procurement

National approach needed for rail procurement

The dichotomy between building trains in Australia or overseas ignores the opportunities for procurement reform that would keep Australia competitive, writes Australasian Railway Association CEO Caroline Wilkie.

In recent months we have seen two very different approaches to rail procurement in Australia.

In New South Wales, the state government welcomed new rollingstock onto the network, after importing trains from overseas.

Meanwhile, in Victoria, the state government confirmed the order of the next tranche of V/Line trains, to be manufactured at Bombardier’s Dandenong facility.

As one state looked to promote local jobs in its own backyard, the other claimed doing so wasn’t really an option.

The truth is, both procurement processes highlight some of the challenges the industry is facing.

The NSW government’s erroneous claims that is wasn’t realistic to build trains in Australia were understandably met with disappointment from the industry.

We have – and always have had – a strong rail manufacturing industry in Australia.

We can be proud of our $2.4 billion rollingstock manufacturing and repair industry with capability and experience across the country.

Companies like Alstom, Bombardier, Downer, and UGL are leading the way in Australia, with over 900 businesses involved in rail manufacturing and supply nationally.

The industry can design, manufacture, maintain, and repair rollingstock to the highest standards, with capability in Cardiff and Broadmeadow in NSW; Dandenong, Ballarat and Newport in Victoria; Maryborough in Queensland; and East Perth in WA.

Metropolitan Sydney and Melbourne are the largest centres of rollingstock maintenance and repairs in Australia, and two of the three largest non-capital city employment bases for the industry nationally are in Newcastle and Lake Macquarie.

But the sector lacks the scale of its international counterparts and is hamstrung by the procurement processes that exist across the country.

While contract awards like those in Victoria do create jobs and support local businesses, more needs to be done to support the long- term health of the sector.

Victoria, like most state governments, applies local content requirements at the state level.

It is not hard to see why governments are prone to favouring a state-first procurement policy when awarding these contracts.

Research conducted by the ARA this year found that while the average business spends about twice their wages cost on intermediary inputs, the rollingstock manufacturing
and repair industry spends five times their wages cost.

It is understandable that governments believe keeping manufacturing in their state will realise these flow-on benefits and maximise the jobs and economic benefits generated from their investment.

But in practice, it really means there are fewer and fewer chances for the industry to win work, create jobs and support innovation and growth.

It means the team working on rollingstock in Victoria might not meet the local content requirements set by NSW, Queensland, or WA.

If the same team wanted to bid for a very similar contract outside of Victoria, they might need to have facilities and people located in the state where they are bidding.

For many companies, that kind of duplication – often for a single contract – is impractical, expensive, and difficult to manage.

Even if they do choose to establish a local presence, the costs can be prohibitive not just because of the need to be local, but because different states may favour different specifications to achieve the same outcome in their tender process.

In the end, this creates layer upon layer of complexity that drives up costs, makes it hard for rail manufacturers to work across jurisdictions and erodes the size of the project pipeline Australian businesses can work towards.

A national approach to rail procurement is the only solution.

We need an approach that recognises our manufacturing industry can only grow and scale up if we treat the whole of Australia as one single market.

We need to ask industry to deliver an outcome or solve a problem, rather than specify the individual components that must be used, even if they are not the best choice available.

We must consider the whole of life costs of an asset, and the additional economic and sustainability benefits our industry can deliver, rather than choose options that are cheap to produce but could cost much more to maintain.

If we take these simple steps, the industry will have greater certainty, increase its investment and training, and have access to a bigger project pipeline.

They will achieve new efficiencies and forge innovation that will make a difference for the industry and the people that rely upon it.

Ultimately, rail manufacturing will grow and increase its competitiveness, providing more jobs and opportunity than is possible right now.

We were heartened to hear NSW Minister for Transport and Roads, Andrew Constance confirm that he is willing to work on the issue with other state governments.

With more rail contractors and manufacturers looking to increase their use of Australian suppliers in the wake of COVID-19, there is no better time to act than now.

We look forward to working with Constance and his counterparts across the country to deliver better outcomes for the industry and the economy.

