“Significant concerns” have been identified in the Inland Rail Project, which will establish a 1700-kilometre rail link between Melbourne and Brisbane.
The project’s cost has soared from an original estimate of $4.7 billion to a budget of $14.5 billion, which could end up costing more than $20 billion, according to an independent review.
“There [were] clear indications of significant emerging cost risk and risk to delays, questions marks around the governance of the project”, Transport Department secretary Jim Betts told a Senate estimates hearing on Monday.
I used to be a strong proponent of this project, as explained in my article from April 2017:
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Rail is particularly well suited to two types of freight:
Bulk Freight: rail is suited to the provision of high volume bulk freight services to export facilities because it generally requires well defined point-to-point transport only (such as directly from silo/mine to port) with no requirement for trucking at any intermediate points. Rail can also transport larger volumes in shorter periods to meet shipping requirements and minimise on-port storage.
Long-haul General (Containerised) Freight: Road has inherent competitive advantages in the transportation of short-haul general freight because of its ability to offer a flexible door to door service without modal transfer (i.e. transfer to/from rail) and its capacity to handle small shipment sizes. However, rail tends to be more price competitive over longer distances where pick-up-and-delivery costs are reduced in unit cost per kilometre terms.
However, despite the long distance between Melbourne and Brisbane, rail’s share of general freight was just 28% in 2006, whereas it was 80% between the East Coast and Perth (see below).
A key reason why rail’s share is so low is because it shares the track with the passenger rail network in Sydney, which has priority. The existing rail freight network is also in poor condition. This makes rail freight far slower and less reliable than road transport, despite what should be a strong natural advantage (i.e. the very long distance travelled).
The end result is that thousands of truck trips are taken between Melbourne and Brisbane when, given decent infrastructure, rail could easily be fulfilling the role instead.
Accordingly, road trauma is higher than would otherwise be the case, as are greenhouse gas emissions, given one long freight train could replace around 110 B-Double trucks. Producers are also forced to endure higher costs in delivering their goods to port, thus reducing their competitiveness.
However, my enthusiasm cooled after it was revealed that the trains would stop 30 kilometres short of the Port of Brisbane around the southern Brisbane suburb of Acacia Ridge. This means that intermodal transfers of freight to trucks would be required before the freight reaches the port, thus creating ‘double handling’ and eliminating most of the efficiencies gained from this project.
In short, the Inland Rail Project is a good idea in theory, but the implementation has been botched.
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The project is only worthwhile if trains can travel direct from farms/mines to port without needing to transfer to trucks for the last remaining kilometres. Otherwise, they might as well travel on trucks for the entire journey and avoid the double handling.
So basically, this is shaping up as another pork projects that will deliver dubious net benefits to Australia.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
