Current state of Australia's rail industry
2.1
The following chapter provides an overview of the current state of
Australia's rail industry. In addition to outlining the role of the ARTC, the
chapter reviews the level of progress that has been made in relation to the
standardisation and harmonisation of Australia's rail network. The chapter also
summarises the evidence provided by stakeholders regarding some of the issues
currently impacting the rail industry, including the inefficiencies associated with
competing standards, standards that differ across state borders and the need to
increase efficiencies in freight haulage. The current level of importation –
specifically in relation to equipment, knowledge, technology and skills – was also
identified as a matter of concern by a number of industry stakeholders.
2.2
Industry stakeholders also pointed to some of the problems currently
being experienced by the rail manufacturing sector. Issues of concern include
increasing costs, procurement and local content guidelines, issues of scale, contracts
and tender processes, changing state and federal governments and their
respective policy and priority differences, as well as short-term planning
processes. In addition to these complicating factors – which contribute to the
'peaks and troughs' experienced by the rail manufacturing sector and its
workforce, and to the uncertainty around investment – stakeholders also
reported a decline in skills-based training and a fall in the number of
apprentices being employed across the sector.
Australia's rail industry
2.3
The significance of the rail industry (and the critical contribution it
makes to Australia's economy) has, over recent years, been increasingly
recognised. In 2014-15, approximately 1.2 billion net tonnes of freight – or 49
per cent of Australia's national freight task – was carried by rail. This is in
addition to the 849 million urban heavy and light rail passenger journeys
recorded over the same period.[1]
2.4
The Australian rail sector – supported by the rail manufacturing and
construction industry – is currently in transition. Following a period of rapid
growth – driven, in part, by the construction phase of the mining boom – the rail
industry is currently moving to a more established market, sustained by the
ongoing extraction-based phase of the mining boom. DIRD noted that this phase has
enabled infrastructure operators and investors to make increasing use of global
supply chains for rail products. DIRD also argued that spending by successive
Commonwealth and state governments (on both passenger and freight rail projects)
has, in part, offset the decline from the construction phase of the mining
boom.[2]
2.5
A 2016 IBISWorld report forecast that by the end of 2016-17, rail
manufacturing sector revenue in Australia will have contracted significantly.
The report also predicted, however, that given the expected increase in public
sector spending and the need for ongoing maintenance services, the rail
manufacturing industry can also expect some growth over the next five years.[3]
It was also noted that between 2013-14 and 2019-20, the Commonwealth Government
intends to invest over $4.4 billion on passenger rail projects and over $3.1
billion – which includes equity funded projects – on freight rail and
intermodal projects.[4]
Crossroads
2.6
Stakeholders acknowledged that a strong, efficient and modern rail
industry is central to Australia's transport infrastructure future.
Stakeholders also agreed that the rail manufacturing sector is at a critical
juncture, and the future of Australia's rail industry will depend on how the
industry deals with the many challenges that are ahead.
2.7
Stakeholders agreed that given the right policy settings and cooperation
across the sector, there is a strong possibility that the rail industry will
have a strong and sustainable future. Stakeholders also acknowledged, however, that
there is another, less favourable alternative – a continuation of the status
quo – including grants and programs which focus on short term strategies and ad
hoc government tenders. Preserving the status quo would, ultimately, make it
increasingly difficult for domestic rail manufacturers to invest in capital
expansion, innovation and research and development and would do nothing to remove
the current barriers to increasing competition and productivity.[5]
Reviews and reports
2.8
Over recent years the rail industry and the rail manufacturing sector
have been the subject of a number of reviews and reports. These reports have
examined a range of issues including the current state of the industry, ways to
increase global competitiveness, and the economic benefits of harmonisation.
The following reviews and reports have been particularly influential and have
informed debate across the industry. These reports were also cited in a number
of the submissions provided by stakeholders.
The Taig Review
2.9
In 2012, as part of its funding agreement with the RISSB, the
Commonwealth arranged for a review of RISSB’s processes and activity to be
conducted. The review was carried out by a specialist international consultant,
Mr Tony Taig.[6]
On Track to 2040
2.10
The On Track to 2040 – Preparing the Australian Rail Supply Industry
for Challenges and Growth report was also published in 2012. The review was
commissioned by the former Department of Innovation Industry Science and
Research (DIISR) and was funded by the Commonwealth and the state governments
of New South Wales, Victoria and Queensland and the ARA on behalf of industry.[7]
2.11
The detailed consultation process undertaken across the rail industry
during the review, the findings of which were set out in the On Track to
2040 report, led to the formation of the RMCRC.[8]
The review identified 80 opportunities for technological development in the
rail manufacturing sector, which were subsequently organised into broad themes
and ranked according to priority by the industry. The RMCRC's three strategic
research themes – Power and Propulsion, Materials and Manufacturing,
and Design, Modelling and Simulation – were also drawn from this list.[9]
CEDA – Advanced Manufacturing
2.12
In April 2014, the Committee for Economic Development of Australia
(CEDA) released a report titled Advanced Manufacturing: Beyond the
production line. The report examined where Australia's opportunities for
advanced manufacturing lie and the ways in which these opportunities could play
a role in supporting Australia's long-term growth. The report also included a
proposed reform agenda, which outlined 14 key areas that should be addressed
under the umbrella of an Advanced Manufacturing Industry Plan.[10]
IBISWorld Industry Report
2.13
The IBISWorld Industry Report, Railway Equipment Manufacturing and
Repair in Australia, published in May 2015, provided an analysis of the
issues impacting the rail industry, including economic and demographic factors,
distribution and supply chain factors and pricing issues. The report also
reviewed emerging industry trends and identified a number of factors that could
have a positive influence across the sector, including: increased demand for
rail freight transport, more focused technical research and development and the
achievement of economies of scope and scale.
