The Brisbane Multi-modal Terminal (BMT)
565 The BMT at the Port of Brisbane is owned by the State of Queensland. It is leased and operated by Port of Brisbane Pty Ltd (PBPL). The BMT is located approximately 24 km east of the Brisbane CBD, approximately 35 km from the ART, and approximately 34 km from the Tennyson terminal. It is currently primarily used for IMEX freight travelling to or arriving via the Port of Brisbane, that is import and export volumes. The BMT is a dual gauge terminal, but at present it is used exclusively for narrow gauge rolling stock. On the evidence before me the BMT is not, and has never been, used for transporting domestic intermodal freight to any significant degree.
566 I agree with the ACCC that the BMT is not a commercially realistic alternative to the ART for a new entrant seeking to supply Rail Services on interstate routes or on the NCL, for the following reasons.
567 First, the BMT is not located near the freight forwarders or BFOs which operate from the vicinity of the ART, or other potential customers of Rail Services. This has a number of cost implications for the freight provider and also the BFO. These may include higher cost PUD services or additional track access charges, compared to the costs incurred by a rail provider which used the ART. In my view these costs are likely to be material, and would make a new entrant less cost competitive than an incumbent user of the ART. There is also evidence that freight forwarders do not consider the BMT to be a commercially realistic alternative to the ART, due to its location.
568 Second, the BMT is only likely to be able to accommodate trains of up to a maximum of 900 metres in length. Accordingly, a new entrant rail provider will not be able to run trains of a comparable length to the 1200 to 1500 metre trains that PN runs on interstate routes, and which are accommodated at the ART, unless those trains are broken up and reconfigured part-way through their journey to the BMT.
569 Third, a rail operator seeking to offer Rail Services on interstate routes would need to acquire train paths from QR to allow it to use the dual gauge section of railway track that runs from the border of the ARTC network at the southern entrance to the ART to Fisherman Island at the Port of Brisbane, where it terminates to reach the BMT. But a significant number of factors go into a decision as to whether QR will grant an "Authority to Travel" on that section of its network, including technical issues such as the impact of the proposed travel on existing scheduling, the dimensions of the proposed service, the impact on any level crossings and track circuits, the ability of a 900 metre train to respond at the necessary signalling distance, the extent of any additional maintenance burden for the underlying track, and community concerns. It is problematic whether QR would give an Authority to Travel for a 900 metre train between ART and BMT. Given the number of factors involved and the fact that QR appears not to have ever given an Authority to Travel for a regular service between ART and BMT of a 900 metre train, it is difficult for me to conclude that it is likely to give such an approval.
570 Indeed, let me elaborate on some of the more detailed evidence given on this aspect. Mr Brett Smith, manager business operations, south, of QR, gave evidence that in order for an operator to run a 900 metre long train between the ART and the BMT, the operator would first need to submit a request for Authority to Travel and a conceptual operating plan. A conceptual operating plan requires sufficient detail to fully describe the train services and method of operation including scheduling, route, rolling stock and train configurations. If the train the operator seeks to run is similar to existing services, the time and complexity of the technical assessment of the conceptual operating plan will be reduced. A conceptual operating plan must be approved from both a technical and commercial perspective before QR will grant Authority to Travel.
571 Currently, the maximum length of trains running to the BMT is 706 metres. To Mr Smith's knowledge, QR has never authorised a regular service between the ART and the BMT of a 900 metre long train. In his experience QR would not decline to grant the request merely based on the length of the train. However, such a proposal would raise the following technical issues:
(a) whether the services sought by the rail operator can be accommodated within existing timetabled services;
(b) the dimensions (height and width) and operating characteristics of the rolling stock of the proposed train, assessed against the physical limitations in the track between the ART and BMT;
(c) whether the 900-metre-long train would block level crossings or hold down other track circuits (because the longer the train, the greater time it takes to pass clearance points, track circuits, points and crossings, which will have an impact on the signalling sequence seen by other rail traffic, and hence their ability to adhere to their timetable);
(d) whether the train has the capability of stopping within QR's existing signalling system (as a general rule, the longer the train, the heavier it is and the longer it will take to stop);
(e) the extent of the additional maintenance burden on QR (because a longer train may be heavier and therefore exert more tractive effort on the rail track, and over time this can cause the rail track to move; this effect is particularly pronounced if the service is regularly moving along track with a steeper grade, such as in the Morningside area located between the ART and BMT); and
(f) community concerns (e.g. that diesel engines may be louder and that level crossings may be blocked for longer).
