Slot Maximisation - picking all the low hanging fruit

This last decade has seen Australian rail operators retreat from all but the lowest hanging fruit when it comes to freight handling. If anything is just a little bit too hard or a little bit too marginal it's been abandoned and given over to other transport modes. This method of reducing cost to increase profit has been a perfectly logical path to head down, particularly during a decade of drought and mining expansion. The trouble is, this process eventually becomes a dead-end street - 'easy freight' is not infinite. Non-bulk freight that doesn't have to get there as fast as a truck, or because in a particular circumstance rail finds itself cheaper than a truck, is just freight that just hasn't gone to a truck yet. Rail has to start working to maintain non-bulk volumes, and more to the point, work even harder to grow these volumes.

So where should operators start? Well, they could do what they've got so good at doing, cut costs - except, this time, it could be for the customer.

For rail to keep up with road competition in corridors where it is not time competitive, it has to at least be cost competitive. This means running trains moving every last bit of volume their slot allows for. The trouble is a lot of trains on a lot of corridors do not achieve maximum slot utilisation for a myriad of reasons. Lack of paying customers is one, insufficient horsepower can be another. In the end, train-pairs can run unbalanced in one direction with lots of empty wagons, or worse run as short consists in both directions. This is not necessarily bad. A train-pair could still be making a profit running short or heavy in just one direction. Think about it, a daily train only has to make a net-profit of $2800 per run to achieve $1-million/annum mark.

So lets look at this. If a train can turn a profit hauling empty wagons, what about trying to fill them through discounting? Additional costs for fuel, perhaps locomotives and the slot agreement would need to be considered, but if the operator has a train they regularly find difficult to fill, perhaps they should cap the profit for that service at a workable level and give terminal and accounts managers the opportunity to heavily discount or even give away space to regular customers. This is not meant to be a long term strategy, but this is to push rail into the consciousness of freight shippers. Instead of being Option B, C or D on a corridor, this kind of discounting could make rail Option A. And as the slot fills to its maximum the discounting could be gradually decreased.

Alternatively, capping the profit for a train might make its slot a useful tool for returning to a previously marginal freight. If a bulk or non-bulk freight shares the same origin and destination as the 'profit-capped' train, then why not. This is the volume game. Grow a marginal freight enough and the tonnages make up for its low margin. Canadian National has headed down this path, turning every train-pair into a conveyor for every available commodity. The result? This company now has the lowest cost/profit operating ratio in North America and one of the most diverse traffic bases. And face it, price capping has worked for the Telstra and Optus, why couldn't it work for rail?

Food for thought...

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Enough with the conspiracy

I'll be blunt, this blog isn't about dreaming about passenger trains, railmotors and branchline diesels heading out to tiny towns with government money in the fuel tank - public transport will definitely be taking a back step to the real world developments in the freight market...but that's not to say I will be completely ignoring the topic, and the December 2012 edition of TRAINS has spurred me to take aim at the naysayers opposing light rail developments on the Gold Coast and in downtown Sydney. Here's some facts from the United States - the home of the V8 SUV. There are currently 11 urban streetcar projects under way across the country - in the US streetcars are defined as light rail vehicles that run in streets, while light rail has its own separated corridor. Portland, Oregon - a similar sized city to the Gold Coast - will soon have an 11-km network serving its CBD. Since the first four kilometres opened in 2001 Portland's streetcars have added $3.5-billion in private investment to the city as developers rush to build their condos and office towers on streets with streetcar stops. Want to hear more? Here's a quote from the TRAINS news article to add some fuel to the pro-light rail fire.

"Many (US) cities view streetcars as a way of bringing people back to the central city without using personal automobiles, or as a way of getting around town without encountering parking problems. Streetcars are also viewed by property developers as a more permanent commitment to public transit, and have thus been credited with stimulating significant reinvestment in urban real estate. They are rarely considered part of a commuting system, and instead are intended to provide short trips in downtowns or historic sections of a city."

TRAINS December 2012

So spread the news, Pitt Street or Southport without light rail, these are just roads to a developer - add light rail and suddenly they're something special - something that's not on the other road - and something that makes a city money.

