AusIntermodal 2014 Future Rail Capacity Requirements & Developments at Intermodal Terminals

9 -10 September 2014

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Aurizon overview

•  Australia’s largest rail freight hauler

•  Top 50 ASX-listed company

•  Market capitalisation more than AU $10 billion*

•  More than 100 sites across Australia

•  Employing approximately 7500 people in hundreds of communities across Australia

•  We move more than 250 million tonnes of Australian commodities each year

* at August 2014

The  volume  of  rail  freight  on  the  east  coast  of  Australia  is  expected  to  double  to  2030  

23

7 4

16 8

East-West Corridor North Coast Line (QLD)  North-South Corridor  

2.3x

1.4x

2.0x

2013 2030

(Projected)  Total  Intermodal  Rail  Market  Growth:  2013  –  2020    (NTK  Billions)  

Source: Company reports; Broker reports; AZJ Engineering Services division (Operations Statistics Book & Master tonnage file); BITRE, ARA and ARTC data; & AZJ analysis

Based  on  current  infrastructure,  growth  on  the  eastern  seaboard  will  likely  exceed  supply  prior  to  2030  

Corridor Rail Share of Land Transport Train Running

Current Number of Services Operated

Estimated Demand for

Services by 2030

East - West 82% 43-63 Hrs ~30 ~42

North South 24% 32-34 Hrs ~15 ~35

North Coast Line 40% 36-42 Hrs ~72 ~90

4 Source: E-W / N-S Services 2014 – ARTC; Aurizon Analysis 2014

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….however  capacity  can  and  is  being  expanded  

Melbourne to Brisbane – Infrastructure development on coastal route – Inland rail project

Melbourne to Perth – Longer trains to Adelaide – Double stacking to Perth – Development of alternative, off-peak paths

Brisbane to Cairns – Longer trains being considered – Updating equipment leads to better utilisation

OPTIMUM ROUTE

Melbourne  

Wagga  Wagga  

Parkes  

Moree  

Brisbane  

Albury  

North  Star  

Narromine  

Narrabri  

Toowoomba  

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A  bigger  challenge  for  rail  remains  credibility  -­‐  which  is  largely  premised  on  historical  issues  

Reputation Despite freight availability at terminals being near 100%

Reliability Recent investment in rolling stock, technology, track & infrastructure development assure on time running

Relevance Connecting with freight owners’ supply chains

Scale On the east coast in particular, have yet to achieve the scale that delivers competitive economics over distance

Reform Apples and apples comparison of investment shows rail more productive over long distances over time…with scale

At  an  Enterprise-­‐level  US  Class  1  Railroad  performance  metrics  are  the  product  of  a  15  year  transformaNonal  journey  

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Period  of  greatest  returns  

2.4  2.3  

1.3  

Ph  1:  Industry  raDonalisaDon    and  consolidaDon  

Ph  3:  Reaping  the  commercial  benefits  

Data  not  applicable  

1995   2004   2011  1965  

• ConsolidaDon  from  75  Class  1s  in  1965  to  7  in  1995  

• Divestment  of  branch-­‐lines,  focus  on  trunk  corridors  and  building  strong  regional  networks  

NTK  (trillions)  

Rev    ($AUD)  /  '000  NTK:   22   -­‐2%  p.a.   19   +4%  p.a.   26  

Cost  ($AUD)  /  '000  NTK:   18   -­‐1%  p.a.   16   +2%  p.a.   19  

IC  ($AUD  bn):   49   +9%  p.a.   103   +4%  p.a.   138  

• M&A  to  solidify  regional  posiDons  

• Major  investment  in  signalling  and  track  infrastructure  

• Increased  velocity,  improved  reliability  and  ran  scheduled  services  

• Underpinned  by  performance  culture  

• Shi`  from  cost-­‐plus  to  more  sophisDcated  value-­‐based  pricing  

• Premium  service  provision,  including  non-­‐rail  logisDcs  services  

5.8%  

10.5%  

82%  

15  

5  

90  

85  

80  

75  

70  

65  

60  

10  

0  

OperaDng  raDo  

ROIC  

Ph  2:  Investment  in  infrastructure  to  support  precision  railroading  

Op.  RaDo  (%)  

