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Is Inland Rail a White Elephant?

There seems to be universal agreement that a key component of economic recovery, after the COVID recession, is infrastructure investment. A centrepiece of the government’s infrastructure program is the inland freight track between Melbourne and Brisbane.

On inland rail website the project is touted as:

“… a once-in-a-generation project that will enhance supply chains and complete the backbone of the national freight network by providing for a transit time of 24 hours or less for freight trains between Melbourne and Brisbane via regional Victoria, New South Wales and Queensland.”

The inland rail project comprises 13 stages and spans 1700 kilometres. It is the largest rail infrastructure project in Australia and it is claimed to be one of the biggest infrastructure projects in the world.

The question is ‘whether the project is worth it?’ According to Robert Gottliebsen, writing in Tuesday’s ‘Australian,’ rail freight is virtually moribund. He argues that this is due to policy decisions by the Coalition government. Gottliebsen says that the freight route between Sydney and Perth carries the bulk of the rail freight moved in Australia. He claims that the share of freight carried by rail that was once over 60% has fallen to 54%. Road carriers now carry 29% and ships carry 21%. The share of rail freight as a share of total freight has fallen by 9% since 2013.

When it comes to freight transfers between Sydney and Melbourne the rail freight component is down to 1%.

Will the inland freight track get enough business to make it financially viable?. The answer is probably not. On the other hand, there are secondary benefits from inland rail construction, such as skills transfer, that may justify the project.

At the moment rail freight is not competitive with sea and road freight. This is because of decisions made by former Nationals leader Warren Truss, who ironically currently chairs the Australian Rail Track Corporation (ARTC) when he was transport minister. Mr Truss, on the advice of the Productivity Commission, opened up coastal sea freight to foreign vessels who had delivered freight to Australia. This significantly reduced the cost of sea cargo within Australia. He also reduced road charges and lifted the restrictions on owner-drivers that had been imposed by Anthony Albanese during the term of the Gillard government.

While road and sea charges have been coming down, rail charges have been going up. This is because the ARTC indexes its charges so they increase every year in accordance with the CPI. They now make up 30% of the total rail freight cost. The impact of this is that big users like Australia Post have switched their custom to road freight operators.

At the moment both the Melbourne - Sydney line and the Sydney – Brisbane line are uneconomic, so what hope is there that a Melbourne – Brisbane inland freight line will pay its way. The price of keeping the line going through the bush may be a reduction in returns to farmers, who use the line or who are forced to pay higher road freight costs imposed to make the railway more competitive.

However, Robert Gottliebsen believes that consumers, particularly international ones, are unlikely to accept the government ramping up prices if this makes the products freighted internationally uncompetitive.

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