The SummaryMuch of Australia’s transport infrastructure has been in place for many years but as our population increases and the volume and nature of industry changes, our roads and railways need to keep pace.

The public sector has traditionally funded major road and rail projects but is now directing more of its budget towards services like health and education while utilising public private partnerships to encourage private investment in transport infrastructure. As a result of these changes plus significant private funds pouring into mining infrastructure, private investment in the industry has grown from 30 per cent in the 1990s to more than 80 per cent today.

After a strong decade of growth in the 2000s however, overall investment in transport infrastructure is falling nationally and in all states except for New South Wales and Victoria where there is major arterial road building activity.

Wages and salaries in road construction have remained steady in recent years, but have fallen for employees of toll road companies and rail services, driven by cost-saving measures, contracting and job-replacing technologies. More than half of all road construction workers, for example, are contractors. Employment growth is slow for rail and falling in toll roads, with the latter expecting a rocky future. One of the big employment challenges concerns the role of 457 Visas and how many new jobs will go to domestic workers.

Here we give an overview of road and rail and outline some of the key issues for each part of the transport industry.

Road OverviewAustralia’s road and bridge building industry is large and thriving. It generates $14.6 billion per annum, pays $1.9 billion in wages to around 35,000 workers and last year made a profit of $1.2 billion. It is comprised of public authorities (the Department of Transport NSW holds the greatest slice of market share of all public and private operators), large firms that work on major freeway and highway projects (for example Leighton Holdings and Lend Lease), and many small companies that work on local roads in new housing estates.

Major construction activities include earthmoving, asphalting, concreting, landscaping, steel erection and line painting and recent investment has been in large-scale projects like tunnels, freeways and toll roads.

The majority of roads are managed by state authorities and local roads are managed by local government. Toll roads make up a large section of the industry and are primarily managed under a ‘build, own, operate, transfer’ (BOOT) model.

Figure 1: Value of road work done 2013-14

Roads and Rail Industry Outlook

INFORMER

NSW

SA

VIC

TAS

WAQLD

ACT

37.0%

26.8%

14.0%

12.5%

6.6%

1.2% 1.0%

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Rail OverviewThe rail industry is diverse. It caters for heavy industries, like the mining and resources sector which relies on rail to transport freight like iron ore from its mines in remote parts of the country to ports for export. In our cities, it caters primarily for commuters who travel in and out of the CBD during peak periods and secondary students, who often travel distances to and from school each day. Although intercity routes exist in Australia, the lack of any fast rail means that the vast majority of passengers fly between capital cities and interstate passenger rail is used primarily by tourists. Nevertheless, as house prices soar in the capital cities, more commuters are choosing to live in regional areas within commuting distance of the CBD and regional train lines are well patronised.

The industry is predominantly government owned and funded and is highly regulated. It requires significant investment in infrastructure, something which is exacerbated by the rising age of some trains and rail networks.

The biggest players in Australian passenger rail (the Department of Transport NSW, Public Transport Victoria and Queensland Rail Limited) are based in the populist eastern states. Sydney’s network transports the highest proportion of its population, but Western Australia’s industry (Public Transport Authority of Western Australia) is increasing in size. The Mandurah line in Perth, which opened in 2007, shows that when new lines are built, demand from commuters can jump substantially.

A small number of foreign-owned operators have entered the market since the privatisation of passenger networks in the 1990s. Metro Trains which operates Melbourne’s network is a joint venture between two Australian groups and Hong Kong’s MTR Corporation. Great Southern Railway is a British-owned operator that runs the Indian Pacific, the Ghan and the Overland.

Figure 2: Passenger rail organisations by location and population

Figure 3: Passenger rail – market share

POPULATIONS

ORGANISATIONS

Department of Transport NSW

Public Transport Victoria

Public Transport Authority of Western Australia

Queensland Rail Limited

Other

37.4%

26.1%

23.4%

8.8%4.3%

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Road and Rail ConstructionRoad and bridge building peaked late last decade. Major road projects completed during that time include the Hunter Expressway and improvements to the Pacific Highway in New South Wales (2010). Not far behind roads and bridges, rail investment was also at record levels in the same period driven by unprecedented private investment in resources projects.For all the talk at election time of investment in rail to cope with congestion in our sprawling cities, however, the same cannot be said of Australia’s passenger rail construction industry. If the IBIS World series of industry research reports is anything to go by, rail construction activity outside of transport systems for the mining and resources sector is negligible, at least as far as any significant revenues or employment goes and specific statistics about the performance of rail construction are hard to come by.

Though there was a surge in investment in roads and public transport as a result of the 2009 Commonwealth stimulus package, much of public transport’s share went into improved bus routes, particularly in Brisbane and Sydney, instead of rail because of the relative ease of adding new services quickly.Even so, state governments are investing in rail. Expansion is underway in New South Wales, with state government investment in the North West Rail Link, including new stations and tunnels confirmed and due for completion in 2018-19. In Victoria, the Regional Rail Link project is under construction and is scheduled for completion in 2016. This will speed up travel times on regional lines to places like Bendigo and Geelong by separating them from urban tracks. In addition, rolling stock is being replaced by Waratah trains in Sydney and Metro and V/Line in Victoria.

