Building more efficient rail freight supply chains

Synergies has extensive expertise in supply chain analysis and conducting market assessments across a range of transport related industries. Find out more about our recent work in examining supply chains in intermodal (non-bulk) freight and grain exports.

The Issue

Australia is a freight nation. The volume of freight carried is expected to grow exponentially between now and 2040.  However, the National Freight and Supply Chain Strategy, endorsed by all Australian governments in 2019, flagged that freight productivity has plateaued.

One strategy for improving freight productivity is to ensure that freight is moved using the ‘best’ mode of transport for the task.  Rail is well suited to do the heavy lifting for Australia’s transport task, particularly where freight is moved in high volumes or over long distances.

However, disparate funding models, policy fragmentation and lack of coordination has seen rail productivity slip behind road.  If left unchecked, this will result declining market share for rail, notwithstanding its natural advantages for some supply chains.

The Solution

Synergies recently conducted a desktop review for ACRI which examined key transport trends across intermodal and grain export supply chains in Australia and selected overseas countries to better understand the scope for increased freight on rail and to identify areas for further review.

A key theme arising from our analysis was that strategies that seek to play to rail’s inherent strengths and advantages are essential in order to pursue long term improvements in rail’s modal share.

Intermodal freight services

We first examined the factors undermining the efficiency of specific intermodal supply chains, including the east-west corridor (where rail dominates) and the north-south corridor (where road currently dominates).

The service quality of rail is inevitably poorer than that of road freight services. Rail operations are particularly efficient at transporting large volumes of freight, but are inherently less flexible than road. This is because a rail operator must aggregate cargoes for transport via a scheduled service, with resulting time and cost implications.

In contrast, a truck is able to offer a bespoke “door to door” solution. Rail must offer a lower price to compensate for its reduced service quality, and can only effectively compete with road where it attracts sufficient volume of freight in order to take advantage of its scale economies.

The experience of intermodal supply chains both in Australia and overseas shows that the relative service quality of road and rail freight services is critical to determining the preferred mode – minimising rail’s service quality disadvantage resulting from relatively poorer quality infrastructure is critical to achieve sustained increases in rail’s modal share. Investment in higher quality infrastructure, where it can be justified, should lead to improved reliability, transit times and frequency of rail services.  Inland Rail will provide a step increase in the service quality able to be offered by rail on the north-south corridor.

However, improving trunk rail infrastructure quality is not a panacea. For rail to provide an effective long term solution, it is critical that conditions are in place to allow for an efficient rail operation.  This requires:

• minimisation of friction in the pick up and delivery (PUD) task that may discourage take-up of a rail service; and
• a policy and regulatory framework that supports an efficient and productive rail sector, and which aids a substantial modal shift from road to rail.

Grain export supply chains

We next examined grain supply chains, with a particular focus on the Eyre Peninsula in SA, where rail recently ceased operations for the transport of grain, comparing this to the trends that have been observed in other domestic and international grain supply chains.

Grain haulage is often hampered by infrastructure deficits. Rail can provide an advantage by enabling a very efficient and high velocity supply chain. However, this can be undermined, or even eliminated, if the infrastructure quality cannot support the operation of an efficient train service.

Rail transport is successful where haulage characteristics are conducive to rail – rail is not an efficient transport mode for all grain supply chains.

The key issue for rail is to identify those routes where the nature of the grain haulage task means that it is able to compete effectively with road.  In this regard, the Eyre Peninsula railway offered limited natural advantages over road, given the diverse range of ports and short travel distances involved.

However, there is opportunity to consolidate grain transport on rail in supply chains where rail has greater natural benefit, by actively pursuing opportunities that encourage modernisation and harmonisation to remove incompatibilities in operating and regulatory environments amongst network managers.

Further, arrangements that align the interests of the parties within the supply chain and encourage bulk grain handlers to use rail services as their first priority could assist in increasing rail mode share.

Benefits

Our analysis provided two key benefits for our client:

• access to well informed advice on the challenges and opportunities for increased rail mode share
• provision of an evidence based approach for policy advocacy based on a genuine understanding of the complexity of the problem associated with promoting more freight on rail.