Group Asssignment - Railway Comparison - Business Report - Group 3 PDF

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RMIT International University VietnamASSIGNMENT COVER PAGECourse Code OMGTCourse Name Transportation and Freight LogisticsTitle of Assignment Railway Comparison Business ReportLecturer Dr Nguyen Manh HungStudent Name Le Khoi Nguyen - sTran Tram Anh - sNguyen Hong Oanh - sTran Thi Huong Mai - sAssign...

Description

RMIT International University Vietnam ASSIGNMENT COVER PAGE

Course Code

OMGT2279

Course Name

Transportation and Freight Logistics

Title of Assignment

Railway Comparison Business Report

Lecturer

Dr Nguyen Manh Hung

Student Name

Le Khoi Nguyen - s3682366 Tran Tram Anh - s3777334 Nguyen Hong Oanh - s3798758 Tran Thi Huong Mai - s3742777

Assignment due date

6 September 2020 (Week 10)

Word Count

Topic: Enhancing the position of rail freight in short-distance haul: The cases of Australia and Vietnam.

Table of Contents Executive Summary

3

I. Introduction

3

II. Background Information

3

1.Short-distance haul transportation in the railway.

3

2. Australia

3

1.1. Ownership

3

1.2. Network length

3

1.3. Freight task

3

2. Vietnam

4

III. Comparative analysis

5

1. Freight tonnage

5

1.1. Australia

5

1.2. Vietnam

7

2. Freight operations

8

2.1. Australia

8

2.2. Vietnam

10

3. Freight facilities

10

3.1. Australia

10

3.2. Vietnam

12

IV. Challenges

14

1. Australia

14

1.1. Congestion in the Port and Terminal system:

14

1.2. Limited Freight Services and Operations for Short-Haul Demand:

15

1.3. Out-of-date facilities

16

2. Vietnam V. Recommendations

16 18

1. Australia

18

2. Vietnam

19

VI. Conclusion

20

VII. References

21

VIII. Appendices

25

Executive Summary

I. Introduction

II. Background Information 1.Short-distance haul transportation in the railway. According to Marinov et al.(2011), short-distance haul transportation in railway is basically goods transported in a short distance, giving more access to individuals and small enterprises with lessthan-truckload packages in railway. The short-distance transportation is dominated by road freight, since it costs less than railways in the few first miles, and also more convenient to deliver door-todoor.

However, railways have potential to compete with the road sector if they want to expand their economies of scale and sustain in the long run. Firstly, as the E-commerce and Logistics industry

are rising significantly, there is a growing demand for individual’s small packages to be delivered, thus extending the market and opportunities for the railway sector. Standing from the railway's owner’s point of view, they can utilize more assets and save time as well as cost when delivering goods as piles of different orders. Applying this also helps boost the domestic GDP because more trades will be executed within the country. Moreover, trains consume less fuel than trucks and cars so it is better for the environment as well.

2.Requirements for Short-Haul Freight: In order to compete with road transport in terms of short-haul freight, the Railway system\needs to fulfill some conditions to fit with the requirements of short-haul freight services in terms of response time, service times, cost effectiveness, profitability for owners, operators and users(Marinov et al 2011). . First, the short-haul non-bulk freight requires the next-day delivery or express delivery (within 2-5 working days). Therefore, delay and congestion in the delivery process should be minimized in Rail freight services (BITRE, n.d). For another requirement, the rail freight service must be economically viable to adopt the wide range of traffic and commodity flows as a part of wider freight services offering to different types of business (Marinov et al 2011). Hence, the wider service range could attract more customers and reduce the cost and risk burden as a whole since it could be shared by multiple firms for the same short-distance freight. The next standard for short-haul service is the sufficient number of terminals and pick-up points that have enough proximity to the final destination of customers. For short-haul, the proximity location is compulsory for transshipment operation, which would require additional transportation to be involved in the final delivery or pick up process (Marinov et al 2011). Lastly, rail must be able to deliver the economies of scale in terms of rail freight rolling stock and operation, which means that significant changes in the freight vehicle configuration, size, loading and discharge options including bulk and palletized traffic and also need to be made for the purpose of reducing traction costs.