572 Mr Gregory Rooney, general manager, rail management centre and operations, of QR, gave evidence that irrespective of the length of the train, it is highly unlikely that QR could approve a proposed service between the ART and the BMT during the "core peak period" in the Brisbane metropolitan timetable, being between 7.30 am to 8.30 am, and 5.00 pm to 6.00 pm weekdays. If Authority to Travel was sought to run a service during the shoulder period, being the times either side of 6.00 am to 9.00 am and 3.30 pm and 6.30 pm on weekdays, it is a possibility that the service could be approved to run during 'small windows' that might be available in the timetable, although there is still very limited capacity at this time. Mr Rooney gave evidence that it is QR policy that a delayed train is not to disturb the operation of passenger trains, which may result in delayed trains scheduled for the shoulder period being forced to dwell outside of the network.
573 Now it may be accepted that the maximum length of trains operating on the Dual Gauge Section may be dictated by the longest loop on the route, being the Clapham crossing loop at 720 metres. But Mr Rooney gave evidence that given that the Clapham crossing loop is 3 km from the ART, his team would be unlikely to allow any usage of the loop. Any Authority to Travel granted in response to a request is likely to be granted on the basis that there is a clear route for the train(s) directly from the ART to the BMT. If necessary, the train(s) would be held outside the metropolitan network until such a time as a direct route is available.
574 Now the constraints that I have just described would materially disadvantage a new entrant, who in my view would need to run 1500 metre trains on the North-South corridor in order to be commercially viable and competitive with PN. It is not in doubt that using smaller trains would substantially increase operating costs, placing the new entrant at a substantial competitive disadvantage to PN. I agree with the ACCC that it would not be commercially viable to operate using 900 metre trains on the North-South corridor.
575 Let me elaborate further by reference to some expert evidence.
576 Dr Timothy Kuypers was an expert economist called by the ACCC. He is a Special Advisor at HoustonKemp Economists and has over 25 years of experience in the economic analysis of markets, business strategy and policy contexts working for access seekers, access providers, a regulator and advisory firms. For the past 13 years, Dr Kuypers has specialised in the rail industry. He is currently an Independent Director of the Rail Industry Safety and Standards Board and an Independent Member of the Metro Trains Melbourne Board Safety Committee. Between 2005 and 2016, he held a number of senior executive roles with Asciano. These roles included Group General Manager Access and Regulation as well as a number of senior operational roles focusing on safety. Dr Kuypers holds a BA (Hons) in Economics and Politics from the University of Sheffield, a Masters in Economics from Carleton University and a PhD in Economics from University College London. I found his evidence helpful in informing my own analysis.
577 Dr Kuypers gave evidence about the practicality of splitting trains. He considered the case of all PN steel trains which have to travel between Morandoo, in Newcastle, and Brisbane. In order to split a 1500 metre train without impacting the main line he said that one would need a 1500 metre track and a 750 metre track plus shunting neck. Alternatively, a train with distributed power, i.e. with locomotives located at intermediate points throughout the length of the train, would require a minimum 1500 metre track. Dr Kuypers was unaware of splitting having ever been allowed on this route. He considered it to be very unlikely that ARTC, the network owner, would allow the loops and main line to be used for train splitting and stowage (the second half of the train would need to wait in the loop until its network path was available). He considered such approval unlikely because use of the loops and the main line for splitting a train would have a negative impact on network capacity (as the main line and loop are tied up for at least that duration) and that it would increase the risk of delays. Dr Kuypers considered that there could be safety issues for the relevant personnel on the ground undertaking decoupling and train safety checks as well as because existing signalling systems may not be designed for shunting activities. Dr Kuypers also considered that destinations between Telerah, New South Wales and Acacia Ridge were not suitable for splitting. Rather, splitting would have to occur at Newcastle, with the operator of the multiple shorter trains destined for the BMT wearing the associated increased costs of track access, labour, fuel and maintenance. He gave evidence that track access costs tends to make up 30% of the total cost of the operating cost of a train. By way of example, he demonstrates that running split trains for a steel service between Newcastle and Brisbane would involve an increase of 8% in access fees alone (the per train kilometre charge being doubled).
