Transport Policy 46 (2016) 101–108

Contents lists available at ScienceDirect

Transport Policy
journal homepage: www.elsevier.com/locate/tranpol

A new rail access charging policy: Hunter Valley coal chain case study
Masoud Talebian a,n, Martin Savelsbergh b, Chad Moffiet c
a
University of Newcastle, Australia
b
Georgia Institute of Technology, United States of America
c
Aurizon Holdings Limited, Australia

art ic l e i nf o a b s t r a c t

Article history: We study a rail track access charging policy proposed by the Australian Rail Track Corporation (ARTC), in
Received 3 February 2015 which a discount on access charges is offered if above-rail operators employ the “efficient train”. The
Received in revised form efficient train is a train with a particular length, which results in the efficient use of a train path. The
24 October 2015
ARTC uses train paths to allocate access to the rail infrastructure. We discuss the motivation for and the
Accepted 30 October 2015
goals of the proposed policy. As the new policy does not allow for differences in the equipment and track
Available online 9 December 2015
section, we argue that it may distort decisions about the net to gross tonne ratio, and it may not give the
Keywords: right incentives for future investment. Therefore, we conclude that defining the efficient train only in
Common costs terms of length may not achieve its stated short term and long term goals and may have unintended
Shared infrastructure
consequences.
Rail transportation
& 2015 Elsevier Ltd. All rights reserved.
The efficient train
Economic regulation

1. Introduction points, 3 above-rail operators, 3 coal loading terminals with a total

of 8 vessel berths, and 9 vessel operators. Approximately 1700
Australian coal exports play a significant role in supporting the vessels are loaded in the Port of Newcastle each year. HVCC de-
Australian economy, and in meeting the world’s need for coal. livers coal along rail lines up to 450 km in length. For more in-
Australia is the largest exporter of metallurgical coal in the world, formation on the HVCC, see the website of the Hunter Valley Coal
and the second-largest exporter of thermal coal, with about 60% of Chain Coordinator (HVCCC), the organization responsible for long-
world market share in the former and about 20% in the latter. 1 term to daily planning of the coal logistics in the Hunter Valley
These exports make up almost 15% of Australia’s total export (http://www.hvccc.com.au).
earnings. The Hunter Valley coal region, exporting coal through The HVCC is critically dependent on a rail system, which is
the Port of Newcastle, is a major contributor to this economic managed by the Australian Rail Track Corporation (ARTC), to
powerhouse, by constituting more than 10% of the world’s total transport coal from load points at the mines to the port. The track
trade in thermal coal. The Port of Newcastle exports a greater is open access and can be used by any accredited above-rail op-
volume of coal than any other port in the world. erator. The track is divided into blocks, where each block can only
The Hunter Valley Coal Chain (HVCC) refers to the inland por- be allocated to one train at a time. The trains are restricted to use
tion of the coal export supply chain in the Hunter Valley, New train paths (slots), which represent the movement of a train in a
South Wales, Australia. The coal is mined and stored either at a specific section of track at a specific time. The main corridor of
railway siding located at the mine or at a coal loading facility used track is shared with other freight and passenger rail operations,
by several mines. The coal is then transported to one of the where passenger trains are operated by NSW TrainLink.
terminals at the Port of Newcastle, almost exclusively by rail. Once The ARTC, which is a not-for-profit organization, is responsible
a vessel arrives at a berth at the terminal, the stockpiles with coal for managing the rail infrastructure in the HVCC, which includes the
for the vessel are reclaimed and loaded onto the vessel, which allocation of train paths to the above-rail operators and the main-
transports the coal to its destination. The coordination of the lo- tenance of the rail infrastructure. The ARTC recovers its expenses
gistics in the Hunter Valley is challenging as it is a complex system from the coal producers in the form of access charges.2 The ARTC’s
involving 11 producers operating 35 coal mines, 27 coal load profit is regulated (capped) by the government.3 An important
2
This setting is different from the common setting in which a rail infra-
n
Corresponding author. structure provider charges the above-rail operators, who, in turn, charge their users
E-mail address: Masoud.Talebian@newcastle.edu.au (M. Talebian). (in this case the producers).
1 3
http://www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publica This resembles the requirement of the European Union that each class of road
tions/Documents/req/REQ-March15.pdf (Tables 4.1 and 5.1). vehicle covers its allocated costs.

