associations over the next twelve months. I am planning to issue a press release in November. Page | 5

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

Fellowship Programme 17 March Boulder Colorado 18 March Arlington Texas 19 March Calgary Alberta

20 March Regina Saskatchewan

21 March

23 March Minneapolis Minesota 24 March Chicago Illinois

Paul Meyer Peltz Commodities Alex Duncan Superior Bulk Logistics Terry Bledsue Terminal Manager Canadian Pacific Catherine McQuade CFO Don Campbell Mike Murphy Jane O’Hagan SVP Strategy & Yield Paul Guthrie General Council Richard Emmer Director Strategy & External Affairs Anthony Manconi GM Transportation Saskatchewan Ministry of Highways & Infrastructure Ed Zsomber Director / Railway Inspector West Central Road & Rail Rob Lobdell Brandt Road Rail Corp Steve Linzmayer Territory Manager Eastern US Southern Rails Co-Op Calvin Buekert General Manager Trucking Company Cargill AgHorizons Randy Christy Ass Vice President Brad Hildebrand Transportation Manager Omnitrax – Chicago Rail Link Tom Resch VP-General Manager Carry Transit Jim Blackmon President Joe Nolan VP Business Development TTX Tom Wells President & CEO Frank Adcock Ass Vice President Marketing

25 March Griffith Illinois

Bulkmatic Transloading Jeff Bingham Larry Smith Bulkmatic Transloading Terminal

26 March Toronto Ontario 27 March Glendale NY Nth Bergen New Jersey

28 March Washington DC

Expressway Ron Fedak Manager New York and Atlantic Railway Pasquale Cuomo Marketing Manager Touton USA Doug Beddome Managing Director Resources – Warehousing & Consolidation Craig Folise Director American Shortline & Regional Railroad Association Stephen Sullivan Executive Director

29 March

Providence & Worchester Railroad

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Worchester Massachusetts

6 April London UK 7 April Southhampton UK 14 April Paris France 16 April Aiton France 20 April Melle Germany 21 April Rhiene Germany 26 April Brussels Belgium 28 April Mainz Germany 29 April Frankfurt Germany

P. Scott Conti President Frank Rogers Vp Marketing & Sales David Fitzgerald VP Operations Freightliner Rail Adam Cuncliffe Corp Development and Strategy Director Freightliner Rail Keith Gray Business Planning Director ModaLohr Philippe Mangeard President Ferralpina Michel Chaumatte Director General Neuero Industries Tomas Kisslinger Managing Director Andreas Hauser Sales & Project Manager Windhoff Martin Freier VP Railway Vehicles UNIFE European Rail Industry Max Obenaus Head of Communications DB Schenker Dr Andre Kalvelage Head of European Production Network KombiConsult Rainer Mertel Managing Director

The report is broken into four major components. The first is an understanding of the Australian rail context and defining the particular segment of the rail industry that the report is based on. Following is the broader industry dynamic in each continent looking at the macro factors which could be relevant in Australia. The report then lists a number of the specific innovative approaches to rail transport on a short haul context that I was able to view. Lastly there are a number of conclusions and recommendations as to how this information could be applied in the Australian industry.

Regional rail landscape in Australia To understand the relative merit of approaches to rail transport overseas it is important to understand the Australian context. Rail as an industry is inherently complex due to the highly political and social interests as well as the significant capital requirements both in relation to rolling stock and infrastructure. To provide background to the insight gained through the Churchill Fellowship the first chapter highlights the regional rail landscape in Australia. This incorporates the current state of the industry, why it is important to the future of the country and the key issues facing the industry.

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Churchill Fellowship 2008 - Future of Short Haul Regional Rail

Definition of ‘Short haul’ For the purposes of this report it is important to understand the context of ‘short haul’. I have categorised freight into four key categories:1. Urban Freight – moved within the metropolitan region a. Generally not rail suited 2. Inter-capital Freight – interstate freight movements between capital cities a. Suited to rail due to distance and terminal infrastructure b. Dominated by containers c. Ability to operate scheduled services 3. Bulk Commodity Heavy Haul – Coal and iron ore a. Strongly suited to rail due to reliability and economies of scale in volume b. Point to point operation with little variation 4. Short haul Regional – this encompasses freight movement’s 250-800kms in distance in outer urban and regional areas and often across existing state boundaries. a. Has struggled to maintain rail services b. Characterised by different products and service requirements c. Relies on strong links with road freight d. Rail infrastructure focussed on state capitals – not necessarily where freight is required to move. This report is focussed on the Short haul regional segment for a number of reasons. Firstly it is the ‘swinging’ segment, where there is an inherent ability to utilise either rail or road freight where as the other segments all tend to favour one particular mode. Secondly it is a segment that will grow dramatically in the future and the effectiveness of this segment will also shape the growth and success of regional areas. The scope of this fellowship does not encompass inter-capital or bulk commodity heavy haul where rail is the natural economic solution. Rather it is focussed on whether there is a future for rail servicing the regional short haul market?

The relevance of rail in regional general distribution In considering the future of this segment there is no doubt that as we stand today rail is becoming less and less relevant, to the point there is almost inevitability about its demise. Once upon a time most small towns all had rail services and you could move just about any product on rail. The railways were state owned and controlled. The reality was also that the service was very poor and the costs to provide some of these services were frightening. As a result most significant industries in regional areas moved to road based logistics services. Throughout regional Australia there are many industries that generate considerable volumes of freight. However they require some flexibility and service levels that historically have not been able to be met by state owned rail service providers. As government bodies often they were not prepared to take responsibility for goods in care or service performance. Rail has also sought significant volume and there has been limited opportunity for smaller more flexible more respondent technology.

