North-South Rail Freight Growth - Opportunities & Impediments

14 June 2007 1

North-South Rail Freight Growth -Opportunities & Impediments

Presentation to BTRE Transport Colloquium – June 2007

21 July 2006 2

Background

• ARTC’s North-South Strategy was publicly announced in May 2005.

• Two key principles underpin the strategy:– ARTC is committed to growing rail volumes.– The strategy must be driven by the market.

• This presentation will:– Outline the underlying economics behind the strategy.– Describe how this translates into specific projects.– Discuss the expected outcomes from the investment.– Provide an update on progress with delivery.– Briefly discuss where to next.

21 July 2006 3

Interdependency

• The strategy revolves around five concepts – Price, Availability, Reliability, Capacity and Transit time.

• These concepts are highly interdependent.– That is, any concept that relates to one usually relates to all.

• Developing the strategy is therefore not a simple matter of following the branches of a logic tree.

• Also leads the strategy to be hugely synergistic.

Price

Availability

Reliability

Transit Time Capacity

21 July 2006 4

Some Economics

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2

Road / Rail Price Relativity

Ma

rke

tS

ha

re%

Melbourne - Brisbane

Sydney - Brisbane

Melbourne - Sydney

Melbourne - Adelaide

Melbourne - Perth

Sydney - Perth

Sydney - Adelaide

ARTC Elasticity Analysis

21 July 2006 5

From Economics to Projects -1

Price

Availability

Reliability

Later cut-off /Earlier Availability

Reduce pathing constraints

Reduce impact of delays

Reduce asset cycle time

Reduce driver hours

Increase train capacity

Reduce distance

Increase Capacity

Reduce Transit Time

Reduce Impact ofSydney Curfew

Train Length

Outline Gauge

Deviations

21 July 2006 6

Capacity & Transit Time

• Capacity and transit time seem like distinct concepts but are almost circular.

• Capacity is a function of practical headways. Anything that reduces headways will (all other things being equal) increase capacity.

• A key consequence of reducing transit times is that it generally reduces headway.

• Hence, transit time projects increase capacity.

• Transit time is the combination of raw (unconstrained) transit time and delay from interference by other trains.

• Projects to increase capacity will reduce the impact of interference for a given number of trains.

• Hence capacity projects reduce transit time.

21 July 2006 7

Transit Time & Reliability

• Transit time also has a close interrelationship with reliability.

• Operators can trade-off transit time to increase reliability and vice versa.

• The extent to which operators do this will be a matter for them.

• However, it is assumed that operators will be aiming to achieve a step change from the current very poor reliability levels.

• The interrelationship between capacity, reliability and transit time also makes it convenient to express most project benefits in terms off their transit time impact at a given train volume.

21 July 2006 8

From Economics to Projects 2

Increase Capacity /Reduce Transit Time

Reduce Impact ofSydney Curfew

Increase Train Length

Increase Outline Gauge

Deviations

Increase Cant Deficiency

South Passing Lanes

North Passing Loops

Loop / Lane Configuration

CTC / Auto Block

Yard Upgrading

Brooklyn / Sunshine Triangle

Southern Sydney Freight Line

Northern Sydney FreightWorks (Auslink)

4250 mm Clearance

In-principle decision to staywithin current land boundary

21 July 2006 9

Sydney - Brisbane

21 July 2006 10

Sydney - Melbourne

21 July 2006 11

Market Outcomes

• South projects will reduce transit time from approximately 13.5 hours to 10.7 at current average freight density. If operators chose to go to longer trains, transit time is estimated at 11.4 hours.– This transit time reduction is achieved while increasing train numbers

from approximately 4 each way per day to 10.

• North Coast projects will reduce transit time from approximately 19.4 hours to 15.5.– Achieved while increasing train numbers from approximately 4 each

way per day to 9.

• Operators can also trade-off transit time for reliability.

21 July 2006 12

Market Outcomes

Elasticity Model Inputs

Melbourne - Sydney

Sydney - Brisbane

Melbourne - Brisbane

Transit Time Hours Hours Hours2005 13.5 19.4 32.92010* 11.4 15.5 26.9

Reliability % % %2005 55 55 452010 75 75 75

Availability % % %2005 50 35 602010 75 60 85

Cost Index# Index# Index#

2005 100% 100% 100%2010 93% 94% 92%

* Assumes 1800 metre train Mel-Syd and 1500 metre train Syd-Bris.# 2005 cost = 100%

21 July 2006 13

More Economics

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20.0%

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60.0%

80.0%

100.0%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2

Road / Rail Price Relativity

Ma

rke

tS

ha

re%

Melbourne - Brisbane

Sydney - Brisbane

Melbourne - Sydney

ARTC Elasticity Analysis

21 July 2006 14

Volume Growth

High Case Volume Growth

-

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Coal

Grain

Minerals

Mel - Syd

Syd - Bris

Mel - Bris

Other Intrastate

Other Interstate

Passenger

21 July 2006 15

Volume Growth

North - South Corridor - Comparative GTK Growth

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5,000,000,000

10,000,000,000

15,000,000,000

20,000,000,000

25,000,000,000

30,000,000,000

35,000,000,000

40,000,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Base Case

Low Case

High Case

21 July 2006 16

North-South Projects - Timing

21 July 2006 17

Project Delivery

• Alliance partners in place.

• Concrete sleeper tenders awarded.

• 3 North Coast loops under construction (Braunstone, Namoona, Tamrookum).

• Construction commenced on 4 passing lanes (Gerogery – Table Top, Henty – Culcairn, The Rock – Yerong Creek, Wagga - Uranquinty).

• Concrete sleepering advancing as fast as sleepers are being delivered – New Bomen sleeper plant output available shortly.

• TCC related signalling works complete in September.

• SSFL Environmental Approval granted – tendering to commence shortly.

• Tottenham – Dynon / Tottenham triangle underway.

• Wagga bridge completed. Leeville viaduct 60% complete.

21 July 2006 18

Longer Term Volume Growth

Total North South Market Volumes(Current Investment Scenerio)

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20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2006 2011 2016 2021 2026 2031 2036 2041

GT

K

Rail

Road

21 July 2006 19

Road GTK (billions) by Market 2015

Mel - Bris, 11,493 , 13% Syd - Bris, 36339, 42%

Mel - Syd, 39353, 45%

Investment in Rail Beyond 2009

• Further rail investment:– Should be directed at achieving the largest possible reduction in road

GTK for the available funding.– Should be grounded in an understanding of the factors that drive

market share.

• By 2015 the Melbourne – Brisbane market will only represent 13% of the combined road GTK for the three intercapital general freight markets.

• Future investment should benefit Melbourne – Sydney and Sydney – Brisbane as well as Melbourne – Brisbane.

21 July 2006 20

Investment in Rail Beyond 2009 (cont’d)

• Biggest issue is Northern Sydney.– NSRCS identified reliability through Sydney as the biggest constraint on

performance.– Southern Sydney Freight Line will address the issues in the south.– Further investment in Northern Sydney could significantly improve

Sydney – Brisbane performance, as well as solve the key constraint on Melbourne – Brisbane competitiveness.

– ARTC would like to see 4 freight paths per hour for most of the day.

• Terminals are also important for the Melbourne – Sydney and Sydney – Brisbane markets.– ARTC remains strongly supportive of the Moorebank proposal.

• The Advanced Train Management System (ATMS) will deliver additional capacity and reliability, and help reduce infrastructure costs.

• ARTC has attempted to get the best possible performance with the existing rail alignment. At some point deviations will need to be considered to gain further rail competitiveness.