3. Australia 3.1. Ownership Rail freight transport used to be monopolized by Australian state governments. However, ever since the successful deregulation, commercialisation and privatisation commencing from the 1980s (Everett 2006), the industry has become a fiercely competitive playground for several operators, either operating in regional (Genesee & Wyoming Australia) or national (Aurizon and Asciano)

scales. Logistics and mining businesses also operate and train on their own railways (National Transport Commission (NTC) 2016). 3.2. Network length According to the 2019 report compiled by Bureau of Infrastructure,Transport and Regional Economics (BITRE) and Australasian Railway Association (ARA), Australia currently possesses approximately 32,900 and 314 route-kilometres of operational heavy railways and light tramways respectively. With just two main functions: passenger and freight transport, the system contributes over $26 billion to the national economy (Austrade n.d.). 3.3. Freight task The role of rail in Australia’s economy is prominent, especially to bulk export commodities. Over 50% of the nation’s freight task is attributed to railroads (see Figure 1 for proportions and Appendix 1 for raw statistics), outstandingly transcending other means of transportation, especially air shipping (ARA 2019).

Figure 1. Adapted from: BITRE 2019 Australian freight task, by mode, 2015-16 The two largest bulk flows reported on Australian railways are exporting iron ore and coal. Some of the other goods also hauled by the railways to ports include bulk grain (cereal grains, pulses, oilseeds), bulk sugar canes and other non-bulk freight (BITRE 2019). In general, rail transport already has an unrivalled competitiveness in long-distance bulk freight haulage in Australia.

4. Vietnam The railways in Vietnam are run by a state-owned corporation as Vietnam Railway Corporation (VNR), which has two major subsidiaries namely Hanoi Railway Hanoi Railway Transport Joint Stock Company and Saigon Railway Transport Joint Stock Company. Being placed in a monopoly position limits the freedom and competitiveness of the market, leading to less investment and interest in the industry from outside stakeholders. Although it can be understood that railway is an important means of transport that gives access to entering the country, the government needs to pay more attention to this potential business opportunity. The reason why it is deemed potential is because it is built across the country and runs through half of the provinces and cities of the nation, which enables a majority of the population to reach this mode. The total length is 2600 kilometres, with 11 lines, in which the North - South railway which was built during the French colonial period to transport goods from the North to the South now allows the same function but is used by Vietnamese. Moreover, it also interlinks with China, Cambodia and Laos, making it easier and cheaper to export. Even with short-distance haul, it is still a very profitable and promising medium compared to the road transport that is used dominantly in Vietnam.

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III. Comparative analysis 1. Freight tonnage Tonnage transported in Australia completely outweighed that in Vietnam in the collected data. Despite being recorded in different years, there were no special events in between to create an adverse effect, so Vietnam needs to work harder on railway freight transportation in terms of goods volume.

1.1. Australia As estimated by ARA (2017), the freight tonnage moved on rail in Australia is approximately 1.5 billion tonnes each year. Due to the unavailability of data, the latest rail freight task recorded was in 2015-16 by BITRE and ARA which totalled to about 1.4 billion (see Figure [..]). This was a gigantic thousandfold leap compared to around 663 thousand net tonnes just 9 years before that.

Figure [..]. Reproduced from: ARA 2019. National rail freight task, thousand net tonnes. The catalysts behind such growth was almost entirely the simultaneous growth in iron ore and despite to a lesser extent, coal exports as well. In 2015-16, the former accounted for around 65% of the total rail tonne kilometres, while the latter’s share was 22% (see Figure [..] for raw statistics). Only a marginal share belonged to other bulk and non-bulk rail freights. However, since both also experienced 26% and 6% growth respectively in 2015-16, they further justified the increase in rail freight tonnage.

Figure 2. Reproduced from: BITRE 2019 Australian rail freight task, by major commodity group, 1971–2016

Such enormous climb in rail freight tonnage as aforementioned is a vivid proof of the phenomenal development of Australia’s rail transport system which is predicted to advance even further (between 13% to 35%) in the years to come (BITRE 2019).

