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Australian Rail Network Needs Investment

Australia risks losng wheat sales to competitors if it cannot upgrade port and rail infrastructure fast enough and remove bottlenecks that have hurt exports following the country’s best harvest in four years.

Silos in the world’s fourth-largest wheat exporter are brimming with grain after the breaking of a once-in-a-lifetime drought, but inefficient ports and snail-pace trains cannot keep pace with the rebound in supply in a newly liberalized market.

Ships are waiting for up to five weeks to load cargoes at export ports and, as a result, wheat exporters say they can’t guarantee prompt delivery and that they could lose sales as Asian flour millers threaten to look to North America for supplies.

Even a new wheat export futures contract, to be launched in May, that could become a global benchmark, might be in jeopardy because of doubts over whether contracted wheat from Western Australia, the main export hub, can be delivered on time.

“We may be a first-world country but we’ve got third-world infrastructure,” said Doug Whitehead, a soft commodity analyst at Australia & New Zealand Banking Group Ltd.

THIRD-WORLD INFRASTRUCTURE

“They (flour mills) are looking to the United States and Canada for similar protein wheats,” he added.

Indonesia recently bought 60,000 tonnes Standard White wheat (SWW) from the United States at $236 a tonne on a cost-and-freight basis, but it could have instead purchased Australian Standard White at $222 per tonne into Indonesia.

Similarly, South Korea last week bought 10,000 tonnes of U. S. wheat that could have come from Australia at lower prices.

Whitehead says price-sensitive customers in Asia will continue to buy grain from Australia, which is competitive because of its proximity to Asian ports. But if the customers want prompt shipment, they will look elsewhere.

Poorly kept rail tracks, a lack of rail capacity and unexpected problems associated with last year’s liberalization of Australia’s wheat-export industry have been blamed for hampering exports that are still expected to jump about 66 per cent to above 10 million tonnes this year, thanks to drought-breaking rains.

The teething problems arose during this season’s harvest, the first since Australia scrapped its wheat-export monopoly, run by AWB Ltd., and replaced it with a competitive system of 22 licensed exporters.

TRAINS SLOWER THAN BICYCLES

Grain trains move from farm to port at a bicycle’s pace.

“You’ve got trains running around at 16 kilometres (km) per hour, but if the tracks were fixed they could be running at 70 km per hour– then a train could make two trips a day instead of half of one,” said Colin Tutt, general manager at CBH Operations, which handles most of the grain from top exporting state Western Australia.

In Western Australia, a grain industry taskforce has estimated that an initial A$400 million ($264 million) was needed to be spent just on essential track-work to speed up trains.

Wheat-producing states also hope to tap into a A$2 billion national infrastructure fund to finance the upgrading of rural rail networks neglected during years of drought and monopoly. But specific allocations to help the industry have yet to be announced.

Tutt said the rail network had been developed in the monopoly days.

“We haven’t had the opportunity yet to actually modify it to meet the new demands of a deregulated environment,” he added.

CBH has expanded its road transport fleet, boosting its grain-handling capacity, from rural silos to port, to 1.1 million tonnes a month from 795,000 tonnes.

BICKERING

This has solved part of the problem, but not the bottlenecks at the ports. In Western Australian ports, inefficiency means there is bickering over shipping allocations.

“Everyone is a bit frustrated as it’s adding to costs that have to be absorbed,” said Mike Chaseling, deputy chairman of grain marketer Emerald Group, which was hit with demurrage charges in Western Australia as ships waited to take on about 500,000 tonnes of wheat destined for Iran.

Chaseling said east coast exports had also slowed to a snail’s pace because of poor tracks and a lack of rail capacity after one of the main rail-freight firms, Pacific National, withdrew from the grain business in 2007 to concentrate on coal.

In New South Wales, the second-largest grain-exporting state, the number of wheat trains has dropped to about 18 from 48 in the last few years, partly reflecting Pacific National’s move.

On the east coast, in New South Wales state, an inquiry is also underway into the state’s grain rail network.

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