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There are a number of factors which clearly illustrate the lack of relevance of rail in the context of this freight task:•

• •

• •

New distribution hubs have generally been designed and constructed with limited or no rail connection. The best examples of this are major retail distribution centres which have been located regionally without good rail links. There no ‘emerging’ rail transport businesses in Australia. Most of the smaller privatised rail companies have struggled and continue to struggle to survive. Large privatised rail corporations have actively moved away from the general freight task. Even the larger volume regional volumes like grain have become unattractive after years of prolonged drought and services have been withdrawn. The road transport sector has pioneered many of the technological innovations globally and continues to develop higher productivity solutions, yet the rail industry has struggled to embrace innovation and is still operating equipment built over 50 years ago. The industry is failing to attract new investment. Rail continues to dominate the heavy haul commodities iron ore and coal however regional and agriculture sectors rail is becoming no longer relevant. Products like petroleum and other industrial products no longer move by rail.

Why is it important? I regard myself as a logistics professional and have come from a road transport background. As a result I do not see road transport as a negative but very much as a vital cog in our economy. However as a society we need to plan for the future and there is no doubt that both road and rail freight will be important. Rail requires significant infrastructure and if, as a society, we lose the current existing infrastructure, it will be prohibitive to ever reestablish in the future. There are a number of reasons why a vibrant rail industry (in combination with a vibrant road transport industry) is critical to the future of our country. •

Economic future of regional industries and communities is dependent on efficient transport links to promote economic growth. Australia is already heavily urbanised and as the population grows (in line with forecasts) it will become critical that regional areas are able to shoulder this growth.

With exponential growth of population and freight volumes over time it is critical as a society to extract more value from existing infrastructure. Currently the rail infrastructure is relatively underutilised and forms a great corridor for the movement of freight through urban areas. As the urban area continues to grow and becomes more densely inhabited the existing corridors (both rail and road) become key. In particular the rail corridors in many areas are underutilised. Congestion is already a major issue in all mainland capital cities and with limited options to resolve will steadily increase. The forecast large growth in the overall freight task will simply outgrow the available road capacity.

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• • •

o There is a limit to road capacity which is under pressure due to limited labour and likely capacity reductions due to new fatigue and mass laws leading to reduced driving hours and reduced weights. o The only rural industry that has remained largely rail based is grain and following privatization and successive droughts is currently being significantly rationalized. Significant community safety concerns as roads become more heavily utilized by both cars and heavy vehicles. The significance of the carbon foot print. Efficient rail services contribute significantly lower greenhouse emissions than road based solutions. Fuel prices and labour costs are the major inputs in road based transport costs and as these costs increase the relative economics of rail transport will become more beneficial.

What are the key issues? There are a number of factors which inhibit the potential of the Australian rail industry which are also challenges faced by other parts of the world albeit in different guises. Our state based history There are a number of historical impediments that continue to plague the development of rail in Australia to this day. Railways were established by each different state and remain largely controlled by individual states. As a nation this has been a disaster (and continues to be) for the rail industry. The lack of standard procedures and interoperability in a country that is already suffering from a lack of economy of scale is a major impediment to the success of rail transport. •

• •

Different gauges – the most obvious casualty of our history is the proliferation of different gauges between states. The network design was based on forcing regional goods to the relevant state capital city irrespective of the economic cost to the producers in regional areas. This rationale was based on the desire to support commerce and development of the fledgling capital cities. The best example of the harm this has caused is the northern and southern areas of NSW where products had to go to the Sydney basin rather than Qld or Vic despite the significant additional distance required to achieve this. Different signalling and train control adds significant costs and inefficiency and limits the ability for deployment of labour to areas when it is required. Contrary safety standards – examples such as in NSW wagon brakes were located on the side of the wagon and shunters were instructed to walk alongside the wagon whereas in Victoria it was a requirement to have the brake located on the rear of the wagon and shunters ‘rode’ the wagon. Both states regarded the other practice as ‘unsafe’. Traditional ownership of railways by government tended to created inflexible operations, often starved for capital investment in technology. As the infrastructure deteriorated the services became less reliable and the costs continued to increase, Page | 10

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the rolling stock aged and customers moved to road in search of greater flexibility and service performance. In turn the loss of volume further impacted economies of rail operations increasing the costs and increasing losses for the government. Changes in production methodologies, towards lean manufacturing with smaller inventories both in and out bound requires faster more flexible transport services, which was not consistent with traditional government owned rail operations. Furthermore the network also largely ignored north / south freight flows with the directional focus on coastal regions. To this day there is no inland connection along the east coast and even within one state it is difficult to go in any direction other than to the coastal region. A further less obvious major implication of this environment is the significant increase in risk when investing in rail. Operators are unable to easily redeploy equipment to different areas. The secondary market for equipment is therefore constrained adding to the risk of investment for operators and potential financiers.

Terminals Terminals are a major issue in Australia with any new rail operator largely excluded (in an actual operating sense) from the existing terminal infrastructure. The major shortcomings are:1. Terminals are treated as prized possessions as they represent a defacto monopoly control for rail operators irrespective of legislative efforts to create a competitive environment. 2. Many of the existing terminals are constrained by location due to the changing demographics of manufacturing and industry. The rail terminals in most locations were put in place many years ago and often over time the industrial areas have relocated further away from the centre of cities. 3. Older sidings are also generally small and operationally challenging for efficient rail operations.