ROIC  (%)  

Early  targeted  investments  in  producDvity  set  the  stage  for  a  step-­‐change  in  the  customer  value  proposiDon  

Notes:    Figures  shown  are  an  aggregaDon  of  UP,  CSX,  BNSF,  NS  and  KCS  (does  not  include  Canadian  NaDonal  or  CP  as  only  USA  operaDons  reported  to  AAR).  All  dollar  figures  expressed  in  terms  of  2011  AUD  Source:    Spreadsheet:  Analysis  of  Class  1  Railroads  1995  to  2011  (AssociaDon  of  American  Railroads  (AAR));  &  AZJ  Strategy  analysis  

Despite  the  structural  differences,  there  are  fundamental  building  blocks  from  the  Class  1  journey  that  are  readily  applicable  to  our  own  emerging  Intermodal  story  

Target  footprint   Performance  upli`   Customer  engagement  i   ii   iii  

11  07  03  99  95  0  

3  

6  

9  

161  165  169  

186       1999   2002   %  improvement  

Velocity    (miles  per  hour)  

18.1   22.5   24  

System  dwell  Dme  (hours)  

33.1   23.2   30  

Fluidity  (‘000  cars  on  line)  

270   230   15  

On-­‐Dme  departure  (%)  

43%   77%   77  

On-­‐Dme  arrival    (%)  

68%   76%   13  

+10%  

+54%  

+20%  

+31%  

+58%  

+43%  

+38%  

Intermodal  

Industrial  

Forestry  

Chemicals  

Coal  

AutomoDve  

Agricultural  

2011    $  per  tonne  

2004    $  per  tonne  

Miles  of  track  owned  and  operated  (‘000s)  

Capital  investment  profile  (AUD  Billions)  

AR   BR  

More  capital  on  less  track  implies  footprint  focus  and  opLmisaLon    

Top-­‐line  yield  maximisaLon  

•  Developed  detailed  knowledge  (intelligence)  of  customer  needs  

•  Segmented  market  •  Offered  tailored  soluDons  and  value-­‐

add  services  •  Developed  differenDated  pricing  

models  

•  Simplified  interface  with  customer  

Notes:  ‘Performance  upli`’  table  based  on  CSX  case  study  Source:    Susquehana  Equity  Research  December  7  2010;  Memphis  Chamber  of  Commerce;  CSX  2002  Annual  Report’;  Spreadsheet:  Analysis  of  Class  1  Railroads  1995  to  2011  (AssociaDon  of  American  Railroads  (AAR));  &  AZJ  Strategy  analysis  

iv  

v  

Key  area  of  reform  that  have  the  potenNal  to  liU  the  producNvity  of  freight  and  ensure  there  are  no  distorNons  affecNng  modal  choice  

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Area   Issue     Policy  change  required  

Pricing of road access and use for major freight roads

Fuel and registration based charges do not provide effective price signals and do not fully reflect the costs of actual road use by heavy vehicles

Introduce  pricing  reform  based  on  mass,  distance  and  locaDon  (MDL)  charging,  only  on  major  freight  routes  (naDonal  highways  and  state  government  owned  arterial  roads)  

Linking Infrastructure Pricing and investment

Infrastructure planning and service delivery are not directly linked to infrastructure pricing

All revenue from MDL charging should go directly to road agencies which must develop and deliver infrastructure service standards that meet the requirements of freight operators

Efficient Development and Use of Intermodal Terminals

There is a need for effective planning and consistent regulation of intermodal terminals in aligned with supply chain demands of freight networks

All major road and rail projects should include an assessment of relevance to immediate and long term supply chain productivity needs

Reforms identified by the Productivity Commission as offering potentially ‘major’ prospective economic benefits.