1.2. Vietnam

Figure: volume of freight carried in thousand tons of railway freight transport from 2017 - 2019 (adapted from General Statistics Office of Vietnam n.d).

The maximum weight per standard wagon is 60 tons, and the 1 metre gauge line is from 25 to 40 tons (Banomyong, Thai &Yuen 2015) Thousands of goods are carried annually by trains in Vietnam. In the first quarter of 2020, it was reported that there was 10% - 11% of growth in freight revenue compared to the same period last year (Duy 2020). VR have collaborated with chemical corporations in Vietnam in order to reach the goal of 1.6 million tons in rail freight in 2020, delivering products such as apatite, fertilizer, chemicals, etc… Besides, VR also plans to direct their business strategy from passenger to freight transportation and together with the Agriculture Ministry, directly exporting fruits and frozen agricultural products to China. To vary the sorts of goods delivered, VR intends to run more freight to make it up to the loss of passenger one under the Covid-19 pandemic situation, which opens a new gate for the shortdistance haul of railway to further develop. 2. Freight operations

2.1. Australia

Regarding regions with high rail freight tasks, currently, the Pilbara region in the Western Australia occupies the biggest bulk haulage task, transporting 94% of the country’s iron ore exports (ARA 2019) and representing around 70% of Australia’s total freight task. With a complex and

highly integrated network, the East Turner River valley in the Pilbara has the third-busiest rail corridor in the globe and is expected to become the busiest soon (BITRE 2019). Queensland and New South Wales also have quite sizeable bulk flows (19% and 6% of the total rail freight task in order), mostly coal movements because these cities are home to Australia’s coal extraction (ARA 2019).

As briefly mentioned above, the major type of freight that Australia’s railway network transport is bulk commodities, with the entirely intrastate rail traffic. It remains the dominant and the most efficient means of transportation to move bulk iron ore and coal from inland mining sites to ports all over Australia for exports, allowing Port Hedland to be the globe’s largest bulk export port and securing Australia’s position as the top iron ore exporter in the entire world. As for agricultural products like grains and oats, they are normally transported over long distances in which rail has traditionally been the predominant mode as well (BITRE 2019).

With regard to rail freight fares, over the last few decades, the rate has been continuously declining from a high of around 11 cents/net tonne kilometre to only 4 cents in 2019 (see Figure [..] for this trend). The BITRE (2017) has forecasted that this rail fares will level off at 4 cents/net tonne kilometre until 2030.

Figure [..]. Reproduced from: BITRE 2017. Real rail freight rates and prediction Finally, in terms of rail freight utilization, it is difficult to identify a standard capacity metric for the national rail network due to the variety of commodities and the differences in capacity of each track. Nevertheless, it can still be inferred that up to now, Australia’s rail freight transport has been rather efficient. So far, no evidence of capacity constraints on interstate routes has been reported. In other words, every customer seeking access to the rail freight system is satisfactorily served. Whenever they approach a track manager, a preferred time of access will be stated for them to know when they can use the railways to transport goods (NTC 2016). This explains the dominance of rail in Australia’ freight transport activities.

2.2. Vietnam Like Australia, railway is often used for bulk commodities but the goods are more variable, from groceries, medicines to hard metal, coal. The rail freight fares are usually higher than sea freight but lower than air and equal to road type, placing them in the middle of the market. However, assets are not fully utilized because of the poor infrastructure and outdated facilities. Despite providing online booking through phones, the consignor can not track where their packages are going, also have to deal with protracted and unscheduled freight that leads to frustration and less users.