Innovation and Investment The issues listed above have contributed to limiting investment and innovation in rail which in turn has made the industry less competitive. The risks and challenges in operating trains as opposed to trucks are significant. The barriers to entry in the road transport industry are relatively low. The key reasons for this are:1. Ease of obtaining certification to operate trucks both in terms of drivers and management personnel 2. Ease of obtaining finance for equipment 3. Relatively standard road rules across state boundaries 4. Access to terminals is unfettered. When compared with rail all these issues are markedly more difficult. Page | 11

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The NSW Government has been working hard to identify opportunities to promote innovation across different industries and highlighted that:o Logistics one of the 5 key opportunities for the state o Innovation single largest driver of productivity

Rail is a significant opportunity in this context. Given the age of equipment and technology employed there are opportunities to make quantum changes. These opportunities are more limited in the road transport industry where potential gains will be around the margin. Australia has limited infrastructure and low levels of available infrastructure investment which makes innovation and opportunities to better utilise this infrastructure even more critical. After speaking with a number of key industry figures in Australia there was strong consensus that rail was unlikely to be relevant to the movement of freight other than designated bulk commodities such as coal and minerals or containers. The challenge remains to change both these perceptions and then the reality of the situation. The purpose of this trip was to investigate the different approaches taken in North America and Europe to moving freight on rail over relatively short distances and how in particular what innovations could be employed in Australia. Obviously it is important to understand the context of rail operations in different countries which have evolved differently in response to demographics, geography and political influences.

North America and Europe Relevance to the Australian Context There is a wealth of knowledge to be gained through the examination of different approaches to rail operations around the world. Most developed countries are facing similar challenges albeit with different political and geographic landscapes. Whilst it is important to respect the different context of each geography, there are aspects of each relevant to Australia. The US short lines are particularly relevant given the size of operation and many similarities in regard to volumes and operational challenges. The key difference in the US and Canada is the track ownership. Railroads (both large and small) own the above and below rail assets which is quite different to Australia. North America has undergone a renaissance in rail services over the past two decades following significant legislative changes to deregulate industry and encourage competition and investment. Many short lines which were slated for closure only 25 years ago have re-emerged under short line manage as a vibrant and growing industry. Page | 12

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In Canada there are striking similarities in the issues faced by Australia in relation to grain branch lines and they have been very successful in reversing the trend to closure of the outlying rail network. The UK provides an interesting model given their experience with privatisation, where the track assets were also sold and then when the experiment failed taken back under control of the government. They now have a functioning open access competitive rail industry operating on common access state owned infrastructure. They were fortunate that they were only dealing with one jurisdiction as the system was national (not state based). Europe provides an insight to how Australia might approach resolving the significant impediments to effective rail industry imposed by the state governments. The EU has had to grapple with the cross border issues in the context of different nations, languages and cultures and yet has managed this far more successfully than Australia! On a macro sense, each geography has different concepts that offer value to Australia. In addition there are many detailed innovative approaches to rail, and rail / road interfaces.

North America The Australian perspective of North American rail operations has focussed on the operations of Class 1 railroads (the major 7 railroads). Traditionally these railroads have publically stated that rail is suited to distances in excess of 700 miles. To put this in the Australian context this would mean that for general cargo (excluding significant bulk commodities such as coal and iron ore) rail would only compete in distances in excess of 1000kms. To many this has been justification as to why services have continually been reduced in regional context. However in the 1980’s the class one railroads were in the process of rationalising many of the branch lines and smaller lines where the volumes no longer warranted the cost of the upkeep of the lines. At this point due to strong public reaction the government stepped in and forced the railways to offer these lines for sale. The Staggers Act of 1981 came into force (this differed in the US and Canada however the result in both countries was the birth of the short line rail industry). This was part of a significant deregulation of the industry opening access to key terminal infrastructure and standardising protocols across the industry. The net result was a significant reduction in rail rates for customers and increased profitability for railroads. While talking with a number of rail industry representatives within Australia the view was very much that the short line segment of the market was highly reliant on government support and that it was some sort of cottage industry dominated by ‘mum and dad’ operations in financial difficulty. Page | 13

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The reality is however significantly different. I found a vibrant industry covering an enormous range of different styles of operation and geography. In all, there are in excess of 550 short line railroads now operating in North America. Many of these are public companies and have been very successful. It is a significant industry in its own right. In the last 10 years the number of short line railroads has doubled. The result of the regulatory change has seen significant growth in short line rail operations. Why? Most importantly – service. The change has highlighted the critical role that that service plays in modal decision making by customers. Cost will always be important however in Australia, unless rail has been dramatically cheaper, most users of freight services have shown a distinct preference for road freight. This is based on the inability of rail to service customers in the same manner. Rail is slower and unable to offer the same door to door transit time. However the reality is not necessarily the importance of the transit time as such, but rather the ability to perform against the stated transit time. In Australia it is not uncommon for wagons to go missing, trains to be delayed due to poor communication of track possessions and closures. Freight trains are always lower priority than passenger trains and often transit performance is affected. These issues also had historically diminished the rail volumes in the US as well. The emergence of the short line industry, greater deregulation and competition resulted in overall growth of rail volumes at all levels. Short lines typically had a much closer relationship with local communities – working with government and industry to support the growth of new industry - in some cases actually attracting the development of industrial facilities. This is particularly relevant where the short line is able to access multiple Class 1 operators. In essence I found a vibrant, successful and growing short line industry. Some of these operators were operating trains only short distances in some of the biggest cities in the world. I met with large and small railroads in Canada and the US. I was fortunate to spend time with a number of Class 1 railroads. It was interesting to note that the perception of the short line was varied. Over the last 20 years Class 1 railroads have exited from many short line operations which have been sold to smaller regional companies. The Class 1 railroads are very large organisations moving vast amounts of freight and have struggled with the challenge of servicing small customers on remote branch lines. Typically short line operators have been able to tailor their operation on a much lower cost. Labour arrangements are more flexible and the safety protocols and maintenance requirements are less onerous than those faced by large companies. However in general profitability in the rail industry has been strong in the lead up to the GFC for the large railways. This has seen a rethink in strategy and in the case of Canadian National has pursued an active strategy of purchasing short line operations. In many cases Page | 14