Melbourne Airport

Melbourne airport rail link no longer up in the air

A future train line to the Melbourne airport will utilise the under-construction Melbourne Metro tunnel, Prime Minister Scott Morrison and Victorian Premier Daniel Andrews confirmed on Saturday.

The route was confirmed along with a start date for construction and a forecast completion date of 2029. Read more

Port Botany

Freight coalition unite in calling for rail container incentive scheme

Freight and logistics groups have called out the NSW government’s undermining of its own mode share target for containers carried by rail into Port Botany.

The Australian Logistics Council (ALC), Freight on Rail Group of Australia (FORG), Freight and Trade Alliance (FTA), and the Australasian Railway Association (ARA) along with individual port rail freight operators are questioning the wisdom of allowing more high productivity vehicles on Sydney’s roads.

“By incentivising HPVs, government is perversely derailing their own policy to grow rail’s mode share target – at a time when Sydneysiders want safer roads and less traffic congestion and vehicle emissions,” said ALC board member and Qube managing director Maurice James.

The NSW government has been issuing permits for high productivity vehicles to access the Sydney road network and major motorways such as WestConnex. By allowing trucks which can carry two containers to travel within Sydney, this reduces the competitiveness of rail for the metro import container market.

The NSW government has set itself the goal of having 28 per cent of the container trade through Port Botany being handled by rail by 2021, however just 17.6 per cent is currently hauled by rail.

Instead of having each mode compliment each other, with rail for longer distances and trucks for the first and last mile, road transport was monopolising container traffic, with impacts on the local community, said FORG chair and Pacific National CEO Dean Dalla Valle

“Today, many HPVs are doing ‘every mile’ of the freight task in Sydney, placing heightened pressure on traffic congestion, road safety and vehicle emissions,” he said.

Dalla Valle advocated for a measure such as the Western Australian government’s Port of Fremantle container incentive scheme was needed in NSW.

“Prior to introduction of the incentive scheme at the Port of Fremantle in 2006-07, rail mode share was a meagre two per cent. The scheme underpinned growth of rail’s mode share which is now above 20 per cent – the highest in the country,” said Dalla Valle.

Director of the FTA and secretariat to the Australian Peak Shippers Association Paul Zalai said that governments should encourage importers to use rail services.

“Governments must maximise port assets and manage our trade gateways through incentivisation of rail usage for imports to metropolitan sites and importantly, streamlined connectivity to regional areas to cost effectively reach export markets.”

ARA CEO Caroline Wilkie said communities would be feeling the brunt of the lack of rail transport.

“The balance has tipped so far we run the risk of Sydney’s roads being over-run with trucks unless there is urgent action to use more rail.”

freight

Get the freight basics right and benefits will follow

To make the most of infrastructure investments, the playing field for rail freight needs to be evened out, writes Caroline Wilkie, CEO of the ARA.

The confirmation of funding for the Port of Melbourne direct rail line to South Dandenong in August was welcome news for business, industry, and residents in the region.

The direct rail connection to the port forms part of the wider Port Rail Shuttle Network and will make it easier and more cost effective for businesses to access port facilities.

The Federal and Victorian government funding will deliver tangible benefits to businesses in Dandenong’s manufacturing sector and improve the efficiency of port operations.

Ultimately, the project will also take 100,000 trucks off the road, helping give local residents their city back in the process.

In the same month, the NSW government fast tracked approvals for the Botany Rail Duplication and the Cabramatta Rail Loop, putting its support behind greater use of rail within its freight network.

The projects will not only deliver this critical new infrastructure to meet the state’s freight needs but will take 54 trucks off busy city roads with every additional freight train travelling on the Botany line.

That will make a crucial difference as the Port of Botany’s freight task increases by 77 per cent in the 20 years to 2036.

As Minister for Regional Transport and Roads Paul Toole observed when announcing the approvals, these new connections are so important because the more freight is moved on rail, the less congestion there is with fewer trucks on the roads.

These projects are great examples of the difference rail freight can make, and why continued investment is essential to the continued liveability of our cities and towns.