Road and Rail OperationsTolls Roads

Toll roads have come a long way since the days of throwing coins into a bucket at the gateway to Melbourne’s Westgate or the Sydney Harbour Bridge. Toll roads are now a source of private profits, generating 2.3 billion in revenue each year and growing by 3.9 per cent in the past five years.Toll roads are concentrated where traffic congestion is at its greatest, in New South Wales, Queensland and Victoria. Many of the nation’s newest projects have been built in Brisbane (Transapex consisting of five new river crossings) in the past five years. While these have added to construction revenues in the state, their operation has not been so profitable and many have been placed into administration. Melbourne’s Eastlink, on the other hand, has been better patronised as the surrounding population has increased and the toll-road concept has become more readily accepted as a value-for-money fee-for-service. An increasing segment of toll-road users is made up of freight operators who often travel in off-peak periods.

Passenger Rail

Demand for passenger rail has been soaring over the past decade because of increased expenses associated with driving to work (petrol prices, parking fees, toll roads and traffic jams). The rapid growth is unlikely to continue however because rail operators will struggle to maintain service levels without significant investment in infrastructure. Problems already apparent include cancellations, trains skipping stations in an attempt to adhere to timetables, ageing trains and signalling systems, and network-wide failures during extreme weather. Rail funding has been slow to materialise in government budgets over the past five years and rail projects can take up to a decade to become operational after funding is made available.

Revenue from fares only partially covers the costs of running a rail network. The industry relies on government subsidies for around 75 per cent of its operational expenses on top of capital investment and network expansion. The industry is not profitable and any reported profits tend to indicate the extent of government subsidies received rather than true profit made.

High demand for rail construction in the minerals and energy sector during its construction phase drove an increase in the value of rail construction work of 13.1 per cent over the past five years. Projects completed include:

• The $70 million Solomon Rail Spur built in the Pilbara for Fortescue metals, completed in November 2012

• Duplicating 60 kms of the existing Cape Lambert to Emu railway and upgrading the existing Emu siding facilities near Karratha for Rio Tinto

• Quadruplicating the Kingsgrove to Revesby rail line on Sydney’s rail network

• ‘Goldlinq’, Queensland’s first light rail, which opened in the Gold Coast in July 2014

There has been almost no expansion of our capital city passenger heavy rail networks in recent years. One notable exception is the Epping-Chatswood line in Sydney (2009) which is the first link of its type in Australia — a metro-style line that runs across the city rather than radiating from the CBD. (Melbourne’s proposed Metro tunnel is also a sign that Australian rail may yet embrace systems that support commuters wanting to travel across the city).

Figure 4: Investment trends in road and rail 2010-11 – 2013-14

RAIL

ROADS

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Current PerformanceTotal infrastructure work won grew by a very healthy 32.4% in 2013-14 led by a 29 per cent increase in transport spending. However, this figure remains around 14 per cent below the prior 10 year average during which new privately funded road commencements peaked.

Despite slowing in the past year, road construction remains at record levels as the nation strives to accommodate an ever increasing population and repairs damage from extreme weather. Recent projects include the Federal-stimulus-funded Kempsey Bypass, and the Hunter Expressway in New South Wales and the Ipswich Motorway in Queensland. Other recently completed projects include the Geelong Bypass and Peninsula Link in Victoria. In addition to these new projects, major repair work after the 2011 Queensland and Victorian floods is estimated at 2.7 billion over the three years to 2013-14.

Railway construction surged by 13 per cent over the past five years mainly in response to the resources sector. Meanwhile passenger rail operators have reported losses over the same five-year period. The main problem with passenger-rail profitability is the inefficient nature of the service and the huge demand during peak periods compared with off-peak travel.

There has nonetheless been an increase in weekend travel in the past decade mostly because of the deregulation of the labour market and longer retail trading hours. Rail operators have put on extra services in response which has in turn led to increased usage as more frequent services make train travel on weekends more convenient than it once was.

Revenue from students travelling on concession is lower than that from commuters but tourists pay the highest price per trip for train travel. The Sydney airport link, for example, earns multiples of normal suburban routes. The personal travel market has contributed less to revenues relative to commuters over the past five years partly because of the aging population and travel concessions offered to seniors.

Figure 5: Passenger rail by peak and off-peak service patronage

Figure 6: Revenue generated by passenger rail market segments

Urban peak hour trips Urban weekday off peak

Regional servicesUrban weekend

Commuters Students

Personal travel

Employment and wages

Much of the road and rail construction workforce is comprised of subcontractors (skilled tradespeople, equipment operators, professionals like civil engineers and surveyors, and technical consultants), many of whom are sole proprietors and partners. For instance, while around 35,000 people are employees in the road building industry, the total industry workforce is estimated at more than 80,000.

Employees in road construction can expect to be paid $54,614 per annum on average. This rate of remuneration has maintained pace with inflation over the past decade and looks set to continue to remain steady in coming years. It does not however include the high number of contractors working in the industry.