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selling what were unprofitable small rail lines to regional and small operators has seen growth of traffic on these lines back to levels where when integrated back are now profitable. Importantly the successful short lines have also developed close customer relationships – to the extent they have in some cases become more powerful in the relationship with Class 1 railroads. There are certainly a number of examples where short lines exist on the back of government support however of all the operations I met this was a very small factor. In most cases the only support they received was generally related to significant track upgrades and support was often local community based. There is also a growing realisation in the US that much of the highway infrastructure has reached saturation point and it is not viable to increase capacity due to either land or cost constraints. This is creating an environment where communities are looking to better utilise the rail corridor to take pressure from roads. This is potentially the start of a significant cultural change. There is also a changing dynamic between rail and road modes of freight. Traditionally they have been very competitive but there is a growing realisation that they are interrelated and that the combination of lack of drivers, increased fuel costs and congestion is increasing the focus on intermodal freight options. All the Class 1 railroads have developed key intermodal capability and are offering solutions based customer service modals as opposed to the traditional line haul transport service. Class 1 railroads have also revisited the minimum distance criteria with a focus on appropriate networks and good intermodal terminals. There is the opportunity for significant inland ports with the similar conundrum as Australia in relation to packing grain containers upcountry or at the port. As a result the rule of thumb on minimum distances for rail is being revisited. Whilst track is controlled by the rail operator in general rolling stock is not. In Canada the grain fleet is owned by the government and leased to the rail operators. This ensures the fleet is not held strategically from the market. There are concerns that the fleet is aging (many 30-40 years old) and the current system does not have a mechanism to keep reinvestment. In the US the grain wagons are owned by companies and investors and are openly traded. The container fleet in North America is a particularly good market model with TTX controlling wagon availability. TTX is jointly owned by all the railroads and provides a model which effectively enables the railroads to collaborate in relation to wagons whilst retaining competition in rail services. TTX provides most of the wagon fleet and all the operators lease their requirements from them, with flexibility to manage capacity across Canada, US and Mexico. TTX now owns over $10B in rolling stock assets. In Canada there are short line operations which are particularly relevant to the branch line challenges facing the grain industry in NSW. Saskatchewan in the early 90’s was grappling Page | 15

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with many of the same issues with the operations no longer classed as viable. In 1996 a new Transportation Act forced mothballed lines to be put up for sale at net salvage value. The government established a small department that was charged with management of the branch line network. Their brief was not only to regulate but also to foster development. The experiment has been overwhelmingly positive which the branch lines remaining in action as a viable industry operated by small to medium sized short line operators. The keys to making this work have been:1. Engagement of local communities and farmer groups who are often involved in the operation. 2. Tailoring safety standards to suit the method of operation acknowledging that it is a very different environment to the mainline. In twenty years there has not been one serious derailment. 3. Flexible, generally non unionised workforce. 4. Access to different loading options varying from Terminals through to producers loading their own cars whilst the train is on the line. 5. Access to wagons through working with CP and CN. 6. Government support for track maintenance but all based on a co-contribution basis and if track was to close within 5 years of support then funds must be remitted to the government. 7. Focus on local development and community. North America encompasses a huge range of different rail operations and while there are significant differences to Australia (particularly in relation to track ownership) there are a number of key opportunities. Key Points:1. Deregulation and competition has led to strong growth in rail volumes and profitability. 2. Short lines are a significant industry in their own right and have succeeded through a combination of service and tailoring operations to the geographic requirements. 3. Large railroads are questioning the assumed ‘minimum distance’ for rail operations. 4. Access to wagon capacity is a key enabler of effective rail markets and the TTX model works very well. 5. Short line industry has become an asset to distribution in North America. 6. Standardised processes and procedures are critical to enabling successful interfaces between large and small rail operations.

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UK In leaving Australia for this trip I had a number of preconceptions based on observations through the press and discussions with various industry insiders. Many of these were proved to be incorrect – in particular the state of rail freight in the UK. The railways (both above and below rail) in the UK were privatised 1996 and the perception in Australia has been that this has led to major failings in service level, deterioration of the industry, safety issues (a number of high profile major accidents shaped public perceptions). My observations could not have been further from this perception. In a snapshot the industry is largely profitable (particularly for the newer operators), has seen significant investment not just in infrastructure but more importantly in rolling stock. There are some very interesting parallels with the experience of privatisation in Australia. Initially privatisation exposed decades of underinvestment in rail infrastructure. With privatisation came commercial companies looking to increase volumes and services which stretched the aging infrastructure. This resulted in safety concerns. Importantly it also became apparent that the privatised model for track infrastructure had a number of very key shortcomings. Rail infrastructure investment is a very long term investment in the range of 20-60 years. Importantly the net present value and other commercial measures used to evaluate investment opportunities are not structured to reflect this type of term. They are not relevant as the investment is likely to have significant value at the end of this period. As a result the UK (in the same way Victoria, Tasmania and WA have also discovered) found that private companies with a short term investment outlook are unlikely to invest heavily in rail infrastructure. With the benefit of hindsight this would appear obvious - however in the US rail companies are responsible for track and in return hold a monopoly on the infrastructure. The UK Government resumed control of the infrastructure and has subsequently invested heavily. The combination of private operators utilising public infrastructure in my opinion is the best option available. Private operators bring innovation and pressure on governments to maintain and invest in track whilst at the same time Government can invest for the long term in track on both social and economic grounds. The UK experience highlighted also the cultural divides between US and European rail modals. The largest component of the privatised previously government rail operation was bought by American rail interests who invested heavily in US style rail wagons (typically very heavy, slower and solid) on the basis of running bigger, slower trains with rolling stock that would last a very long time. This proved an ill fated decision and has resulted ultimately in loss of market share and poor returns. This business has now been taken over by DB Schenker the European rail operator. By contrast the smaller previously government owned freight company also with privatised has been very successful. As a government operation the company was losing significant amounts of money. This turnaround has been based on Page | 17