http://dx.doi.org/10.1016/j.tranpol.2015.10.007
0967-070X/& 2015 Elsevier Ltd. All rights reserved.
102 M. Talebian et al. / Transport Policy 46 (2016) 101–108

component of its expenses relates to track maintenance, which is

proportional to the gross tonnes transported over the track.
The environment encountered in the Hunter Valley reflects a
global trend towards market liberalization and privatization in the
transport sector (Button, 2005). For rail transport, this trend has
included a separation of operating and infrastructure ownership,
Fig. 1. Stakeholders and costs.
which is necessary to preserve the rail’s financial viability and to
facilitate sufficient railroad competition (Winston et al., 1990). This
ongoing trend attempts to isolate track services where the fixed planning daily operations as well as capacity expansions. Its role as
costs are concentrated, from commercially driven operations a supply chain coordinator has been exemplary for others; we
(Brooks and Button, 1995). refer to Queensland Transport and Logistics Council (2014) as a
This separation, however, creates a new transport policy chal- recent example.
lenge regarding the allocation of common costs. It is well known In this paper, we review and analyze the rail access charging
that allocating common costs is a delicate and sophisticated task. policy proposed for the HVCC, evaluate its impact on the HVCC,
It is especially difficult for railway operations as common costs probe the validity of its underlying assumptions, investigate
form a substantial part of total costs; in addition to the costs of whether it may have unintended consequences, and assess the
tracks, common costs include the signaling systems and stations effect it may have on future infrastructure investments. The re-
and/or terminals (Button, 2010). mainder of the paper is organized as follows. In Section 2, we
The volume of coal exports in the HVCC has increased sig- provide some background of the new policy, and in Section 3,
nificantly over the last several years, and is expected to increase relevant academic literature and alternative policies are reviewed.
even more. The annual coal throughput of the HVCC was around In Section 4, the proposed policy is analyzed, and several concerns
92 million tonnes in 2008, increased to 169 million tonnes in 2014, about the policy’s efficiency are discussed. We conclude with some
and may be as high as 184 million tonnes in 2015. The volume of final remarks in Section 5.
coal exports is expected to increase to about 208 million tonnes
per annum by 2017.4 This increase puts an enormous strain on the
rail system and has fueled concerns that target future export vo- 2. The efficient train: a new access charging policy
lumes cannot be achieved.
Operating in an environment with tight capacity can be costly As mentioned above, the amount of coal that has to be trans-
as it may cause congestion and, as a result, vessel departure delays. ported across the Hunter Valley rail infrastructure has been stea-
Coal producers have to pay demurrage5 costs when vessels are dily increasing and is expected to continue to increase. There are
delayed. The annual demurrage costs were estimated to be as high two possible ways to accommodate this growth in demand:
as $300 million in 2004 (Zacarias et al., 2008), nearly 10% of total (1) investment in additional capacity, and (2) more effective use of
sales. In more recent times, due to better management of the lo- existing capacity. Increasing capacity is expensive. While coal
gistics in the HVCC, demurrage has been reduced; the Australian prices were increasing, the investment option was viable, but as
Competition and Consumer Committee (ACCC) forecasted a de- prices have flattened in the last few years, more attention has been
