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Open access brings

01 Mar 2003

mixed results

INTRO: In theory, legislation has provided Australia with one of the most open rail freight markets in the world. In reality, results have been mixed, with success inhibited by the failure of governments to provide policies to realise the full potential of open access, says Mark Carter

COMPETITION policy principles adopted by the Commonwealth and state governments in 1995 laid the foundations for open access freight operation in Australia. In some areas open access has delivered significant benefits, most notably over that part of the interstate network controlled by Australian Rail Track Corp, and to a limited extent in New South Wales. But elsewhere implementation has been slow, and has generated little in the way of new competition.

The central aim of the 1995 legislation was to increase competition in essential services, notably electricity, gas and telecommunications, and to ensure that publicly-owned businesses did not enjoy competitive advantages over their private counterparts simply as a result of public-sector ownership. While it has been argued that the developers of the competition principles did not consider their application to the railways, the state governments nevertheless adopted them and set about constructing a legislative framework to provide open access to all lines, both interstate and intrastate, except in Tasmania. The Alice Springs - Darwin line is covered by an open access regime that acknowledges the original investment.

In July 1995 Melbourne-based Specialised Container Transport provided the first competition to government-owned interstate carrier National Rail. Services began with 40 boxcars operating a weekly return service from Melbourne to Perth via Adelaide. Traffic has grown sixfold, and there are now three services moving up to 240 boxcars in each direction every week.

SCT was followed by the erstwhile Australian transport giant TNT, now part of the Toll group, which began its own Melbourne - Perth intermodal service in June 1996. For both these services, rolling stock, locomotives and crews were leased or contracted in from existing government operators, while track access charges were paid directly by the operator, who was also responsible for all aspects of the train's operation.

Enter ARTC

SCT's launch coincided with an announcement that the federal government planned to establish Track Australia to manage open access on the interstate rail network. However, this proposal was overtaken by political change in 1996 and the demise and privatisation of federally-owned Australian National in 1997. Track Australia never came into existence.

In November 1997 an agreement was signed between the states and the federal government to create Australian Rail Track Corp, a 'one-stop shop' for open access to the interstate network. A Commonwealth government corporation, ARTC inherited the federally-owned network in South Australia and part of that in Western Australia. The rest of the interstate network was controlled by New South Wales, Victoria and Western Australia, with a short section in Queensland.

It was intended that ARTC would negotiate track access on behalf of train operators through a series of wholesale access agreements with the infrastructure owners. In the case of Victoria this did not prove a major challenge, and matters were taken a stage further in July 1998 when ARTC assumed a 15-year lease over the Victorian interstate track. Negotiation with the other state owners has been painfully slow, and only one wholesale agreement is in place so far. WestNetRail is the private lessee of the tracks in Western Australia, and provides agreed levels of network capacity and performance standards.

In the last five years there has been a significant turnaround in rail freight volumes and performance on the ARTC network, which now links Albury and Broken Hill in New South Wales with Kalgoorlie in Western Australia. While open access has been the main stimulus, this growth would not have been achieved without infrastructure upgrades and improved network management, including train control consolidation. These improvements have reduced transit times, permitted heavier and longer trains, and brought increased access yield and reductions in real access costs.

Corridor contrasts

The most outstanding performance has been on the strategic trans-continental corridor linking the eastern states with Western Australia. This recorded an annual increase in gross tonnage of 8·2% in 2001-02, and rail's share of land freight on this corridor rose from 69% in 1998 to a high of 80% in May 2002.

The importance of the access, investment and management mix is graphically demonstrated by the failure to mirror this performance on the corridor linking Melbourne, Sydney and Brisbane. ARTC manages the Melbourne - Albury section, with the remainder controlled by the NSW government's Rail Infrastructure Corp. There is no accurate figure for rail's market share on this route, but rail accounts for well under 20% of the total inter-capital freight. The rail corridor has been starved of investment, while the federal government has poured over A$1bn into the competing Hume Highway.

This failure is further highlighted by the fact that there is still only one interstate operator, Pacific National. Open access has yet to attract any new players. SCT executives have publicly stated that with the existing transit time and performance, SCT has no interest in gaining access to the route, preferring to use road transport for such hauls.

ARTC has recognised these shortcomings, which also affect the performance of trains entering and leaving its network. In June 2002 it lodged a proposal for leasing the defined interstate network in New South Wales. This would be accompanied by an A$870m package of investment in performance improvements over five years, funded by ARTC, the private sector and the federal government.