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Corridor Franchising - roughing out the picture

If Corridor Franchising were to occur within the government-controlled below-rail networks in Queensland, New South Wales and Victoria...what kind of picture would be looking at? For a start the question of buying or leasing would be one that would need to be answered early on. Corridors not needing major upgrading may be cheaper to purchase outright...those with growing potential and lacking suitable infrastructure might be better leased...allowing the new operator-provider room for funding capital improvements without having to wait for a cabinet decision. Obviously this would not be possible all at once, a gradual sell off or leasing of corridors to interested parties would be needed.

These corridors are only being roughly sketched here, but this could be a reasonable starting point, and many  of those in NSW and Victoria could provide active competition to neighbouring networks rather than relying on open access to fulfil competition policy requirements. Some branch lines or non-core sections within these corridors could also be sub-leased or sold to smaller operators with specific interests in the available commodities.

Corridor 1; Great Northern Railway (QLD) - Townsville-Mt Isa; high potential for growth; Mixed infrastructure. Potential operators - QRN, PN, Qube

Corridor 2; North Coast Railway (QLD) - Brisbane-Cairns; medium to high potential for growth; Mixed infrastructure. Potential operators - QRN, PN, Qube.

Corridor 3; Central line (QLD) - Emerald to Winton; high potential for growth as far west as Alpha and Jericho; low potential beyond. Very poor infrastructure.  Potential operators - QRN, Galilee Basin miner, shortline operator

Corridor 4; Western/South Western Line (QLD) - Brisbane to Charleville, Toowoomba to Thallon; high potential for coal, oil and gas industry as far west as Roma; low potential beyond and to Thallon. Very poor infrastructure. Potential operators - QRN, Qube, shortline operator

Corridor 5; Hunter/North West (NSW) - Newcastle-Moree/Muswellbrook-Gulgong; high potential to Narrabri and Gulgong; low potential beyond. Mixed infrastructure. Potential operators - PN, QRN, Freightliner, Qube, Hunter Basin coal miners

Corridor 6; North Coast Line (NSW) - Newcastle-Brisbane; medium potential for growth; Mixed infrastructrue. Potential operators - PN, QRN, Qube, SCT

Corridor 7; Western Line (NSW) - Penrith-Crystal Brook/Cootamundra-Werris Creek; medium potential for growth; Mixed infrastructure. Potential operators - PN, QRN, Qube, SCT

Corridor 8; Southern Line (NSW/VIC) - Campbelltown/Wollongong-Melbourne/Griffith-Junee; high potential for growth; Mixed infrastructure. Potential operators - PN, QRN, Qube, SCT

Corridor 8b; Latrobe Valley Line (VIC) - Melbourne-Bairnsdale/Long Island. Medium potential for growth. Mixed infrastructure. Potential operators - PN, QRN, Qube, SCT

Corridor 9; Murray lines (VIC) - Melbourne/Seymour-Tocumwal/Echuca; medium potential for growth; Mixed infrastructure. Potential operators - PN, El Zorro, Qube, shortline operator

Corridor 10; Bendigo lines (VIC) - Melbourne-Swan Hill/Robinvale/Deniliquin; low potential for growth. Mixed infrastructure. Potential operators - PN, El Zorro, Qube, shortline operator

Corridor 11; Mildura Line (VIC) - Melbourne/Geelong-Mildura; medium potential for growth. Poor infrastructure. Potential operators - PN, El Zorro, Qube, shortline operator

Corridor 11b; Warnambool Line (VIC) - Geelong-Warnambool; low potential for growth. Poor infrastructure. Potential operators; PN, El Zorro, Qube, shortline operator

Corridor 12; Western Line (VIC/SA) - Melbourne-Adelaide/Hopetoun & Dunolly-Portland; Medium to high potential for growth; Mixed infrastructure. Potential operators; PN, QRN, GWA, Qube, SCT


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Open Access - taking it out of the hands of the policy makers

Open access is a child of the nineties - born out of an era of deep recession, over-regulation and when most state governments were saddled with bloated rail bureaucracies. This was the decade when 'monopoly' became a dirty word in the New Age purity of competition policy. Since then the Australian economy has grown by more than fifty percent - in fact it now has the same cash value as that of the United States in 1970. Those state rail bureaucracies have become publicly listed behemoths that now sit in the ASX's top fifty companies. And yet non-coal rail freight tonnages and modal shares have remained stagnant or have even fallen. Clearly something isn't working, and the biggest problem is open access taking the rail freight pie and slicing it up into ever smaller pieces until individual market share becomes too small to be sustainable. The net result? Open access makes marginal freight-streams unprofitable...even in circumstances where free market forces would indicate an established provider would normally succeed. There are several issues at hand here, all working against rail operators retaining stakes in previous core traffic tasks. Poor corridor management, no sense of ownership and open access charges are certainly some of the biggest bug-bears. So what's the answer? Well, there's no point hoping open access will go away, without major policy changes it's here to stay. But that's not to say it couldn't be made to work better.

