Railway Sector in Australia

An Expert's View about Freight Rail Transport in Australia

Posted on: 5 Oct 2010

The report details the characteristics of the Australian railway market and summarises the potential business opportunities.

UKTI RAILWAY SECTOR FACT FINDING MISSION TO AUSTRALIA April 2010 Produced by: Bob Docherty, International Business Specialist, Railway Sector, UKTI Kingsgate House, London. Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation & Skills {BIS}, and the Foreign & Commonwealth Office {FCO}), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned Published April 2010 by UK Trade & Investment. Crown Copyright © Executive Summary The Australian rail market is attractive and, growing and is already providing activity to UK companies as well as to International competitors. Current exchange rates favour exporters from this country, certainly in the short term, but in order to succeed, UK companies need to demonstrate they are competitive, and that they can service their target market and customer. Preparation, market awareness and intelligence are all vital to success. This report is the output of a fact-finding mission undertaken on behalf of UK companies. The report details the characteristics of the Australian railway market and summarises the potential business opportunities. It also seeks to report highlights, key stakeholders operating at a Federal and State level, both in public and private sectors, and includes useful operating data, strategic plans and website addresses for more information. According to a number of informed commentators, there is a need to improve infrastructure in Australia in general, not just in the Rail Sector. There is a belief that investment has been insufficient over the past twenty years to maintain pace with growth and certainly has been insufficient to facilitate growth in future. Sustainable transport is required to ensure the country can remain economically competitive. Forward planning strategies advocate the use of extended public, integrated transport, and improved port connectivity for freight. Such strategies will benefit the Rail Sector. Most existing infrastructure is owned by State Governments, but maintenance is generally out-sourced to the private sector and operations are franchised generally on a long term basis. Existing passenger systems in the country are heavily subsidised. They are working at, or near capacity, so extensions and / or systems are planned. The focus will be on delivering better services to passengers and adding freight capacity. The existing system of rail regulation, which is currently managed at state level, has hindered inter-state rail traffic, but this may change in the medium-term with the move to a single nationwide regulator. UK companies seeking to enter the Rail market in Australia are likely to encounter both the Public and Private sectors. State Governments are very important in railways due to Track ownership, franchising system and regulatory powers. They are also keen to maintain economic activity and develop the skills base within their State where possible, and UK companies should be aware of this sensitivity. The Australian rail market is diverse, and can be segmented into heavy haul, (mainline) freight, and passenger, each of which is expanding. Recent high profile projects announced include the creation of a Metro in Melbourne, the Gold Coast Rapid Transit, Waratah Coalfield (now re-named China First), the Galilee Basin Coal Field and Railway, and the Oakajee Port and rail development on the West Coast. There is a proposal to privatise part of Queensland Rail (QR), the country?s only remaining vertically integrated railway. Certainly, Australia has a sizeable indigenous railway industry. However, there are skills, products and service gaps in the market, and a desire for advanced but proven technology. Engineering and signalling skills shortages are frequently cited, but opportunities for UK companies extend into all areas of activity. Section 2 - Summary 2.1 Overview The rail industry in Australia is investing in both the freight and passenger sectors within a context of investment in infrastructure in general. Estimates put planned projects and capital investment in railways at around Au$ 36bn, (£22bn) in a country which has not only ridden out the global financial crisis (GFC) rather well, but whose resource industries and major cities are planning significant expansion. (Note that in Australia, the economic crisis is usually referred to as the ?GFC?, being the global financial crisis.).The resource industries based around the minerals and the hydrocarbon sectors are both robust. The major markets for minerals, in particular China, appear to be recovering and the Australian hydrocarbon sector, particularly gas, is ramping up. Indeed, a number of informed commentators in Australia have been advocating investment in infrastructure to support economic growth for some time, pointing out that it is much needed, given the modest investment over a prolonged period - as much as 20 years, according to some. The railway sector is progressive in its approach. Its preference is for advanced technology, but technology that is proven rather than emergent. Balanced consideration is given to the environment in transport