Around the states

Individual states have their own access regimes, and the manner in which these have developed and are now administered is different in each case. While a number of small niche market companies operate limited services under open access arrangements in most states, outside New South Wales there have yet to be any major contracts awarded to third-party operators on intrastate routes.

In Western Australia intra- and interstate lines were leased in December 2000 to Australian Railroad Group, the successful bidder for the state's Westrail Freight business. Under the conditions of the sale, ARG has created a separate company, WestNetRail, to manage independently access and train control on the state's network. To date no other major operators have entered the market and there has been only one serious challenge to the incumbent operator; this was serious enough for the incumbent to drop its rates sufficiently to retain the contract.

Australia Southern Railroad is obliged to provide open access to 1350 km of lightly-used intrastate track as part of its 50-year lease on the intrastate tracks in South Australia. To date there have been no major applications for access to the network.

A similar 45-year lease arrangement for Victoria was awarded to RailAmerica subsidiary Freight Australia when it took over the state-owned V/Line Freight business in May 1999. Again the onus is on the lessee to provide open access as defined under the state access regime. However, this was not fully defined at the time of the sale, and FA and the Victorian government have been in dispute over the terms since its inception.

Many of the lines controlled by FA are also used by passenger services, for which FA is paid an annual access fee by the Victorian government. Several of these lines are to be upgraded as part of the government's regional high speed passenger links project, while others are proposed for conversion from 1600mm to standard gauge. To date, no significant third-party operators have taken to the rails under open access, although grain handler GrainCorp has stated on several occasions recently that it is about to commence operations, and has been accredited to operate trains (RG12.02 p732). Given the complexity of these arrangements and the dispute over access models, it is little wonder that in recent months there have been rumours of a possible state government buy-back of the intrastate track infrastructure (RG 2.03 p61).

Open access on the 1067mm gauge network in Queensland is controlled by a Network Access Unit within Queensland Rail. To ensure independence between QR's operations and open access allocations, the unit resides behind a 'Chinese wall' within the company. The effectiveness of this structure has yet to be tested, as to date no third-party operators have come forward to challenge the incumbent. As in Western Australia, open access and the threat of competition has kept a downward pressure on rates for coal traffic without any new operators actually taking on QR.

This could change in the future as BHP Billiton recently called for expressions of interest in hauling coal in Queensland. As coal is QR's principal traffic, it is unlikely to welcome intruders on its traditional territory, but the railway is well aware of open access implications and opportunities. Last year QR National bought New South Wales operator Northern Rivers Railroad, giving it a small fleet of 1435mm gauge locomotives and wagons that could be used to compete for open access traffic against Pacific National.

It is only in New South Wales, where the access provider is totally independent from the incumbent operator, that there have there been significant newcomers. In 1996 the state was the first to segregate operations and infrastructure, establishing Rail Access Corp (subsequently renamed Rail Infrastructure Corp) to manage the track assets and to facilitate access to the NSW network.

Small regional operator Austrac was the first open access operator in NSW under these arrangements, and since then a number of smaller firms have entered the market, targeting niche rural business and short haul port operations in the Sydney metropolitan area. Freight Australia is the only major operator using open access to challenge the dominance of Pacific National (formerly FreightCorp), and it has won several contracts under competitive tender.

Arguably the greatest need for open access in NSW is in the 65 million tonnes/year Hunter Valley coal market. As elsewhere, the threat of competition from other operators has brought a reduction in rates, but no new third-party operators have succeeded in entering this lucrative market. Thus customers are denied the additional improvements in productivity and network performance that open access might bring. However, BHP Billiton is testing the market with a call for expressions of interest in hauling its share of Hunter Valley coal traffic.

Grain benefits

Australia's grain industry is a major export income generator, but is challenged by strong international competition and high transport costs. It is currently undergoing reform through amalgamations and alliances, with handlers and marketers competing for business. More than any other sector grain businesses have recognised the benefits of open access and competition, and have sought to exploit it in a number of ways.

Grain firms are studying purchasing and leasing their own rolling stock, allowing the award of short-term 'hook and pull' haulage contracts to a range of operators, rather than the longer-term single operator contracts that have prevailed in the past.

GrainCorp is planning to take this one stage further by leasing locomotives and wagons from CFCL Australia and running its own trains in Victoria. AWB Ltd has recently purchased its own rake of high capacity grain hoppers.

Receiving centres have been constructed adjacent to interstate main lines. This provides a clearer access regime, but shifts short-haul traffic from branch lines to road transport which is paid for by the whole community, rather than simply the user.