murrage of $400 million in 2009,6 while it barely reached $100 given to more efficient use of the existing capacity. As argued by
million.7 Winston (1991) a long time ago, “there are surprisingly large but
However, even though capacity concerns have recently eased plausible benefits from efficient infrastructure pricing and in-
somewhat, because several congestion relief projects have been vestment.” With this in mind, the ARTC is considering altering the
completed and forecast demand has decreased, the ARTC has way it levies access charges for the use of the rail infrastructure to
proposed to introduce an efficient train configuration, i.e., a train increase the possible transported tonnage.
with a specific number and type of locomotives and wagons, that As rail capacity is allocated in the form of train paths, one
uses a train path most efficiently and a new access charging policy possible way to increase the capacity efficiency is to increase the
designed to encourage above-rail operators to employ the efficient transported tonnage per train path. Currently, coal producers are
train configuration. The goal is to achieve the most efficient utili- charged for their share of infrastructure costs in accordance with
zation of the rail infrastructure capacity in the Hunter Valley. Thus, their annual gross tonne kilometers (GTKs), i.e., the ARTC charges
the ARTC has proposed to put in place price signals to promote the the coal producers a fixed price per GTK. However, the revenue of
efficient consumption of coal chain capacity within the constraints the above-rail operators is a function of the net tonnes trans-
of the existing infrastructure. ported, and, thus, the above-rail operators’ focus is on minimizing
To analyze the impact and (potential) benefits of the new rail the cost per net tonne kilometer (NTK), and they use train con-
access charging policy, it is important to highlight the stakeholders figurations with the highest NTK to GTK ratio. That ratio is pri-
in the HVCC affected by its introduction: the coal producers and marily determined by the number of locomotives and the number
the above-rail operators (see Fig. 1). The above-rail operators of wagons used in a train configuration. For example, a train
charge coal producers for the transport of coal in the form of train configuration with 2 locomotives (or locos for short) and 82 wa-
charges. Their objective is to maximize their profit, i.e., the differ- gons, has a higher NTK to GTK ratio, than a train configuration
ence between revenue from train charges to producers and their with 3 locos and 88 wagons. As a result, the above-rail operators
train operational costs. do not necessarily use train configurations with a length corre-
Interestingly, producers and above-rail operators in the HVCC, sponding to the maximum length the rail infrastructure can ac-
even though competitors, already cooperate by allowing the commodate, which is determined, among others, by the length of
HVCCC to coordinate the coal export supply chain through the shortest passing loop.
The proposed rail access charging scheme was introduced in
the Hunter Valley Access Undertaking (HVAU); we refer to Bor-
4
2014–2023 Hunter Valley strategy, 2014. dignon and Littlechild (2012) for a discussion about the process
5
A charge payable to the owner of a ship on failure to load or discharge the
ship within the time agreed, i.e., lay time.
and the negotiations that lead to the investigation and introduc-
6
Interim authorization request (2008). tion of the new policy. The proposal calls for banded GTK pricing,
7
http://ncc.gov.au/images/uploads/DEPONSu-006.pdf. where the price depends on the train configuration employed,
 M. Talebian et al. / Transport Policy 46 (2016) 101–108 103