578 Fourth, and more generally, a new entrant seeking to use the BMT to support the supply of Rail Services for domestic freight would face significant uncertainty as to whether, on what terms and at what scale such use might be permitted. PBPL's long-term strategy is to develop and facilitate IMEX trade-related growth at the Port of Brisbane. Consistently with this I would note that the voluntary undertaking governing access to the BMT does not require that access be granted for purposes unrelated to the objective of growing trade through the Port of Brisbane. Indeed the PBPL board has previously made strategic decisions with that IMEX focus in mind. In that context, a proposal to use significant capacity at the BMT for domestic intermodal freight for any material period, or to lease land or buildings at the BMT for non-IMEX activities would appear to be in tension with such a focus and objective.
579 Fifth, there is limited terminal capacity available at BMT. Moreover, I agree with the ACCC that there is less capacity than has been estimated in the report of Mr Michael Scanlan. Mr Scanlan was a rail expert called by Aurizon. Mr Scanlan is a consultant (Specialist Advisor - Rail) at Balance Advisory and has over 40 years' professional experience in the rail industry, including 32 years with Queensland Rail across a range of roles. These roles included Group General Manager (Passenger Services), Group General Manager (Network Access), General Manager Operations (Coal and Minerals) and General Manager Business Development (Coal and Minerals). In these roles Mr Scanlan, inter-alia, was responsible for state-wide capacity management and timetabling. Mr Scanlan holds a Bachelor of Engineering (Mechanical) from the Queensland University of Technology, a Post Graduate Diploma in Management (Public Stream) from Central Queensland University and a Master of Business Administration from the University of Queensland. Mr Scanlan had a great depth of experience in the rail industry and I found his evidence of assistance.
580 Mr Scanlan's estimate is attended by significant uncertainty. Moreover, the capacity that he identifies as existing at the BMT is of inferior quality to the capacity used by PN at the ART. Mr Scanlan purports to identify that there is adequate capacity available at the BMT for use by a new entrant operator. However, Dr Kuypers considers that the capacity Mr Scanlan identified is materially inferior to that which PN and SCT use at the ART and Bromelton terminal, such that any rail provider seeking to use it to compete with PN and SCT would be at a material disadvantage. Dr Kuypers further identifies that Mr Scanlan's capacity estimate ignores key constraints on and so overstates the capacity likely to exist at the BMT, and is otherwise attended by significant uncertainty.
581 Sixth, as the ACCC points out, there are further external constraints on the use of the BMT generally. In particular, trains travelling to or from the BMT via the North-South Corridor would need, effectively, to cross through metropolitan Brisbane from ART to the BMT, and share parts of the dual gauge section with other freight and passenger services. But as I have said, QR is highly unlikely to approve any freight service to travel on its metropolitan network between the ART and BMT during the core peak period of around 7.30 am to 8.30 am, and 5.00 pm to 6.00 pm on weekdays. Further, because QR must give priority to passenger trains, if a freight train is allocated a train path at or on the cusp of the peak period generally, being between 6.00 am to 9.00 am and 3.30 pm and 6.30 pm on weekdays, and is delayed such that it is projected to miss its window, it is likely that it would be held back and forced to dwell somewhere outside the Brisbane metropolitan network until the next available train path could be found that would not disturb passenger services, being at least until the end of the core peak period. This would expose a new entrant rail operator to considerable operational risk of delays, which could result in freight not being made available to customers at the time expected. Further, there would be a risk of missing their windows at the BMT and their rail paths for onward services. Further, the infrastructure for freight rail access to the BMT has significant limitations. For example, as the ACCC has pointed out, there are constraints based on structure clearances, which decrease the permissible axle loads for trains using the BMT.
582 Seventh, Dr Kuypers expressed the view, which I have no reason to significantly doubt, that it would be materially more costly for a rail operator seeking to provide Rail Services on interstate routes into and out of Queensland to use the BMT rather than the ART. There is the need for the provider's trains to travel the additional distance of approximately 34 km from the ART to the BMT rather than terminating at the ART. Further, there is the need for the provider to run shorter trains than it could run if using the ART. Further, there is the need for freight that is unloaded at the BMT to be transported from the BMT to customers located at or near the ART.