Parallel developments

The introduction of open access to the Australian freight market cannot be viewed in isolation, and a number of parallel developments including investment policies, privatisation, regulation and separation have all had an impact on the relative outcomes of open access.

In many cases governments have failed to provide the right policy mix, have over-regulated, or have adopted contradictory policies, limiting potential success. The decades-old bias towards road funding has meant that, even with open access, customers are not attracted to rail without infrastructure investment to give transit times and prices that can compete with road haulage.

It has been suggested that a close relationship between the access provider and incumbent operator does not make it easy for third parties to compete, despite procedures to keep the functions isolated from each other.

While a leasing market is starting to develop, the limited availability of appropriate rolling stock and the high capital cost of new equipment is another constraint to newcomers, not suffered by existing operators who have purchased their assets second-hand from the government. High insurance premiums and regulation on a state-by-state basis are also creating barriers for new entrants.

It could also be argued that the failure of open access to attract greater competition is merely a natural reflection of the market, in that most intrastate lines are low volume, low margin routes and do not provide any great incentives or attraction for third-party operators. The potential for reduced economies of scale for incumbent operators is a disincentive to intrastate infrastructure investment.

The effect on the competitive environment of the amalgamation of the National Rail, FreightCorp, Toll and Patrick rail businesses under the Pacific National banner is yet to become apparent. Overnight the number of major freight operators on ARTC tracks dropped from seven to four, with Pacific National now accounting for over 80% of its business. The politically-motivated decision of the Commonwealth and NSW governments to combine their assets for privatisation demonstrates that their primary motivation is ridding themselves of publicly-owned assets rather than promoting competition.

The Australian experience has demonstrated that open access can provide significant economic benefits on high volume or long haul routes if the right mix of network improvements is in place. On the other hand, the application of open access by state governments has yet to be proved appropriate for low volume, low margin operations. Where intrastate operations are of sufficient size to support competition, such as the Hunter Valley and Queensland coal lines, government policy has not provided the appropriate framework and support, other than to create a mechanism to force the incumbent to reduce its rates.

CAPTION: The full impact of the sale of FreightCorp and National Rail to the Toll/Patrick consortium has yet to be realised, but it has reduced competition on interstate corridors. A Pacific National service passes rail-served silos at Mallala in South Australia

CAPTION: The Virtual Operator: ATN Access owns just a handful of locos and a rake of hopper wagons. It has one contract with AWB Ltd to move at least 300000 tonnes per year of export grain from southern NSW and Victoria to Port Kembla and Melbourne

CAPTION: Multiple operators are rarely seen away from the interstate network. At Belair on ARTC's Adelaide - Melbourne corridor, Great Southern Railway's Ghan passes a Patrick (now Pacific National) intermodal train heading for Port Adelaide

CAPTION: ARTC is upgrading its infrastructure to raise capacity, reliability and performance whilst offering lower access costs. In South Australia, a westbound Trailerail train runs through the 1·8 km crossing loop at Dry Creek commissioned in 2001

CAPTION: The Hunter Valley coal lines in New South Wales carry more tonne-km than any other non-urban tracks in Australia. Despite the New South Wales open access regime, so far only Pacific National is currently operating in the 65 million tonnes/year export coal business

Open access brings mixed results

Open access freight began in Australia in 1995 with both federal and state governments seeking to promote competition. The results have been mixed, with competition in New South Wales and on that part of the inter-state network controlled by Australian Rail Track Corp delivering significant benefits. Elsewhere, the threat of new operators entering the market has driven down rates, for example in Western Australia. However, government policies of over-regulation and lack of investment are holding back further development of competition

Le libre accès enregistre des résultats mitigés

En Australie, le libre accès a été instauré en 1995, à la fois par le gouvernement fédéral et les gouvernements d'états qui cherchaient à promouvoir la concurrence. Les résultats ont été mitigés, avec la concurrence qui apporte des bénéfices significatifs en New South Wales et dans la partie du réseau inter-états placée sous la responsabilité de l'Australian Rail Track Corp. Ailleurs, la menace des nouveaux opérateurs arrivant sur le marché a conduit à une baisse des tarifs, comme par exemple, en Western Australia. Toutefois, la politique gouvernementale de sur-réglementation et de manque d'investissements freinent la poursuite du développement de la concurrence

Freier Netzzugang zeigt gemischte Resultate

Der Freie Netzzugang für den Güterverkehr begann in Australien 1995, als sowohl Bundes-, wie auch Staatsregierungen versuchten die Konkurrenz zu f