Regulatory environment
2.14
Railways in Australia currently operate under a co-regulatory model
adopted by the Commonwealth. The co-regulatory model takes into account the
diversity in size and scope of Australian rail operations and promotes a
co-operative approach to safety issues.
2.15
Under the current co-regulatory model, governments and industry have
distinct but complementary roles. Governments are responsible for creating the
legislative framework, while industry is responsible for safe railway
operations and standards. The key elements and responsibilities under the model
can be summarised as follows:
-
Role of the Office of the National Rail Safety Regulator (ONRSR)
-
improving rail safety;
-
providing seamless national safety regulation;
-
enforcing regulatory compliance; and
-
decreasing regulatory burden on rail industry.
-
Role of industry
-
to develop effective national standards and codes of practice
that improve safety and efficiency in the industry.
-
Role of individual rail company
-
each rail company is to develop and apply safety management
systems (including standards) to ensure that their operations are managed to
minimise risk.[11]
2.16
The fact that Australia's rail networks range across large areas – and
frequently operate across multiple state access regimes – is in itself a
barrier to productivity and growth according to a number of stakeholders.[12]
Stakeholders also provided evidence of situations where, in the face of
decreasing rail performance standards, rail users are also required to meet
increasing access fees.[13]
2.17
One rail user, the Cooperative Bulk Handling Group (CBH), submitted that
the Western Australian grain industry is a significant contributor to the
national economy. CBH argued that it is therefore essential that CBH (and
Western Australian grain growers) have access to an efficient and cost effective
inland transport network: to ensure that grain is available at port (as
required by the market) and that Western Australia remains competitive with
other international suppliers.[14]
2.18
CBH explained that in 2010-11, the company decided to pursue enhanced 'above
rail' efficiencies by investing $175 million in new rolling stock – including
locomotives and wagons – to be operated by a new above rail operator for the
dedicated service of grain haulage. CBH's submission outlined its attempts to
negotiate a long term 'below rail' access agreement and its efforts to access
the Western Australian Grain Freight Rail Network (WAGFRN) under the Railways
Access Code (Code) via the Economic Regulation Authority (ERA).
2.19
CBH told the committee that the process of obtaining access under the
Code:
...had a significant negative effect on the efficiency of CBH's
operations, and has resulted in uncertainty and increased costs for CBH and its
grain grower members. Not being able to secure long-term access on reasonable
terms to a vital part of the grain supply chain has jeopardised the
competitiveness of Western Australian grain growers, and their ability to
transport their grain efficiently and effectively to highly competitive
international markets.[15]
2.20
CBH indicated that in addition to having an impact on the
competitiveness of the Western Australian grain industry, these types of
situations reflect poorly on the "reputation of rail as an effective and
efficient mode of transport".[16]
Based on this experience, CBH argued that the current regulatory framework
lacks consistency and the current price setting and performance monitoring
systems are less than efficient. Further, it was argued that improvements in
these areas are required to allow the movement of goods across Australia (and
for export) to operate as efficiently as possible.[17]
Standardisation and harmonisation
2.21
Evidence to the inquiry made it clear that the competitiveness of
Australia's rail industry will depend on rolling stock manufactured in Australia
being built to international standards. It was acknowledged that like a number
of other Australian manufacturing sectors, when compared to the US and Europe,
Australia's rail manufacturing sector is relatively small scale. The committee
was told that, given the smaller market, it has become increasingly important
for industry to optimise both the scale and volume of rail production. One of
the key barriers to Australian rail manufacturers achieving this, however, is
the lack of harmonised standards between states and territories.
2.22
As noted in the previous chapter, the lack of standardisation (or
harmonisation) is just one of the historical legacies that characterise the
Australian rail manufacturing industry. A fragmented rail system – across a
number of states and territories – means that each state also has its own rail
manufacturing economy to service its particular needs and operations. This
translates to smaller markets – less for manufacturers to supply to – and
limits manufacturers' ability to expand and compete globally.
2.23
It was argued that Australia's lack of standardisation serves as a de
facto barrier to competition from export competitors. More significantly,
however, it currently operates as a barrier to achieving scale and volume
within the domestic rail rolling stock production industry.[18]
2.24
The 2012 review of the RISSB – the Taig Review – examined, amongst other
things, the economic benefits of harmonisation. The review reported that at
that time the total economic value added by the Australian rail industry was
approximately $10 billion per year. The review also noted that while nationally,
Australia's railway industry represents a large and important industry, by
world standards it is a relatively modest player.[19]
2.25
It was submitted that due to the high cost of labour and the country's
distance from overseas suppliers and markets, Australia's railway supply costs
will never be competitively low. The current lack of harmonisation only adds to
these costs. Estimates regarding costs in Australia vary, but they include
interstate project expenditure and training which combine to create costs which
are up to 2.5 times more than international competitors for train fleet
procurement.[20]
The Taig Review estimated that the lack of harmonisation adds:
...somewhere between a few % and a few 10’s of % to the cost of
railway goods and services in Australia, and potentially substantially more
where interoperability is at issue.[21]
2.26
More specifically, the Taig Review noted that a lack of harmonisation of
standards impacts railway costs in two major ways:
-
The already modest (by international standards) Australian rail
market is fragmented into much smaller units. [Taig noted that one rolling
stock manufacturer delivered 27 different structure gauges for Australian
customers].