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an entirely different approach to rail operations. Investing in modern lightweight and fast locomotives and rolling stock has enabled Freightliner to integrate its freight services with the passenger network. The haul distances are typically short however the services are fast, reliable and regular. This business model has much in common with the Australian trucking industry; it is based on maximising payload and minimising operating costs through the most efficient combination of equipment. The result is typically capital intensive and relies on high utilisation of equipment. In contrast Australian regional short haul rail operations have relied on very old locomotives and rolling stock which are inherently unreliable and high in operating costs. Key Points:• •

• •

Privatisation and deregulation of above rail resoundingly positive for the growth and development of rail Government should own and control track on an open access regime. Private companies are not well placed to invest in track and see value in this only in the form of monopoly control of infrastructure. Investment in new rolling stock equates to good business practice Market for second hand rail equipment is critical to enable finance of new rail equipment. To achieve a liquid secondary market requires common standards and interoperability in equipment across regional boundaries. Rail services should be tailored to the environment – the example of operating fast, reliable services in the UK is critical as this enables interface with the passenger system.

Europe European rail operations are fascinating given the political, geographic, historical and social factors involved. The Australian perceptions of European rail operations historically have been; ‘That rail is heavily subsidised through direct forms of subsidy and intervention from government. Governments have traditionally supported their state owned railways and in addition road transport has faced high regulatory costs both in terms of road user charges and fuel taxes.’ I arrived expecting highly protected, parochial rail systems and discovered quite the reverse. It is amazing that while in Australia we have been unable to agree to standard systems across state boundaries the Europeans have managed to achieve this across significant national and cultural divides. The European Union (EU) has a strong recognition that both rail and road will be critical to a sustainable future. As a result the EU has managed to standardise safety and operating systems across countries as well as opening access to different rail companies across Page | 18

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

borders. The state owned rail systems of different countries are now competing across borders and having to allow competition internally. They have certainly put Australia to shame given the difficulty we have had in achieving anything like this degree of co-operation and change across state borders. Prior to the formation of the EU and the subsequent rail initiatives the industry across Europe was characterised by:1. 2. 3. 4. 5.

State railway systems stuck in a permanent state of reorganisation Focussed on preventing competition (whether road or rail based) No investment in the network leading to further deterioration of the network Very little intermodal terminal investment Poor service delivery and difficulty in managing complex logistics requirements

Europe has the challenge of a highly populated demographic and challenging geography, particularly in the Alps between France, Italy, Switzerland, Austria and Germany. Why has the EU been so successful in driving change that has not been possible in Australia? 1. Strong realisation by the countries of the long term imperative to make a coordinated road and rail transport system work and that congestion and the environmental benefits of rail are critical in the analysis. 2. The role of the EU in being able to drive change across individual governments in a concerted manner. 3. Commitment from the EU to significant investment both in changing legislation and culture but also in the practical hardware like signalling systems and freight track routes. 4. Willingness and resolve from retailers and wholesalers in Europe to support long term economically responsible transport outcomes. This was apparent in every interview I had where the environmental outcomes were highlighted as a key outcome in the decision making process. Most importantly there has been a huge investment in standardisation and ensuring access. This encompasses signalling, operating protocols, gauge, terminal access and design. This is all based on creating an environment that encourages participation and investment. The perception from parts of DB Schenker (the largest European railroad and corporatized former German state railway) that in actual fact private and foreign rail companies received preferential terminal access from their internal counterparts – so strong was the imperative from the EU to foster competition. In this environment over 300 rail companies are now operating in Germany whilst at the same time the incumbent DB Schenker business has grown in both volume and profitability. The German government does support rail strongly both financially and through positive encouragement embracing the EU directives. Interestingly the financial support for freight Page | 19

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services is not in terms of rolling stock or subsidies but rather investment in terminals. Every representative in Germany that I met with reinforced the critical role terminals play in facilitating a vibrant rail industry. As a result the government provided interest rate subsidies to support terminal development on the basis that the terminal provides open access to other rail operators and improves overall efficiency. From a logistics perspective Germany stands apart from the nations I visited (and in particular Australia!) in relation to rigorous planning and tailoring infrastructure to deliver long term positive outcomes. In addition the government publishes a website actively monitoring and encouraging growth in terms of private rail operations. Last year Private operators grew by 5% compared with DB at 2%. This contrasts markedly with Australia where respective state governments have been far more concerned with potential private rail operators diminishing the value of their state owned entity. In privatising these businesses is has been in the interest of governments to minimise effective competition in order to maximise the value of the asset sale. Like the US much of the rolling stock was not owned by the rail operator which in effect creates a more liquid environment and enables the market to allocate resources more efficiently. Another key factor of Europe was the recognition of the importance of freight lines (recognising the strong passenger network and patronage) and the significant investment in freight only corridors across Europe. Key Points:1. EU and member government commitment both financial and in principle to fostering growth of competition and creating an environment that stimulates investment. 2. Focus on terminal access and development. 3. Focus on freight lines and the importance of service reliability to maintaining volume on rail. 4. Government, industry, wholesalers and retailers all committed to sustainable freight outcomes. 5. Deregulation and corporatisation has resulted in strong growth in both rail volumes and profitability. 6. Focus on intermodal systems and practical interfaces for road and rail. 7. Access to rolling stock assists in creating more dynamic rail environment.

Innovation In the course of the trip I met with a number of companies who have embraced innovative approaches to rail operations. It is important to note that not all these ideas are immediately transferrable to Australia however there are certainly areas where they could have application. I have identified some suggestions of particular scenarios in Australia Page | 20

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

where these ideas could be applied. Colin Rees introduced me to a number of these concepts and he has fought hard to bring a number of these ideas to commercial reality in Australia.

