Driving reform in transport efficiency

As a freight nation, such calls to action should not go unheard as a more efficient transport network is critical to our future economic prosperity.

Introduction

The road to national freight reform is a long one. For decades now, with successive governments and after multiple reviews, fundamental reform of the national transport regulatory framework continues to elude us.

The latest review by the Productivity Commission provides some useful insights into the national conversation on freight reform. It also highlights the scale of the task that continues to lie ahead.

Productivity Commission’s findings

On 12 November, the PC released its draft report into national transport regulatory reform. To be more specific, the PC investigated the long-run economic impacts of transport regulatory reforms agreed by COAG in 2008-09 relating to heavy vehicle safety and productivity, rail safety and maritime safety. It was also directed by the Federal Government to make recommendations for further reforms towards a more integrated national market for transport services.

In short, the PC reached the following conclusions:

• Reforms that have established national laws and regulators for heavy vehicles, rail and domestic commercial vessels have resulted in more consistent regulation across jurisdictions;
• Reform has lifted productivity by improving road access for larger, more efficient trucks (except in WA and NT, where they do not participate in the heavy vehicle regime);
• Reform has led to efficiency gains for heavy vehicle operators, although these gains have not been as large as initially forecast;
• A new COAG agenda is needed, encompassing
  • Accelerated reforms in the areas of infrastructure planning and management, including the Heavy Vehicle Road Reform agenda and trials of road user charging; and
  • Removal of regulatory barriers to the early adoption of new technologies which can lift productivity and improve safety.

These findings should come as no surprise to those either in the transport industry or those who have been following the reform agenda for many years now.  An agenda that prioritises the age-old yet much needed reform of road-user charging and road funding as well as planning for a world that is already upon us with automation and cleaner and more advanced technologies is just common sense.

Intermodal efficiency

While there is much in the PC report that is to be commended, it continues to be difficult to understand the PC’s position on the scope for a more contestable national freight industry.

First, the PC notes that government regulation should be neutral between transport modes. This is a sensible starting point to build a national freight network, although it’s a principle that we have yet to see genuinely embraced by any Australian Government.

The PC then argues that much of the freight load on major routes is not contestable, and in many cases road and rail act as complementary modes of transport.  The PC goes on to indicate that regulatory measures which seek to shift more freight from road to rail are likely to be counterproductive by imposing large efficiency costs on freight transport and the community.

Where road and rail are competitive (including between capital cities), modal choice is ultimately a commercial decision for businesses and will reflect a combination of factors, relating to relative service quality, the price of the transport mode and wider concerns to minimise whole of supply chain costs. There are inevitably some cargoes that are captive to a specific mode, but there are many cargoes (non-time sensitive, non-bulk goods) where rail is an effective substitute for road.

Contestability cannot be fully realised while we have existing policies and pricing mechanisms that distort modal choice. The competitiveness of road and rail services is currently distorted where the road pricing framework is not reflective of the costs associated with using the roads; the existence of rail subsidies exacerbates this problem further. This problem is well documented. In contrast to the PC’s views, the reality is that the full incremental cost of heavy vehicle road use includes the required improvements to road alignment, as well as the increased pavement strength, necessary to accommodate these vehicles. There are clear gains (environmental, reduced congestion, accidents etc) associated with embracing policies that serve to switch freight off road and onto alternative modes. Moreover, there are gains from recognising the scarcity of road capacity in pricing frameworks.

The road to reform

The PC is not due to provide its final report to the Government until April 2020.

Without policies designed to improve contestability, we risk losing out on the productivity gains that are available from creating a truly multi-modal freight market.

We do not believe that the very real gains that are possible from establishing a more contestable freight market need to be sacrificed for measures designed to focus on safety and innovation.  All three areas are going to be critical if Australia is expected to meet its growing freight needs.

A copy of the PC’s draft report is available here