-
Safe interoperability requires trains to carry equipment, and
suitably trained and accredited staff, for every different infrastructure over
which they operate (at a minimum of one for each major state). [Taig noted that
until the ARTC National Train Communication was introduced and provided full
coverage from Perth to Brisbane on the interstate network, multiple radio
systems operated across different stages and infrastructure].[22]
2.27
Further, the review observed that should Australian railways continue at
2012 levels of activity, the industry may see some economic benefits from
harmonisation. It was argued, however, that these benefits "would be
magnified by current government and private sector plans to invest heavily in
railways over the coming years and decades".[23]
2.28
The Taig Review concluded by asserting that it was a "fairly safe
bet"[24]
that any growth in rail traffic in most developed countries would be relatively
modest, and between 2012 and 2032 there would be little change in these rail
networks. In Australia, however, Taig argued that:
...there is a serious and very exciting prospect that rail
networks might double or treble in size over that period. There is a real
opportunity, if harmonisation can be progressed quickly, to make the railways
of the future considerably better value than those which exist at present.[25]
Role of the Australian Rail Track Corporation
(ARTC)
2.29
As outlined in the previous chapter, trains first started operating in
Australia when the country was still a group of separate colonies. The first
train lines – which were initially limited to Sydney, Melbourne and Adelaide –
only developed as people started to move further inland, and were primarily used
to transport farm and mining produce to the coastal cities and ports and to send
supplies back to inland communities.
2.30
As previously noted, when railway construction began, the engineers
working on projects tended to favour the specific gauge system they were most
familiar with. As train lines were expanded to include travel between states,
both the train lines and the equipment were incompatible, resulting in
passengers and freight frequently having to be transferred from one train to
another at state borders. Over time, this issue was addressed, and mainland
interstate lines were standardised to allow passengers and freight to travel
between capital cities without the need to change trains.
2.31
In the 1990's the Commonwealth and state governments reached agreement
regarding the creation of what was referred to as a 'one stop shop' for all
operators wanting access to a standardised national interstate rail network and
in 1997, the ARTC officially took on this role.[26]
The ARTC is a government business enterprise, as described under section 5(2)
of the Public Governance, Performance and Accountability Act 2013. It is
currently responsible for managing over 8500 route kilometres of standard gauge
interstate track in South Australia, Victoria, Western Australia, Queensland
and New South Wales. ARTC also manages the Hunter Valley coal rail network and
other regional rail links in New South Wales.[27]
2.32
Following its creation, the ARTC initially focused on infrastructure
investment and the modernisation of the interstate rail network. The
corporation was also heavily involved in building, extending and upgrading the rail
track and bringing the network up to a safe, consistent and reliable operating
standard. Following an initial period of major investment and significant
network growth, the ARTC's focus shifted to include a role in the transport
supply chain. The ARTC's mandate – through the Commonwealth – is to increase
the freight volume carried on its network while at the same time, operating as
a sustainable commercial enterprise.
2.33
Currently, the ARTC network supports industries and businesses that are
of critical importance to the Australian economy by facilitating the movement
of a range of commodities – including general freight, coal, iron ore (and
other bulk minerals) as well as agricultural products. The ARTC's network also
plays a significant role in providing access for both interstate and inter-city
passenger services.[28]
Role of the Rail Industry Safety
and Standards Board (RISSB)
2.34
The 'Code Management Company', was originally established in June 2003.
Renamed in 2007, it became the Rail Industry Safety and Standards Board (RISSB).
Established under the ownership of the ARA, it was wholly owned by the ARA
until March 2015 when the new Constitution and ownership arrangements were
introduced. Ownership was recently transferred to the organisations which fund
RISSB – including rail freight and passenger operators, track managers,
suppliers and contractors.
2.35
Membership of the RISSB is open to all rail transport operators, both in
Australia and overseas, as well as network owners, managers and contractors and
suppliers to the rail industry. The RISSB currently has 43 members from all Australian
rail sectors as well as overseas.