But while the benefits of projects like these are obvious, more needs to be done to ensure the rail sector can meet our increasing freight needs.

While Australia’s freight task is growing – and will continue to grow – the role rail freight plays in meeting this demand has actually declined.

Recent years have seen the rail industry’s share of the freight task eroded by policy settings that favour other modes of transport and frustrate investment in the sector.

As a result, less than one per cent of freight travelling between Sydney and Melbourne is moved by rail – a far cry from the 40 per cent share the rail network maintained in the 1970s.

While the vast expanses of the country have seen east- west connections hold up better, rail freight’s modal share has started to slip there too, with rail now carrying just 54 per cent of the freight task across the Nullarbor.

It is hard to reconcile the declining role of rail freight at a time where the sector needs more capacity than ever before.

Part of the problem is how we price rail freight when compared to road.

While getting trucks off the roads remains a focus in these busy and often congested urban areas, heavy vehicle road reform has simply not progressed.

So, while rail freight access charges are based on maintaining and operating the infrastructure it requires, the road freight industry is not expected to fully cover the cost of maintaining and operating the roads it uses.

As we hear more about the importance of easing congestion, the sustainability benefits of using more rail services and the value of creating city precincts that make it easier for residents to get around, favourable pricing models for road freight is increasingly difficult to reconcile.

We must have a level playing field for all to ensure rail freight can grow to support the increasing demand for freight across the country.

This, together with harmonisation of standards across the country, could enliven the rail freight sector again and ensure it is ready to support the growth of our economy over time.

After all, the industry has shown how much can be achieved under the right settings.

Australia was the first country to move to fully autonomous freight trains when the mining sector adopted the technology to service iron ore mines in the Pilbara.

This capability has become a hallmark of mining in the region and the significant benefits the industry delivers to the broader economy.

Use of rail for bulk commodities has increased, bucking the trend of the broader sector.

With a level playing field and certainty of standards across the country, there is no telling what additional benefits further innovation in the sector could deliver.

But first, we need to get the basics right so that rail freight can compete equally and fairly.

After all, we cannot allow new investment in rail infrastructure that busts road congestion in our cities to be eroded by a policy environment that only encourages business and industry back to the roads in the end.

innovation

Find the fast track for innovation in the Australasian rail industry

When the Rail Manufacturing CRC closed its doors earlier this year, it spelled an end to dedicated rail innovation and technology funding in Australia.

While the loss has been felt deeply by the industry, the fact is the CRC’s significant gains were achieved against all odds.

A new report commissioned by the ARA has found rail innovation is in decline in Australia, and urgent changes are needed if the $155 billion in rail investment to come over the next 15 years is to deliver a truly modern, responsive and innovative rail network.

The report found rail patents are falling in a market where a lack of national focus and certainty, and wrongfooted procurement processes, have created a culture where innovation is simply not encouraged – and at times impossible to progress.

It has called for urgent action to establish rail innovation as a national priority and clearly articulated the need for a single Australian rail market that replaces state specific approaches with national local content policies.

As the federal government highlights the importance of manufacturing to help create Australia’s path out of recession, there is a real opportunity for Australian rail to embrace innovation and play a greater role in the $362 billion global rail technology market.

To do that, we need a national approach that provides certainty and longevity for the industry.

For all the benefits the Rail Manufacturing CRC delivered, the lack of continued funding beyond its term and relatively low level of public investment compared to international models saw the opportunity under-utilised.

Only 63 cents of private investment on national projects were secured for every $1 of CRC funding.

By contrast, the UK Rail Research and Innovation Network attracts $2 for every dollar of public funding, and Japan brings in 20 times its public funding from the private sector.

They achieve those results because the policy settings are right, the long term commitment is there and the focus on rail innovation recognises the invaluable role of both the public and private sectors working together.

A national approach, tied to clear commitments to invest in research, would help achieve that here in Australia.

The ARA has long advocated for a single Australian rail market to give the industry the scale it needs to invest, grow and innovate.

The report makes it clear that is more important than ever as we look to the future.

