Road and rail competitive neutrality: some core issues

A Road Rail Competitive Neutrality Comparison

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A Road Rail Competitive Neutrality Comparison
There is a very substantial imbalance in the relative rates of cost recovery achieved between trucking and rail where they compete. The trucking sector as a whole more than pays its way and the rail freight network which competes with road meets only around 20% to 30% of infrastructure costs.

Transparency: Concealing Facts
It is fairly broadly understood amongst those with an interest in rail that the assessment outlined above are about right. Nonetheless such assessments rarely find their way into the public arena. It is especially difficult to get any recognition of these realities in the face of a concerted effort by well funded rail interest and governments to suppress the true figures about cost recovery levels. There are a variety of reasons for this.
First "everybody knows", in a way that dominates public debate, that rail is always better than road.
Secondly government transport agencies and rail interests, despite what they publicly proclaim, have a shared interest in suppressing the real information so that they can pump additional subsidies into the rail network while asserting that this is being done for good economic reasons.
At this point it might be useful to quickly cite some of the evidence which is available on the public record which points in this direction
Firstly in authorising the access arrangements lodged by the Australian Railtrack Corporation, the Australian Competition and Consumer Commission noted that the rates being charged for “below the rail services” were well below the rates required to meet long run marginal costs.
Secondly, governments continue to provide grants to the rail system which are substantially hidden from view. For example the recent Federal Government budget adds yet more subsidies to the already substantial subsidies provided for the upgrading of the inter-capital city rail network.
Thirdly, a recent major report commissioned by rail interests (the Port Jackson Partners report) made considerable efforts to incorporate certain revealing recommendations. These suggested that when rail interests achieved their goal of pushing up government charges on the trucking industry, and as a consequence rail freight rates could rise, it was desirable that the “below the rail” track provider not be able to raise their charges to an economic level. Rather, all the benefits of any increased charges going to the rail sector should be appropriated by the above rail operator.
(A reality: The principal impact – for rail – of any increase in the costs of trucking would be to provide scope to increase rail freight rates for freight contestable with road. In general, each dollar by which trucking costs were artificially boosted would enable rail to increase its profits $ for $. It is therefore not surprising that the incumbent commercially driven above rail operator not only plays a key role within the principal rail interest group, the Australasian Railway Association, but also provided by far the greatest portion of the funding for the Port Jackson Partners report. It's a simple and worthwhile commercial proposition to bend the regulatory environment towards a particular interest, and then to ensure that that tilted “competitively neutral" commercial environment is further tilted so that all the benefits accrue to a particular operator.)
Fourthly, under pressure of fiscal imbalances the New South Wales Government commissioned some 18 months ago a targeted review of selected economically marginal branch lines. The information contained in this review confirms that many branch lines are grossly uneconomic. (Report of the NSW Grain Infrastructure Advisory Committee, 2004).

Finally it's interesting to note the progress with the operation of the Alice Springs to Darwin railway line where reports in the financial press continue to indicate that the new service is not operating commercially. Presumably the $350 million contributed to this project by the Federal and South Australian governments is now completely lost, but there has not been and generally will not be any acknowledgement of the economic character of this massive investment.

A standard approach used by Federal and State Governments has been to claim at the time of infrastructure investment that an obviously uneconomic investment is economic, suppress all real information, and subsequently write off the expense after the public focus has shifted elsewhere. The shortness of this cycle for the Darwin Alice Springs line will probably only be exceeded by that of the Perth Mandurah passenger rail line.

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