JOHN AUSTEN. Australian freight policy: where is my chainsaw . Part2.

A recent report on freight and supply chains leads Governments astray.  This is the second of three articles seeking to put them back on course.

The recent inquiry

My previous article considered the proposal of a recent review of freight which was really about  expanding bureaucracies. However, the opposite is needed.  Before freight can be taken seriously a chainsaw is needed to slash the present bureaucratic shambles.  https://johnmenadue.com/john-austen-australian-freight-policy-where-is-my-chainsaw-part-1-of-2/

Policy needs complete reconstruction using basic analysis. We need understanding of  how Governments lost their way.  This article looks at those matters.

Basic analysis

Policy should seek to minimise total freight costs including those borne outside the industry. It should ensure that  pathways of least cost to industry are the same as those of least economic cost to the community.  This matters only for vehicles/locations readily distinguishable from general traffic and settlement e.g. trains and trucks moving between major freight centres such as ports, mines, warehouses. 

Freight decisions, unlike travel, are entirely monetised – made on the basis of finances without regard to transit time or preferences about residential addresses.  There is no economic case to subsidise freight. 

Relative costs of lands and routes affect freight locations.  Implications include:

  • unless road charging is reformed freight will be carried too far, on the wrong vehicles between too many (wrong) places;
  • increases in land values encourage freight to urban outskirts.  We need plans for an inevitable shift of freight away from inner city areas and, in the interim, cross-metropolitan road and rail space dedicated to large freight vehicles;
  • critical places – seaports, rail terminals and major junctions – deserve detailed attention and protection for freight purposes;
  • very little big city land is suitable for freight. Planning should account for these activities before addressing other uses – contrary to Australian practice.  

Policy also should facilitate international transfers of knowledge embodied in goods.  Ideas here include co-locating heavy industry and freight to enable traditional industrial areas such as in Geelong, Adelaide and Kwinana to participate in new global value chains – the freight equivalent to information clusters near airports and inner parts of big cities e.g.: http://www.oecd.org/sti/ind/global-value-chains.htm

How Governments lost their way

For many years policy rightly focussed on significant places, routes and vehicles.  There once was a real national highway program and a rail freight initiative.  This focus was recognised elsewhere, for example in the national access regime, established in 1995, which applied to national infrastructure – not every asset.

Since the mid-1990s this has  changed.  

The Howard administrations’ transport network, Auslink – continued under Labor as ‘Nation Building’, was well-intentioned in trying to narrow a many-orders-of-magnitude road/rail spending imbalance.  However, it became a sham as evidenced by omission of locations as important as the world’s largest coal port (and nearby RAAF base!) Newcastle and curios such as running to the front door of the Strathfield golf club while avoiding Sydney’s main rail terminal.  A laughable ‘one rail network with many track gauges’ depicted in Commonwealth publications didn’t enhance its credibility. http://investment.infrastructure.gov.au/files/national_land_transport_network/National_Land_Transport_Network_2014_-_Road_and_Rail.pdf

The network was limited by Commonwealth funds.  When transport money earmarked for a particular State ran out, so did the network.

Opportunities to pursue true network characteristics – such as interoperability, user rights, processes for privately funded improvement, common ownership – were shunned.  The network was a place for largesse.  

Acquiring public money was becoming easier for freight projects – particularly roads  compared to other transport because ‘productivity’ was supposedly involved.  Yet Treasuries apparently forgot  that freight is able to and should pay its way.  To compound that mistake more than a few projects designed for cars were slipped into the road freight category.  

The network charade provided officials and politicians a cloak of legitimacy for endless pork barrelling and blame shifting.  Nobody dared say that this assisted the rent seekers.

The pork barrel and ‘reform’

The pork barrel reflex was fed by the growth of ultra-vires road spending programs – renamed for each new federal Minister – evidenced by an unedifying scramble to refloat spend-on-anything doctrines torpedoed by the High Court in 2014: https://johnmenadue.com/john-austen-the-high-court-the-williams-case-and-transport/

The desire to roll the pork barrel throughout the land meant the very idea of a network became inconvenient.  Moreover, if there were no network there would a better excuse for not bothering with crucial problems like inordinate, archaic approvals for essential facilities – rail terminals, channel dredging, fuel pipelines etc – created by other entrenched bureaucracies.  In any event, officials would be too busy handing out road gifts, ensuring project signage and addressing Auditor General concerns to worry about such work!

Accompanying this was a game of blaming States/local governments for not undertaking proposed ‘regulatory reforms’.  Almost all proposals were stupid (at best) as applying equally from downtown Melbourne to Arnhem Land!  