The average annual wages of a Toll Road employee dropped slightly to $78,797 from a peak of $80,069 in 2011-12 and the number of jobs dropped by 3.2 per cent last year, compared with strong growth in previous years (8.9, 17.0, 21.5, 31.3 and 20.0 per cent growth). Wages also fell after strong growth in previous years. The forecast looks equally rocky with moderate rises next year being off-set by falls again the year after.

Employment growth in railway operations has been slow because the privatised rail operators have undertaken ‘labour reducing measures’. On the up side, the 30,500 or so workers who have managed to keep their jobs in the industry tend to be highly skilled and are well paid—commanding wages of $83,943 on average. Still, this has dropped from $89,028 in 2009-10 and looks likely to continue to decline over the medium to long term, forced down by increased automation.

50.9%

26.7%

9.0%

13.4%

55.6%

23.0%

21.4%

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The OutlookThe outlook for road and rail is mixed, with some areas continuing to perform strongly while others slow.

Short term

Resources-related private rail construction investment will decline markedly in the short term as the sector transitions into mining production phase. BIS Shrapnel predicts that transport work done will retreat over the course of the current year to $1.9 billion and IBIS World forecasts a 30 per cent fall over the next three years, particularly in Western Australia and the Northern Territory where job losses are expected to be severe.

Conversely, government funding for passenger rail is forecast to increase in the next 12 months, leading to higher revenues in the years that follow. Projects like the North West Rail Link in outer Sydney will mainly create work for the large contracting firms but have little benefit for smaller firms and subcontractors. Small contractors in the road building part of the industry are likely to fair better as they will be needed in the construction of new housing developments.

Medium term

IBIS predicts moderate growth in passenger rail stemming from continued population growth, increased domestic oil prices and job creation being centralised in the capital cities. Revenue is forecast to grow at 2.8 per cent per year over the next five years, taking it to a total of $9.8 billion by 2018-19. Job opportunities are expected to increase as a result.

Road construction and operation are also showing stronger trends. The number of cars per household is stabilising but the increasing population ensures more and more cars on the road. Struggling new toll roads are expected to recover as fuel prices and congestion increase. Established toll roads are expected to grow at 2.5 per cent over the next five years. The construction industry is projected to grow at 5 per cent in the same period driven by proposed major projects like improvements to for the Bruce Highway from Brisbane to Cairns (funded by Federal grants of $6.7 billion plus $8.5 billion from the Queensland Government over the next 10 years), the $2.3 billion Goodna Bypass, the Sydney to Brisbane Motorway, the Bells Line of Road upgrade, and Melbourne’s East West Link, plus new housing developments. The proportion of public spending is forecast to grow by 4.1 per cent while private investment will drop by 3.3 per cent.

Long term

The long term outlook for the industry is for an overall slowing down.

IBIS forecasts slower growth in passenger rail as the industry’s ability to differentiate from private vehicles and roads is diminished by overcrowding and delays during peak hour. Passenger rail’s contribution to the national economy (industry value added, or IVA) is forecast to grow by 3.4 per cent over and above inflation over the next 10 years.

Slower growth in road construction commencements in 2014-15 suggest that work done will also decline in the longer term.

The outlook for road and rail is mixed, with some areas continuing Ambitious toll road projects in Melbourne and Sydney (East West Link and NorthConnex) are surrounded by uncertainty, carry a high risk of delays and may take many years to build. As a consequence, IBIS makes conservative estimates on their contribution to industry revenues in the medium-to-long term.

It will be interesting to see how much of this future activity translates into jobs for locals. Some debate has taken place recently in Victoria as to just how many locals will be employed on the East West Link project. A small-scale scandal erupted when a job website advertised a position for a 457 visa coordinator for the project, sparking speculation that the winning consortium intends to import cheap labour on mass.

Brendan Lyon, CEO of Infrastructure Partners Australia, told ABC radio in October ‘There are some major roadways yet to be built in Melbourne, Sydney and Brisbane but we can’t keep building roads forever. We need more mass transport’. He sees a role for the Commonwealth in setting the agenda. Although the states have primary responsibility and fund 80 per cent of transport investment, they ‘can be encouraged by the Commonwealth. Canberra can drive reform.’ This was clearly demonstrated during the Rudd Government’s 2009 stimulus which saw road construction boom.

Referenceshttp://www.propertyoz.com.au/Article/NewsDetail.aspx?p=16&id=6801

http://www.abigroup.com.au/News-Publications/Abigroup-News/?ItemID=326&count=1

http://www.nrw.com.au/getattachment/15487039-0ac1-4e24-873c-cce562008a1f/.aspx

http://clients1.ibisworld.com.au.ezproxy.lib.uts.edu.au/reports/au/industry/home.aspx

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A PROFESSIONALS AUSTRALIA INDUSTRY BRIEFINGINFORMER

CONTACTProfessionals Australia (formerly APESMA) Lvl 3, 163 Eastern Rd, South Melbourne, VIC 3205

info@ProfessionalsAustralia.org.au

ProfessionalsAustralia.org.au

Phone 1300 273 762

Roads and Rail Edition

NOV 2014