April 10, 2012
by Meyer Sosland
Since the abolition in 2008 of the single-desk wheat export system under the Australian Wheat Board, the process of moving Australian grain from the farm to its customers has become a more complicated affair. A variety of developments have produced an increasingly complex grain supply chain. Australia’s Wheat Export Authority has accredited 27 entities to export wheat. The development of local grain co-operatives, greater usage of trucks for grain transport and increased containerization of grain for export have also contributed to a more complex environment.
Combined with the recent record grain harvests arising from good rainfalls, the grain logistics supply chain — comprised of grain growers, grain handlers and grain transport companies — has been significantly tested.
In response to pressure on Australia’s grain infrastructure supply chain, the government of the Australian state of Victoria established a Grain Logistics Taskforce — which included farmers, representatives of the grain companies (GrainCorp, AWB Grainflow [Cargill] and Australian Bulk Alliance), the rail industry and the ports authorities — in August of 2011. This group produced a report in late December that analyzed the region’s grain industry supply chain.
The report indicated that Australia’s grain industry has accepted this new reality and has worked to improve the efficiencies in the grain supply chain. Larger, more efficient grain silo facilities, investments in grain train capacity and improving the management of grain deliveries to ports are among the improvements that have already been made.
The taskforce also identified some major challenges that must be addressed to ensure the grain supply chain continues to become more efficient and can handle bigger harvests with minimal delay to export grain shipments. Improving train and truck productivity and reducing the incidence of ships failing survey are critical to the grain supply chain in ensuring the grain harvest is moved at least cost and is competitive with overseas grain producers.
Victoria’s grain supply system
The taskforce noted that an important trend in Australia’s grain storage system caused by improved grain transport efficiency is fewer but larger off-farm storage sites. Grain is stored by the grower either in off- or on-farm silos or bunkers for subsequent transport by train or truck into the export or domestic markets. Once the grain is delivered to a storage site, grain marketers contract to buy the grain from the grower.
The new “super-sites” are part of a trend toward rationalization of the bulk grain handling system. The taskforce said one result of this is that rail services to port terminals are being concentrated on fewer silos to increase rail efficiencies and economies of scale. Smaller, limited service storage silos have been progressively closed or leased out to third parties for smaller-scale segregations of grain.
Export grain can be taken directly to port by a marketer from on-farm storage site or the marketer can arrange for the grain to be transported to port from an off-farm storage facility. Victoria has three export grain terminals — Melbourne, owned and operated by ABA, and Geelong and Portland, both owned and operated by GrainCorp. All three ports receive grain by rail and road.
Increase in containerized grain
The taskforce’s report indicated that despite its higher cost than bulk grain transport, containerized grain exports have increased substantially over the past decade. There are a variety of reasons cited for this including: demand for small grain shipments; specialized shipments; reduced availability of bulk ships (there is increasing competition for bulk ships from the mining industry); availability of bulk unloading facilities at the receival port; and convenience for end-users of bulk storage and transport capacity.
According to the report, across all of Australia non-bulk grain exports have increased more than 420% since 2000-01 and are consistently in excess of 2 million tonnes per annum since deregulation of nonbulk exports (bags and containers) in August 2007. In 2000-01, non-bulk grain exports were only 4% of total grain exports compared with 17% of grain exports in 2009-10.
Containerized grain as a proportion of export grain varies between Australia’s states. It is about 30% of Queensland’s grain exports, 20% of New South Wales’ and only 6-7% of South Australian and Western Australian grain exports. This reflects the higher proportion of grain exported from South Australia and Western Australia (90% and 70% respectively) than from the eastern states and is also influenced by the grain marketing process – non-bulk wheat does not require accreditation.
Containerized grain exported through Victoria’s Port of Melbourne has increased by 200% in the past five years and now represents around 30% of grain exports.
Grain is containerized at packing facilities in Geelong, Dooen, Horsham, Merbein, Tocumwal (NSW), Lara, Laverton, Sunshine and ABA’s grain terminal at the Port of Melbourne.
Approximately 22% of containerized grain — around 11,000 teu (twenty food equivalent units) per annum — is railed to the Port of Melbourne.