583 Dr Kuypers has estimated that using the BMT rather than the ART would increase a new entrant's operational costs by in the order of 40% or more for interstate Rail Services transporting bulk steel, and 19% or more for interstate Rail Services transporting intermodal freight. In my view that estimate is not unrealistic.
584 Indeed, the Aurizon respondents' evidence supports the proposition that several of the largest key customers of Aurizon's QIB and IIB are located in the vicinity of the ART. Further, the evidence of the ACCC's witnesses, including those whose freight is transported using the ART, is that the need to travel the extra distance to the BMT would cause them to incur significant additional costs compared to using the ART. Moreover I do not consider that the additional travel time that causes those costs comprises only a relatively small percentage of the total time involved in providing Rail Services.
585 Now as I have already indicated, the Aurizon respondents have filed an expert report by Mr Hill, a valuer and expert on the Queensland property market, titled "Industrial Market Study". Mr Hill observes that a higher proportion of "Logistics" businesses are located in the BMT precinct than in the ART precinct. But his category of "Logistics" businesses is broad. It includes, for example, the large number of IMEX focused businesses in the vicinity of the BMT, for whom the use of Rail Services may be wholly or substantially irrelevant. Such businesses would not be customers of a potential new entrant provider of Rail Services, and there would be no advantage to a new entrant from the fact that the BMT is located near to them. Mr Hill also considers that the precinct in which the BMT is located is a superior location for a "Logistics" business than the precinct near the ART. But whatever his opinion, the reality is that many BFOs and freight forwarders who would be potential customers of a new entrant rail provider are located in close proximity to the ART. For that reason, proximity to the ART is valuable to Qube, freight forwarders and BFOs despite Mr Hill's secondary opinion.
586 [Redacted]
587 Eighth, let me elaborate further on the capacity question.
588 Mr Keyte, chief operating officer of PBPL, endorsed statements made on behalf of PBPL in a document entitled "Port of Brisbane Response to the Inquiry into National Freight Supply Chain Priorities" a submission dated 28 July 2017 addressed to the Minister for Infrastructure and Regional Development, which raised the following issues in respect of the capacity available at the BMT:
3.5 Rail Access and Capacity
... The current freight line to the port shares the same corridor as a number of Brisbane's metropolitan passenger rail services (the Metro). The potential to maintain and/or grow rail freight using this line is constrained as a result of the increasing frequency of passenger rail services. The result is Australia's poorest performing freight rail share at less than 3% of intermodal freight. Without significant improvements to the existing line and/or the development of a new dedicated freight rail corridor, productivity will decline due to increased road congestion, transport costs will increase and these factors could potentially constrain trade growth through the Port of Brisbane.
… Containerised rail export potential through the Port of Brisbane is predominantly primary products (e.g. meat, grain and cotton) but, due to rail capacity / infrastructure constraints, the volume of such trade is presently restricted as is the potential to carry imported products by rail.
The key rail constraints are:
• Passenger volume growth in, and conflicts with, the Brisbane metropolitan network especially the impact of passenger timetables moving to 15 minute intervals (passenger trains are given priority over freight under State government Legislation)
• Restrictive axle-loading limits that reduce freight train load capacity/ payload Existing restrictions on freight train lengths
• Seasonal fluctuations in demand for agricultural bulk rail services (e.g. Reductions in grain train sets)
• Restrictions on larger locomotives and the inability to carry 9'6" 'high cube' containers on the western line due to restrictive tunnel clearances
• Restrictions on bulk coal movements resulting from the limitation of range crossing infrastructure / path slots (that would open up exports through Brisbane from the Surat Basin), and conflict with non-coal traffic…
(Citations omitted.)
589 In order to overcome these issues, it was PBPL's strategic vision to see the creation of a dedicated or segregated freight rail corridor to the BMT which also links with the "Inland Rail Project". [Redacted]
590 Further, on any view PBPL is unlikely to grant permission for a new entrant into the relevant markets to use capacity at the BMT or to lease land and buildings at the BMT in relation to domestic freight that does not meet the relevant IMEX trade criteria for any more than a short term of 12 months only.