Management has been proved to be inefficient and even corrupted after some allegations involving the bribery of a Japanese company to several officers of the railway management board (Xinhua News Agency 2014). Even though the government shows interest in investing in and leveraging the position of railway freight transportation, few signs of practical actions have been shown. Because of ineffective and neglected management, revenue is not well-generated, hence affects investment from the government funding and also outside investors. It is difficult to develop in the long term if this situation remains unchanged, so the owners need to seek for alternatives to improve the issue. 3. Freight facilities 3.1. Australia As stipulated by Austrade (2013), the globe’s longest and heaviest haul trains are from Australia,

with each one at least 2.5 km long. The axle loads are 40 tonnes, which means each freight train can carry up to 110 trucks worth of freight off the road (ARA n.d.). Among the 32,894 routekilometres of operational heavy railways, about 10 percent are electrified. Apart from these, Australia is also utilizing around 2005 locomotives, half of which has stayed in use for 12 years or less. Due to such an old age, Australia has been limiting the use of this kind of train and leveraging locomotives for freight duties merely (ARA 2019). With the majority of railways being heavy types, Australia’ rail transport is mainly utilized for long-distance freight hauls.

As regards connectivity, the exceptional rail facilities has allowed Australia’s rail network to connect with multiple ports scattered over the nation. It serves as the primary mode of transport in three freight movements as below: (1) From inland terminals to ports on railroads - this traffic encompasses either mineral or agricultural products that Australia exports. All of the nation’s principal ports, including Port Hedland, Dampier, Port Walcott and Esperance, for example, receive their iron ore exports through railways. That tonnage reached up to 677.8 million tonnes in 2017-18, which also equated to these ports’ total tonnage exported (ARA 2019). (2) From port terminals to urban logistics centres - this mostly applies to Australian imports. Consignments are shifted out of ports to logistics centers by rail transport in short-haul trips to be distributed to local businesses. Empty containers are evacuated out of port to avert congestion by trains as well (ARA 2019). (3) From one port to another - One classical example of this route is container movements from the Port of Hobart to the Port of Burnie for exports or simply for mainland transfers among different ports (ARA 2019) These three routes prove that Australia has impressive connectivity between ports and rail transport. The nation shows non-stop attempts in creating more regional freight links, with an investment worth $9.3 billion in a special program called Inland Rail to further connect different markets in Melbourne, Brisbane and Victoria together for even larger economic benefits (Department of Infrastructure, Regional Development and Cities n.d.).

With respect to the accessibility of the railway line, Australian’s rail networks mainly radiate from the state capitals, then spread out to other states with highly integrated cross-border links (ARA 2019). The country’s rail freight dominates Melbourne - Adelaide - Perth - the east-west corridor. In the north-south corridor (Melbourne - Sydney - Brisbane), its competitiveness is not that lucid due to infrastructure constraints. However, overall, rail network still provides integral corridor links between capital cities in Western Australia, South Australia, Queensland, New South Wales and Victoria (NTC 2016).

Regarding rail containers, and Adelaide, Australian trains can already carry double-stacked containers whose total height must not surpass 6.5 metres above the top of the rail, specifically in Darwin, NSW, Perth, Parkes. Furthermore, road freight vehicles can also be piggybacked on rail flat wagons in the central corridor line (ARA 2019). These methods of freight transport can be very efficient in improving capability.

3.2. Vietnam

Vietnam uses tracks, bridges, tunnels, signalings, communication and sewers facilities to operate the railway freight transport system. With respect to accessibility, according to the map of Vietnam’s railway below, the railroad is built across the country from North to South, with the purpose of connecting the North and South of Vietnam. Hence, it is very convenient for both long and short distance haul freight and has great potential for future development in the logistics sector as it connects the whole country and involves very little intermodal transport.

However, compared to the general quality indicators, on a scale from 0 to 7, Vietnam’s railway infrastructure only ranked at around 2.5, while the regional average positioned at about 4 in a report written in 2012 (WEF 2012). The railway has been operating for so long but showing little revenue in return, which shows a significant imbalance in railway operation. While locomotives are supposed to be used for less than 30 years, 89 of them are 30 - 40, 45 are more than 40 years. Infrastructure, rolling stock, signalling and telecom systems are main concerns when operating the railway, yet is underdeveloped or outdated because it only has government’s funding as the main source. This directly affects the overall performance of the means of transportation in terms of short-distance haul freight. Moreover, very few warehouses and unloading yards storage makes it harder for shortdistance transportation to be executed. VR is making an attempt to expand this factor in the upcoming years to make way for short-dis...