No attempt was made to apply any reform to a network under/by Commonwealth power – not even a trial.  Mere suggestions of that were apparently verboten.  

That failure supports suspicions held by many of Commonwealth: grandstanding about matters that could never be accepted because they would shift enormous costs onto other levels of government; avoidance of responsibility by creation of low order distractions. https://johnmenadue.com/john-austen-roads-another-year-of-inaction-and-congestion-causing-deficits/

Advice on a national strategy?

At its inception Infrastructure Australia advised a national freight network was needed; essentially to link the ports.  

Its research indicated: conflicting project and policy proposals; absence of any national level consideration of freight; ‘reform directions’ skewed by outdated stereotypes such as for industrial relations, governance and competition policy.  Some reforms – lazy reruns of previous intergovernmental ‘triumphs’ – expanded the gulf between real concerns and Government ‘action’. http://infrastructureaustralia.gov.au/policy-publications/publications/National-ports-strategy-background-paper-December-2010.aspx

Its three reports in 2011-12 – sought by the Prime Minister – made some simple points to encourage the Commonwealth back into the main game of major locations and routes. 

http://infrastructureaustralia.gov.au/policy-publications/publications/files/COAG_National_Ports_Strategy.pdf 

http://infrastructureaustralia.gov.au/policy-publications/publications/National-Land-Freight-Strategy-Update-June-2012.aspx

First, the Commonwealth’s deep involvement in airports contrasted with its absence in seaports and their channels – except to duplicate regulation.  That irrational approach needed to change.

Second, it is not possible for the Commonwealth – or anyone – to have a view about settlement without a handle on ports.  Transport and urban policies should start with a national approach to ports – dealing with precinct, road/rail and channel planning.

Third, freight should cover at least all the infrastructure costs it causes.  Efficiency and equity considerations imply it should exercise-regulated commercial control over particular facilities to the extent it covers associated costs.

Fourth, as a corollary, routes/places with the most freight are least in need of Government funding/supervision and most amenable to market-led investments.  Road reforms need these places to be separated from others not least to avoid infringements of competition law such as predatory pricing. 

Fifth, proper engagement with the community requires a ‘big picture’.  It needs to be national referring to tangible matters, locations, common understandings, historical experience and national purpose.  Ad hoc developments simply justified by alleged ‘productivity’ gains increase the cost of freight’s ‘social licence’.

Last, as there was (is) no credible national transport network – freight or otherwise – it can only be an ambition.  It should be progressed by increments only when justified via processes transparent to industry (which should foot the bill) and the community.

The ports advice was welcomed by politicians but vehemently opposed by bureaucracies.  Departments disingenuously warned about Commonwealth intervention (never proposed) delaying any progress for over 18 months.  https://www.coag.gov.au/meeting-outcomes/coag-meeting-communiqu%C3%A9-13-february-2011; https://www.ntc.gov.au/intermodal/productivity/national-ports-strategy/

The freight advice fared worse.  

Perhaps this was due to it saying hand-outs to major routes are not justified – rather, industry should largely say and pay for what gets done there.  The unstated implication: advisers had completely misunderstood and misrepresented the purpose, economics and social implications of a network for freight.  Governments were doing exactly the opposite to what should be done.  A freight network is a place to NOT spend taxpayer monies.  Maybe the reports should have been limited to such a sentence.

Or perhaps, like ports – which were never mentioned over several decades in the national Ministerial Council – officials resented somebody trying to do something about their neglected bureaucratic turf?   

Different approach adopted

Departments wrote their own different report in 2013, misrepresented – including by the present inquiry – as advice under almost the same name.  http://transportinfrastructurecouncil.gov.au/publications/files/National_Land_Freight_Strategy_Compressed.pdf.

Instead of focussing on places like Gladstone or the Pilbara channels, that effort presaged more reports saying freight goes everywhere and needs better tracking – necessary to retain the pork fest if industry is ever given any say in freight.

A patina of ‘logistics/supply chain’ sophistry was added without defining those terms.  Determinants of supply chain structure such as value/tonne, regulatory inefficiencies, market power imbalances, business practices in various freights or how ownership of goods is transferred – such as by cif or fob contracts – were ignored.  Rather the line was: ‘freight just happens’ – supporting the ‘predict and provide’ fallacy underpinning outrageous overspending on roads.