591 Mr Keyte was cross-examined extensively about such matters. He was adamant that even when PBPL briefly contemplated putting in a bid for the ART as part of the sale process, it never contemplated accepting domestic intermodal freight at the BMT. Its focus was on IMEX freight only. He gave evidence as follows:
Now, if someone did want to bring trains into the BMT to supply domestic services, then provided that didn't interfere with your import-export services, you wouldn't have an objection to that, correct?---The only time we wouldn't have an objecti[on], if it was - objection is if it was short-term.
Yes?---If it's a long-term investment, it doesn't meet other criteria that we have to assess under that voluntary access undertaking.
And that's - if I understand that, it's because of a concern that if you made longer-term commitments that might interfere with something that you wanted to use the terminal for in the sphere of import-export?---Yes. The BMT is a long-term strategic asset for the port - - -
Yes?--- - - - designed to attract export and import cargo across our facility.
Yes?---And we're required - any facility we develop or business we develop down there to have under the land use plan requirement, a 75 per cent threshold of trade activity through that facility.
Yes. Well, I understand that, but if somebody was using it, I think you said this, on, for example, a short-term basis - - -?---Yes.
- - - you wouldn't have an objection to them doing that, provided it didn't interfere with your import-export activities; correct?---Providing it was absolutely short-term, less than 12 months, and there was a valid reason for needing that service.
Yes. When you say less than 12 months, is that because you don't want to enter into longer-term commitments that might interfere? Is that the concern?---We're only - we are only allowed to issue permits up to 12 months for short-term activities at the port that don't comply with the requirements of ..... plan.
When you say that, you mean - you are talking about existing policies that - - -?---This is a policy, but it's also - it's also part of our governance - - -
Yes?--- - - - for issuing of leases.
Yes. So - and that's a concern about long-term commitments?---Yes, absolutely.
Yes. Now, if there was a shorter term operation that utilised some additional capacity of the BMT, you wouldn't have a difficulty with that, presumably?---No, we don't have a difficulty with short-term uses to - - -
Yes?--- - - - utilise the capacity.
Yes. And when I say "short-term", if - it might be that it could be ongoing, provided you're not entering into long term commitments, and it didn't interfere with your import/export activities?---We - we - we have some policy rules where we can't roll over a permit just continuously. You know, so you can't issue a 12-month permit and then reissue it 12 months again later and continuously do that. That - that breaks some of our internal policy requirements. But we would do something up to 12 months if it meets the criteria set out in the voluntary access undertaking that's feasible to do.
592 This evidence is unsurprising within the context of the policies governing PBPL, particularly given that the PBPL does not view the BMT as a revenue-generating asset but rather a strategic asset to promote trade growth for IMEX freight.
593 Indeed, Mr Keyte gave evidence that he would be unlikely to even seek board approval, let alone State government approval, for a relaxation of the relevant trade criteria. It would be inconsistent with all of the PBPL strategies adopted over the previous eight years to grow import/export freight.
594 Now it was put to Mr Keyte that at an earlier s 155 examination he said that PBPL would contemplate allowing domestic freight through the BMT "if there was a good solid business case" for it. But he clarified that this merely meant considering the application. He did not in terms say that PBPL would agree to seek approval for a waiver of the trade criteria. Moreover, such evidence is not directly inconsistent with a short-term limitation on granting such a request. Moreover, in cross-examination, Mr Keyte stated as follows:
Mr Moore: Mr Keyte, you said to Ms Muhlebach that:
If there was a good solid business case for domestic cargo to come through the BMT, we wouldn't say no.
Correct?---We wouldn't say no to having the conversation. That's correct.
Well, it's not more than having - saying no to having the conversation. You wouldn't say no to that business. That's what you were telling Ms Muhlebach, weren't you?---No, in line 15 I said we would always have the conversation. So we wouldn't say no that we wouldn't assess it, and it would then fall into the criteria of -set out under our land use plan and our voluntary access undertaking.
Yes, and when you said, "If it's for the better of the logistics chain and supply chain we could contemplate doing it," that's more than just considering it, isn't it?---No, we say the word "contemplate". We - we contemplate lots of things, and we will contemplate it. That doesn't mean that we will do it or take it any further than that.
Mr Keyte, there really isn't any good reason providing it's not interfering with import/export not to do it, is there?---I believe there is. So understanding the size of domestic freight that happens at Acacia Ridge and our terminal being only three and a half hectares, I can't see any reason why we would contemplate doing domestic cargo.
