Subsidising rail freight in Victoria

If you have even driven on country Victoria’s highways, you may have noticed the plague of potholes and bumps – all thanks to a constant procession of heavy vehicles kicking the stuffing out of the road surface, combined with a lack of maintenance. Encouraging freight transport to move from road to rail could fix the problem, but it turns out there is already a State Government program in place to do so.

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It is known as the Mode Shift Incentive Scheme (MSIS) and administered by the Department of Economic Development, Jobs, Transport and Resources:

The Mode Shift Incentive Scheme (MSIS) is an incentive program that encourages industry to shift more containerised freight from road to rail.

The aim of the scheme is to increase efficiency and cost effectiveness in the freight sector and reduce congestion on roads in and around freight and port precincts.

In the 2014-15 State Budget, the Victorian Government invested $20 million over four years to continue the scheme.

The successful companies for the latest scheme are:

  • Tocumwal corridor – Patrick Container Ports
  • Horsham corridor – Wimmera Container Line
  • Warrnambool corridor – Westvic Container Export
  • Mildura corridor – Ironhorse Intermodal
  • Deniliquin – Sunrice
  • Maryvale – QUBE Logistics

The program has roots dating back in 2007, when the Victorian Government released a review into the state’s rail freight network. Titled ‘Switchpoint‘, the report itself found:

The regional intermodal business is second in terms of significance (in tonnes). This business primarily comprises export containers railed to the Port of Melbourne. Although rail is exposed to considerable competitive pressure from road for this trade, it has grown in recent years partly due to increased containerisation of agricultural products and also because rail can deliver large volumes into port in a single movement compared with trucks.

It also described the freight task itself:

Container trains are operated from Horsham (grain and hay), Boort (grain and hay), Merbein (horticultural products, grain, mineral sands), Mooroopna (food products), Tocumwal (grain and dairy products), Maryvale (paper products), Warrnambool (dairy and agricultural products) and Griffith/south-west NSW (wine, grapes, agricultural products).

And the problems caused by cheap road transport:

Evidence to the Rail Freight Network Review made it very clear that growers, grain handlers, and other rail freight users are extremely responsive to minor variations in posted and actual transport prices and will readily switch from one mode to another in order to capture the margin benefit.

And recommended that government charges for access to the rail network should be lowered, in order to make rail freight cost competitive:

Consequently, RFNR recommends that the Government immediately set access fees at levels competitive with rail access fees elsewhere in Australia for a period of at least five years. There should also preferably be a slight discount or advantage over the pricing of trucks. RFNR acknowledges the reduced access revenue from the reduced rates, but does not see the merit of setting access charges at levels which will not generate any revenue because the business has shifted to road.

It also addresses any concerns about these lower prices being a ‘subsidy’ for rail freight.

If governments are concerned to reduce the subsidy inherent in this approach, the best way to solve that is for the very high subsidy in long range road transport to be progressively reduced so that rail access pricing with its triple bottom-line advantages over road can be given more pricing headroom.

The state government took the recommendations on board, and in the 2008/09 State Budget allocated $21.4 million over two years for the ‘Rail Freight Support Package’ – a program to provide rebates to container terminal operators in country Victoria, and reduce access charges for exporting grain.

The container rebate was payable for containers moved by rail from Warrnambool, Horsham, Mildura and Shepparton/Tocumwal, and was based on a benchmark rate of $100 per 20 foot equivalent container adjusted for volume and distance.

In 2011/12 the Rail Freight Support Package was extended for another year at a cost of $5 million, and again in 2012/13 – but this time, under a new name.

$10 million incentive to move regional truck trips to rail
3 July 2012

Minister for Public Transport Terry Mulder today (3 July, 2012) announced the successful recipients of funding for its new $10 million rail freight incentive scheme.

The Victorian Coalition Government’s new Mode Shift Incentive Scheme (MSIS) aims to encourage the use of rail freight and relieve congestion on Port of Melbourne and regional roads.

Mr Mulder said the six companies which received funding had committed to moving almost 50,000 containers or the equivalent of 65,000 truck trips into and out of the Port of Melbourne by rail instead of road.

“The Coalition Government is committed to increasing the amount of freight carried by rail in Victoria and this is a major boost to rail freight,” Mr Mulder said.

“This new initiative increases the mode shift commitment to six companies from four under a previous program, greatly increasing the number of containers being moved by rail and encouraging competition.

Mr Mulder said the MSIS encouraged industry to increase the amount of freight carried on rail by providing incentives to move containerised freight movement from road to rail.

In order to be successful, applicants had to compete for funding and demonstrate they could provide the greatest economic, environmental and social benefits from reducing truck movements and shifting to rail.

