Director, Bureau of Transport Economics Canberra, ACT
The rural sector of the Australian economy operates in an environment of intense international competition and is therefore intimately concerned with controlling the costs of production and distribution of its products.
In view of the significance of storage and transport costs in the final price of rural products it is necessary to:
(a) continually evaluate the transport options; and
(b) search for ways of improving overall transport efficiency.
In recent years there have been a number of encouraging trends in the transport sector. These include:
• substantial declines in overseas shipping freight rates;
• improvements in cargo loading rates at ports;
• declines in rail freight rates in real terms;
• a continuing competitive environment in the road freight transport industry.
There is, of course, ample scope for further improvements and there are a number of reviews of government policy currently underway which:
(a) relate to the regulation of transport industries and government financial policy within the transport sector; and
(b) tackle some of the problems of misallocation of resources.
This paper discusses some of the developments affecting the freight transport modes and the implications of these developments, starting with the overseas shipping ports followed by brief mention of international air freight and, closer to home, rail and road transport.
Commodities such as wool, meat, rice, cotton and malt are generally containerised and shipped overseas on regular liner shipping services.
Freight rates are determined periodically by negotiations between shipper bodies and representatives of the shipping lines.
From the viewpoint of rural producers probably the most significant development in liner shipping in recent times has been the decline in real freight rates.
From the late seventies to the end of last year liner slipping freight rates for wool to the UK/Europe fell by 75% and to Japan by nearly 20%. Rates for boneless beef to the east coast of North America declined by nearly 25%.
These rate declines occurred during a period of worldwide excess of shipping capacity which is most unlikely to disappear in the foreseeable future and may become even more pronounced as very large new containerships are employed in new round-the-world services.
The declines in liner freight rates extended across most of our major trades but large differences in rates remain across commodities and trades.
For example, meat rates to the east coast of North America are very high compared with wool rates to Europe.
The existence of these differences indicates the potential for further rate reductions for some commodities and trades.
The Federal Government is currently examining Australia’s international liner shipping arrangements.
An industry Task Force has been reviewing the legislation, commercial practices, and the role of national flag shipping. The Bureau of Transport Economics (BTE) has undertaken a broad study of liner shipping services to and from Australia, including commodity flows, fleet characteristics, rate structures and technology developments.
The BTE study contains an examination of some of the factors affecting the level of rates in the various trades and an assessment of the impact of the conference system and the competitive environment on both the quality of service and the level of rates.
These investigations should throw some light on questions such as whether changes in the regulation of liner shipping result in price reductions without causing a deterioration in service stability and quality.
One option for liner shipping policy would be to encourage a significant degree of non-conference competition to keep rates low, while retaining the service advantages of the conference operations.
Grain is shipped in bulk carriers which are generally chartered on a voyage basis. The charter markets are highly competitive and rates are lower and more volatile than liner rates.
Charter rates have been falling. For example, between 1960-81 and 1983-84 the freight rate’ for wheat shipped to Egypt declined by some 50%.
As in the liner trades, there is over-tonnaging in bulk shipping due in part to the growth in the numbers of flag of convenient vessels and in the size of fleets of centrally planned economies.
Bulk over-tonnaging is unlikely to disappear. However, in mid-1984 there were just over 700 new bulk ships on order representing a 20% increase in world tonnage.
Relatively low charter freight rates are likely to continue into the foreseeable future though fluctuations in rates can be expected from time to time.
A key link in the transport chain’ of Australia’s exports and imports is the interface between land transport modes and ocean transport. There are some serious delays in the movement of commodities through depots and terminals and an Industry Task Force on shore based shipping costs, of which I am a member, is currently charged with examining problem areas and recommending improvements to the system. It should be noted, however, that investment in port loading facilities has led to a quicker turnaround of ships and a reduction in shipping costs.
One of the problems associated with some Australian ports is draft limitation. The size of vessels serving our export trades, particularly the grain trade, has been increasing significantly with 60,000 dwt Panamax vessels replacing the 25,000 dwt ships.