As demand for containerized grain increases, containerized grain and other agricultural exports at the Port of Melbourne would benefit from increased capacity at the port to handle containers by rail. According to the taskforce, this could be achieved by:
• increasing shared use of the nearby Westgate Ports terminal
• re-opening and expansion of the DP World WestSwanson Dock rail terminal with the addition of two more dual gauge tracks
• providing a direct rail connection between the Patrick and DP World rail container terminals.
Without such improvements, on-port rail operations at the Port of Melbourne will remain inefficient and additional demand via the Dynon terminal will incur the longer, slower transfers across Footscray Road by road, including possible delays due to truck queuing at terminal access points.
The taskforce noted that a recent adjunct to on-farm storage in Australia is the development of local grain co-operatives. These are grain storage facilities developed by local farmers to augment grain storage facilities provided by major companies but at less cost. The taskforce noted that, for example, a co-operative storage facility at Boort in central Victoria has 60,000 tonnes of shared capacity.
Similar storage facilities have been built at Werneth, northwest of Geelong, Berriwillock in northwest Victoria, and at Moulamein in southwest NSW.
The co-operatives provide farmers more control over their grain and reduce their storage and handling costs. Instead of growers investing in their own on-farm storage, they can pool their resources and invest in a bigger, shared facility at less cost per grower. These facilities also increase grain growers’ ability to market their grain by pooling their resources — instead of a marketer buying 20,000 tonnes of grain from 20 different growers, they can source the same amount of grain from a co-operative and deal with a single transaction.
However, the location of these new facilities is not conducive to rail transport as they are located where land is available, which may not be near a railway line. This further contributes to use of trucks for grain transport. The taskforce recommended that local governments work closely with these co-operatives to ensure they are planned and sited with easy access to rail sidings for transport by rail in bulk or containers.
Trucks are used in Australia’s grain supply chain to transport grain from farms to silos or direct to port for export, depending on marketers’ arrangements with growers. Some marketers prefer to truck grain direct to port to bypass the storage and transport systems of the larger bulk handlers. Trucking grain direct to port also avoids queues at silos, although this can lead to queuing at ports instead. The taskforce said that lack of coordination between truck-loading at farm or silo and delivery to port can also results in truck queues.
Truck queues also occur when silos have slow and inefficient loading capability, which increases grain transport costs because of underutilization of trucks transporting grain.
The truck queuing problem is managed at the Port of Portland through a provision by GrainCorp of an off-port truck marshaling area. Truck drivers can wait there with full rest provisions until they are required at the port, which reduces truck queues at the port and truck driver fatigue. However, there is no similar truck marshalling facility near the Ports of Melbourne or Geelong.
The taskforce noted that one potential way to address the issue of truck coordination is for the major grain marketers to establish a transport committee similar to that established in South Australia by Viterra.
Grain trains in Victoria are primarily provided by Pacific National (PN) in partnership with GrainCorp, and El Zorro in partnership with AWB Grainflow. Grain marketers who can afford to contract their own train or trains primarily use rail transport for their own purposes but can sell capacity to other marketers who buy capacity on a booked or spot basis depending on demand.
The taskforce noted that grain marketers who do not have their own trains often contract with trucking companies because of price, convenience, flexibility or lack of availability of rail capacity.
Over the past four years, the Victorian and Australian governments have invested A$1.2 billion in improving Victoria’s rail freight infrastructure. This includes the A$73 million upgrade of the Geelong to Mildura railway line to improve its operational performance for grain and container trains and A$82 million on upgrading and maintaining grain lines in the state’s northwest. There have also been improvements in rail access to the ports of Melbourne, Geelong and Portland as well as rail capacity improvements in the critical rail freight corridor in Melbourne’s inner west, which is used by interstate and regional freight trains including grain trains going to and from the Port of Melbourne.
The taskforce said these investments have significantly improved the freight capability of Victoria’s interstate and regional rail networks, which has facilitated reduced grain train cycle times.
Delays to grain trains cause delays to the entire grain supply chain through delays to grain clearance at silos, which affects harvest clearing with consequent delays to grain ships at ports. In turn, this can lead to increased truck use for grain transport to port to meet shipping schedules. Increased train cycle times due to infrastructure constraints reduces train productivity, which increases costs to growers from decreased train productivity and increased train operating costs.