planning, and a positive approach to sustainability is prominent in public transport policy. Public transport is widely used, perhaps as a result of heavily subsidised fares, and most systems are working at, or near, capacity in the major cities. Therefore, significant plans for expansion of all types of public transport (heavy and light rail, as well as tram and bus services) are in hand within Transport Blueprints at State Government level. These are supported, in some cases, by a national infrastructure plan and budget. Add the activity from the resource sector and you have a thriving railway sector. One consequence of all of this is that a diverse array of skills is in demand across a wide range of disciplines, including both blue and white collar disciplines. State Governments ? Key Role in Transportation Responsibility for Transport is devolved to State/Territory Governments, and these usually administer projects even if the finance is a Federal or Commonwealth source. (The Federal Government in Australia is known as the ?Commonwealth?.)There are States or Territories within Australia and a brief introduction on each, with a snapshot of rail transportation, is included in this report. Rail regulation is currently devolved to state level, causing a myriad of systems and differing technologies to be employed. As intra-state rail demand has grown, a single national regulator has been proposed and will be developed in time. Rail Activity by State According to annual train km (M pa) statistics, the most active states (by distance travelled) in the rail market over the period 2001?2009 are: Ave Pa State Km (M) NSW 30.79 QLD 19.70 Vic 18.58 WA 11.93 SA 8.49 Tas 0.48 NT 0.48 No rail activity was recorded in the published statistics for ACT, the Australian Capital Territory This table provides a broad guide to the key markets for rail activity, illustrating, therefore, where the best opportunity for investment will be found. The field visit that formed an important component of the research for this report focussed on the top five states. It is vital to appreciate the relationships between the states and territories and the Commonwealth (Federal) Governments, as both are important. The State Governments generally administer funding and are unitary transport authorities. They have rail regulatory responsibility even when funding is provided on a ?federal? basis. State and Territorial Governments are keen to develop capability (and employment) for railways from within their own borders. Within tenders, they encourage local content, as far as possible, to maximise their return on investment. Whilst this local content may not be mandatory, it is certainly desirable, and addressing local content within tenders can be a key aspect to succeeding in Australia. Employment and skills are sensitive issues locally. Major tenders seek local content, including technology transfer where possible. Buyers prefer to have suppliers? full attention and to know that projects are fully- resourced, believing that this will enhance service. A solutions-based approach is generally preferred, rather than a simple product or service offering. The tender system often tries to draw suppliers in with Early Contractor Involvement in an effort to contain costs. Passenger and Freight Systems ? Key Differences Between States Australia is a huge land mass of continental proportions and, historically, railways were constructed with different gauges, with no expectation that they might eventually join up. Now, standard gauge has a good, if not total, inter-state reach, though gaps remain, and operational and signalling differences are issues to be resolved. Of much more significance are the differing safety standards and regulations that exist across State lines. Communications and signalling are not common from one State to the next, configurations of signalling has different meanings and train crews may be qualified only for specific regions, or even specific routes. Issues affecting train safety and systems are now being addressed by the appointment of a new national regulator, but change to a single, nation-wide system of regulation will be a lengthy and, no doubt, expensive process. Rail Activity by State The table shows rail activity by States in the period from 2001 ? 2009: State Ave Pa NSW 30.79 QLD 19.70 Vic 18.58 WA 11.93 SA 8.49 Tas 0.48 NT 0.48 Train ?Km pa passenger Train ?km pa freight Km-pa Passenger Km-pa Freight State Ave Pa State Ave Pa NSW 21.83 QLD 12.75 Vic 15.97 NSW 8.95 QLD 6.96 WA 7.10 WA 4.83 SA 3.69 SA 4.80 Vic 2.61 NT 0.10 Tas 0.45 Tas 0.03 NT 0.38 Long distance rail travel is essentially, used for freight, although some passenger services do run, including tourist lines. Most passenger traffic is urban and commuter-type services. The extension and further integration of public transport within the major cities presents a significant opportunity for UK companies. Train Km-M by State (Bi-annual) Bi- annual Train km M 120 NSW 100 TAS 80 VIC 60 WA SA 40 NT 20 Qld 0 1 1 1 1 1 1 1 1 1 P P P P P P P P P 1 2 3 4 4 6 7 8 9 0 0 0 0 0 0 0 0 0 The chart shows a gentle upward trend, though a slight dip is recorded in Period 1 of 2009 probably due to the GFC. Overall, however, there is an upward trend in volume, particularly as new lines and