2.36
The RISSB was established by the rail industry for the purpose of
developing a set of common rules and practices, standards and codes and to improve
the safety and efficiency of rail traffic tasks. Specifically, under its
Company Constitution, RISSB was established to:
- develop, manage and promote a suite of standards, rules, guidance
materials and other documents, including the Australian Code of Practice (ACOP)
and Australian Network Rules and Procedures (ANRP), to assist the rail industry
to manage rail safety, improve efficiency and achieve safety outcomes through
standardisation, interoperability and harmonisation;[29]
-
develop a risk model for the Australian rail operating environment that
is based on data and other inputs that will help drive safety improvements by
guiding prioritisation of standards development and regulatory activity; and
for use by the rail industry participants in directing their approach to safety
management;
- provide independent technical advice; and
-
undertake initiatives to support the rail industry’s role in the
co-regulatory model for rail safety in Australia.[30]
2.37
The RISSB noted that its membership acknowledge and recognise the major
inefficiencies that have resulted from the "proliferation and use of
differing standards across the industry".[31]
The committee was also told, however, that the idea of mandating the adoption
of new standards has been discussed extensively and the view of the industry is
that "it would be impractical and counterproductive to mandate the
adoption of standards and codes of practice across the industry".[32]
2.38
There are a number of areas where it is relatively simple to change the
standards used. There are other areas, however, where significant expense would
be involved in moving to a new standard. The industry, and the RISSB members
therefore:
...support the progressive voluntary adoption of standards and
harmonised practices where individual companies consider that there is a
business case for this change in their operation that takes account of the cost
and benefit of such a change.[33]
2.39
The RISSB explained that the focus of its standards development work
revolves around creating performance-based documents which are not prescriptive
about the way to achieve an outcome, but rather focus on specifying the outcome
itself. The RISSB argued that this approach "admits and encourages
innovation and avoids entrenching specific technologies and products in the
market" which fits with the industry's objective of "having a
framework that promotes efficiency, improved productivity and the industry's
competitiveness in the transport sector".[34]
Progress
2.40
The RISSB submitted that, at the time of providing its submission, the
organisation had published approximately 46 per cent of the standards that the
rail industry considers necessary, and were actively working on a further 27
per cent. It was noted that, at the current rate of development, it was
expected that a full suite of standards would be completed in 2021-22.[35]
2.41
The 2012 Taig Review identified several areas where the RISSB's performance
could be improved. The review also observed, however, that the RISSB's business
model is relatively low cost, involves low financial risk, and has delivered
good value for money (when compared to other alternative, transport-focused standards
development models).[36]
2.42
In addition, the Taig Review also concluded that:
A good overall measure of RISSB's performance is that
everyone consulted during this review, including the harshest of critics of its
standards products, considers that RISSB has achieved a great deal more than
its predecessors in bringing industry together and creating an environment in
which practices are shared openly and harmonised standards can and do develop.
The strong general view is thus that governments and the industry should build
on RISSB in addressing the issues identified above, rather than starting again
with something different.[37]
2.43
In evidence, Mr Paul Daly, Chief Executive Officer of the RISSB, was
asked whether he was satisfied with the progress that had been made in relation
to harmonisation. Mr Daly indicated that he had been the RISSB's Chief
Executive Officer for approximately 18 months, and told the committee that:
When I first started with RISSB, I would talk to industry—we
were going through the transition at the time—and my own staff and ask them for
their views on how RISSB in particular and [how] the standards were going. We
were taking anywhere between three and five years to build a standard. My view
of that was that, if it takes us five years to build a standard, industry does
not need that standard. So we heavily revamped our processes. We have taken it
from what some in the industry saw as an organic process into a project
management process. It must be done. Industry wants a standard or a guideline
on something. We have to build it in accordance with our standards development
organisational area but for the needs of industry. We have been very happy with
the take-up and buy-in from industry, in the last two years at least, as we
have developed more efficient standard development processes so that we get it
to within 12 months of when they ask for it.
The second thing we are now also doing is trying to look in
front of the curve. We are asking industry not what they need right now but
what they need in the next 12 months, two years and five years. That is helping
us a lot. We are not getting industry coming to us saying: 'We're about to
build a tunnel. We have known for five years we've needed to build this tunnel
and we're about to start the digging. Why don't we have standards for tunnels
in rail?'[38]
Procurement and local content guidelines
2.44
It has been estimated that over the next 30 years, state governments
will spend approximately $30 billion on the procurement of heavy rail passenger
rolling stock, to meet the increasing needs of public transport and replace
ageing fleets.[39]
2.45
As part of its inquiry, the committee received evidence regarding procurement
processes and their impact on the rail industry. Submitters pointed to the
impact that content requirements, government procurement policies and
procurement demand can have on the manufacture of rolling stock and rail
products, the stability of the workforce and the sustainability of the
industry.
2.46
A number of stakeholders were critical of current Commonwealth and state
procurement and local content guidelines.[40]
Those critics included Mr Phillip Walters, a 30 year veteran of the locomotive
and passenger railcar manufacturing industry. Mr Walters argued that as the
current NSW State Government has no local content policy, its procurement
policy demands that a large number of rail cars be built and delivered in a relatively
short period of time – a situation which encourages local manufacturers to
source rail cars from South Korea and China. Mr Walters told the committee
that:
Governments need to consider smoothing out their procurement
demands, instead of a huge peak in demand and then an equally big downturn at
the contract end, a constant steady build program and a well thought out local
content policy would encourage manufacturers to invest in new, more efficient
equipment and processes and allow efficiencies due to a constant steady build
program.[41]
2.47
Further, Mr Walters argued that the development of procurement and local
content guidelines, and the roll-out of a steady build program, would provide
consistent employment for rail manufacturing workers, and save local families
from the stress and trauma of retrenchment and unemployment.[42]
2.48
Mr Walters also pointed to the suggestion that the Australian rail
industry is planning to spend many billions of dollars on the procurement of
rolling stock over coming years, and asked the question:
Should we invest in overseas manufacture and see all of the
benefits it will bring them or invest in Australian manufacture and reap the
rewards that a smart country that makes thing[s] deserves?[43]
2.49
It was noted that Victoria has been proactive in developing local
content and procurement guidelines. Submitters also argued that by requiring a
percentage of local content in the manufacture of rolling stock and rail
products, benefits are passed on across the entire industry and beyond. It was argued
that greater harmonisation of best-practice procurement and local content
guidelines can also reduce the cost burden.