There are several possible responses to this problem. These include:
• investment expenditure to increase 1:he depth of the shallower ports or construction of off-shore loading facilities in order to allow access by larger ships;
• continue incurring the costs of partially loading ships at shallower ports and to topping up at the deeper ports;
• centralise loading at fewer larger ports.
Centralised port operations have been a feature of the liner trades for a number of years but the question of who should absorb the costs of land transport from the smaller ports is still a lively issue.
Air Freight Transport
The use of air transport is increasing. Its speed and flexibility may be appropriate for certain high-valued rural commodities.
An independent review of Australia’s international air freight policy has recently been announced by the Minister for Aviation:
• to assess the international air transport requirements of primary producers, including requirements for gaining access to regional markets;
• to examine the role of scheduled operators and the possible contributions of non-scheduled operations.
A major problem for the railways is the size of their deficit - currently around $1 billion per year. Programmes to reduce operating costs have involved rationalisation of services and some branch line closures. Under the Federal Government’s new Australian Land Transport Programme, capital expenditure for mainline upgrading will be linked with improvements in operating practices and efficiency.
In spite of efforts to reduce rail deficits there have been substantial reductions in real freight rates for agricultural products. During the five years to 1982-83 average freight rates for wheat fell ‘in real terms by around 15%.
With the progressive deregulation of road transport over the past decade or so, actual or potential competition from road transport has acted as a constraint on increases in rail freight rates, even for such bulk commodities as grain. Within the present land transport framework, increasing specialisation by the railways in the transport of bulk commodities is a likely option because of their comparative advantage in this Task.
Tocumwal-Mangalore Standard Gauge Proposal. The main effect of this proposal would be the diversion of export grains produced in the Riverina to the Geelong terminal in Victoria. To obtain the maximum, benefits from diverting the grain to Geelong would also require the construction of a standard gauge rail link between Melbourne and Geelong.
The BTE evaluation of this proposal is based on optimistic assumptions regarding traffic forecasts and the diversion of freight to rail, and the use of unit trains to transport grain to Geelong. The costs of upgrading the Melbourne to Geelong rail link have been included.
The investigations indicate that the project could not be justified on economic grounds. One reason for this conclusion was that a significant proportion of the benefits associated with the proposal could be realised with existing facilities by altering the current pricing and operating policies. Furthermore, the decision to construct a new grain terminal at Port Kembla in NSW has substantially reduced the’ potential benefits arising from the construction of the Tocumwal-Mangalore standard gauge rail link.
As already mentioned, road transport is a highly competitive industry. Over the past 8 years real freight rates for subcontracting road haulage have been virtually constant.
Regarding the rural road network there have been substantial improvements to the system over time. About 77% of rural arterial roads and 19% of rural local roads were sealed by 1981. By 1983 only 52 Australian communities of more than 200 people were not connected to the sealed road system.
Funds for road expenditure are made available under the Australian Land Transport and ABRD programmes and are likely to fall ‘slightly in real terms after 1965-86. Furthermore, governments have been showing increasing concern with cost recovery for all modes of transport. Last year the recent National Road Freight Industry Inquiry indicated that heavy vehicles, in particular articulated vehicles, pay less than the cost they impose on the road system.
The Federal Minister for Transport has recently directed the Interstate Commission to investigate matters relating to cost recovery arrangements for interstate road and rail freight services. Another policy review is in progress which relates to the limits on the size and carrying capacity of heavy vehicles with implications for the costs of road transport in the longer term.
On top of these factors, there is the uncertainty about future fuel prices and the influence of taxes, the trend in the world oil price and the value of the Australian dollar. Until the impact of some of these factors becomes clearer it is difficult to assess the overall outlook for road transport costs.
Finally, the Minister has announced a BTE Study of the effects of regulations, policies and practices on transport efficiency and costs in Australia. The scope of this study is wide-ranging and aims to identify the most serious impediments to efficient transport and outline measures to improve efficiency and reduce costs.