Topic Enhancing the position of rail freight in short-distance haul The cases of Australia and Vietnam.

RMIT International University Vietnam ASSIGNMENT COVER PAGE Course Name Transportation and Freight Logistics Title of Assignment Railway Comparison Business Report Student Name Le Khoi

RMIT International University Vietnam

ASSIGNMENT COVER PAGE

Course Name Transportation and Freight Logistics

Title of Assignment Railway Comparison Business Report

Student Name Le Khoi Nguyen - s3682366

Tran Tram Anh - s3777334Nguyen Hong Oanh - s3798758Tran Thi Huong Mai - s3742777

Assignment due date 6 September 2020 (Week 10)

Word Count

Topic: Enhancing the position of rail freight in short-distance haul: The cases of Australia and Vietnam.

Table of Contents

1.2 Limited Freight Services and Operations for Short-Haul Demand: 15

VIII Appendices 25

Executive Summary

I Introduction

II Background Information

1.Short-distance haul transportation in the railway.

According to Marinov et al.(2011), short-distance haul transportation in railway is basically goodstransported in a short distance, giving more access to individuals and small enterprises with less-than-truckload packages in railway The short-distance transportation is dominated by road freight,since it costs less than railways in the few first miles, and also more convenient to deliver door-to-door

However, railways have potential to compete with the road sector if they want to expand theireconomies of scale and sustain in the long run Firstly, as the E-commerce and Logistics industry

are rising significantly, there is a growing demand for individual’s small packages to be delivered,thus extending the market and opportunities for the railway sector Standing from the railway'sowner’s point of view, they can utilize more assets and save time as well as cost when deliveringgoods as piles of different orders Applying this also helps boost the domestic GDP because moretrades will be executed within the country Moreover, trains consume less fuel than trucks and cars

so it is better for the environment as well

2.Requirements for Short-Haul Freight:

In order to compete with road transport in terms of short-haul freight, the Railway system\needs tofulfill some conditions to fit with the requirements of short-haul freight services in terms of responsetime, service times, cost effectiveness, profitability for owners, operators and users(Marinov et al2011)

First, the short-haul non-bulk freight requires the next-day delivery or express delivery (within 2-5working days) Therefore, delay and congestion in the delivery process should be minimized in Railfreight services (BITRE, n.d) For another requirement, the rail freight service must be economicallyviable to adopt the wide range of traffic and commodity flows as a part of wider freight servicesoffering to different types of business (Marinov et al 2011) Hence, the wider service range couldattract more customers and reduce the cost and risk burden as a whole since it could be shared bymultiple firms for the same short-distance freight The next standard for short-haul service is thesufficient number of terminals and pick-up points that have enough proximity to the final destination

of customers For short-haul, the proximity location is compulsory for transshipment operation,which would require additional transportation to be involved in the final delivery or pick up process(Marinov et al 2011) Lastly, rail must be able to deliver the economies of scale in terms of railfreight rolling stock and operation, which means that significant changes in the freight vehicleconfiguration, size, loading and discharge options including bulk and palletized traffic and

also need to be made for the purpose of reducing traction costs

3 Australia

3.1 Ownership

Rail freight transport used to be monopolized by Australian state governments However, eversince the successful deregulation, commercialisation and privatisation commencing from the 1980s(Everett 2006), the industry has become a fiercely competitive playground for several operators,either operating in regional (Genesee & Wyoming Australia) or national (Aurizon and Asciano)

scales Logistics and mining businesses also operate and train on their own railways (NationalTransport Commission (NTC) 2016)

3.2 Network length

According to the 2019 report compiled by Bureau of Infrastructure,Transport and RegionalEconomics (BITRE) and Australasian Railway Association (ARA), Australia currently possessesapproximately 32,900 and 314 route-kilometres of operational heavy railways and light tramwaysrespectively With just two main functions: passenger and freight transport, the system contributesover $26 billion to the national economy (Austrade n.d.)

