Speech - Australian Logistics Council Annual Dinner 2016

The Australian Logistics Council Annual Dinner is a very important event for a very important industry – and so I am delighted to be able to join you tonight.

Let me congratulate you on the range of issues you are covering in your 2016 Forum – of which tonight’s dinner forms part.

You have certainly assembled an impressive range of expert speakers and panellists including Hans Peter Voorhoeve from the Netherlands and Antony Patch from the USA.

I first became aware of the importance of the freight logistics sector in the mid-nineties, when I worked for a year in the corporate strategy team at TNT - and first heard the term TEU.

In the twenty years since that time there has been enormous change – in your sector and in the overall economy.

For example, TNT is now a listed Dutch company and likely soon to be a subsidiary of  FedEx[1]; companies such as Asciano and Toll have come into their current prominent industry positions; and in the rail sector privately owned operators such as Aurizon and Genesee & Wyoming are now a big part of the sector.

After my brief immersion in logistics I spent the next two decades working largely in telecommunications – a sector which has much in common with logistics. 

In particular, both sectors are key to the knowledge economy, the innovation economy, which is so vital to Australia’s future.  The explosion of online commerce depends on the internet, brought to you by the telecommunications industry – but it also depends on an efficient logistics sector, getting goods to consumers quickly and dependably.

So the work done by Australia’s logistics sector is vital to our national economic performance – and the Australian Logistics Council does very important work speaking up for your sector and offering policy input in Canberra.

Tonight I would like to make some observations about the economic importance of the logistics sector; then turn to highlight some aspects of the recently released 15 year plan for Australian Infrastructure; and thirdly focus on one aspect of that plan of particular relevance to your sector, the recommendations in relation to road pricing.

Economic contribution of logistics industry

Turning firstly then to the economic importance of Australia’s logistic sector, a look at the basic numbers is instructive.  The sector directly employs around 1.2 million people - and contributes over $130 billion to our economy each year.

Another aspect of the economic significance of the logistics sector is its importance as an economic enabler right across the economy.  The transport and logistics sector serves other industries – and the more efficiently it does so, the more efficient and productive is our economy.

What that means is that if we get productivity growth in the logistics sector, we get productivity growth across the entire economy.

This is a point made with some force in the report issued by the Logistics Council, The Economic Significance of the Australian Logistics Industry.  The report identified the sectors which would benefit most from increased logistics productivity – including forestry, manufacturing, processed food, construction and our wholesale and retail trade.

The Bureau of Infrastructure, Transport and Regional Economics has drawn similar conclusions in its analysis of Australia’s freight task.  It predicts a 50 per cent rise in Australia’s freight task in the next 15 years, and a 100 per cent rise by 2050.

Our economy is growing fast – and changing fast.  Those changes are only increasing the importance of transport and logistics.

For example, we are seeing the rise of global integrated value chains – epitomised by the Apple iPhone with its well-known label, ‘Designed by Apple in California, assembled in China.’

A local example is Boeing Australia which makes wing components for the 787 at Fishermans Bend, Melbourne; these are sent to the US where the completed aircraft is assembled.

The Business Council and McKinsey highlighted these trends in work they did a couple of years ago – pointing out that 70 per cent of global trade is in intermediate goods and services and capital goods, rather than end products and services.

None of this is possible, of course, without sophisticated logistics.

Another example is the export of perishable food products.

The Kiwis have done a spectacular job in this area, as then BCA President Catherine Livingstone highlighted: New Zealand’s dairy exports rose from around AUD 2 billion to AUD 9 billion between 1990 and 2013. [2]

Since coming to government the Coalition has made it a priority to secure free trade agreements with China, Korea and Japan, and as a result exports of food products are growing strongly.

ABARE recently reported that agricultural exports are expected to exceed $60 billion for the first time this year.[3]

I recently met with Andrew Broad, the member for Mallee, who briefed me on exports of products such as citrus fruit, table grapes and almonds from his electorate – with local production of almonds now exceeding one billion dollars a year.  This produce is exported by both sea and air, typically travelling by train to ports such as Portland and Melbourne or by air from Mildura to Melbourne or Sydney.

As former Trade Minister Andrew Robb repeatedly pointed out, Australia has a terrific opportunity to supply Asia with premium, high quality produce, where two billion people are coming into the middle class.  Australia’s logistics sector has a critical role to play in capturing that opportunity.

Of course there is much that you can do within your businesses to improve the efficiency with which you serve your customers.

Last year, for example, I was delighted to attend the opening of the Patricks automated container terminal at Port Botany.  I witnessed the automated straddle carriers or ‘Autostrads’ – developed with Australian Centre of Field Robotics at Sydney University – moving around the yard picking up containers, transporting them, and putting them down. 

They are 13 metres high, weigh 65 tonnes, and have no human operators.  Instead they use sophisticated technology including a radar-based navigation system; ultra-sonic, infra-red and laser equipment so the machine can see and interpret its environment; and a computerised control system that allows the machine to execute commands.