Step 1. Take the corridor ownership out of the hands of non-rail operators. Face it, just like toll road owners, government controlled rail providers have no interest in the individual needs or strategies of rail freight operators. They take a one size fits all approach and expect even the primary corridor user to build its growth and marketing around a 21st-century version of the bureaucracy private rail ownership was meant to replace.

Rather than a single government agency controlling the interstate or intrastate rail networks, individual corridors should be sold or leased as franchises to one of the primary corridor users. Yes, in this case I mean QRN, PN, GWA and perhaps SCT. And preferably, one should own the Brisbane to Sydney corridor and the other Sydney to Melbourne so that both have a reason to compete against the other to improve track standards and transit times. Now I know PN has a poor track record in this area and in the past has been all too ready to pass its rail ownership onto government bodies. Whether the current rail based PN management share this 'above rail or bust' mentality created by Toll, I'm not sure, but a lot has changed for PN in the last ten years. If they were obliged to meet the standards QRN has repeatedly shown it can achieve then I'm confident PN won't repeat the mistakes of it previous management in Victoria and Tasmania.

Step 2. Give up on slot pricing and adopt proven asset sharing models. Slots are a sham when it comes to rail being competitive with itself and with other modes. Forcing every train to make enough money to pay for its slot has been a boon for the trucking industry, not rail. Take a drive along Queensland's Bruce Highway and count the number of trucks carrying rail infrastructure that previously would have have been described as 'departmental traffic'. With no cost recovery for a rail 'slot' everything from concrete sleepers, wheelsets, to wagons and locomotives no longer ride the rails, they ride the road. A rail corridor owner-operator would find it easier to move this kind of zero-recovery freight by rail as an 'infrastructure cost' rather than an 'operating loss'.

But that's just one specific example. Taking a look at the bigger picture, open access slot pricing could be replaced with US style trackage rights agreements. Rail is all about volume rather than frequency, so instead of paying for fixed slots, a trackage rights operator could pay for gross tonnes per annum - ending the squeeze on marginal traffic making a fixed profit, and allowing every tonne hauled from intermodal, coal or grain to share the burden instead of one being chosen over the other.

Could it work? Well, traditional open access has had more than ten years to prove itself - and with poor to mixed results. Maybe it's time to try something different. Rail operators need self determination to grow, and the current model makes that impossible.

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The Ivory Tower

One of the greatest failings of open access regimes is the isolation it provides for senior above-rail executives from the infrastructure their trains rely on. Where as in years gone by regular corridor inspections may have been carried out by executives - just as they still do in North America - with below rail operations out of their hands senior staff can simply ignore the various corridors and fly to outlying depots for the occasional visit. I can't blame, train travel takes time...and PN and QRN have very little in the way of suitable inspection equipment anyway. But is this a good thing? Could the failings by providers on the Melbourne-Sydney corridor be put down to a lack active pressure from operating executives? Face it, a couple trips down that line in the cab of an NR and I'm sure any senior executive would be moved to investigate legal 'alternatives'. The bottom line for rail executives is knowing how to provide their product reliably and cost effectively - statistics are easy to read in an airconditioned office tower - but they mean nothing to a provider rail corridor that's years behind in maintenance and one weather event away from meltdown. Getting the big picture from a locomotive cab or crew car is the only way a rail operator will ever be able to understand the do-s and don't-s of their operations and how to better improve their trains' all important ability of getting from Point A to Point B. And as the US car industry proved this last decade, executives isolated from their factories and customers are those who will make the biggest mistakes. Taking off the tie and putting on high visibility clothing is lot more effective than sitting around wondering why the black numbers have turned red. And better yet, don't put senior decision makers in expensive CBD offices, give them low cost windows looking out at their business hubs - to remind them exactly what's paying those salaries.

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Mid-horsepower locomotives - is there a demand?