Figure 1 Adapted from: BITRE 2019

Australian freight task, by mode, 2015-16

The two largest bulk flows reported on Australian railways are exporting iron ore and coal Some ofthe other goods also hauled by the railways to ports include bulk grain (cereal grains, pulses,oilseeds), bulk sugar canes and other non-bulk freight (BITRE 2019)

In general, rail transport already has an unrivalled competitiveness in long-distance bulk freighthaulage in Australia

4 Vietnam

The railways in Vietnam are run by a state-owned corporation as Vietnam Railway Corporation(VNR), which has two major subsidiaries namely Hanoi Railway Hanoi Railway Transport JointStock Company and Saigon Railway Transport Joint Stock Company Being placed in a monopolyposition limits the freedom and competitiveness of the market, leading to less investment andinterest in the industry from outside stakeholders Although it can be understood that railway is animportant means of transport that gives access to entering the country, the government needs topay more attention to this potential business opportunity

The reason why it is deemed potential is because it is built across the country and runs throughhalf of the provinces and cities of the nation, which enables a majority of the population to reachthis mode The total length is 2600 kilometres, with 11 lines, in which the North - South railwaywhich was built during the French colonial period to transport goods from the North to the Southnow allows the same function but is used by Vietnamese Moreover, it also interlinks with China,Cambodia and Laos, making it easier and cheaper to export Even with short-distance haul, it isstill a very profitable and promising medium compared to the road transport that is used dominantly

1.1 Australia

As estimated by ARA (2017), the freight tonnage moved on rail in Australia is approximately 1.5billion tonnes each year Due to the unavailability of data, the latest rail freight task recorded was in2015-16 by BITRE and ARA which totalled to about 1.4 billion (see Figure [ ]) This was a giganticthousandfold leap compared to around 663 thousand net tonnes just 9 years before that

Figure [ ] Reproduced from: ARA 2019.

National rail freight task, thousand net tonnes.

The catalysts behind such growth was almost entirely the simultaneous growth in iron ore anddespite to a lesser extent, coal exports as well In 2015-16, the former accounted for around 65%

of the total rail tonne kilometres, while the latter’s share was 22% (see Figure [ ] for raw statistics).Only a marginal share belonged to other bulk and non-bulk rail freights However, since both alsoexperienced 26% and 6% growth respectively in 2015-16, they further justified the increase in railfreight tonnage

Figure 2 Reproduced from: BITRE 2019

Australian rail freight task, by major commodity group, 1971–2016

Such enormous climb in rail freight tonnage as aforementioned is a vivid proof of the phenomenaldevelopment of Australia’s rail transport system which is predicted to advance even further(between 13% to 35%) in the years to come (BITRE 2019)

To vary the sorts of goods delivered, VR intends to run more freight to make it up to the loss ofpassenger one under the Covid-19 pandemic situation, which opens a new gate for the short-distance haul of railway to further develop

2 Freight operations

2.1 Australia

Regarding regions with high rail freight tasks, currently, the Pilbara region in the WesternAustralia occupies the biggest bulk haulage task, transporting 94% of the country’s iron ore exports(ARA 2019) and representing around 70% of Australia’s total freight task With a complex and

highly integrated network, the East Turner River valley in the Pilbara has the third-busiest railcorridor in the globe and is expected to become the busiest soon (BITRE 2019) Queensland andNew South Wales also have quite sizeable bulk flows (19% and 6% of the total rail freight task inorder), mostly coal movements because these cities are home to Australia’s coal extraction (ARA2019)

As briefly mentioned above, the major type of freight that Australia’s railway network transport isbulk commodities, with the entirely intrastate rail traffic It remains the dominant and the mostefficient means of transportation to move bulk iron ore and coal from inland mining sites to ports allover Australia for exports, allowing Port Hedland to be the globe’s largest bulk export port andsecuring Australia’s position as the top iron ore exporter in the entire world As for agriculturalproducts like grains and oats, they are normally transported over long distances in which rail hastraditionally been the predominant mode as well (BITRE 2019)

With regard to rail freight fares, over the last few decades, the rate has been continuously

declining from a high of around 11 cents/net tonne kilometre to only 4 cents in 2019 (see Figure [ ]for this trend) The BITRE (2017) has forecasted that this rail fares will level off at 4 cents/net tonnekilometre until 2030

Figure [ ] Reproduced from: BITRE 2017.