2.50
The Australia Institute's Centre for Future Work (CFW), argued that
awarding railway equipment procurement contracts to Australian-based suppliers:
...generates significant direct and indirect economic benefits,
including a significant fiscal return to government itself. These second-order
effects must be considered in awarding procurement contracts, in order to best
maximize the comprehensive net benefits to Australians of those decisions.[44]
The need for national coordination
2.51
In evidence, the RISSB's Chief Executive Officer, Mr Paul Daly told the
committee that one of the issues currently impacting on the rail industry was
the way in which governments approach procurement. Mr Daly asserted that the
purchases that governments propose, and the financial outlay they intend to
make, can have a major influence on what future rolling stock will look like –
including standards, specifications and suppliers. Further, he noted that:
What we do have at the moment is a series of state
governments procuring in a silo type environment rather than an overarching
procurement strategy, of which harmonisation of the specifications would be a
part.[45]
2.52
The CFW told the committee that its analysis of Australia's rail
industry clearly showed that the net increase in government sector revenue
(associated with domestic sourcing) is shared between the two levels of
government. However, most decisions over procurement sourcing are only made by
one level of government – the state.[46]
2.53
The CFW contended that this situation creates a "potential irrationality
in decision-making". Expanding on this argument, it noted that a decision
made by a state government regarding whether to purchase overseas or
domestically, has major financial implications for the Commonwealth government,
which, it argued "supports the procurement in the first place (with both
current fiscal transfers and targeted capital subsidies) but does not control
sourcing decisions". Further it was argued that:
This artificial separation of cost from benefit makes it more
likely that inefficient decisions will be made by government – especially one
motivated by single-minded focus on minimizing current expenditures, regardless
of the damage to national economic well-being.[47]
2.54
The committee was also told that there are a number of reasons why it is
vital that procurement decisions are coordinated across the various levels of
government. It was argued, for example, that the benefits of domestic sourcing
"can spill over to other jurisdictions". Additionally, the collective
impact of sourcing decisions made by multiple governments "would have an
important cumulative effect on the efficiency and competitiveness of the entire
Australian railway equipment manufacturing sector".[48]
2.55
The CFW cited research by Deloitte Access Economics which suggested that
better coordination of procurement would result in a more stable flow of work
– instead of the 'lumpy' patterns of work typical of past procurement practice
– and could facilitate cost improvements of more than 20 per cent.[49]
2.56
The CFW also submitted that decisions by individual state governments exacerbate
what it described as an "irrational fragmentation of
decision-making". It asked the committee to consider the ramifications of a
recent decision made by the NSW Government to "unilaterally offshore sourcing
of major new passenger rail purchases [to South Korea]".[50]
The CFW argued that:
The loss of potential economies of scale, and efficiencies in
scheduling, as a result of this major offshore sourcing constitutes an external
burden imposed on the national railway equipment manufacturing industry by the
NSW decision. Australian railway equipment manufacturing has already lost about
40 per cent of its employment in the last decade, in large part because of the
growing penetration of imported equipment during that time. Given the
challenges and uncertainty that have faced all manufacturers in Australia in
recent years, and the potential vulnerability of entire clusters of industry to
loss of critical mass, decisions by individual state governments to shift more
work to offshore suppliers, without adequate consideration of the fully
integrated costs and benefits of its actions, are all the more lamentable.[51]
Issues which have an impact of competitiveness, productivity and growth
2.57
In addition to the issues around harmonisation and procurement and local
content guidelines, stakeholders also identified a number of other issues which
currently act as barriers to productivity, or restrict competitiveness and
growth in the rail sector.
Issues of scale
2.58
The commercial viability of the rail sector is very much dependent on
its ability to achieve significant economies of scale and freight density.
Given Australia's size and its low and widely dispersed population, one of the
primary challenges for rail – particularly the non-mining networks – is in
achieving economies of scale. Rail is very much suited to high volume, bulk
commodities generally transported over long and shorter distances. One of the
strengths of rail industry is that it has traditionally been the chosen mode of
transport for the freight market – particularly for high-volume products such
as agricultural and mining commodities.[52]
2.59
In terms of the provision of non-bulk freight services, rail is also
generally more suited to longer haul distances. This is the case largely
because of the need to offset the additional handling to facilitate inter-modal
operations and the use of 'pick up' and 'delivery' freight movements between
rail terminals and customer facilities. It is within this segment particularly
that road freight has been successful in capturing market share from rail over
shorter distances. This has largely been realised through the introduction of
larger, higher productivity vehicles which can be accommodated on our national
highways following decades of sustained, high value road investment.
Impact of state policy and priority
differences
2.60
The need for consistency of policy across both Commonwealth and state
governments was raised by a number of stakeholders.[53]
It was noted that Australian rail manufacturing – particularly small regional
manufacturers would benefit from a national manufacturing framework for the
rail industry. As pointed out in Lovells Springs' submission, without a united
approach and united support for local manufacturing, politics can have a
significant impact on local manufacturing companies.[54]
2.61
Lovells explained that the last NSW Labor Government commissioned
Australian-made passenger rolling stock for the extended Sydney electrified
network – the Oscar Project – through primary contractor UGL. With some
financial assistance from the state government at the time, Lovells set up a
new manufacturing facility: Lovells Technology Pty Ltd.[55]
2.62
The committee was told that, as a subcontractor for the Oscar passenger
fleet, Lovells produced the wiring harnesses and electrical sub-assemblies for
UGL. Lovells told the committee that this situation changed and:
When the current Liberal government was elected they scrapped
the project leaving Lovells with a $1.5m net loss with no compensation. The
facility, employing 26 people was closed by Lovells immediately.[56]
2.63
Lovells argued that Australia as a whole can only support one
world-scale passenger rail car manufacturer, but noted that our "federal
structure makes this very hard to organise, with Federal-State and State-State
cooperation non-existent".[57]
Manufacturing standards
2.64
As previously noted, the history of Australia's rail industry has led to
the current diversity of rail operating environments. The industry has,
therefore, adopted a process of progressive reform and standardisation.