Transloading I was fortunate to meet with a number of transport companies who specialise in what is termed ‘transloading’ in North America. This involved the handling of bulk products from rail to road. This practice has been successful for Class 1 railroads, who in Canada operate their own terminals and the US, tend to focus on the mainline service with specific service providers managing the ‘transload’ and delivery to the customer. Both Carry Transit and Bulkmaster are specialist bulk logistics companies that operate trucks but also run significant ‘transloading’ facilities. Both operations handle difficult materials, in particular food grade materials and other highly quality sensitive products. The beauty of this process is very much in its simplicity. Trucks literally drive alongside the rail wagon and pump the product from the rail wagon to the truck. The operations are managed by a single driver and the process is relatively quick. In Australia these industries are serviced by road based transport solutions due to a lack of confidence in the ability of the rail provider to deliver on time and manage the product enroute. Typically the state owned railways had contracts which accepted no liability and took no responsibility of any type of delivery performance. In the US the specialised provider would liaise with the rail provider, the truck and the customer in order to coordinate the task. The concept worked particularly well where the transloading terminal had access to a number of rail operators which increased competition in terms of service and price but even more importantly provide the customer with additional supply and delivery options (remembering the US railroads have differing geographic networks). I have often been told Australia does not have the volume or the people to justify these sorts of operations. However one terminal I visited was built on the basis of handling 1000 rail wagons per annum (which has now grown to 4000-5000 per annum). This equates to an initial budget of approximately 80,000 – 100,000 tonnes per annum which is significant. However when you look at the raw material demand for a number of Australia food manufacturers in key metropolitan centres is relatively low. The terminal enables a manufacturer to source requirements from a number of different competing suppliers however all are compelled to utilise this pathway for their business.

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Transloading – Bulkmatic Chicago

Terminals Effective access to terminals was a consistent theme across all the different countries. This was related to both accessing existing terminal infrastructure and the development of new innovative terminal structures. Effective ‘transloading’ operations require good terminal access and in broader terms the success of intermodal systems will generally be defined by the effectiveness of the Terminal. In Germany and France government support has been targeted towards development of better access and better quality terminals. This includes siding support to ensure rail access to new industrial areas. This is in contrast with Australia where many of the latest distribution centres have been built with little or no provision for rail access. The existing terminals in metropolitan centres like Enfield in Sydney and Dynon Road in Melbourne are no longer central to industry in the major cities. In the grain industry the combination of monopoly control and infrastructure constraints limits access to prospective new rail entrants.

Trailers on rail The idea of transferring a trailer or full semi trailer combination onto a rail service is not a new concept. Commonly referred as ‘piggybacking’ there have been various attempts at different technology over the years to make this concept work. There are a number of different examples around the world where there has been attempted with varying degrees of success. ‘Expressway’ which grew from the Iron Highway concept in Canada is still in operation today between Toronto and Montreal (a distance of 340 miles). The business has been backed strongly by CP and whilst a solid operation, it has not grown or reached the potential that had been anticipated in its inception. The relatively short distances between the two cities make competing with door to door road transport Page | 22

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

services very difficult. However the technology is proven and the business is well established. The changing economics into the future of higher fuel costs, labour changes and congestion on highways will continue to improve the relative merits of the operation. The operation is likely to have application in other key markets, particularly in highly urbanised environments.

Expressway – Toronto

The concept also has significant application in Australia and could be adapted for mainline haulage between key centres. The combination of the significantly higher fuel costs and high truck capital costs make the economics more favourable in Australia as opposed to Canada and the US. The technology offers some advantages due to the light weight of the rolling stock however there are challenges with the considerable capital cost to establish the system and potential height restrictions in much of the rail envelope. The key benefit of the operation is that it enables the equipment currently utilised at both the load and discharge point to continue. This also has significant advantages in preserving the load quality and minimising the handling involved. It could be particularly well suited to trailers moving groceries or fuel which are lower in height and also tend to have similar configurations. In Europe a number of different approaches have been developed and two systems in particular have started to make inroads. Modalohr technology was developed initially for the transport of trailers over the French Alps to Italy. This has been successful although has also received some initial government support. Currently the route from France to Italy operates at over 80% capacity with 4 trains per day. The innovation involved is significant and enables trucks to either drop the trailers on the rail wagon (which are special low profile wagons) and also has provision to transport the prime mover as well if required. The design is very clever with rail wagons all rotating to enable trucks to drive straight on concurrently. As a result the time to load and unload the train is very short – 40 mins from train arrival to departure. This compares with 1.5 hours using the ‘Expressway’ system in Canada.

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Modalohr – Aiton France

The downside is that the technology is complex and expensive to establish. However this concept would be ideal in an area like the Blue Mountains. This particular road route is likely to be heavily constrained for heavy vehicles into the future and yet is the main trunk route for the central and western regions of NSW. Operating a shuttle type service between Bathurst and Penrith could be an interesting alternative for heavy vehicle movements. This system does not require special trailers at all although there would be some challenges when managing b-double combinations. The system also involves having more trailers in the pool than would be required in single trailer operation. One of the benefits both in Europe and North America when dealing with trailers is the largely standard configurations. Unfortunately it is unlikely in the current regulatory environment that this type of capital investment would be made due to the significant risks facing rail operators. A concept like this would require co-operation of key trucking businesses, government and in particular wholesalers and retailers.