Port facility improvements
According to the taskforce, deregulation of the export grain market has led to a decline in rail’s share of the Victorian export grain task from about 70% to 50% or less. As noted above, more grain marketers and increased on-farm storage has resulted in more grain being trucked directly to port. In the 2010-11 financial year, rail market share of export grain was approximately 40% based on the following port throughputs:
• Melbourne: 1.1 million tonnes throughput; rail 20% = 200,000 tonnes
• Geelong: 2.1 million tonnes throughput; rail 40% = 800,000 tonnes
• Portland: 1 million tonnes throughput; rail 40% = 400,000 tonnes.
However, irrespective of delivery mode, port capacity and operating hours affect port usage for export grain.
The capacity of each grain port terminal is:
• Melbourne: 48,000-tonne capacity; 100,000 tonnes per month throughput; 24/7 operation
• Geelong: 230,000-tonne capacity; 300,000 tonnes per month throughput; seven day/week operation, but not
• Portland: 60,000-tonne capacity; 80,000 tonnes per month throughput; seven day/week operation, but not 24 hours.
The taskforce said port capacity, port throughput and port operating hours all influence grain aggregation (amount and type of grain) at the port and ship calls. Congestion at one port may result in a ship calling at another with consequent diversion of the landside transport task and associated implications for the supply chain. Awaiting a ship call also causes problems in the grain supply chain, because silos remain full with no ability to clear them or deliver to them.
The Port of Portland is investigating improving its grain throughput by rail by extending the grain siding to the end of the grain wharf, which would avoid the need to break grain trains into smaller groups of wagons for unloading, which adds time and cost to the unloading process.
The taskforce noted that the most significant issue affecting port efficiency for grain transport is a ship being presented for inspection in an unacceptable condition and consequently failing survey.
Ship surveys are undertaken by marine surveyors who assess the ship’s seaworthiness and who check for things like rust, minerals or contamination and the Australian Quarantine and Inspection Service (AQIS) Officers check the ship’s ability to hygienically transport grain by looking for things like grain residues, insects or scale.
AQIS estimates that about 20% of ships fail survey with consequent delays to the grain supply chain all the way back to the farm, because grain cannot be unloaded from port silos or delivered to them. AQIS has advised the percentage has not increased relative to the number of ships being surveyed.
The taskforce noted that if a ship fails a marine survey at anchor, another ship can be scheduled in its place until the problems are rectified. A ship that fails an AQIS survey at berth has repercussions all the way back up the supply chain, because loading cannot begin until remedial action is taken, which can take a few hours or up to several days.
The taskforce said that the Australian government is undertaking an Export Certification Reform Package to examine ways in which the export certification process can be improved.
One of the recommendations of the Reform Package is to allow industry to engage its own AQIS Authorized Officers (AAOs). These will be people trained in export inspection functions in accordance with Australian export legislation. Under this reform, ship surveys could potentially be undertaken at anchor by inspectors who also conduct marine surveys. This may provide cost savings and fewer delays to industry.
Australia’s grain industry
Australia generally produces around 22 million tonnes of grain per year with 13 million tonnes exported to 52 countries for an annual export value of over A$5 billion (0.5% of Australia’s Gross Domestic Product). Domestic grain consumes the remaining 9 million tonnes. Export grains include wheat, rice, barley, maize, oats, sunflowers, chick peas and cotton seed.
Wheat is Australia’s biggest and most important grain crop, worth about A$4 billion each year and accounting for 14% of the world’s export demand. Average annual Victorian grain production is around 4.5 million tonnes of which 70% to 80% is wheat, barley and canola. These grains are the focus of this report because of their importance to the export grain task and its transport requirements.
The taskforce noted that in 2009-10 Victoria exported 1.8 million tonnes of grain (about 10% of Australia’s total grain exports), worth A$659 million. Victorian domestic grain consumption is approximately 2.5 million tonnes per annum and is used in the dairy, livestock and flour milling sectors. Victoria’s major grain production has varied over the past decade from 1.6 million tonnes in 2006-07 to 7.1 million tonnes in 2010-11. During that period, the state sometimes had little exportable grain with most used for domestic consumption. The 2011-12 grain harvest is predicted to be 6.2 million tonnes.
In Victoria, grain is grown on 5,500 farms with around 3,000 grain “specialists” and 2,500 grain producers as part of a mixed farm business. These farms employ about 8,800 people. Victoria’s grain farms are predominantly located in western and northern Victoria with most being in the Mallee and Wimmera regions.