2.65
The ARTC pointed to the fact that the rail industry has 'significantly
matured' over the past five years and argued that the establishment of the ONRSR
and the RISSB have played an important part in harmonising standards.
2.66
The ARTC indicated that it is generally supportive of a national,
coordinated approach to rail manufacturing standards. The Corporation also made
clear, however, that while it acknowledges the potential safety and efficiency
benefits that come with standardisation and harmonisation, it is of the view
that manufacturing standards need to be flexible to ensure cost effectiveness. It
also argued that standards should be economically sound, practically feasible
and not inhibit innovation.[58]
2.67
Further, the ARTC submitted that freight rail in Australia includes a
large component of interstate freight movement, but the ease of these freight
movements for above rail operators is often complicated by different state
approaches to access, environment and operations. The ARTC therefore supports efforts
to accelerate streamlining of the multiple rules, regulations and legislation
which apply – often on the one rail track. The ARTC also indicated that it
would back any proposed review to develop a scope of work to harmonise and
streamline Australian freight rail legislation and regulation.[59]
2.68
The ARTC also submitted that issues around technological advancement –
including information technology systems – also need to be taken into account
as part of any nationally coordinated approach. It was argued that it is
important that the legacy issues currently impacting the rail industry (ie
around track gauges) do not "manifest in a different form because of the
adoption of one technology by a company which poses challenges across the
supply-chain".[60]
2.69
It was also suggested by the ARTC that:
By having a coordinated approach we will ensure operations
aren't stifled by incompatible systems causing inefficiencies in the supply
chain and extra costs to all users. In order to promote equality of access to
information technology systems, there must be cooperative agreements between
jurisdictions and business in the logistics space. Through the application and
adoption of common standards, including the harmonisation of guidelines and
policies, rail based technological solutions can support an effective
connection between rail track owners and operators.[61]
Peaks and troughs
2.70
The inquiry heard that Australia's rail industry – particularly the
public transport wagon manufacturing sector – has historically operated on a 'boom
and bust' or 'lumpy' cycle with very high volume production years sometimes
followed by years where no orders are sought at all.[62]
2.71
In recent times, the rail manufacturing sector has been shaped by the
lack of a strong pipeline of investment in the manufacture of rolling stock. It
was noted that this lack of investment and certainty has been a key contributor
to low levels of innovation and R&D investment. The RMCRC told the
committee that:
...the ad hoc and uncoordinated approach to rolling stock
orders creates uncertainty through a 'stop-start' cycle of production. This
short-term horizon represents a disincentive for businesses to invest in
expensive capital equipment and the application of increased R&D.[63]
2.72
The RMCRC also noted, however, that even with current evidence of a
continuous, strong pipeline of projects and a renewed interest in rail
transport – to address urban congestion and future environmental challenges –
business confidence is still not high.[64]
2.73
The AMWU referred to the ARA's 2013 assessment of future orders of both
single and double-deck wagons (of both the legacy and new generation types). The
ARA predicted that under the current fragmented model of procurement, local
manufacturers will continue to experience 'boom and bust' "until very
large order volumes start to arrive". By this time, the AMWU argued, the
local manufacturing industry may well be lost to a full import model.[65]
2.74
In addition to decreased business confidence, the uncertainty around
future contracts has also led to decreased investment – particularly in new
technology. The RMCRC identified a lack of in-house R&D expertise in rail
manufacturing businesses, which, it was argued, has created barriers to
innovation and has become a significant challenge to governments which are
seeking to promote and encourage innovation.[66]
Import of rail equipment
2.75
Australia is currently a net importer of rail equipment. According to an
IBISWorld report, in 2014-15, the value of imports in this sector was $1.4
billion, while the value of exports was $98.8 million.[67]
The RMCRC indicated that imports of rail equipment are predicted to grow at
approximately 13.1 per cent over the next five years. Exports, however, are
smaller and it is anticipated that they will remain consistent with the past
five years – at approximately 2.9 per cent.[68]
2.76
Stakeholders stressed that the purchase of less expensive imports – at
the expense of our own manufacturing industry – has only created another level
of problems for the rail industry. The committee was told, for example, that
imported rolling stock often did not represent value for money. There had been
reports of poor quality, equipment requiring modification to meet Australian
needs and significant costs associated with maintenance of imported equipment –
including rolling stock.
2.77
Submissions provided by experienced rail workers told the committee that
while imported rolling stock may be less expensive, when it comes to the
quality of the product "you get what you pay for".[69]
2.78
Stakeholders also indicated that in addition to a lack of quality,
imports frequently required expensive modifications to meet Australian
requirements and standards. A number of problems (associated with the
maintenance of imported equipment) have also been reported.