with the ideal “efficient” train configuration having the maximum Table 1
possible length the rail infrastructure can accommodate. An op- Possible train configurations for above-rail operators.
erator who employs a train configuration with maximum possible
Market share Configuration NTK to GTK Feasible
length receives a discount, i.e., the employed configuration by the (%) ratio
above-rail operator affects the access charges. The expectation is
that the proposed change in access charging policy will encourage The first and second 70 3-96 Middle Yes
above-rail operators to use longer train configurations which, in operators
The third operator 30 2-82 High Yes
turn, will increase the system’s efficiency and throughput. Thus, 3-88 Low Yes
the aim of the levied charges is to internalize the external costs of 3-120 High No
transport in the hope of more efficient use of the rail network.
The ARTC’s proposed pricing scheme is based on the assump-
tion that a train configuration of 1610 m is the most efficient train
configuration for the system. Two of the three operators, which we European Commission does not consider external costs (Macário
refer to as the first and second operator, own (standard) locos and and Marques, 2007).
(short) wagons that can be combined into a train configuration of In a study with similarities to our investigation, Nash et al. (2004)
1610 m by having three locos and 96 wagons, or 3-96.8 This is the recognize another type of capacity costs: opportunity costs of trains
configuration that these operators are already using, so the new forced off the system by lack of capacity. In other words, the oppor-
policy does not change their operations. All wagons in use have tunity cost corresponds to the fact that once assigned, a train path
the same capacity and can carry a standard load, and as ARTC aims cannot be used for other transport. High opportunity costs are a sign of
to have the net tonne per train path as high as possible, the ARTC capacity scarcity. They propose a method for setting the opportunity
favors short wagons. However, another above-rail operator, which cost of a train slot which entails measuring the capacity required by a
we refer to as the third operator, owns and employs different given train run, and then estimating its opportunity cost in terms of
equipment: more powerful locos and longer wagons. This operator other trains forced off the system. Another factor in marginal costs is
uses a 2-82 train configuration, which is shorter than 1610 m, but the cost of congestion, i.e., the increased delays experienced by other
has a high NTK to GTK ratio. Naturally, this operator is reluctant to operators through extra traffic when an additional train is introduced.
switch to an over-powered train configuration of 3-88, which is Gibson et al. (2002) provide one of the early studies identifying the
1610 m long, but has a low NTK to GTK ratio. This operator, in fact, key drivers of capacity costs, and suggest a new access charge policy
would prefer to use a 3-120 train configuration, but cannot do so for the UK rail network.
at the moment, because the shortest passing loop cannot accom- Cole (2005) analyses the accounts of a few railway operators in
modate such a train configuration. Table 1 represents possible England and concludes that the share of track access costs varies be-
configurations for above-rail operators. tween 20% and 30% of total costs, on average. Kinnear (1988) studies
operating cost components of urban public transport in Australia, and
finds that the three costs with the highest shares are maintenance
3. Literature review: alternative policies (32%), capital related expenses (23%), and crewing (14%).
While marginal cost charging is efficient in maximizing welfare,
Vieira et al. (2007) distinguish three types of transport policy it is unable to recover the fixed costs of infrastructure, and will
instruments: supply capacity instruments, regulatory instruments, create a deficit if a firm operates under increasing returns to scale.
and economic instruments. Economic instruments are the ones Even the European policy directive, which advocates the marginal
which use market mechanisms to solve transport-related pro- social cost pricing principle, recognizes that there exists a conflict
blems. Pricing is one of the main economic instruments to manage between this and recovering the full cost of infrastructure provision
demand in the context of transport (Bontekoning et al., 2004) and (Commission of the European Communities, 1995).
has two important functions.9 First, it provides a mechanism for The main challenge in allocating common costs is how to al-
influencing the demand for travel for each mode of transport, so as locate the capital costs of expansions into access charges. The real
to achieve transport policy goals, such as economic efficiency and problem is that recovering the infrastructure costs from users is
environmental sustainability (Salucci and Šitavancová, 2010). difficult while open access entry is practiced (Nash and Matthews,
Second, it provides a mechanism for generating funds for public or 2009). There are two main structures to recover the fixed costs:
private expenditure, and helping markets to operate more effi- linear tariffs, which vary directly with use of the network and
ciently by ensuring that the external costs are met by those who two-part tariffs, which consist of charging every train path ac-
cause them (Goodwin, 1992). cording to its marginal cost and recovering the infrastructure costs
The economics principles suggest marginal cost pricing, i.e., by means of a fixed tariff that the operator has to pay as access
prices should be set to reflect the additional costs to society as- tariff. We refer to Laffont and Tirole (1994) for a more detailed
sociated with an additional km traveled or an additional trip made, discussion.
given that the capacity of the transport network is held constant Considering the above difficulties, marginal cost pricing is a
(Matthews and Nash, 2004). It has long been known that marginal straightforward option, where charges can vary with the price
cost pricing allows for maximizing social welfare (Hotelling, 1938). elasticity of demand, i.e., Ramsey pricing. Sánchez‐Borràs and
In the case of rail infrastructure, marginal social cost will generally López‐Pita (2011) study charging systems for high-speed rail lines
reflect four items: maintenance costs (e.g., wear and tear on the in Europe, and show that mark-ups above social marginal costs are
system), operating costs (e.g., signaling), external costs (e.g., en- applied in all the studied countries. These mark-ups are de-
vironmental effects), and capacity costs (e.g., renewal and up- termined according to infrastructure costs as well as the price
grading). It is noteworthy that the RailCalc project funded by the elasticity of demand (Ramsey–Boiteux pricing).
The International Transport Forum (2008) discusses the wide
range of practices in rail infrastructure charging within Europe and
8
We adopt the notation of X–Y for train configurations, where the first number the cost elements that are covered by these charges. There exist
refers to the number of locos and the second number refers to the number of
wagons.
different forms of charging: from a simple charge per GTK to a mix
9
“Financing, Pricing and Taxation” is one of the 24 themes in the Transport of reservation charges and charges per train km differentiated by
Research and Innovation Portal (TRIP), which includes nearly 200 projects. type of infrastructure and the time of day.
104 M. Talebian et al. / Transport Policy 46 (2016) 101–108