Current state procurement processes not only create inconsistent local content policies – making it hard to create true centres for innovation – but they focus on the up front capital costs in making their purchasing decisions.

That means innovations that requires investment up front in order to save time, money and boost efficiency over the life of a project or asset often don’t get to see the light of day.

Public procurement processes also err on the side of caution, calling for like-for-like replacement in many cases.

The private sector may have better, faster, or cheaper ways of delivering on requirements, but these conditions prevent them from being put forward.

Overall, these conditions create a risk averse culture that dampens the willingness of the sector to try new things.

And that is ultimately to our detriment.

Australia has great capability in the rail sector and could lead the world on rail innovation if the conditions were right.

The world-first use of autonomous heavy haul trains by the resources sector in the Pilbara is evidence of that.

Australia’s manufacturing sector features some of the industry’s brightest minds. But their big ideas are more likely to be sent overseas than developed here.

With only one per cent of rail patent submissions coming from Australia in 2019, the only way is up.

This next phase of rail investment is a chance to modernise and innovate like never before.

It is a chance to build new skills and capability in Australia to create jobs and opportunity for the next generation of rail workers.

All we need to do is take action and make rail innovation a priority for all of us.

Finding the fast track for innovation in the Australasian rail industry is available here.

Manufacturing in rail needs to seize opportunity of current pipeline: report

Australia has the opportunity to harness the current project pipeline to improve rail manufacturing productivity, a new report has found.

The report, Finding the fast track for innovation in the Australasian rail industry, authored by L.E.K. Consulting on behalf of the Australasian Railway Association (ARA), highlights that rail innovation needs to be a national priority, and not fragmented between different state-based policies.

Caroline Wilkie, CEO of the ARA, said that the current investment in rail plus the renewed federal focus on manufacturing meant that the conditions were right for a rail manufacturing resurgence.

“The rail industry is expected to invest $155 billion in the next 15 years and we have to make that investment count,” Wilkie said.

“The world-first introduction of autonomous trains in the Pilbara region is just one example that shows Australia has the capability to lead the way on rail innovation.

“But the policy settings must be right to support innovation and technology adoption across the industry at a whole.”

Wilkie said that despite Australia having a large market for rail and the required network size, differing policies on local content in various states meant that the local manufacturing industry would struggle to compete.

“The international experience has shown that where governments lead a focus on rail innovation, private investment follows,” she said.

“We have the projects in the pipeline and we have the network scale to make rail innovation a real success.

“All we need now is for a true national focus to bring government and industry together to make the most of this opportunity.”

With the closure of the Rail Manufacturing CRC earlier in 2020, the Australian rail industry has lacked government funding for innovation specific to rail. The report found that Australia was also falling behind in comparison to other countries, with only one per cent of the world’s rail patents in 2019 coming from Australia.

In a report released at the beginning of this week, the Rail Manufacturing CRC reviewed projects that it had completed and highlighted the potential for further innovation.

“Australia’s research sector is world class and there exist many opportunities for the rail sector to utilise Australia’s R&D capabilities. With the closure of the Rail Manufacturing CRC, there will be a need for both government and industry to consider new models to support ongoing innovation,” said Stuart Thomson, CEO of the Rail Manufacturing CRC.

The report highlights four ongoing challenges for the rail industry. These include the need for national harmonisation, industry co-investment in R&D, the support for a culture of innovation, and the need to secure future funding for rail R&D.

“There exist significant opportunities for the sector to increase local manufacturing, develop supply chains and to train and educate a highly skilled workforce, however Government intervention and support will be required,” the report highlights.

Wilkie said that the industry was at a critical juncture.

“We run the real risk of being saddled with an inefficient, outdated rail network if we don’t support greater innovation and technology adoption to deliver the best possible outcomes for Australian rail users.”

National risk-based approach to fatigue management needed: Productivity Commission

The Productivity Commission has called for the final inconsistencies in the national approach to rail regulation to be removed to improve competitiveness in the sector and increase safety.

The recommendations come from the Commission’s National Transport Regulatory reform inquiry, which examined the efforts since the 2009 COAG reforms to bring together state-based regulation of the transport sector in a national approach.