2.79
Mr Amedeo D'Aprano, an Industrial Officer with the Australian Rail Tram
and Bus Industry Union (ARTBIU) also raised concerns about the quality of
imported products. Mr D'Aprano told the committee that union members had seen, first
hand, the "pitfalls" of government procurement policies "that do
not put Australian skills, jobs and quality assurance first".[70]
The union's concerns were based on the fact that imported trains had been found
to have various problems. The problems identified included, but were not
limited to, "poor design that does not suit Australian conditions,
manufacturing defects and the use of asbestos."[71]
2.80
The ARTBIU representative pointed to the example of the NSW Government's
order of Waratah passenger trains from China, which, he noted, ran 18 months
late and was plagued by cost overruns. Some of the problems identified in these
trains were:
...windscreen visibility issues, including screens that went
milky when facing late afternoon sun; doors that could not open when the
windows were down, potentially preventing emergency evacuations; computer
screens in the driver's cabin and guard compartment that had an unacceptable
level of glare; and exposed wiring.[72]
2.81
A second example provided by Mr D'Aprano involved an order of Comeng LHB
bogies that were manufactured in India, prior to being shipped to Australia for
installation by Alstom. The bogies arrived with a multitude of issues that put
the project out by over six months, and the problems identified included:
"buckled frames, holes in wrong locations and bogies out of height with
the specifications". Mr D'Aprano also noted that there have frequently
been problems with safety standards:
....we have experienced numerous instances where asbestos has
been imported from countries where restrictions and regulations are not in line
with Australia's standards, ultimately exposing Australians to risks that we
work so hard to control. When we source trains from overseas suppliers we not
only sacrifice local jobs and opportunities for our own economy; we sacrifice
safety and put lives at risk through poorer standards.[73]
2.82
The Lovells Springs company – an Australian manufacturer of suspension
systems and components for the rail industry – submitted that the rail industry
currently represents approximately 30 per cent of its domestic demand. This
figure was, however, as high as 60 per cent only five years ago. It was
explained that the significant fall in rail business is due to the almost
complete cessation of new-build rolling stock manufacture in Australia over
that time. Lovells argued that the rolling stock suspension components it
manufactures – using locally produced steel – are equal to, or superior, to any
sourced internationally, and told the committee that the company is:
...regularly called upon, at short notice, to produce many
thousand springs to replace failed or failing imported springs.[74]
2.83
While Australia's historical position as an importer of rail equipment
was acknowledged, stakeholders were also in fierce agreement that an efficient,
modern and resilient rail industry will play a vital part in Australia's
transport infrastructure future. For this future to be realised, however,
stakeholders argued that the purchase of imported equipment and components –
particularly on the manufacturing sector – needs to be addressed.
Workforce issues
2.84
Historically, the rail sector has provided employment for a large number
of Australians. The rail network – including rail freight and passenger
movements provides employment for a significant number of people in rural and
regional areas. In addition, the rail manufacturing industry has traditionally
also been a source of employment, apprenticeships and for young Australians across
a large number of trades and engineering disciplines.
2.85
The committee received a number of submissions which raised concerns
about the loss of employment, traineeships and apprenticeships for Australians
in the rail industry.[75]
2.86
In his submission, rail industry worker and AMWU delegate, Mr Andrew
Peach, told the committee that since the 1980's – when he completed his own
electrical trade apprenticeship – there has been a significant drop in the
number of apprenticeships being offered. Mr Peach argued that the industry is
facing a "siphon of knowledge" as tradespeople retire and are not
replaced, and skills, knowledge and experience are not being passed on.[76]
2.87
The Lovells Springs company stressed the importance of Australia
maintaining a technical skills training capability. The committee was told, for
example that the company's employees are often called upon to offer technical
support to Australian rail fleet suppliers and operators on suspension matters
– something it frequently does at no charge.
2.88
Noting that the loss of the civilian ship building, car production and
white goods manufacturing sectors is already having an impact on Australia's
capacity to train young people in technical skills, Lovells argued that it is "proud
of its record of building all its equipment and writing all its software in
house" which has allowed it to:
...[train] many young people to be first class technicians and
tradespeople in Industrial Automation, Combustion Engineering, Hydraulics and
Pneumatics, Process Control and Toolmaking.[77]
Regional investment
2.89
The rail industry is a significant source of employment – particularly
in rural and regional Australia. It is noted, for example, that a large
proportion of the 1200 people employed by ARTC work in rural and regional
areas. There are also a number of additional benefits which flow from the investment
and employment the ARTC provides to these regional communities:
Maintenance and construction works for example, directly
support regional businesses to the tune of more than $200 million a year,
through everything from using local contract labour, to hire companies,
quarries, service stations, local shops, cafes, accommodation and office
supplies.[78]
2.90
The ARTC also advised that while the investment provided supports local
jobs and businesses, it also provides a "vital lifeline for many of these
communities – the rail line itself – [which] remains safe and continues to be
upgraded". As part of its social engagement, the ARTC participates in, and
supports a number of community and rail safety initiatives and has made a
conscious effort to develop positive relationships with rural and regional
councils.[79]
2.91
The Adelaide to Tarcoola Upgrade Acceleration Project, the Inland Rail Project
and the Murray Basin Freight Rail Project are examples of projects that are
currently being undertaken across Australia, and which will have positive outcomes
for rural and regional communities.
Adelaide to Tarcoola Upgrade
Acceleration Project[80]
2.92
With the assistance of Commonwealth funding, the ARTC has brought
forward a major package of re-railing upgrade work to improve the capability of
the rail line between Adelaide and Tarcoola in South Australia. The project –
which has been assessed by Infrastructure Australia as a 'high priority' –
involves the upgrade of the rail track. This network supports intermodal
traffic to and from Western Australia, in addition to a substantial amount of
heavy minerals rail freight. It is envisaged that the project – which will
cost approximately $252 million – will allow for higher axle loads and increase
the rail size along the interstate line which will improve the line's capacity.