With regards to the benefits of introducing the notion of effi- technological and infrastructure requirements.
cient train configurations, Vidaud and de Tilière (2010) mention We start by having a closer look at the ARTC costs. A train
that consideration of the rolling stock type is one of the new configuration affects two components of the mine-to-ship costs.
concepts in Europe aimed at moving toward a more effective The first component corresponds to the operational cost of rail
charging system.10 Johnson and Nash (2008) study access charges infrastructure and rolling stock, e.g., personnel, track maintenance,
for a specific rail line in England, and observe that underpriced deterioration, and fuel. The second component corresponds to the
slots compound the problem of capacity shortage by incentivizing opportunity cost of the rail infrastructure, i.e., the potential value
train-operating companies to prefer operating frequent short of a train path.13 The coal industry is not the only possible user of
trains rather than less frequent long trains. the rail infrastructure and the ARTC can allocate the train paths to
passenger transport and other cargo transport, e.g., of agricultural
products, and the opportunity cost captures the potential benefit
4. Analysis which ARTC is foregoing by allocating a train path to the coal
industry.14
The original evaluation of the proposed access charge policy We observe that the second cost component, the opportunity
focused only on throughput, considered only a short-term horizon, cost, is a function of the number of train paths allocated to coal
and used a rigid model of the rail system in the HVCC. We believe transport and therefore is lower per net tonne for longer trains.
that the outcome of the evaluation of the policy may be different, Thus, from an opportunity cost perspective, train configurations
if the evaluation is broadened. with higher net tonnes should be encouraged. However, the first
cost component, the operational cost, is a function of gross tonnes
4.1. Evaluation criteria: Throughput, cost, and reliability and is not necessarily lower for trains with a higher net tonne. In
fact, it depends on the net-to-gross or wagons-to-locos ratio.
The stated goal of the efficient train is to “make more effective Considering both operational and opportunity costs, the optimal
use of existing train infrastructure”. Two possible measures of train configuration for the system is the one which carries the
system efficiency are: (1) throughput and (2) cost per net tonne. maximum net tonne per train path, and has the highest NTK to
With regard to the focus of above-rail operators on minimizing GTK ratio. We emphasize that we assume that contracted tonnage
cost per net tonne transported, we note that the total net tonne to needs to be met. Since the total net tonne that needs to be
be transported and therefore the above-rail operators’ revenue is transported is given, minimizing mine-to-ship costs is equivalent
determined in advance in the form of contracted coal export to minimizing cost per net tonne, and different from minimizing
tonnage.11 The focus of producers is on minimizing their train cost per gross tonne.
charges as well as their access charges. Therefore, from the pro- The above-rail operators’ objective is to minimize the sum of
ducers’ perspective, an optimal train configuration is one with a the train operational costs and the rail access charges. Note that
high net tonne per train path, which is in line with the ARTC’s while the producers pay the access charges, the above-rail op-
perspective, but also one which has a high NTK to GTK ratio, which erators are affected by these access charges, because the producers
is in line with the above-rail operators’ perspective. can choose the above-rail operator they contract with. An above-
Even though accommodating growth in future demand, and rail operator can influence its costs by the choice of the train
thus system throughput, is the motivation for the change in access configuration it uses.
charging policy, it is unreasonable not to consider the per-unit cost To compare possible configurations for above-rail operators, we
as well. From a system-wide perspective, a more appropriate ob- performed a quantitative analysis with regard to the cost efficiency
jective may be minimizing mine-to-ship transportation costs, of possible alternatives relative to the 2-82 configuration currently
conditioned on satisfying contracted net tonnage (or some target used by the third above-rail operator. Fig. 2 shows the computed
net tonnage), many of which are binding 10-year “take or pay” values where the improvement is in terms of total costs; negative
contracts.12 Therefore, we propose and analyze the following de- numbers imply that the new configuration has higher total costs
compared to the 2-82 configuration. It can be seen that from a
finition for an efficient train:
system-wide cost perspective, the above-rail operator should only
An efficient train is a train configuration which results in a system- switch from 2-82 to 3-88 (the longest feasible train configuration
wide minimum mine-to-ship cost per tonne of coal exported, for this above-rail operator) when the opportunity cost is ex-
subject to meeting a total export tonnage target. tremely high. The results also show that a switch to 3-120, from
either 2-82 or 3-88, improves the system-wide costs for any value
This definition reflects an environment in which producers of the opportunity cost (where we note that 3-120 is currently not
provide their anticipated contracted tonnage for the next few feasible). In other words, encouraging trains with a higher net
years to the ARTC and it is the ARTC’s responsibility to provide a tonnage can only be justified if the opportunity cost is much larger
transport infrastructure that allows this contracted tonnage to be than the operational cost. However, if that is the case, then there is
achieved at minimum cost. Given this perspective, the objective no reason to single out a 96-wagon configuration; configurations
for HVCC as a system is to minimize the mine-to-ship costs (and with even more wagons should be encouraged.
not maximizing throughput, as the contracted tonnage is a con- Given that the primary motivation for the introduction of the
straint that has to be met). Note that the definition of an efficient new access charging policy is increasing system throughput, we
train is, and should be, independent of the current environment, observe that even if the policy is successful and all above rail-
and does not even need to be feasible, i.e., satisfy current operators employ an efficient train configuration, the effect will
likely be minimal. The above-rail operators that already employ an
10
There exists a vast literature on the economic impacts of Longer and Heavier efficient train configuration are not affected by the new policy and
Vehicles in road transportation. Ortega et al. (2014) carry out a cost–benefit ana- represent about 70% of the system throughput. If the third
lysis to evaluate their usage in Spain and conclude that they provide significant
benefit without much sensitivity to key variables. The benefits can mostly be ex-
13
plained as resulting from a decrease of transportation costs per tonne-kilometer. The costs include other items such as loading and unloading costs, which are
11
Interestingly this is changing; producers are selling more and more on the not directly affected by the train configuration.
14
spot market. There exists a third cost component outside the focus of our study and it
12
http://www.theherald.com.au/story/1156412/where-next-for-coal-industry. relates to the cost imposed outside the transport system, e.g., environmental cost.
 M. Talebian et al. / Transport Policy 46 (2016) 101–108 105