Yes. What you were suggesting here when you were being asked about this was you didn't anticipate the demand for it, and if there was such demand it would be something that you would welcome; correct?---We say if it's for the betterment of the logistics supply chain, we would - we would welcome it. We have a target to try and get a dedicated rail freight connection, but we don't believe that will assist the case for that.
Yes. Mr Keyte, I suggest to you that you would, in fact, offer this freight activity if somebody knocked on the door and asked for it to be made available?---I can't agree with that because I've said that we would assess and use all of the rules and the strategies we have in place to make that assessment. So that doesn't mean that we would agree to do it.
595 Further, Mr Keyte stated that he found it hard to see what such a compelling business case would be, particularly given PBPL's long-term strategic focus on investing in other growth options than operating a rail terminal.
596 I have little reason to doubt Mr Keyte's evidence. Although the BMT is profitable, and whilst PBPL would clearly wish to expand the use of the BMT, Mr Keyte was clear that it would not do so at the expense of its long-term strategic goals, which related to trade growth rather than operating an intermodal rail terminal.
597 Moreover, as the ACCC points out, there is no evidence before me that even if PBPL were to request a relaxation of the relevant trade criteria, the Queensland government would be receptive. Further, the time frame in which the Queensland government would make such a decision is unclear. I am not able to say that the Queensland government would make a favourable decision in the time frame that is relevant to me in terms of the competition context.
598 Based on the evidence before me, in my view there is no real chance that any potential new entrant would receive permission from PBPL to use the BMT as a base for providing the Rail Services in the short to medium term.
599 Further, and as I have already said, in any event even if it were possible to use the BMT, a potential new entrant operating from that terminal would be at a commercial disadvantage in all of the relevant markets to rail operators using the ART.
600 First, as I have said, for a potential new entrant in the relevant markets, the evidence is that the ART is in a preferable location to the BMT for both BFOs and freight forwarders in the relevant markets.
601 Second, for a potential new entrant in the Interstate market(s) the following should be observed.
602 Mr Nacey has given evidence that it would not be commercially viable to operate using 900 metre trains on the North-South corridor. This evidence is consistent with the evidence of Mr Adam of PN that given the fixed costs of running a train, PN tries to maximise the length of the trains that they run. Further, and as should be apparent from my earlier discussion, it is also consistent with the evidence of Dr Kuypers, who calculates that there are additional costs of running multiple shorter trains to deliver the same volume of freight to the BMT as to the ART.
603 Third, as I have said, I cannot be satisfied that QR would grant approval for a train of 900 metres or more to use the dual gauge section to access the BMT, let alone the circumstances in which it would do so regardless of the maximum length of train allowed at the Clapham crossing loop.
604 Fourth, I cannot be satisfied that a potential new entrant would be able to obtain sufficient interstate train paths from the BMT to run a sustainable and competitive business offering the Rail Services, as the trains must traverse a single stretch of dual gauge track that is used for trains moving in both directions, and it has to pass through the Brisbane network which means that it is impacted by peak periods and congestion.
605 Mr Scanlan's assessment of the available train paths relies on speculative assumptions to the effect that a rail operator would be granted approval by various third parties to use those train paths, that connecting train paths would be available at the relevant times on the Sydney metropolitan network, and that some existing capacity on the ARTC rail network can be shifted to ensure capacity for the relevant train paths, and does not take sufficient account of the likelihood of delays impacting upon the available train paths.
606 Further, despite the ACCC identifying these issues with Mr Scanlan's nominated train paths, the respondents have not sought to update Mr Scanlan's evidence by re-running the relevant methodological calculation to identify the available train paths more accurately.
607 And even if I was satisfied that Mr Scanlan's nominated train paths were available, the southbound paths in this respect cluster at times that differ significantly both from those that were operated by PN and Aurizon, and by SCT. Dr Kuypers infers from the consistency of arrival and departure times across all three operators, using two different terminals, that these are market driven time preferences for arrival and departure, such that Mr Scanlan's nominated train paths would be less-preferred by market participants. Mr Scanlan, on the other hand, says that this is just custom and customer preferences would depend on the nature of the freight in question, for example. But I cannot conclude that this difference is immaterial.
608 For the above reasons, I do not consider that the BMT would relevantly be a viable alternative to the ART in the short to medium term.