additional capacity come on stream. Freight is dominated by the dedicated systems that support the mining sector, in particular for both coal and ores which account for approximately 78 percent of all freight. Otherwise, general cargo is growing but competes against a strong and influential road lobby, and may be further hindered by poor port connectivity. That said, connectivity to ports is being addressed and this will encourage freight on rail to grow. Indeed, further expansion to the mining sector will result in new rail capacity being installed. The heavy haul lines supporting mining and coal operations are world-class. Urban systems are typically constructed to a high standard, using standard gauge. Yet, such is the scale of Australian railways that a pragmatic approach to some lines is taken. On seasonal or lightly-used lines, in particular, fitness for purpose is the standard approach taken to maintenance. Some of these lines are under the spotlight in view of low volumes of traffic relative to costs of maintenance, particularly in the grain growing regions in Western and Southern Australia, however, safety is not taken lightly and is at the centre of all strategy. Key track ownership according to ARA (the Australasian Rail Association) is shown below: Sector Route km Private Rail 7000 (BHP, Rio Tinto, FMG) QR 9521 RailCorp 1700 WestNet Rail 6622 ARTC 10000 (pre ARTC/NSW lease) Sugar Cane Railways 4150 VicTrack 3676 Asia Pacific Rail 2251 Total 44920 Safety The Railway Industry Safety Standards Board (RISSB) and the Transportation Safety Bureau contribute to the safety of railways in Australia. The RISSB is not dissimilar to the RSSB in the UK, with which there has been co-operation. Level Crossings Level crossings are a major safety concern across the country and initiatives are underway to improve safety, including investment and an education and awareness campaign. Public Transport Within the major cities, passenger transport is heavily subsidised, and is often working at capacity. The commitment to improving and extending public transport is very encouraging, and multi-modal solutions are being used to deliver solutions that encompass all types of public transport, including tramways and light rail, mostly under unitary authorities that manage bus and rail (and ferry) operations. Each state or territory has addressed factors such as congestion and the environment and these have been included in a series of blueprints or transport strategies that set out long-term investment plans, covering a period of up to 20 years. Industry Scope The following tables illustrate the value of the rail sector, using data produced by ARA, the Australasian Rail Association. The statistics refer to 2007/8, being the most recent period available. Further information is available on the ARA website: www.ara.net.au Segment Volume Rise Percentage Comment Urban Passenger 724.7m 47.6m 7 80 percent is in urban heavy rail. Non Urban 11.4m 2.2m 19 Mostly generated by Passenger investment in Victoria. Non Urban 1.8bn 0.12bn 6.5 Passenger km Urban Passenger 13.3bn 1.0bn 7.9 km Freight Tonnes 719m 53.5m 8 Iron ore ~ 78 percent of total Net Tonne-km 217.1bn 18.5 9.3 bn Rail Sector Financial Performance This is a consolidation of some of the major companies involved in the rail sector, calculated by the industry group, ARA. It shows investment of approximately Au$ 14bn in railways in 2007/8. Subject Value Au$ Comment Revenue Au$ 11.3bn Consolidated Position (0.3bn ) First loss since the surveys began. Increase in Turnover 15 percent Expenses Incurred Total 11.7bn Labour Cost Increase 557.5m 16 percent. Assets Employed 49.8bn Rise of 17.5 percent over 2007. Contribution to Government 1.3bn (Taxes and Fees) Borrowings 11.0bn Rise of 18 percent over 2007. Capital Expenditure Total 15.0bn Estimate of national capex. Capex by Segment Rolling Stock 11.1bn Dominated by passenger sector. Track Infrastructure 2.3bn Land & Buildings 0.6bn Employment Approximately 44,300 people are employed full-time in the rail sector. Freight Volume Encouragingly, volumes of freight on rail are growing. Freight Tonnes 800 250 700 200 600 500 150 400 Net Tonne-km Bn 100 300 200 Freight Tonnes M 50 100 0 0 2002 2003 2004 2005 2006 2007 Iron ore dominates the freight sector, accounting for 44 percent of the tonnage carried. Coal tonnage carried is a close second and, between them, these key commodities account for about 78 percent of all rail freight in Australia. Yet, general freight and the non bulk market is growing too: this segment rose, albeit from a modest base, by 17 percent in the period 2004 to 2008. Rail?s share of freight travelling between the major cities in the Eastern states is modest, leaving room for expansion. Passenger Traffic by Segment Passenger Journeys M Light Rail 2007 Heavy Rail Urban 2006 2005 Heavy Rail- 2004 Non Urban 2003 2002 0 100 200 300 400 500 600 700 800 Again, it is encouraging to see that the trend is upward. Further detailed information is contained in the body of this report. Sustainability and Climate Change The debate over climate change is taking place in Australia, as in other parts of the world. One context for the transportation sector is carbon pricing, where rail does appear to offer advantages over road and air transport in view of