Probability
Total System
Throughput
Fig. 3. Schematic graph on reliability.

Fig. 2. System wide effect of configurations.

(2) allowing longer trains, (3) increasing operating speeds, and
(4) accommodating higher axle loads.17
operator switches from a 2-82 configuration to a 3-88 configura- We believe that an investigation of the benefits of increases in
tion, then it can carry (88
82)/82 ¼7.3% extra tonnes per trip. This rail network capacity, i.e., the ability to accommodate longer
translates into consuming about 2.1% fewer train paths, which may trains, on system efficiency, and thus on efficient train configura-
not be sufficient. tions, has to be part of an efficient train analysis, because such an
The new access charging policy assumes that the delays ex- investigation may reveal more effective options to increase system
perienced in the system are the result of an increase in congestion. efficiency and reduce mine-to-ship costs. The proposed policy by
However, this ignores delays that result from equipment break- ARTC is based on the belief that promoting the use of longer trains
downs or malfunctioning (i.e., operational reliability). A recent is the best way to deal with limited capacity. However, increases in
discussion paper by the ARTC shows that cancellations represent a system capacity allow a focus on higher NTK to GTK ratios rather
loss of 10.6% of trains, and that 22% of cancellations are caused by than higher net tonne transported per train path, which results in
locomotive failures.15 When a loco breaks down, it may be possible higher system efficiency. We consider the potential impact and
to repair the loco within a few hours. However, if that is not benefits of two types of investments: investments in locos and
possible, and the loco needs to be “rescued”, recovery may take investments in extending passing loops.
days. Incidents requiring loco rescue are relatively common, oc-
curring about once per month, and they can have significant flow- 4.2.1. Loco Investment
on effects. A 3-120 configuration dominates other shorter configurations,
Operational reliability is of great importance as it allows a more e.g., 3-88, in both operational and opportunity costs because it has
effective use of the available capacity. As the number of locos and a higher NTK to GTK ratio and, thus, has a lower operational cost,
wagons increases, the probability of a mechanical failure increases. and because it carries more net tonnes per train path and, thus,
A configuration with three locos stops working if any of the three has a lower opportunity cost. Consequently, a rail access charging
locos fail to operate, which is more probable than one of two locos policy should be designed to encourage above-rail operators to
failing.16 Thus, while longer trains transport more coal and may invest in more powerful locos as it will result in higher system
increase system throughput, they may also increase the risk of a efficiency. However, the proposed access charging policy punishes
breakdown and may make the system less reliable. A careful the third above-rail operator for having more powerful and effi-
analysis of the costs associated with a change in reliability is re- cient locos. With their current locos, this operator either has to
quired to be able to decide on an efficient train, which may imply continue to use a 2-82 configuration, and thus incur a higher ac-
that longer is not necessarily better. Fig. 3 illustrates a schematic cess charge or to start using a 3-88 configuration (an overpowered
model to compare the two configurations. The solid line corres- configuration) and incur a higher operational cost.
ponds to employing shorter configurations, which results in
slightly lower total system throughputs, but with a much higher 4.2.2. Loop Investment
likelihood of achieving those system throughputs. The dashed line The factor limiting the maximum length of the trains that can
corresponds to employing longer configurations, which results in be used is the length of the shortest passing loop. To be able to use
slightly higher system throughputs, but with a much higher like- longer trains and more efficient configurations, such as the 3-120
lihood of not achieving those system throughputs. configuration, the shortest passing loop has to be extended.
The two investment options discussed above are closely re-
4.2. Time horizon: Short and long lated. Investment in loops increases system efficiency when there
are above-rail operators with powerful locos to run longer trains
While in the short term changing train configurations may be and vice versa. A rail access charging policy should focus on long-
the only way to influence the mine-to-ship transportation cost term efficiency by assuring that such investments happen. The
from a system perspective, in the long term investment options
truncated nature of the proposed access charging policy, i.e., not
need to be considered as well. While marginal cost provides in-
proposing/specifying access charges for trains longer than those
centives to make the best use of existing capacity in short-term, it
currently feasible, does not signal or suggest benefits to system
may not provide appropriate signals for the long-term invest-
efficiency of infrastructure investments. As it stands, the proposed
ments. The ARTC identifies four goals for the investment in up-
access charging policy does not encourage investments that will
grading existing rail systems: (1) delivering more train paths,
lead to increased system efficiency in the future, and may in fact
be detrimental to future system efficiency.
15
Hunter Valley access undertaking capacity loss review, 2012. Based on the above discussion, a cost–benefit analysis of
16
Representing the probability of one loco failure by p, it implies that the
probability of no cancelation with two locos is (1
p)2. By increasing the number of
locos from two to three, the probability of no cancelation decreases to (1
p)3. 17
2006–2011 Hunter Valley coal network capacity improvement strategy.
106 M. Talebian et al. / Transport Policy 46 (2016) 101–108