These reforms led to the creation of the Office of the National Rail Safety Regulator (ONRSR) and the Rail Safety National Law, however the Productivity Commission found that state-based differences were still hampering the sector.

One area where there needed to be further national harmonisation is in the area of fatigue management in rail regulation, as state-based differences continue to exist. The Productivity Commission recommended that ONRSR should be empowered to lead a risk-based approach to fatigue management, rather than prescriptive requirements.

Australasian Railway Association (ARA) CEO Caroline Wilkie welcomed the Productivity Commission’s findings, noting it was up to the states to now ensure that productivity gains could be implemented.

“The Productivity Commission’s recommendation for a nationally-consistent risk-based approach to fatigue management is good news for the rail industry, but support from the New South Wales and Queensland governments will be critical if we are to actually achieve change.”

Overall, the Productivity Commission found that the reforms implemented since 2009 have improved safety in the rail industry and that rail has progressed further than other transport sectors that were part of the reforms, namely the road transport and domestic maritime sectors.

Sue McCarrey, ONRSR chief executive and national rail safety regulator, highlighted that significant progress has been made.

“Measures taken over the past eight years have underpinned a reduction in the regulatory burden on operators that has in turn allowed for a greater safety focus within industry. In fact, while only one of many measures of safety on the rail network, it is worth noting that rail-related fatalities reached a five-year low during 2019-2020.”

Deputy Prime Minister, Minister for Infrastructure, Transport and Regional Development Michael McCormack said the government welcomed the report.

“We will carefully consider all of the recommendations within the report and undertake vital consultation with regulators, jurisdictions and industry stakeholders to prepare a response.”

Australian Logistics Council (ALC) CEO Kirk Coningham welcomed the report and pushed for a further national approach to the harmonisation of regulation.

“ALC has always believed in one rule book for one country allowing road and rail operators to develop consistent national safety systems. This will improve efficiency and consistently and so lead to enhanced safety outcomes.” he said.

In addition to regulatory reforms, the Productivity Commission highlighted processes and practices that could improve the transport sectors. For rail, the various technical standards, operating codes, and procedures set by network owners is identified as a barrier to the industry.

Improved data on compliance costs could balance the requirements for cost recovery in regulation with where regulation is most onerous. McCarrey said that ONRSR is working on a cost recovery model with industry.

“ONRSR is currently using the closing months of 2020 to consult with industry and governments on a model based on operators’ risk profile and the regulatory effort required by ONRSR. The focus here is not on generating more money from fees but rather on ensuring the cost of regulation is recovered from those areas of industry where the most effort is expended.”

Budget should target new projects and upgrades: ARA

New projects and upgrades to existing technology should be considered for funding as part of the federal budget, CEO of the Australasian Railway Association (ARA) Caroline Wilkie has said.

With the budget to be handed down on October 6 and early announcements already coming out, Wilkie said that rail was ready to contribute to Australia’s economic recovery.

“There is a significant pipeline of rail investment that could be fast tracked to generate more jobs and opportunity to support our economic recovery,” said Wilkie.

“This is work that will make a difference right now while leaving a lasting legacy for the cities and towns that benefit from new rail projects.”

A number of rail projects are awaiting federal funding to take the next step. The Melbourne Airport Rail Link will proceed once final funding from the federal government confirmed, as can the resumption of the Murray Basin Rail Project, with a business case sitting with Canberra.

In addition to new construction, funding for technology upgrades such as the Australian Rail Track Corporation’s Advanced Train Management System, would provide long term benefits. Infrastructure upgrades such as level crossing removals are another way the federal government’s funding to rail would conitrbute to wider economic outcomes.

“At a time where we desperately need more people in jobs and more certainty for those rebounding from the economic hardships of the pandemic, we need to see more projects started sooner to build the country back up again,” said Wilkie.

Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development Michael McCormack has indicated that major infrastructure projects will be part of the 2020 budget, however no particular projects have been tipped yet. The federal government has indicated that money allocated to the states for infrastructure will be needed to be spent quickly and may be a condition of further funding.