It might be all well and good there's over 500 second generation EMD locomotives out there that would be suitable for the new ECO rebuild program...but is there a demand for a low-emission fuel-efficient 2000-3000hp locomotive in the future? If Australian rail operators settle into a future of high speed intermodals and high tonnage bulk trains then it doesn't look good for lower horsepower locomotives, full stop. However, whether rail operators like it or not, there will always be some niche areas where 4300hp heavyweights will find it difficult to stack up. Axel load limitations or restrictive infrastructure will mean in some places, particularly South East Queensland and Tasmania, smaller locomotives will remain a standard for the foreseeable future. Without an alternative rail route or corridor modernisation between Brisbane and Toowoomba, QRN will need to maintain a fleet of forty or more 2000hp-2300hp locomotives for decades to come - and with the existing fleet likely to need to replacement within a decade, there are few cost competitive alternatives available for the operator other than an ECO-like program or to follow Tasrail's lead and purchase non-EMD low cost designs that have not yet been proven.

As for the 3000hp models, the biggest niche these locomotives will fulfil will be cost. Cheaper to run than a larger 4000hp alternative, they could well find their way into the lease fleets we see around Australia already or into the fleets of smaller players. No doubt primary roles in agricultural traffic will remain in Victoria while gauge remains an issue there - however the future for any line where existing 4000hp-4300hp models can already run is one where small locomotives may have no future at all - even in secondary roles. After all, further branchline retrenchments or renewals will allow 136-140-tonne locomotives to become the network standard eventually - and for an ECO 3000hp model to be needed in that environment it will have to be cheaper to use in an application than its larger alternative. What might that application be? Some yard work will still be needed in the future, as will lighter shuttle trains from ports to inland terminals. But I doubt we'll see many 3000hp rebuilds by the larger operators...unless they begin a return to basic 'railroading' and reintroduce car load deliveries to customers. If the latter did happen? Well, who knows. Maybe gensets would be the best option.

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What's next for EMD products in Australia?

The withdrawal of EDI-Downer from new locomotive construction in Australia means local operators are facing the imminent need to order new or modified EMD designs such as the GT38C-AC, GT42CU-AC and GT46C-ACe from Muncie, India or South Africa. It's probably too early to tell just what the new standard EMD model for narrow gauge and standard gauge will be post EDI-Downer, however this significant change in direction for Australia's local builder shouldn't mean they will be discounted from producing new locomotive models for the Australian rail-scape. From Perth to Burnie to Cairns, there are 531 second generation 645-engined locomotives with 12, 16 and 20 cylinders. All of these will reach or pass life expiry within the next decade and all are ripe for EMD's re-engining ECO program which could be undertaken by EMD's local agent...you guessed it - EDI-Downer. The ECO program is currently being rolled out in North America and has been adopted by some Class 1 railroads in a big way - Canadian Pacific has just signed up to have more than 500 locomotives rebuilt during the next eight years. Rebuilding involves fitting turbo-charged 8-cylinder 710 primemovers to roots-blown 12-645 and 16-645 models (such as the GP9u and GP38-2) and 12-710s to the ubiquitous turbo-charged 16-645 SD40-2. In Australia there are 206 GT26C/GT26C-2/JT26C-2/JT30C/JT36C-2 versions of the North American SD40/SD40-2/SD50 models currently being targeted by EMD for 3000hp 12-710 rebuilds, while another 325 roots-blown 12-645, 16-645 and turbo-charged 12-645s would be available for 2000hp 8-710 rebuilds. Yes, there is a cost, but the results could make up for it - a rebuilt locomotive will use 25-percent less fuel, 50-percent less lube oil and produce 70-percent less greenhouse gasses. So there's big gains for rail operators, not to mention local manufacturing...this could be one of those spaces worth watching. Don't count EDI-Downer out yet.   

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The New England Corridor - connectivity?

If the a standard gauge New England Corridor was ever to be revived, it may only be necessary to dual or standard gauge as far north as Warwick. The simple fact is the existing Toowoomba Range crossing could not be standard gauged in its current form, so if rail-to-truck transit was the only alternative between the New England corridor and Brisbane, then Warwick offers lower reinstatement costs and faster transit times than a train continuing to a road interchange at Toowoomba. But can the 1867 Toowoomba Range corridor be made standard gauge friendly? Presently the only solutions on the table are multi-billion dollar government-funded commuter-rail base-tunnels under the Toowoomba and Litte Liverpool Ranges - originally proposed for completion in 2026 but now well and truly fallen off the table simply because of their extreme cost. In fact cost is always the issue with the Toowoomba Range Corridor - finding the best way to upgrade this line will always be beyond the value of the upgrade, meaning high-cost corridor replacement has not been undertaken. However, the net result of waiting for the big money option to be funded has meant lower cost alternatives have never been properly investigated.