But given the nature of the logistics sector – in which many different operators come together, using roads, railways and other assets which in many cases you do not own or control – there are some things that no individual business can do.

That is why the Turnbull Government has an extensive programme of infrastructure investment – designed to improve the productivity and efficiency of your industry and in turn of our entire economy.

We are investing $50 billion in critical road and rail infrastructure all around the country.  For example, the Pacific Highway will be upgraded to four lanes all the way between Sydney and Brisbane by 2020 – thanks to a federal government investment of $5.6 billion.

The 60% of that road which is already upgraded has saved about an hour and a half on a typical Sydney-Brisbane journey; another hour will be saved when the road is four lanes all the way.  Multiplied across all the trucks which travel up and down that route every day – there is a very big productivity benefit.

Another good example is the Turnbull Government’s support for the Moorebank Intermodal Terminal in Sydney.

This will profoundly improve efficiency and freight throughput at Port Botany – delivering economic benefits to the nation estimated at $9 billion over 30 years.

It will significantly reduce truck traffic on Sydney’s roads – in fact, when the terminal is fully operational, one regularly operating port shuttle train will carry enough freight to replace 72,000 truck trips one Sydney’s roads each year. 

The Turnbull Government is putting around $370 million of investment into this project.  The model has evolved from that proposed by the previous government.  The bulk of the capital now comes from private sector investors, the Aurizon Qube joint venture known as SIMTA, and that joint venture now has a very large role in the operation of the terminal.

Infrastructure Australia’s 15 Year Plan

Infrastructure, then, is critical to the success of your sector.  More than that, it is critical to Australia’s economy – and to our collective quality of life.

That is why Infrastructure Australia was established – to provide independent, objective advice to government about our national infrastructure needs.

Just a couple of weeks ago, Infrastructure Australia released its 15 Year Plan – a document designed to drive long term thinking about Australia’s infrastructure needs and how they are to be met.

The first part of the Plan is the ‘Infrastructure Priority List’ of more than 90 potential projects around the country. 

The list is based on extensive consultation with state governments and other stakeholders, and draws on the Infrastructure Audit conducted by IA last year.

It will be a key tool to inform decisions by the Commonwealth Government and State and Territory Governments about which projects to progress, and over time which ones will be funded. Of course it will be updated regularly as some projects drop off and others are added.

The second part of the Plan sets out 78 recommendations for reform.

These include ensuring people are charged more fairly for the infrastructure services they use; making smarter investment decisions; preserving corridors to enable long term planning and cost effective investment; and embracing competition and private investment to deliver better infrastructure services.

I know that Phil Davies, Infrastructure Australia’s CEO, spoke to you this morning about the 15 Year Plan – and what it might mean for your sector.

Having received the Plan, the Turnbull Government is now considering it.

We will have more to say when we respond formally to the recommendations – but let me touch on a few points now. 

Clearly one recommendation of great relevance to your sector is that government and industry should work together to develop and implement a National Freight and Supply Chain Strategy. 

The essential idea here is to take a ‘whole of network’ approach to our freight system – recognising that today this tends not to happen because different parts of the system are owned and operated by different players.  Infrastructure Australia calls for an exercise to map national significant supply chains and their access to supporting infrastructure and gateways – in the expectation that this will highlight gaps and choke points which we can then focus effort on fixing.

Another recommendation – which I see the Australian Logistics Council has welcomed – is that governments should establish effective corridor protection mechanisms.  The thinking here is to future-proof our key freight routes against urban growth – and the risk that the routes we will need in the future are not there because they have been built over.

When I launched the Plan a couple of weeks ago, I mentioned some immediate changes we intend to make, in the way that the Turnbull Government will assess proposed transport infrastructure projects.

We will consider projects in the context of their strategic planning arrangements including corridor reservations.

We will require a greater level of disclosure from the States on the availability of revenue streams associated with particular projects.

We will move to a more consistent evaluation of wider economic benefits and a more rigorous assessment framework, and will propose a new National Governance Framework to COAG to improve the quality and transparency of infrastructure decision-making.

Heavy vehicle reform and cost reflective road pricing

One of the strong themes in the 15 Year Plan was support for the introduction of road pricing.  In making this recommendation Infrastructure Australia is very much in step with the views of a number of other review bodies over the last few years.

For example, in 2010 then Treasurer Swan received the report of a comprehensive study into Australia’s future tax system, the Henry Review. This contained a recommendation that in time fuel and vehicle registration charges should be abolished, on the basis that they were replaced by ‘more efficient road user charges.’[4]

In 2014 the Productivity Commission reported on its study into the funding and financing of public infrastructure, and recommended that “Well-designed user charges should be used to the fullest extent that can be economically justified.”[5]  The Commission argued that:

Significant institutional and longer-term road pricing arrangements will create more direct links to road users, taking advantage of advances in vehicle technology.[6]

Last year the Government has received the report of the Harper Review into competition policy. One of its recommendations was:

Governments should introduce cost-reflective road pricing with the aid of new technologies, with pricing subject to independent oversight and revenues used for road construction, maintenance and safety…indirect charges and taxes on road users should be reduced as direct pricing is increased.[7]