investing in more powerful locos and in extending passing loops Mines

should be conducted, and the rail access charging policy may
(also) have to encourage and promote such investments. The price
per gross tonne should be a decreasing function of the transported
net tonne. In that case, some above-rail operators may find that
Gunnedah
the optimal configuration is 3-120. Since producers ultimately Ulan
decide on and pay for infrastructure investments, such invest-
ments happen only when it is deemed profitable for them.
Therefore, an access charging policy should provide high in-
centives for using longer and more efficient trains, such as the
3-120 configuration, to signal to the producers that by investing in
more powerful locos and passing loop extensions the system ef-
Muswellbrook
ficiency will increase and their access charges will decrease.
In the discussion above, it is implicitly assumed that the rail
access charges are high enough to affect loco and loop investment
decisions. The cost of a new more powerful loco is $6M. The cost of

Zone 1
extending a passing loop ranges from $10M to $50M, and there are
about 20 loops on Zone 3, and about 10 loops on Zone 2.18 Notice
that the access charges paid by the producers are in the order of a
few hundred millions of dollars. It implies that changing the access
charges can incentivize above-rail operators to finance these in-
vestments. Notice that users can directly fund an extension
through initial up-front capital payment, as opposed to initial
funding being provided by the access provider recovered through
access charges.19
CCT NCIG KCT
4.3. Modeling assumptions
Terminals
In this section, we discuss other aspects and options that could/
should have been considered when contemplating a new access Fig. 4. Zones.
charging policy, e.g., whether it is appropriate to assume a single
efficient train configuration, whether efficiencies can be gained by different for different zones; this should be taken into account
changing operating practices or train speed, and the likely future when designing an access charging policy.
introduction of an Advanced Train Management System (ATMS). In addition to zones, the efficient train may depend on the
assets of above-rail operators. The third operator can operate a
4.3.1. Multiple configurations 2-82 configuration with a particularly high system-wide efficiency.
The HVCC rail network is divided into three zones, as shown in Therefore, the efficient train size is not unique, but depends on the
Fig. 4. Currently, the percentage of total loaded trains departing origin and destination, and the equipment of the above-rail op-
from Zone 1, Zone 2, and Zone 3 is about 60%, 25%, and 15%. Most erator. In summary, the analysis shows that the proposed access
of the growth in the demand on the network is expected to come charging policy, which singles out a configuration of length
from Zone 3.20 The opportunity cost of a train path in Zone 1 will 1610 m, is not likely to increase system efficiency; a set of efficient
likely be different from the opportunity cost in Zones 2 and 3. On train configurations may be more appropriate and effective.
the one hand, it may be higher because of a higher demand for
train paths from other freight and passenger transport, and be- 4.3.2. Operating practices
cause trains originating in Zones 2 and 3 have to pass through There may be innovative operating policies that can increase the
Zone 1. On the other hand, it may be lower because Zone 1 has system efficiency even with the current infrastructure. The ARTC
duplicated and triplicated track, while Zones 2 and 3 are single- recognizes that operational policies, such as train re-sequencing,
line track. Running long trains is more important in zones with
train provisioning, crew changes, and empty train holding, may all
higher opportunity cost. The presence of different zones and a
impact the scarcity in the system.21 As an example, it may be pos-
different opportunity cost for each zone may imply that a single
sible to assemble/de-assemble long trains at the start/end points of
efficient train is not appropriate; one size does not necessarily fit
Zone 1, or the scheduling of trains might be done in such a way that
all.
longer trains do not need to stop in passing loops. Such options
Fig. 5 compares the system cost of 2-82, 3-88, and 3-120 con-
should be considered simultaneously and in-depth when identify-
figurations for different distances. The total system cost is calcu-
ing the best way to increase capacity usage.
lated by adding opportunity cost per path and marginal cost, and
It is important to recognize that there are other factors that
then we divide it by total NTK. To avoid revealing sensitive data,
cause delays in the rail system. For example, coal spillage on the
we have scaled the result by setting the largest system cost to 100
track causes delays while the track is cleaned. Track availability for
and represent values as a percentage of 100. The results confirm
coal movement is affected by passenger and other freight rail
that the length of a trip and its origin and destination affect the
problems, particularly as passenger trains are given first priority in
costs and the optimal configuration. Given that the maximum
the system. Equipment breakdowns, or unplanned maintenance
length of a train that can be accommodated in a zone can be
events are relatively frequent, although for the most part, with the
exception of loco breakdown, they do not lead to major delays.
18
Hunter Valley corridor 2012–2021 capacity strategy, 2012.
19
Review of NSW rail access regime, 2013.
20 21
2015–2024 Hunter Valley corridor capacity strategy. Hunter Valley corridor 2012–2021 capacity strategy, 2012.
 M. Talebian et al. / Transport Policy 46 (2016) 101–108 107

Fig. 5. Effect of distances.