Swap bodies This is a specialised piece of equipment, similar in concept to the standard shipping container except tailored for specific operations. They have the advantage of fold down legs that enable trucks to drop the bodies, lower the air bags and drive out. They have been in Europe for many years but have not ever become established in Australia. They are not as robust as a standard shipping container and hence require a level of higher standard of care in terminals. Traditionally they have also required significant terminal infrastructure in the form of cranes or heavy forklifts to transfer for road to rail. There is a very exciting concept operating in Austria and Germany called MOBILER. This is a design that enables for relatively low capital cost the transfer of swap bodies direct from the train to the truck via a sliding mechanism. This can occur along any siding where the truck and train are able to position themselves side by side. In Australia containers are used for rail transport however in general most are destined for export markets and not used for domestic transfer of goods. Swap bodies and in particular Page | 24

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

the MOBILER style system could be very effective as it requires low capital investment and does not require any changes at the load point or final customer.

Swap bodies on legs - Netherlands

Technologically advanced equipment I have included the low tare, high speed freight services that Freightliner operates in the UK as another example of innovation. In the UK they are faced with very short distances and the Freightliner group has invested heavily in rail rolling stock which interfaces with the passenger network. The operation is based on fast, smaller trains that operate to regular schedules somewhat like a passenger service. As a result the equipment has a good payload to tare weight ratio and fuel efficient modern diesel technology. The Freightliner business has been a success story emerging from a loss making division of the government rail system to become both profitable and larger in scale. Utilising modern technology in terms of locomotives in particular, but also wagons. Similar to the Australian trucking industry their approach was to finance low tare, fuel efficient locomotives that were well suited to the UK conditions. This is a good example of tailoring the rail solution to the appropriate environment. Their intermodal business is based primarily in distributing containers from port to inland hubs. It is based on fast operation which is critical when working with passenger networks.

Road Transferable Locomotives When in Saskatchewan I had the opportunity to visit Brandt which was the company that developed the road transferable locomotive. This technology was embraced by Vline (the Victorian Government Railway) in the mid 90’s as a solution for branch line locomotive work. In principle it seemed a brilliant idea combining the strengths of rail and road. However it never really succeeded from a commercial perspective. The concept is a road prime mover adapted for rail operation that is able to drive on and off the tracks. I started the conversation along the lines of “it was a nice idea but never really worked in Australia” with Steve Linzymayer from Brandt. However he went on to inform me that Australia had bought the prototype, second off the production line. Since then they have built over 120 units and the technology has improved dramatically. They now have units Page | 25

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

able to pull 1500mt on the flat (3 times the original design). This technology would make a wonderful solution for branch line operations in NSW and Victoria where they could run wagons back and forward consolidating the loaded wagons to regional hubs for mainline trains. Again the challenge to an Australian company looking to invest in this type of technology would be overcoming the regulatory framework to make it operational and then getting effective access to terminals and rolling stock. In Canada the government rather than making this type of innovation difficult was actually involved in the design work, again when operating on remote branch lines they were not forced to comply with mainline rail protocols. In addition solutions were sought to enable loading wagons and wagons themselves are easily available.

Conclusions Firstly Australia needs to determine a vision for the future distribution network and in particular the role rail needs to play in regional and haul short freight. As the national population continues to grow and the freight task increases a perfect storm is developing with already overstretched infrastructure and passengers and freight competing for access to the system. Rail in combination with road can play a key role in this area (although currently there is a significant body of opinion that rail simply cannot work in this context). After finishing the Churchill trip I can confirm that rail is most certainly viable in this context and that there are numerous examples around the world where the industry is growing. The vision needs be national to reflect the following:Australia needs a dynamic, competitive, innovative logistics system utilising both rail and road for short haul distribution. To be relevant for regional freight rail requires a change in culture and approach. Innovation is key to the interface between rail and road both in relation to operating practices and the technology employed. The industry needs to attract investment and new entrants. If Australia is to develop a successful vibrant short haul rail industry then the environment needs to enable the confidence to invest. The external rail environment needs:1. Open Network access 2. Standardisation across all jurisdictions a. Operating procedures and protocols b. Gauge and terminal configuration c. Signalling d. Rolling stock 3. Access to terminals 4. Access to rolling stock 5. Active Government support and long term stability Page | 26

Churchill Fellowship 2008 - Future of Short Haul Regional Rail

6. Secondary market for rail equipment

If the environment is right then the successful outcome should be measured by the fostering of new market entrants (both large and small) and profitable operation. Currently Australia unfortunately rates very poorly in comparison to all the regions I visited. Australia has defined itself as a country of wide open spaces and when looking for overseas rail influence traditionally the focus has been on Class 1 North American rail companies. They span the continent with large scale operations characterised by large long trains. Whilst there is certainly much to learn from their experience it is dangerous to apply to the rail landscape of Australia. The inter capital and large bulk commodity operations share many common operational issues. However this does not apply to much of the regional rail network in Australia which is characterised by short distances and relatively low volumes. The most famous quote which originated from Class 1 US companies which has been generally assumed as correct in Australia was “rail is not really applicable for distances of less than 600-700 miles”. This has been used as a justification of the fact rail has become less relevant in the regional rail task and that the movement to road based transportation is almost ‘inevitable’ in this context. The basis of the project was travelling to North America and Europe to understand not the large scale long distance or large commodity but rather rail solutions operating over short distances. In particular, understanding the ‘short line’ rail industry in North America and the general rail operations across the UK and Europe. The context of the two continents is significantly different – however very relevant to the Australian example. The major difference has been traditional private ownership of railways in the US. This included both above and below rail operations (above rail refers to commercial rail operations including rolling stock and cargo where as below rail refers to the infrastructure assets including track, signalling which support the rail rolling. Whereas in Europe railways have been strongly government owned and controlled. Australian regional rail operations can benefit significantly from experiences in US short line and European operations. This is despite the perception from many in the Australian logistics industry that in the US short line operations are largely ‘mum & dad’ operations and that in the UK and Europe rail survives on government subsidies. I found flourishing industries on both continents with significant growth in terms of rail volumes, number of new rail entrants and terminal investment. Innovation was also apparent at both small and large scale. The relationship between rail and road modes was strong. In summary there are significant difficulties in establishing any small scale rail operations in Australia, especially when compared with road transport. However there are a number of