Ports  of  Melbourne,  Sydney  and  Brisbane  together  handle  80%  of  Australia’s  containerised  freight  volumes.    

3.6  

Adelaide   0.3  0.2  

0.2  

Fremantle   0.7  0.3  

0.3  

Brisbane   1.1  0.5  

0.5  

Sydney   2.1  1.1   1.1  

Melbourne   2.5  1.2   1.3  

7.2  3.5  Australia  

Container  throughput  by  port,  2012-­‐13  Millions  TEUs  

%  full  outbound  

%  full  inbound  

70%  90%  

42%  99%  

64%  88%  

53%  96%  

83%  75%  

•   Share  of  total  throughput  by  Port  broadly  aligns  to  the  distribuDon  of  Australia’s  populaDon.  

•   AggregaDng  full  and  empty  containers,  split  of  inbound  and  outbound  is  50:50  naDonally  and  across  each  port,  which  is  natural  given  the  circular  flow  of  containers  into  global  shipping  market.  

•   Full/empty  split  reveals  Australia  cannot  fill  over  one-­‐third  of  empty  outbound  containers.    

•   Melbourne  fills  the  highest  share  of  outbound  containers  –  consistent  with  Victoria’s  relaDvely  large  manufacturing  industry.  

60%  90%  

Inbound/outbound  split  is  

approximately  50:50  in  each  port  

Exports   Imports  

Note:  Total  volumes  include  import  and  export  TEUs  (full  and  empty  containers)    Source:    Booz  and  Co  (intermodal  supply  chain  study  2009).  BITRE  (Australian  mariDme  acDvity  to  2029–30,  2010)  

1,526  

2015  

8,697  

772  

2,023  

2010  

6,500  

582  

11,594  

1,013  

2020  

+5%  

2,656  

2030  

17,950  

969  

1,601  

4,196  

2025  

15,036  

771  1,274  

3,338  

ADE  PER  BNE  SYD  MEL  

Container  throughput  expected  to  grow  at  5%  to  2030  with  Melbourne  and  Sydney  remaining  key  Australian  ports,  Brisbane  to  grow  strongly  

CAGR  2010-­‐30  

5.2%  

Australian  IMEX  container  volumes  (TEU  000’s)  

5.2%  

5.2%  

5.2%  

5.2%  

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NSW

NSW Master Transport Plan – Interstate Rail:

•  South Sydney freight loop has relieved some of the burden through grade separation, passing loops etc.

•  Curfew in favour of passenger services still limits flow of interstate rail traffic during peak periods

•  New Enfield terminal due later in 2014

•  Moorebank and Western Sydney Intermodal Terminal still in planning stages

•  Growth will significantly challenge infrastructure capacity

Source: NSW Master Transport Plan December 2012

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Victoria

VFLP Long-Term Metropolitan Freight Vision – Interstate Rail:

•  Dynon / Tottenham freight precinct to mid/late 2020’s

•  WIFT land & freight corridor business case being completed

•  Additional road capacity limited

•  Rail expected to shoulder much of the burden of “new” freight task

Source: Victorian Freight & Logistics Plan August 2013

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SE Queensland

Connecting SEQ 2031 – Interstate Rail:

•  Upgrade Acacia Ridge Intermodal Terminal

•  Upgrade Brisbane multi-modal terminal

•  New intermodal terminals at Bromelton, Ebenezer, Charlton Wellcamp, & North of Brisbane River before 2031

•  Freight task to more than double to 2031

Source: Queensland Dept Main Roads & Transport Connecting SEQ 2031

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Summary Messages !  Ongoing development of rail and terminal infrastructure is required to ensure

capacity to meet growth demands

!  Rail has inadequately met the needs of our customers and so needs to work to be more relevant to our customers and their supply chains

!  Rail connectivity between regions, ports and major centres is crucial – Currently in planning but only partially in practice

!  A 1% increase in efficiency of the logistics industry will boost the economy by $2 billion……..and rail has the potential to increase efficiency several percent (ALC report Economic Significance of the Logistics Industry)

Questions?