Real rail freight rates and prediction

Finally, in terms of rail freight utilization, it is difficult to identify a standard capacity metric for thenational rail network due to the variety of commodities and the differences in capacity of each track.Nevertheless, it can still be inferred that up to now, Australia’s rail freight transport has been ratherefficient So far, no evidence of capacity constraints on interstate routes has been reported In otherwords, every customer seeking access to the rail freight system is satisfactorily served Wheneverthey approach a track manager, a preferred time of access will be stated for them to know whenthey can use the railways to transport goods (NTC 2016) This explains the dominance of rail inAustralia’ freight transport activities

2.2 Vietnam

Like Australia, railway is often used for bulk commodities but the goods are more variable, fromgroceries, medicines to hard metal, coal The rail freight fares are usually higher than sea freightbut lower than air and equal to road type, placing them in the middle of the market However,assets are not fully utilized because of the poor infrastructure and outdated facilities

Despite providing online booking through phones, the consignor can not track where theirpackages are going, also have to deal with protracted and unscheduled freight that leads tofrustration and less users

Management has been proved to be inefficient and even corrupted after some allegationsinvolving the bribery of a Japanese company to several officers of the railway managementboard (Xinhua News Agency 2014) Even though the government shows interest ininvesting in and leveraging the position of railway freight transportation, few signs ofpractical actions have been shown

Because of ineffective and neglected management, revenue is not well-generated, hence affectsinvestment from the government funding and also outside investors It is difficult to develop in thelong term if this situation remains unchanged, so the owners need to seek for alternatives toimprove the issue

3 Freight facilities

3.1 Australia

As stipulated by Austrade (2013), the globe’s longest and heaviest haul trains are from Australia,

with each one at least 2.5 km long The axle loads are 40 tonnes, which means each freight traincan carry up to 110 trucks worth of freight off the road (ARA n.d.) Among the 32,894 route-kilometres of operational heavy railways, about 10 percent are electrified Apart from these,Australia is also utilizing around 2005 locomotives, half of which has stayed in use for 12 years orless Due to such an old age, Australia has been limiting the use of this kind of train and leveraginglocomotives for freight duties merely (ARA 2019) With the majority of railways being heavy types,Australia’ rail transport is mainly utilized for long-distance freight hauls

As regards connectivity, the exceptional rail facilities has allowed Australia’s rail network to connectwith multiple ports scattered over the nation It serves as the primary mode of transport in threefreight movements as below:

(1) From inland terminals to ports on railroads - this traffic encompasses either mineral oragricultural products that Australia exports All of the nation’s principal ports, includingPort Hedland, Dampier, Port Walcott and Esperance, for example, receive their iron oreexports through railways That tonnage reached up to 677.8 million tonnes in 2017-18,which also equated to these ports’ total tonnage exported (ARA 2019)

(2) From port terminals to urban logistics centres - this mostly applies to Australian imports.Consignments are shifted out of ports to logistics centers by rail transport in short-haultrips to be distributed to local businesses Empty containers are evacuated out of port

to avert congestion by trains as well (ARA 2019)

(3) From one port to another - One classical example of this route is container movementsfrom the Port of Hobart to the Port of Burnie for exports or simply for mainland transfersamong different ports (ARA 2019)

These three routes prove that Australia has impressive connectivity between ports and railtransport The nation shows non-stop attempts in creating more regional freight links, with aninvestment worth $9.3 billion in a special program called Inland Rail to further connect differentmarkets in Melbourne, Brisbane and Victoria together for even larger economic benefits(Department of Infrastructure, Regional Development and Cities n.d.)

With respect to the accessibility of the railway line, Australian’s rail networks mainly radiate fromthe state capitals, then spread out to other states with highly integrated cross-border links (ARA2019) The country’s rail freight dominates Melbourne - Adelaide - Perth - the east-west corridor Inthe north-south corridor (Melbourne - Sydney - Brisbane), its competitiveness is not that lucid due

to infrastructure constraints However, overall, rail network still provides integral corridor linksbetween capital cities in Western Australia, South Australia, Queensland, New South Wales andVictoria (NTC 2016)

Regarding rail containers, and Adelaide, Australian trains can already carry double-stackedcontainers whose total height must not surpass 6.5 metres above the top of the rail, specifically inDarwin, NSW, Perth, Parkes Furthermore, road freight vehicles can also be piggybacked on railflat wagons in the central corridor line (ARA 2019) These methods of freight transport can be veryefficient in improving capability