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The domestic freight task has doubled in size over the past 20 years – with growth averaging 3.5 per cent a year. This trend is likely to continue into the future

Getting our resources to market efficiently and seamlessly will be a key to Australia’s global competitiveness in the 21st century. Productivity of our supply chains will come not just from investment in our rail lines, road and ports, but – just as importantly – planning, regulatory and governance reforms, and innovation to remove current restrictions and avoid bottlenecks building up in the future.

The challenge for infrastructure and transport is to ensure that capacity constraints to growth of exports that have occurred in the past are not repeated.

The Reserve Bank of Australia has recently revised its growth forecasts and expects to see a rise in gross domestic product in 2009. Market expectations are that the demand for Australia’s resources will be restored within possibly the next 18 months and that Asian markets are likely to bounce back strongly.

The domestic freight task has doubled in size over the past 20 years – with growth averaging 3.5 per cent a year. This trend is likely to continue into the future, albeit with slightly slower growth, of about 3 per cent a year – a doubling over the 25 years from 2005 to 2030. Australia’s projected resource commodity export growth (particularly iron ore and coal), in response to China’s expansion and continued demand from Japan and Korea, will underpin much of the growth in domestic rail freight activity.

Announced and prospective coal-mining capacity expansion plans could see up to 280 million tonnes added to total annual production capacity by 2015, a 67 per cent increase over 2007-08 raw black coal production (417 million tonnes), with scope for further expansion.

Planned capacity expansion at BHP and Rio Tinto’s existing iron ore mining operations, scale-up of the Hope Downs joint venture and Fortescue Metals iron ore output, and the successful establishment of a host of mid-tier iron ore producers has potential to triple existing iron ore output (approximately 300Mt in 2006-07) shortly after 2015.
As a large continental island, Australia’s ports are critical to supplying resources markets, both domestic and overseas.
Rail is highly efficient for moving the massive bulk loads involved. As new reserves of resources are developed, much new commercial infrastructure will increasingly be required in remote areas in western and northern Australia. However, established resource centres on the east coast, such as the Hunter Valley and the Surat Basin will continue as a backbone of Australia’s resources sector for the foreseeable future.

In anticipation of the return to growth, the Minerals Council of Australia released its Vision 2020 Project earlier this year, which proposed the infrastructure requirements to fill gaps it identified in Australia’s key minerals resource regions. To achieve its aim to recapture lost market share and accelerate growth, the report found that the common need across all resource regions is for upgraded and increased capacity and connectivity with the wider national infrastructure network.
Some ports (such as Geraldton and even Darwin) suffer from constraints on handling larger bulk carrier ships, while further expansion of freight rail into ports such as Townsville, Brisbane, Newcastle, Port Kembla and Geelong will need to provide balance in managing the impacts on urban congestion.

Competition for ‘third party’ access to rail corridors can also be an issue for growth amongst neighbouring operations.
Any plans for supply chain expansion, particularly in remote areas, must be accompanied by adequate supporting industrial and domestic infrastructure such as water, energy, housing, aviation and community facilities. Planning for workforce growth, including how to acquire acute skills or respond to labour shortages, in part a result of an ageing workforce, is an essential consideration across the resource sector.

To meet these future challenges, investment in our ports and rail supply chains will need to leverage both public and private investment across the infrastructure lifecycle. It is a difficult environment in which this need arises, as noted by Infrastructure Partnerships Australia in a discussion paper released earlier this year: “There is now a significant limitation on the amount of debt which can be raised in the Australian market for infrastructure investment. There are fewer banks active and prepared to lend – and those which are active in the market are only prepared to lend significantly smaller amounts.”

The Australian Government has thus embarked on a national investment pipeline as part of its Nation Building agenda. In 2008 the Commonwealth Government established the Building Australia Fund (BAF) to publicly finance major infrastructure project. Allocations from the BAF were guided by the priorities and recommendations of Infrastructure Australia, which undertook a national infrastructure audit and established an investment priority list.

Best-practice, nationally consistent Public-Private Partnership (PPP) Guidelines for private sector investment were also endorsed last year by the Council of Australian Governments (COAG).

Specific BAF investments include $339 million towards common use infrastructure for a new deepwater port at Oakajee in WA, to enable the loading of Cape-sized vessels and relieve ore-loading congestion at Port Geraldton.

The Federal Government has also committed $50 million towards Darwin Port to accommodate large ships suited to the transportation of bulk resources and commodities, subject to further work and consideration of the project by Infrastructure Australia.

Going forward, the Government will seek to leverage such investments to secure private sector equity.

The BAF investment sits alongside the Australian Government’s $26 billion five-year National Building investment program.

A considerable portion of this funding is committed to upgrading and extending our national and regional road networks, in order to improve safety and conditions, and reduce congestion and journey times for all road users including freight transporters.

For example, the Network 1 project along Australia’s busiest freight route will mean 85 per cent dual carriageway from Melbourne to Cairns by 2014. Victoria’s highly anticipated M80 Ring Road upgrade is a $2.25 billion project to widen and improve the Western and Metropolitan Ring Roads.

South Australia’s Northern Expressway will be a new 23 kilometre road and is the largest road construction project in the state since the 1960s. To the north, the three-stage upgrade of the Ipswich Motorway in Queensland’s Western Corridor will benefit one of the state’s key growth areas, in the south-east region.

Significant rail investment will also boost the Hunter Valley coal chain, which is the world’s largest coal export supply system. The Government-owned Australian Rail Track Corporation is investing more than $1 billion to improve coal carrying capacity in the region. In addition, $1.2 billion is being invested in Hunter Valley rail expansion and to upgrade other key sections of the national rail network, plus $2 billion committed to rail infrastructure from the Nation Building Program for a range of national rail projects, including at Port Botany, Geelong Port and Bell Bay in Tasmania.

These programs have multiple benefits for the community – construction activity supports local industry and contributes to jobs creation in the short term, while the establishment of durable and appropriate infrastructure benefits communities and the economy in the long term.

Effective coordination between Federal, state or territory and local governments is also critical, given the shared interests and responsibilities and the need to deliver projects without unnecessary delay and according to scope.

Australian governments have together identified the need for a consistent national approach to transport regulation to ensure that the overall system operates efficiently and safely to underpin maximum productivity. COAG has agreed landmark decisions to set up single national regulatory systems for heavy vehicle regulation, maritime safety, and rail safety regulation and investigation.

While many issues of principle and of detail remain to be worked out, current anticipation is that the new national laws and institutions would come into being in 2012, with a view to full implementation by 2013. This will result in historic outcomes – single national regulation for all our heavy vehicles, rail and shipping systems, overcoming the multiplicity of different state systems which have added to cost and complexity for business.

While improving our national and regional road networks will continue, the infrastructure needed for a productive 21st century Australia will necessitate a keen focus on ports and rail for delivering our resources to markets. Getting this right requires multi-layered partnerships between the public and the private sectors as well as innovative and robust intergovernmental coordination.

Removing impediments to progress and guarding against future bottlenecks in a future resources growth cycle will need to drive development of a national infrastructure pipeline, institutional and regulatory reforms, skills and financing strategies across the lifecycle, the facilitation and stimulation of private sector involvement as well as the integration of supply chain and congestion management policies for major cities.

For those tasked with developing and implementing such significant and far-reaching programs, it is anything but business as usual.