1. AusRail 2005 Conference  Strategic design + Development Pty Ltd Issues impacting grain transportation in Australia AusRail Conference 2005

2. AusRail 2005 Conference  Strategic design + Development Pty Ltd Overview of presentation Value and strategic motivations and implications for investment Changes and volatility impacting the grains sector Some national perspectives and initiatives for infrastructure The role of government and policy frameworks

3. AusRail 2005 Conference  Strategic design + Development Pty Ltd As a starter … Transport is not simply a cost … it is a means converting a tonne of grain into value for the grower and other stakeholders The grain sector must decide whether it wants a rail system … invest in it … and use it!

4. AusRail 2005 Conference  Strategic design + Development Pty Ltd Supply and value chain perspectives Product … including grain … moves to satisfy demand, but the network for supply is failing Need a more sophisticated view to explain what is going on! Supply chains are managed by firms who seek to capture value for shareholders … Commercial behaviours should not be a surprise … has created substantial volatility

5. AusRail 2005 Conference  Strategic design + Development Pty Ltd Rail and network operators have traditionally occupied a weak position in the value chain ProducerConsumer Firm 1Firm 2Firm 3Firm 4Firm 5 RoadSilo Road Rail PortShip Enabling infrastructure and regulation Community and Environment Policy Firms Value flows Capacity Market Place Firms 6 … n Pools Marketers Traders

6. AusRail 2005 Conference  Strategic design + Development Pty Ltd Rationalisation, Strategic positioning Volatile competition Change phases and environment 1980’s19911992199319941995199619971998199920002001200220032004 Phase 1 Public sector ownership Phase 2 Privatised ownership emerges with single desk marketing Phase 3 Privatised ownership with deregulated marketing emerges Phase 4 Investments, consolidation and alliancing Structural change, emerging competition Stable, regulated

7. AusRail 2005 Conference  Strategic design + Development Pty Ltd Distribution of value (indicative) Customer Marketer Shipping line (fob) Grower Inbound road transport Port terminal operator Ports corporation Rail operator Network owner Silo operator Local government $180-220 $110-170$8-10$10-15$12-20 $5-8$5$?$2-4 Road operator Roads owner $10-15 <$1 $2-6 $40-50

8. AusRail 2005 Conference  Strategic design + Development Pty Ltd Implications for network renewal New commercial behaviours and infrastructure and networks are failing Ongoing grain sector expectation that infrastructure is the sole responsibility of government is too simplistic! … commercial interests determine transport pathways … public investment for private benefit arguments persist Commercial risks for rail operator and track owner do not warrant reinvestment under current conditions … risk that rail operators are prepared to walk away Leakage to road seriously affects rail economics

9. AusRail 2005 Conference  Strategic design + Development Pty Ltd Implications for the future Rail operations are complex and dependent on actions of third parties Low profitability and investment risk for supply chain operators Increasing season variability Loss of capacity and flexibility with failing rail networks Withdrawal of services and networks will cause inability to handle heavy harvests Road transport costs can only increase with fuel, labour shortages, and community dissatisfaction

10. AusRail 2005 Conference  Strategic design + Development Pty Ltd Some recent initiatives indicates value of joint approach SA (Eyre Peninsula) Joint analysis of the problem … Road pricing, poor track, loss of profitability for rail Strategic approach by all parties, including government Model for Auslink funding WA WA Strategic Grains Review Common vision of issues, with input from Government sought Network review completed Review of governmental road and rail policy instruments NSW Need for action … government calls for response from industry, but no response Quantitative analysis of options (prices/costs) Strategic review underway; challenge for direction and action by sector remains

11. AusRail 2005 Conference  Strategic design + Development Pty Ltd What is to be the role of government? Government is in the supply chain business due to its asset ownership and community support Will have increasingly complex road and rail transport planning task Government investment in network sustainability must be met with sector commitments Must understand impacts of hyper-competition on chain sustainability

12. AusRail 2005 Conference  Strategic design + Development Pty Ltd What is needed? Industry-led strategic plan to address road and rail network renewal … network failure will harm supply chain stakeholders and growers alike Industry engagement of government, and vice-versa … happening in WA and Eyre Peninsula, but more necessary … need for complimentary road freight regulation Strategies to resolve divergent issues … competition for market share and value … operational coordination … environment for network investment

13. AusRail 2005 Conference  Strategic design + Development Pty Ltd Thank you ……… www.strategicdesign.com.au