2.93
In addition to the infrastructure improvements, this project will:
-
create and support a number of jobs in regional South Australia;
-
directly support steel manufacturing (with over 70 000 tonnes of
Australian-made Whyalla steel rail to be delivered as part of this project);
and
-
create 130 direct jobs at the ARTC's welding facility at Spencer
Junction in Port Augusta (and in construction and project management jobs to
deliver the re-railing itself over the next few years).
2.94
Further, the ARTC argued that with additional government investment,
there may be opportunities for the Adelaide to Tarcoola re-railing project to
be extended as part of a broader program of works.
The Inland Rail Project[81]
2.95
The Inland Rail Project, which is currently on the Commonwealth's
forward infrastructure agenda, would also provide benefits to regional
communities. The Inland Rail will link Melbourne with Brisbane through regional
Victoria, New South Wales and Queensland.
2.96
The project is described as "an important strategic investment in
Australia's infrastructure capability"[82]
which would:
-
provide the capacity to serve the east coast freight market for
the next fifty years;
-
enhance productivity;
-
increase consumer freight chain options; and
-
open up new export markets and employment opportunities for areas
of rural and regional Australia.[83]
2.97
The Commonwealth has committed a total of $893.7 million toward the
development of the Inland Rail. The funding is made up of $300 million for
preconstruction activities, with a further $593.7 million in equity for the
ARTC to make the project construction ready, including land acquisition.
2.98
As of January 2017, $137.07 million has been provided to the ARTC to
continue preconstruction and development work including detailed reference design,
environmental assessments, alignment studies and stakeholder engagement
activities.[84]
2.99
It is noted that the majority of the construction and capital
expenditure related to the project will happen in regional areas. In terms of
employment, ARTC estimate that the project will create up to 16 000 direct jobs
during construction, and an average of 600 jobs per year when the Inland Rail
becomes operational.
Murray Basin Freight Rail Project[85]
2.100
The Commonwealth is committing $220 million toward a $440 million
project to upgrade the Murray Basin Freight Rail Network. It is proposed to
restore, gauge standardise and upgrade more than 1000 km of railway line in the
prime agricultural area of regional Victoria. The project will also support the
freight requirements of primary producers and the development of other freight
dependent industries in the region. The project also aims to better connect
primary producers with the ports of Portland, Geelong and Melbourne, to promote
competition between the three ports and to provide an incentive for investment
in grain handling and other facilities – at both the upstream rail terminal and
port ends of the supply chain.
2.101
It is proposed that standardising the rail gauges in this area will
improve port access and competition and encourage greater investment in port
infrastructure. The project also aims to provide an economical alternative to
road freight and encourage greater competition within the freight sector which
will benefit business, primary producers and consumers. The project is also
expected to cater of an additional 311 000 tonnes of grain to be
transported via rail each year.[86]
2.102
In March 2016, the Victorian Government awarded Geelong manufacturer
Austrak an $11 million contract to supply more than 125 000 concrete sleepers
for the project, supporting more than 20 jobs at their Port Wilson facility, as
well as the almost 280 jobs the project is expected to create.
2.103
It is noted that the project is expected to see 95 per cent of its
materials sourced from within Australia, with 90 per cent being sourced
directly from regional Victorian suppliers.
Industry capability
2.104
Australia's rail manufacturing sector has been undergoing a significant
transition. It is slowly evolving from a more traditional manufacturing model
of end-to-end rolling stock production to a more advanced manufacturing model, and
low-volume, high-value production.
2.105
The transition of the rail manufacturing sector can be seen in an
analysis of the size of the various areas of rail manufacturing. A 2015
IBISWorld report on the sector identified that end-to-end manufacture currently
comprises only 6.8 per cent of rail production. However, it was also noted that
other areas of the rail industry are becoming increasingly more significant: with
repair and maintenance now representing 21.3 per cent, passenger railcars fit
out 20.8 per cent, locomotive components 19.5 per cent, and freight wagons 10.7
per cent.[87]
Technology
2.106
As noted by the RMCRC, the rapid advances in technology and the changing
face of manufacturing generally, means that Australia's rail manufacturing
sector is facing the immediate challenge of incorporating new manufacturing
technologies and processes into their businesses. It was also noted, however,
that the adoption of new technologies will also present significant
opportunities for Australian manufacturers. The RMCRC pointed, for example, to
a number of current economic factors, including a lower exchange rate on the
Australian dollar and increasing local demand for rolling stock, which provide
domestic industry with a golden opportunity to re-capitalise and invest in
innovation. [88]
2.107
It was also noted that, given the number of free-trade agreements
Australia is signatory to, our manufacturing industries are now open to international
competition and international opportunities. It was argued that those industry participants
(across the Australian supply chain) who decide quickly to adopt a new,
advanced manufacturing model, will have an opportunity to become world-leading
manufacturers and secure their long term future.[89]
2.108
In response to this changing industry profile, governments have started
to play a role in supporting the process of transition in more traditional
industries such as rail manufacturing.
2.109
The following chapter (Chapter 3) expands on the importance of
Australia's rail industry and the contribution it makes to the Australian
economy. The chapter outlines the industries, manufacturers and suppliers that
currently exist in Australia and examines the importance of developing a world
class industry that incorporates world class research and development,
standards and technology.
2.110
Chapter 3 also outlines the consequences of a decline in the Australian
rail manufacturing sector. It examines the impact any loss of capability would
have and the importance of the rail industry in relation to transport
infrastructure, access, employment and regional development, and the vital
contribution it makes to Australia's economy.
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