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Government Minister wants to shift cargo from trucks to rail

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Trade growth, demography and land use changes in the city of Melbourne, Australia, have made necessary a shift of freight from truck to rail, according to an analysis by Melissa Horne, Minister for Ports and Freight in the Australian state of Victoria.

She was addressing delegates to the recent national conference of the Australian Federation of International Forwarders.

Challenging dilemma

It is a “challenging dilemma” to manage residential and industrial land uses, Horne told delegates, adding that “we see freight and logistics as a key driver of the economy. It’s not the support act, it’s a main act. It’s a key industry in its own right.”

Pictured: Melissa Horne, Victoria’s government minister for freight and ports. Photo: Jim Wilson

The Port of Melbourne occupies a central location in the city of the same name. But, as the Minister pointed out, the inner west area of Melbourne has many more families than ever before and the area has gone from being a shipper to a receiver of freight.

“Trucks and vans jostle for space,” she told delegates.

Some forecasts put the theoretical upper limit for the Port of Melbourne at about 8 million twenty-foot equivalent shipping units (TEU). The yearly throughput at the port has been rising and in December 2018 it reached an annual 3 million TEU mark for the first time.

The minister pointed out that 5,500 trucks visit Melbourne each day and that there is a forecast of a possible rise to 30,000 truck visits.

“It’s simply unsustainable,” she told delegates.

Rail to take over from trucks

The vast majority of journeys undertaken by containers from the Port of Melbourne are very short – over 50 percent are less than 25 kilometers (15 miles) in length, according to data presented by Horne. The solution to handling such large cargo volumes may be a modal shift using on-dock rail. Containers would be put on wharfside freight trains and railed to intermodal terminals. Trucks would travel to and from terminals rather than drive around the city streets.

Horne told the forwarders that the criteria for on-dock rail is that there must be an increase in efficiency and that rail usage must be integrated into marine box terminal operations.

But, she noted, on-dock rail is only a partial solution. Road transport will continue to be the dominant mode of freight transport, she said.

Support for Horne’s comments came from the Port of Melbourne’s Executive General Manager Commercial, Jim Cooper.

“I’m very pleased by everything she’s just said,” Cooper said.

He also gave some details about exactly how the modal shift from trucks to train will take place.

Pictured: Jim Cooper, Executive General Manager Commercial, Port of Melbourne;
Photo: Jim Wilson

On-dock rail: the plan

The plan is to take over the ownership of the existing three rail terminals in the port that are currently owned by the terminal operators. The Port of Melbourne will then, at its own cost, build four rail terminals that are 600 meters (1,969 feet) long. One rail terminal will be built next to each of the main terminal operators – ACFS, DP World Australia, Patrick and Qube.

That, incidentally, would leave a fifth major marine terminal operator, Victorian International Container – which runs a fully automated box terminal – without a rail terminal for its boxes. The Port of Melbourne is a river/harbor port and its two terminals, Swanson Dock and Webb Dock, are separated by a bend in the river called Fisherman’s Bend. Victorian International Container is at Webb Dock, which opens onto Port Phillip Bay. The other four are clustered together a little upriver on the inland side of Fisherman’s Bend.

Pictured: the Port of Melbourne precincts highlighted in light purple. Swanson Dock (upper part of the graphic) is where the new rail terminals will be installed. Webb Dock, lower, is home to box terminal operator Victorian International Container. Webb Dock won’t get a rail terminal until “phase two”. There’s no date yet for phase two. The inset picture shows the port in the context of Port Phillip Bay, which opens onto the sea. Graphic: Google Earth / Jim Wilson.

Cooper separately told FreightWaves that planning is underway to ensure that Victorian International Container will have a rail terminal in “phase two” of the project. However, he would not say when that would be. Instead he reiterated that planning is underway.

“Webb Dock will one day be connected with a freight corridor and that will include both the federal and state governments. Decision-making on rail projects is traditionally very slow; they are huge capital decisions on infrastructure and rolling stock. Rail project decision-making requires a lot of work.”

When queried by FreightWaves whether Victorian International Container would be put at a disadvantage, Cooper commented, “I’d dispute that completely. Victorian International Container has several advantages. The Tasmania trade is adjacent and it can also receive much larger vessels. If you look at the portfolio of infrastructure, I don’t think it is at a disadvantage at all.”

Open to everyone… no exclusive access

However, back to phase one. The marine terminal operators do not get exclusive access to the new rail terminals.

“We will build the new terminals… and then licence them back to the tenants on the same lease as us. We’re intending for the terminals to be common-user so customers will have a choice,” Cooper told delegates.

Cooper argues that this infrastructure model should reduce the cost of handling each container because, unlike the previous model, the terminal operators do not need to recover the lease costs of the terminal land nor do they need to make a return on capital.

The Port of Melbourne is not disclosing exactly how much the project will cost other than that it will be in the “several hundred million dollar range.” It will recover its own costs by imposing a A$15 (US$10.47) surcharge per box handled.

“We think this is competitive and will lead to a big modal shift from road to rail,” Cooper said. He gave a “conservative” estimate of 4,500 truck movements being removed from the road.

Getting payback…

In the last calendar year, the Port of Melbourne handled exactly 1,268,124 full import containers.

Charging A$15 for each full import TEU generates just over A$19.02 million (US$13.31 million) a year for the Port of Melbourne leaseholder, based on 2018 figures.

Looking forward, we will adopt the assumption that full import box volumes stay at existing levels and the Port of Melbourne doesn’t raise the fee. Total fees payable by importers would amount to about A$894 million (US$625 million) over the remaining 47 or so years left on the lease in this scenario.

Cooper was questioned by a freight forwarder on how the Port of Melbourne would deal with “pushback” on the A$15 surcharge.

He responded by arguing that more than 90 percent of the “hundreds” of people he had spoken to were in agreement. Cooper also pointed to productivity gains.

“There is a lot of inefficiency in the supply chain. For instance, the Riverina train comes to near the port where it is unloaded and then trucks take the cargo into the port. We think the fees will be more than repaid by the reduction of trucks and truck movements in ports. The collective impact on the supply chain will pay back multiple times,” he said.

Cost controversy

Not everyone agrees with the proposed funding model.

The Freight & Trade Alliance (FTA), a private industry association, argued for fairness and transparency in the cost recovery plan.

“This proposal for a port solution also needs to be considered in the context of the broader rail network. Melbourne does not yet have metropolitan rail hubs in operation servicing the key import catchments… so, while all importers will be funding the works, few will be direct beneficiaries until there is access to metropolitan port-rail services,” the FTA said in a statement.

The FTA called for terminal operators to be compelled to pass on the rental savings and lower rail operating costs and that cargo owners should be represented in monitoring the performance of the proposal.

The port rail project is not yet a done deal; it needs the green light from the state government. Cooper says he hopes to get the project commissioned by the end of 2021.

According to the Port of Melbourne, over 40 commercial shipping lines call at the port and make about 3,000 visits each year. It has 30 commercial berths and seven kilometers (4 U.S. miles) of quayline. The port handles over 1,200 imports of motor vehicles a day and over 95 million revenue tonnes per year with a total trade value of about A$104 billion (US$72.4 billion). The port currently receives about 40 train visits per week and, on average, 12,500 truck movements in and out of the port each day.