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initiatives that could change this environment. Many of these are acknowledged and yet it seems very difficult for there to be traction in effecting change. What was apparent is that the environment is critical to fostering a vibrant rail industry. In Australia the barriers to entry for road transport are very low. There is an environment that fosters and encourages competition and innovation. One key advantage that European railways have is the significant secondary market for rail equipment. In Australia not only do we have a relatively small market in the first place but this is also a major drawback of each state maintaining both different gauges and regulatory frameworks. Moving equipment from state to state is exceedingly difficult (albeit much better than ten years ago when it was nearly impossible) and this has a crippling effect on enabling a secondary market for equipment to emerge. Secondly successive government rail privatisations have resulted in much of the equipment not in use to be mothballed or scrapped in order to prevent competitors from entering the market. Therefore new entrants are required to invest heavily in new equipment to compete against heavily depreciated old equipment without a vibrant transparent secondary market which is critical to raising finance. When banks and finance companies structure finance for a trucking operation they are able to do with relative comfort as to the future value of the equipment in 4 or 5 years time. This translates in the ability to finance more of the equipment. There has been significant debate about the branch line operations for grain in regional Australia and growers. Interestingly it seems the obvious marketplace where older equipment might retire to. In the course of successive privatisations and these ‘valuable’ strategic assets (I use the word valuable not in relation their asset value but rather the replacement value – for example a number of the old grain hopper wagons that were originally state owned have a very low asset value, marginally in excess of scrap value ~$4k. However to replace these wagons could cost over $130k. The owners of the equipment have always lamented that the grain industry does not sustain returns to enable effective replacement of this equipment however at the same time the existing assets have been closely guarded. While the broader industry (growers, exporters, rail providers) have concerns as to how capacity will be increased to handle a reasonable grain crop if it were to eventuate, at the same time it is almost impossible for any potential new entrant to access the older equipment. This has been one of the failings of the privatisation process, we have failed to realise the strategic value of rolling stock. The underlying factors which inhibit an effective rail industry are also deeply rooted in the state systems of government which has left us not only with different rail gauges in each state but also different regulatory structures and operating practices. Investing in rail in Australia has a number of inherent risks. Obviously by its very nature rail is capital intensive and requires a specialised skill set to operate. However these risks are less of an issue than the operating risks. Obtaining regulatory approvals to operate, securing

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access to the network to operate, the inability to guarantee access to operators when required makes service performance difficult to achieve.

Recommendations Regulatory Framework 1. Create a regulatory framework that encourages participation and assists smaller market entrants to manage the risks associated with rail operations. a. COAG move as fast as practicable to legislate control of all regional and freight rail networks to the federal government. b. Federal government immediately following this pass control of all below rail assets to ARTC with the following mandate:i. Common signalling structure across all states ii. Common safety protocols tailored to operating environments (ie. Acknowledging that remote branch lines and urban infrastructure may have standards and protocols.) iii. Establish national track network which includes key regional centres and agree to standardise the national network from Brisbane south and west c. Develop a fifty year plan for freight infrastructure development incorporating the inland rail connection from Brisbane to Melbourne with particular focus on terminal land banking. 2. Pricing structure to encourage new investment and innovation. Track access fees should encourage new investment in technology that is low tare to payload ratio and low emission standards.

Branch Lines Once under national control ARTC should establish a small working group with the mandate to encourage investment and rail operation in regional areas particularly branch lines. The model should be based on the Saskatchewan government. The brief of this group would be to regulate branch line operations but with the agenda of encouraging new investment and engagement from local communities. The measure of success would be based on industry activity and investment.

Innovation The opportunity exists to introduce many of the innovative intermodal concepts to the market in Australia. This would be greatly assisted by support from the broader community and in particular wholesalers and retailers. Some of the key opportunities are:1. Modalohr and Expressway style services particularly in regions where the road network is poor like the Blue Mountains region of NSW.

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2. Transloading is a great opportunity although needs to be driven through a partnership between road and rail operators – in particular those businesses close to the customer. 3. Road transferable locomotive has significant application for branch line grain operations if access to load points becomes more readily accessible. 4. Introduction of newer locomotive and diesel technology.

Terminal Access Ideally separate control of key infrastructure terminals to independent parties that have a vested interest in maximising volume through the terminal. This applies to containers, general freight and grain export terminals. Whilst it is not possible to undo decisions of the past we need to encourage independent terminal development. Terminal access is a critical factor in fostering development of a vibrant rail industry. The more strategic and significant the more important it is that the terminal should have real independence. Good examples of this would be the major intermodal terminals in the capital cities. There is not the available land to have multiple competing terminals side by side. Hence an independent terminal motivated by volume throughput and having to offer transparent open access is likely to encourage additional rail operators. Planning of new industrial areas should be focussed on transport links both road and rail. This applies both in metropolitan and regional areas.

Rolling Stock The establishment of a TTX style common user wagon pool for both grain and container flats in Australia would add considerable value to the industry. Availability and access to wagons will enable the market to price capacity. The success of the rail industry should not be gauged just in terms of tonnage or gtk measures but rather by the growth in terms of new market entrants and growth into freight markets more reliant on service. There is the potential for quantum improvements in rail operations and significant opportunities to realise far greater synergies between rail and road transport industries. The regulatory and structural changes that the EU has achieved could be replicated in Australia as we move to a national approach to transport and infrastructure planning. The forecast growth in freight volumes combined with likely fuel increases, labour shortages and the imperative to lessen the impact on our environment will all combine to make these improvements critical to our future.

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