its comparably lower carbon emissions. Yet other issues also need to be taken into account in Australia, with its unique population distribution, densities and the huge distances travelled. For example, the roads sector has traditionally been active even for long distance freight. The reason for this is that rail connections to ports are under-developed and, in the busy city areas, enhancing freight rail corridors is only now getting underway. It could be a major and expensive task. An example is the Melbourne to Sydney corridor. High speed rail has long been mooted for what is one of the world?s busiest air corridors. Though widely discussed, many question whether the cost of building a high speed link would be economically viable due the distance and the finite size of the passenger market. 2.2 Doing Business in Australia Tonnes M Nett Tonne Km Bn Australia has a robust indigenous industry in the rail sector, but there are skills shortages which will continue to present opportunities to UK companies and international competition in what is an expanding market. Market research is vital before entering any new market and Australia, like all markets, has its own unique character. Specifications are generally based around Australian standards, but international quality standards are recognised, and are reasonably well accepted. There is a desire to increase efficiency, and a desire for advanced, proven technology. Indeed, the significant growth in UK passenger and freight rail on track that was achieved without a corresponding increase in network size would be an attractive proposition in Australia where many networks are approaching capacity. One useful strategy when considering market entry is to approach the market via existing contacts or customers. Australian contractors have been active overseas, and UK as well as Australian and international consultancies are active in the market. Australia is a transparent market and encourages international participation, yet addressing local content, is a key aspect for success. Tender information is released by diverse means, but use of electronic notices is increasing. Generally, those companies that have a presence in some form within Australia are more likely to succeed than those seeking to service the market from offshore. As State Governments seek to ensure best value for money and protect employment within their own territory, only businesses deemed to be within the state boundary may represent a truly ?local? offer, hence, a local partner or presence can be helpful. Local content can be addressed in a variety of ways, it doesn?t just imply creating a local business presence. There is usually an informal network in a market, and meeting clients face-to-face is always vital. Local Presence This can be addressed in a number of ways and UKTI can assist with this. Agents, distributors or partners can fulfil the role of local partner, and UKTI can provide tailored information and assistance to help companies to find them. 2.3 Conclusion UK companies may find the Australian market not unlike the UK, where value across the life cycle is increasingly the standard measured. Other aims of the market include reducing energy costs and improving service to customers, in both passenger and freight. Another similarity with the UK is the need to enhance capacity on existing infrastructure, especially within crowded urban areas where building new track may not be an option. Although the Australian market may be similar to our own, it is important to recognizes, however, that it is different and unique and to treat it as such. The relative exchange rates are also favourable to UK companies, at the time of writing, with a strong dollar and a relatively weak pound. This enables UK companies to demonstrate even better value in the market. With no language barriers, commonly derived laws and railway standards, (although locally- adapted), the Australian market may well be a very attractive one to UK companies. 2.4 UKTI Assistance ? Market Entry and Growth Whilst there are opportunities, there is also competition, and some barriers to trade. There is, in many respects, a thriving and progressive local rail industry, as well as wider international competition. Australia sees itself firmly in the Asia Pacific sphere of influence, with an upward trend in trade and outlook. Distance is one consideration, even if language is not. Specification and standards vary from place to place, and choice of location and a local presence are also essential elements of the business mix. Immigration and work permits require thought. Law is very close to English law but, as ever, professional advice is recommended. UKTI can assist with information and access to the market. In particular, through OMIS (the Overseas Market Introduction Service), which allows information to be tailored to individual companies. Local knowledge and contacts are vital, and OMIS delivers great value for money to companies wishing to expand in the market, either as existing suppliers or new entrants. Further information is available from the UKTI website, by contacting the railway sector team shown in section one, or from the British Consulate General in Australia.
Posted: 05 October 2010

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