Monday, 22 October 2012

Where to now?

So here we are, the China boom that has defined the last decade is on the wane. All that fast tracked growth QRN and Pacific National have poured into the NSW and QLD coal industry is now mostly in place just in time to see export and domestic tonnages plateau or in some cases decline. It's a story no different to the hapless investor who buys into the top of the market. He might feel good he made it for a few days, but when the value of his assets starts going down he's got nowhere to run. In many ways and certainly more so than Pacific National, QRN is that hapless investor. While still under government control, it was caught flatfooted in 2004 by the China syndrome and came to the party late. It shouldn't have been a surprise, at the time the Beatie Government was more interested in watching their budget outlook than keeping an eye on infrastructure development, making QRN's government-owned form the fall-guy for the export bottlenecks of the mid-naughties.

For its part, QRN threw everything it had at the problem. Anything that wasn't nailed down and still had wheels went into the coal division. Grain hoppers went back to coal, locomotives hauling freight went to coal. Staff from regional depots went to coal. Billions were spent on new rollingstock. The trouble was, the exporters were already burnt by QRN's slow reaction - and it should have been fairly evident that the moment an alternative operator appeared on the horizon, they would jump ship. And that's exactly what has happened. After buying or rebuilidng 108 high horsepower and very expensive electric locomotives for the Goonyella system - the corridor worst hit by rail bottlenecks - the modern QRN has lost much of its market share to Pacific National. As a result many of those locomotives that were so desperately taken from freight in 2004 are now sitting idle with nothing to do.

Why have they nothing to do? Can't they go back into general freight? For the moment it's not so easy. You see, nothing happens in a vacuum - to prop up its struggling coal division, QRN had to give up on much of its less productive - or for a better definition - more complicated traffic. The shunt locos needed for the sidings around Townsville went to the coal division. The timber millers around Maryborough were encouraged to move to trucks. The graingrowers in the west didn't have grain wagons anymore. The Brisbane based fuel refiners were told QRN was closed for their business. The big winner was the trucking industry. Coal booms come and go but domestic freight keeps on moving. Now former staples of the Queensland rail industry a decade ago are firmly in the hands of the trucking industry. As a result this state's automotive products, timber and forestry, most fuel, agricultural products and priority freight are almost exclusively handled on its highways.

And this - rather oddly - makes the China boom's lasting legacy for QRN one of lost opportunity. Instead of finding lower cost methods to serve local industry and improve the productivity of its non-coal divisions QRN decided to become the hapless investor. It threw away everything it owned to win the coal business, and now, in many ways the chickens have come home to roost. Yes, hindsight is a wonderful thing, but destroying a diversified traffic base to haul a product infamous for its global trade volatility should have been given more thought. Is it all too late? Well, that will have to be another post.

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