Delays at mine load points, which are generally at more remote policy based on an efficient train defined solely in terms of its
locations, can cause problems with train crews, who cannot stay length is not likely to achieve the desired goals. It also suggests
with the train indefinitely, but need to return to their home base that the proposed access charging policy may have unintended
within a reasonable window of time. The same is true with any consequences which may be detrimental for the system’s long-
train or track-related incident, in which a train is delayed away term efficiency and growth as it may discourage investment in
from the port, or the crew’s home base. Recovery from rail-related capacity expansion and more efficient equipment. Finally, our
delays can naturally lead to periods of higher rates of train arrivals analysis shows that the proposed access charging policy will sig-
at the port, which can cause queueing problems at the refueling nificantly change the competitive landscape for the above-rail
stations. Both train refueling rates and actual track capacity for operators.
parking trains can limit recovery. Using system efficiency rather than system throughput in the
analysis of the proposed rail access charging policy reveals that a
4.3.3. Speed train configuration change increases the system efficiency only if
The number of train paths that can be made available depends the opportunity cost of a train path is extremely high. However, if
on the assumptions about the speed at which trains travel. The the opportunity cost is extremely high, then an access charging
maximum speed at which a train can travel depends on the train policy should focus on encouraging below-rail infrastructure in-
configuration. For example, a 3-88 train configuration can travel at vestments. Our analysis also shows that the efficiency of a train
higher speeds than a 2-82 train configuration. If all trains in the configuration depends on the origin and destination of its path as
HVCC would be able to travel at higher speeds, assuming that this well as on the equipment employed. Consequently, it may not be
can be done safely, it may be possible to create more train paths, wise to identify a single efficient train configuration. Further, we
and increase throughput. observe that the introduction of an efficient train that is longer
than currently used configurations (and thus requires more locos)
4.3.4. Introduction of an ATMS may increase the risk of equipment malfunction, which can result
The argument that longer trains are better is partly based on in costly delays. These observations indicate that further in-
the observation that trains, regardless of their length, consume a vestigations may be warranted. Studying other tariff structures,
single train path. Therefore, longer trains reduce the opportunity e.g., two-part tariffs, and their implementation in HVCC is of great
cost on a per tonne basis. Trains paths are used to make the best importance. HVCC is different from most systems studied in the
use of a rail infrastructure that relies on conventional signaling literature, as the above-rail operators do not operate based on a
and switching systems, but they will no longer be needed with the timetable. Also, because there are several different-size operators,
introduction of new ATMS technology. With an ATMS, the distance two-part tariffs may be considered unfair in HVCC.
between trains will be managed automatically and there will no An opportunity for further research is stakeholder coordination.
longer be fixed-length line sections, i.e., sections of track between The HVCC has multiple stakeholders and for optimal system per-
consecutive signals, which force a separation between trains. With formance their goals need to be aligned. The access charging
an ATMS, a few long trains or many short trains may lead to the policy employed by the ARTC is an important lever to align the
same opportunity cost. The implication of the introduction of stakeholders’ objectives with the system objective, which is
ATMS, which is expected to happen, on the level of congestion in minimizing the mine-to-ship costs, i.e., the operational costs plus
the system has to be considered in determining the need for and the opportunity costs of the train paths allocated to coal transport.
the shape of a new access charging policy. To assure system efficiency, the independence of the above-rail
operators and the producers, as decision makers about invest-
ments, is critical; otherwise, there may exist conflicts of interest
5. Discussion and conclusions and a producer or above-rail operator can block investments to
limit the competitive advantage of other stakeholders. Coordina-
Currently, the ARTC charges a fixed price per GTK, but has tion analysis first needs to focus on the stakeholders’ best re-
proposed a new scheme, where the price per GTK depends on the sponse to policy changes (a firm’s perspective), and then focus on
length of the train configuration, i.e., the lowest price per GTK the interaction between stakeholders (a system’s perspective).
occurs for a train configuration with maximum possible length. Such situations and questions are typically studied using game
The ARTC hopes that the proposed rail access charging policy will theory; we refer to Savelsbergh and Talebian (2015) for a more in-
increase system throughput in the short-term. We argue that the depth investigation.
analysis performed by ARTC may have been too restricted, i.e., that Parts of our discussion relate to congestion pricing, which has
a more comprehensive analysis, considering also other objectives, been studied extensively for road transportation and is considered
time horizons, and system assumptions, might have produced a to be the most effective means of reducing car congestion, e.g.,
different conclusion. Our analysis suggests that an access charging higher peak charges for use of bus services and electricity and
108 M. Talebian et al. / Transport Policy 46 (2016) 101–108

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