It is not just government reviews which have called for an exploration of road pricing.  In 2014 a number of motoring clubs joined with advocacy group Infrastructure Partnerships Australia to issue a paper entitled Road Pricing and Transport Infrastructure Funding: Reform Pathways for Australia.  The paper recommends

the development of a scrutable, transparent and public process, led by the Productivity Commission, to allow the options, challenges and opportunities posed by road user taxation to be explored, resolved and progressed towards a more efficient and transparent road pricing system.[8]

As well as voices from within the federal government and industry, we have also seen state government advocacy.  For example South Australian Premier Jay Wetherill last year had this to say in a speech to the National Press Club:

It’s getting harder for governments to meet the demands of road users from general taxation revenue, and roads remain a sector that relies heavily on taxpayers to fund new projects. I, therefore, propose that we establish a national heavy vehicle road-user charging system run by the Commonwealth in which State-based registration and Federal based fuel-excise charges are replaced by a charging system based on mass, distance and location.[9]

In the 15 Year Plan, one specific recommendation from Infrastructure Australia was that government should introduce a heavy vehicle road charging structure over the next five years.

The Plan also spoke about a path towards road pricing for all vehicles – not just heavy vehicles - over ten to fifteen years.

When it comes to heavy vehicles, we are starting to see some very early signs of progress by governments towards heavy vehicle road pricing.

In Western Australia, the Government has committed to trailing the first distance-based toll for heavy vehicles in that state, on the Perth Freight Link.

In Queensland, the Toowoomba Second Range Crossing will also involve a charge on all vehicles, including heavy vehicles for which it primarily caters. While the details are still to be settled, this will be the first such arrangement in regional Australia.

In South Australia, on the Dukes Highway, the Government is embarking on a process for distanced-based heavy vehicle road user trials in an attempt to consider more sustainable sources of revenue for transport infrastructure going forward.

The Turnbull Government announced in its response to the Harper Competition Policy Review late last year that it will continue to accelerate work with states and territories on heavy vehicle road reform.

We also said that we would investigate the benefits, costs and potential next steps of options to introduce cost-reflective road pricing for all vehicles.

As the Prime Minister and I said in our initial comments concerning Infrastructure Australia’s recommendations, if we were to introduce road pricing for all vehicles it is likely to be a ten to fifteen year journey.

We will need to be satisfied that there is a reasonable degree of community acceptance and understanding. In turn, this will require a demonstration that the benefits from a broader use of road pricing would exceed the costs.

Any change to the current system of road funding must improve transparency – and deliver clear community benefits.

Of the many complex issues, let me highlight the equity implications of the greater use of road pricing. In considering this issue, the Australian government expects to give careful thought to community service obligations, service level standards and how best to structure charges across road networks.

Certainly in the immediate future we are interested to do further work in relation to heavy vehicle pricing. Over the next few months I plan to engage with the states and industry to hear their views as the Commonwealth develops its strategy in this area.

I hope that the Australian Logistics Council will provide significant input into this process.  Given our stated intention to look first at further developing heavy vehicle pricing, clearly your sector will be absolutely central.

I know there are some strongly held views. Quite apart from the philosophical issues, there are very many issues of design and detail to be worked through.

Conclusion

Let me conclude, then, where I started – with the observation that your industry is of great economic importance.

The Turnbull Government’s agenda is designed to underpin the work that businesses in the sector are doing – to become more productive and efficient, in your own interests as well as those of your customers.

The discussions and presentations at this conference, and the networking and exchange of ideas, are all part of becoming a more efficient and productive industry. 

The Turnbull Government looks forward to continued close engagement with your sector – and continuing improvement in what Australia’s logistics and transport sector delivers to our economy.

[1] http://www.fool.com/investing/general/2016/01/12/fedex-is-ready-to-take-over-the-world.aspx

[2] http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0ahUKEwjGnqfJ0aDLAhXDF6YKHfmbAbkQFgg_MAU&url=http%3A%2F%2Fwww.bca.com.au%2Fdocs%2F5d843617-c191-4b0a-bb3e-f6ac7fb1b49b%2FCL_AICC_speech_Vision_for_a_Competitive_Australia_FINAL_28.7.2014.pdf&usg=AFQjCNGw4vac49Nb1jPitgTp1nBHa5YuQQ&bvm=bv.115339255,d.dGY

[3] http://www.abc.net.au/news/2016-03-01/abares-outlook-2016/7209506

[4] Henry Review, 2010, p xvii.

[5] Productivity Commission Report, Public Infrastructure, 2014, p 2.

[6] Productivity Commission Report, Public Infrastructure, 2014, p 2.

[7] Competition Policy Review (Harper Review, 2015), Recommendation 3

[8] Infrastructure Partnerships Australia, AAA, NRMA, RACQ, RACV Report, ‘Road Pricing and Transport Infrastructure Funding: Reform Pathways for Australia’, 2014, p 10.

[9] Speech by the Hon Jay Weatherill MP, Premier of South Australia, at the National Press Club, 8 July 2015