So if the best option is un-fundable for a freight solution, what else can be done? The current 1867 alignment has a ruling gradient of 2-percent, with curve radii as small as 100m and crossing loops of around 700m. Added to this, several heritage listed tunnels prevent day-lighting the most restrictive structures on the corridor, which additionally restrict container and rollingstock heights. Even so, increasing minimum curve radii to 200m within the existing corridor while removing some curves at the penalty of a slightly steeper grade could be undertaken, including bypasses of the heritage tunnels with parallel cuttings. The shallow ridge the highly restrictive 'Victoria Tunnel' passes under at Yarongmulu could be open to such treatment as well. Cost? Similar work undertaken in 1998 on the similarly curved Drummond Range in Central Queensland was less than $30-million. In March 2011, following unprecedented flooding which caused 260 washouts and landslides, the Toowoomba Range Corridor was reopened after three-months work for another $30-million (about $1-million/kilometre). Meanwhile a much more substantial highway realignment of the Cardwell Range in North Queensland is costing $28.75-million/kilometre. Based on this, a staged curve realignment project of this corridor should be somewhere between $10-million to $15-million/kilometre for the two range crossings indicating a total cost of around $500-million. Still a lot of money, but it will provide a potentially dual-gauged double-stack corridor with minimum speeds twice that of present...which might even be sufficient for commuter rail options as well (Helidon-Toowoomba passenger times would be less than 50-minutes). Not the best solution, but almost certainly the only one which has a chance of being funded.

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The New England Corridor - a new dynamic?

This is going to be one of those posts that will sit uncomfortably beyond the traditional industry field of interest. Yes, the New England corridor between Werris Creek, Wallangara and Toowoomba is beset with its own sets of restrictions - unfavourable gradients in both directions, some severe curvature in places not to mention a break of gauge, restrictive tunnels and several missing bridges in New South Wales. It is the lesser pick of the proposed inland rail routes. However it has one advantage that none of the other proposals have. It exists. As has been proven during the merger period of North American railroads during the seventies, the physical properties and long term advantages of a rail corridor get lost in decisions that dictate the cheapest choice at the time. The New England corridor fulfils the latter. Recovering it as the inland rail route between Brisbane and Melbourne is the cheapest immediate option. There are no missing links. It does have long tangents in places, and has far fewer height restricting structures than the existing North Coast Line. And in an era beset by the operating deficiencies of existing corridor owners, leasing or purchasing the New England Corridor could give QRN or PN the choice to move beyond the influence and costs of a non-operating corridor manager. But would it be worth it? In the end, it depends on what PN or QRN really want to do. At around 540km the Toowoomba-Werris Creek New England Corridor would cost around $700-million to upgrade to a standard for 1500-1800m standard gauge trains, double stack clearances would cost more. However once delivered this corridor would save all the time and costs encounted by trains from South East Queensland moving through Sydney to Melbourne, Adelaide and Perth. Long term it probably stacks up.

But there may even be a way PN or QRN could further maximise the corridor, and this is where I could well be speaking heresy. This is the age of the standard - if ever an interstate rail route will be built in the 21st-century it will be standard gauge, right? No arguments from me. But what if it were dual gauge? The biggest issue for the narrow gauge North Coast Line beyond Brisbane is the change of gauge at Acacia Ridge...any interstate freight originating south of Gladstone will almost certainly end up on road. And this at a time when similar irrigated horticultural regions such as Griffith can produce 1500m trains for Melbourne. On top of this there is nothing on the horizon for gauge converting the Queensland's North Coast Line so the problem will be continuing for decades to come. So what if the break of gauge could be moved further south? If it could be extended as far as Werris Creek, it would almost fall within the Sydney Basin - allowing narrow gauge freight from North and Central Queensland to reach Australia's largest consumer precinct without a change of train. Road hauling into Sydney from Werris Creek might be the best option, but since Sydney is the capital of shorter haul shuttle trains, perhaps rail-based shuttle services could work as well. In the end, the biggest operational issue for a project such as this will be how narrow gauge trains from Queensland's North Coast Line could reach Toowoomba...a complicated process beyond the scope of this current post...but not for the next. 

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