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Freight Implications of Rail Privatisation

23 October 2013

Queensland Transport Infrastructure 2013

Jonathan Myers, CEO and Transport Practice Leader

2

Critical contextual issues…

• What do you want to achieve?

• Associated policies and chosen “Structure” are critical elements

• Long term vertically integrated concession (e.g. Latin America)

• Outright transfer of ownership (UK (vertically separated), NZ, Victoria (vertically integrated))

• Competing integrated long haul concessions, independent short-haul branchlines (Canada)

• Hybrid models (e.g. Queensland, Japan, Sweden)

• It’s not just freight [implications]…

3

The potential positive implications are significant…

UK – 1995-2012

Passenger volumes (millions of passenger km) +96%

Freight volumes (millions of ton kilometres) +53%

US – 1982-1996 Freight charges reduced 4-5% EACH YEAR

Brazil – 1997-2003

Freight volumes +20%

Freight rail market share +2%

Accidents -44%

Mexico – 1995-2003

Freight volume and traffic density +44%

Number of locomotives used -9%

Fatalities -95%

Central and Latin America

$1 billion saving / reduction in freight charges from privatisation to 1999 (purchasing power parity basis)

Japan

Total Factor Productivity gain of 2.5%

4

Rail privatisation impacts in Latin America (freight concessions in 1990s)

Note: Commencement Date of Primary Concession indicated by +

Index of freight ton/kms 1985-2003

5

Labour productivity impacts – freight concessions: Brazil, Mexico,

Argentina, Chile

Index – millions of ton/KM per employee

6

BUT… not all impacts are positive…

UK

Significant complexity and transaction costs

Increasing labour and infrastructure costs?

UK, NZ, Victoria and Tasmania – networks “re-nationalised” to retain control of critical

economic infrastructure

Central / Latin America

Estimated 60% reduction in employment – associated social impacts

Significantly less investment completed (approx 40% of original commitments)

Decline / extinction of regional passenger services?

Sweden

Swedish government still retains 80% of infrastructure costs

Japan

Government retained 60% of accumulated losses (amounting to debts of ¥24 trillion)

7

European rail reform…. a mixed story [of reform and of outcomes]

-150%

-100%

-50%

0%

50%

100%

150%

200%

Growth in Freight and Passenger Volumes (1995-2005)

Growth in Passenger KMs (millions) (1995-2005) Growth In Freight Ton-KMs (millions) (1995-2005)

+25%

-25%

8

Is privatisation a necessary driver of change anyway…?

9

CANADA – Comparison of CN and CP (1981 – 2003)

Note: CN was privatised in 1995 –

but trends already well established.

CP was privately held throughout.

Employee numbers (1981-2003) Revenue Tonne-KMs (RTK) (1981-2003)

Average Total Coast per RTK (in 1992 $) (1981-2003)

10

Some learnings from previous international rail reforms

There is no “perfect solution” or template to follow for successful rail reform.

A number of key ingredients or critical success factors can be highlighted from international

experience:

• A gradual change appears to increase the likelihood of successful reform.

• Industry structural models appear less important than private sector involvement and independently regulated

competition.

• Vertical separation is likely to facilitate competition and transparency for investment and planning purposes, but may

increase costs due to loss of economies of scale.

• Reform should optimise rail’s inherent competitive advantages (versus other modes) such as

high axle loads, high speed and coupling

• Modal connectivity at a national level is important to ensure that rail becomes increasingly part of a wider logistics

chain

• Successful rail reform should be accompanied by provision for on-going investment

requirements.

• Other policies and investment must be consistent and complementary – joined up thinking

required ACROSS MODES at NATIONAL level, not just at STATE level (and existing fragmentation

of planning and operations makes this hard)

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Conclusions on impacts of privatisation on [freight] rail

• Privatisation is a catalyst for change, but not a magic bullet, nor the only means of driving

change – but may be one of the most effective

• Impacts can be significant

• Impacts will not be limited to rail or freight (incl. passengers, roads, ports…)

• Decisions and processes are not linear – interrelationships and dependencies will require

tough policy decisions or significant compromises on outcomes

- EG Is the priority freight or passenger? If freight, is it bulk or intermodal?

• BE CLEAR WHAT YOU WANT TO ACHIEVE, recognise trade-offs, and choose your structure

accordingly

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Sources

Nash, University of Leeds, ITS presentation on Rail Regulation, Jan 2011

OECD Policy Round Table Report: Structural Reform in the Rail Industry, 2005

World Bank Report, TP-6, September 2005: Results of Railway Privatisation in Latin America,

Richard Sharp

Louis S Thompson et al, “Private Investment In Railways: Experience From South And North

America, Africa And New Zealand”, European Transport conference paper, 2001

UK ORR website dataportal (access October 2013)

A Cost-Benefit Analysis of the Privatization of Canadian National Railway (Boardman, Laurin,

Moore and Vining), Canadian Public Policy, Volume 35, Number 1, March 2009

EU Transport Research Centre, Rail Transport Thematic Research Summary, 2010

World Bank Railways Database (accessed October 2013)

“The Japanese Experience with Railway Restructuring”, Mizutani and Nakamura, conference

paper 2001

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