Such a vacuum invites ludicrous claims like online retail is of critical interest to transport bureaucracies because it is ‘freight’. 

https://infrastructure.gov.au/transport/freight/freight-supply-chain-priorities/files/Inquiry_Report.pdf

Meanwhile, ‘reforms’ initiated 25 years ago – on rail harmonisation, road charging and access, streamlining national bureaucracies etc. – languish in various states of non-deliverance.  Most have no prospect of ever being delivered, not because of ‘reform fatigue’ or lack of incentives, but because of stupid attempts to apply them everywhere .There will never be a social licence to allow that.  The biggest problem is their stubborn pursuit prevents what could be done.

Conclusion

The infrastructure pork barrel – particularly in Commonwealth hands – is cancer metastases throughout freight policy – for which agencies and advisers continue to demean themselves.  The chainsaw must cut out its malignant growth.  

If the barrel cannot be completely excised because of ‘political reality’ it must be confined to the corner – relegated from the centre – of policy.  The next article will suggest how.

John Austen is a retired former official who conducted freight benchmarking studies, was the initial director of freight in NSW transport, advised on the establishment of rail access regimes and national rail organisations and led Infrastructure Australia’s development of ports and land freight strategies. More details will be at thejadebeagle.com

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3 Responses to JOHN AUSTEN. Australian freight policy: where is my chainsaw . Part2.

  1. Robert Gibbons says:

    He wasn’t the initial director of freight, I was 1977-84

  2. Greg Sutherland says:

    John Austen waxes eloquently on the subject of containerisation competition being encouraged to enable Newcastle and Port Kembla to challenge the Sydney monopoly.

    He totally overlooks the fact that the throughput of container terminals is determined by the decisions of the shipping operators who seek to minimise the operational costs of maintaining a worldwide scheduled service for a very expensive fleet of specialised container vessels. These are not ‘tramp steamers’ plying to wherever they can obtain a cargo. They ply a regular schedule wherever practicable and their ports of call are determined by there being a minimum acceptable quantity of containers to be discharged/loaded. If this number is not met the container ship bypasses the port and land transport (rail or road) is used to consolidate the cargo in another port. As an example a container ship can bypass Sydney and consolidate cargo to/from Melbourne thus saving on time and port charges if the total of cargo does not justify a stop.

    Land transshipment can then often be had at quite low rates. For example a truck owner/driver desperate for a return backload from Sydney to Melbourne will accept payment for the transport of an empty container (often Sydney’s biggest export) that does nothing but cover their fuel cost!

    The shipping operators are always able to be quoted as being happy to service other ports thus encouraging the construction of additional specialised container faciilties with the cost of construction and operation being met by the would be ports and operators. The viability of these facilities with their multi million dollar associated infrastructure and the retention of a full time skilled terminal operational capability is of course not of concern to the shipping operators as it is the terminal operators who must chase business and this business can often be a significant loss maker. The ambitions of potential boutique terminal operators and their ‘economic developer generator’ gullible local associates are not a suitable foundation for efficient container handling! An example with which I am familar was in one trade which was to be containerised and this trade was to be competed for by three separate shipping operators. These operators respectively informed the port authority that they would require facilities capable of handling 110%, 130% and 145% of the available trade when the trade was containerised. A facility capable of handling 385% of the available trade was hardly a fair call on the port’s investment capacity!

    If used in isolation desk top economics is not a good application to forecast the direction and ideal format of multi million dollar, multinational enterprises especially when it fails to recognize the operational and extraneous factors that can impact on individual locations and sections of the supply chain.

  3. j austen says:

    Mr Sutherland
    Thanks for the comments.
    I do not offer views on the economics, finances or commercial behaviours relating to particular container terminals, nor seek to encourage competition among terminals to enable a challenge to Botany.
    Rather, this and previous posts argue for removal of the restriction on competition secretly imposed in NSW. That is to stop artificially discouraging contestability.
    They draw attention to the possibility the NSW restriction creates a difference between least financial and economic cost pathways. Were the restriction removed, and were proper road charging introduced, the pathways would more likely converge.
    The contrary argument, for retaining the restriction essentially to avoid a State Government payout, is tantamount to saying the restriction has an effect; those imposing and supporting the restriction think the possibility of divergent pathways is a probability.
    The arguments for removing the restriction are not merely social or economic. An important one is that Executive Governments should not enter such arrangements without a clear mandate from – and comprehensive information provided to – Parliaments.
    On the matter of the sum of individual forecasts exceeding market size, this was a prime concern in the National Ports Strategy background paper cited in the latest post It may be an issue for terminals within a port, but is a larger issue among ports across Australia. In many cases port forecasts are used to argue for public monies and reservations for land transport infrastructure, not merely for port side land. The public, not merely voluntary participants in supply chains, are open to the consequences arising.
    Thanks again.

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