“Promoting competition and adopting a rigorous approach to calculating the benefits has enabled an increase in the number of companies receiving funding and the overall number of containers being moved by rail by around 16,000 per year,” Mr Mulder said.

“We have had a great response to the scheme, demonstrating there is a strong interest and commitment to moving more freight on rail.”

Minister for Ports Denis Napthine said the containers moved on rail are all destined for the Port of Melbourne and will include products such as containerised grain, meat, dairy, fruit and wine.

“We are committed to retaining the Port of Melbourne as Australia’s largest container port” Dr Napthine said.

“This scheme not only encourages greater efficiency and innovation in the freight sector, it also reduces road congestion in and around the port.”

And fast forward to the 2014-15 State Budget, and another $20 million over four years was allocated to the program, but since deprioritised for 2015/16 onwards.

Member for Western Victoria Simon Ramsay had this to say on the removal of funding, while also sinking his boot into the Labor government:

Andrews Government abandons rail freight subsidy
26 February 2015

Member for Western Victoria Simon Ramsay has raised concerns in State Parliament that the Andrews Labor Government has discontinued funding for the Mode Shift Incentive scheme.

Mr Ramsay said the Mode Shift Incentive scheme, a little-known program that is highly effective, was introduced as part of the Napthine Government’s policy of growing freight on rail.

“The Mode Shift Incentive scheme was a key initiative of the Coalition’s freight strategy, Victoria — the Freight State, and was introduced in 2012–13 to replace the former Brumby Government’s failed Freight Rate Subsidy scheme.

“The Freight Rate Subsidy scheme was a maladministered cash transfer to freight companies to carry containers.

“In the last Budget the Coalition provided an allocation of $5 million per year to the Mode Shift Incentive scheme and in 2013–14 over 49 000, 20-foot equivalent unit containers were moved by rail rather than road, up from 33 500 in previous years.

The Rail Freight Alliance, a group of 25 rural and regional Local Government Councils from Central and Western Victoria and Southern NSW, also had this to say about the merry-go-round of funding:

Because the Mode Shift Incentive Scheme (MSIS) is renewed annually in the Victorian Budget, it does not provide long term certainty for investment by intermodal operators.

The total amount of funds provided, though useful, is extremely limited especially when compared with subsidies and infrastructure provision afforded to road freight operators.

While the Public Accounts and Estimates Committee meeting on 15 May 2015 gives the last word on the topic:

Mr D. O’BRIEN — I also note that in Labor’s Financial Statement it was listed as an initiative to be reprioritised. I guess my question straight out is: has this program been cut, or will it be continuing into the forward estimates?

Ms ALLAN — Yes, and you are obviously familiar with the project and what that means in terms of assisting the industry to move from road to rail. That is something that is also important to this government, and it has been a program that was designed to encourage businesses to shift the transport of their export containers from road to rail. And we did intend initially to reprioritise funds. However, on coming to government we have since become aware that the previous government had signed a four-year funding agreement with four companies who were to receive the funding from that scheme. That obviously does not expire for another three years. We will be honouring these existing agreements, and indeed I have written very recently to those companies informing them of that intent.

Looks like both the Member for Western Victoria and the Rail Freight Alliance were right to criticise government screwups!

G525 stabled at the up end of the yard, as unloading continues

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5 Responses to “Subsidising rail freight in Victoria”

  1. beren scott says:

    to be honest, rail freight wont make the slightest dent in truck road usage. i dont agree with using taxpayers money to fund cheaper rail. if it was worth it, you wouldnt have to. truck freight is just scalable, better competition, better industry intergration.

    • Marcus Wong says:

      Road freight has a lower barrier to entry and is much more flexible to distributed destinations than rail freight, but it breaks down at scale.

      The main problem is the hidden subsidies given to road freight – current pricing schemes don’t cover the damage trucks do to road infrastructure, not to mention the social and environment costs.

      • beren scott says:

        but in saying that the overall economic benefits obtained from road freight cannot be ignored, weve come a long way since we had train stations at cemetaries, true that. one could make comparisons between the industrial age and truck freight.

  2. Tim Chuma says:

    The state government ended up having to buy the rural train lines back as they were so poorly maintained by private companies. The upgrade to Vline tracks was the most cost efficient rail project in Australia with a ratio of $1 million per km. The most expensive was the Gold Coast rail project, only because they had to rebuild the track from sratch. For the life of me I cannot find the figures, I remember reading them in the Eddington/Investing in Transport Report when I had to convert it to an accessible format back in 2012 when I worked on a site migration but the DTPLI site has removed it and I did look as I was there.

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