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3.2 Improve freight efficiency for industry competitiveness

Victoria’s prosperity is supported by businesses that move billions of dollars in goods every month – across the state, elsewhere in Australia and to overseas markets – including many items that people use every day.1

Businesses across metropolitan and regional Victoria will continue to need strong and flexible connections to their domestic and international customers, including through freight terminals and ports, to remain competitive. Freight companies and operators themselves need modern, adaptable infrastructure to nimbly respond to changing market conditions.

Keeping freight moving as efficiently as possible helps keep costs down, maximises trade and creates the environment for companies to grasp new opportunities.2

Long-term planning for, and investment in, Victoria’s freight infrastructure can support business operations in the face of economic transitions, technological change, and changing consumer behaviour. Freight connections also support greater resilience in a dynamic global marketplace, including in the event of major shocks, such as the COVID-19 pandemic, that disrupt trade and supply chains.

Freight volumes will continue to grow and place pressure on road networks

Growing freight volumes place pressure on the transport networks they use. However, this task has historically not been evenly distributed between road and rail. Most of Victoria’s freight is moved on the road network, with the feet of freight trucks increasing by 35% in the decade to 2017.3 By contrast, the volume of freight moved by rail has not changed significantly in decades, and has declined for some markets.4

Manufacturing remains a major contributor to the economy, with around 300,000 Victorians employed in manufacturing in early 2020.5 Many industrial and logistics precincts are in Melbourne’s outer suburbs, where they generate demand for transport and logistics services, industrial land and ports.

Location and transport connections are important factors for growing industrial sectors. Motorway network accessibility along with labour and land availability are two elements that heavily influence where freight distributors locate.6

The road networks in and near these places will need to move freight reliably and efficiently around the metropolitan area, connecting with regional and interstate producers, and international ports. But the city’s outer suburbs have underdeveloped motorways and freeways compared with established areas, limiting their capacity to accommodate extra freight. As these areas grow and develop, their land values rise, making further road expansion more expensive.

Retrofitting road networks can also be expensive. Early protection and purchase of land for future freight terminals and transport corridors can reduce this risk, keeping more freight options affordable.

A strong and efficient freight rail system can be safer, more reliable and less polluting than road freight. It can help reduce demand on freeways from road freight.7 Replacing trucks with rail can assist in relieving road congestion, pollution and maintenance costs, particularly in metropolitan areas.8

Ports and freight terminals are critical for prosperity and productivity

Ports are crucial freight gateways. They allow exporters, such as agricultural and natural resource producers and manufacturers, to access international markets9 and help importers keep costs low.10 While efficient ports benefit all Victorians, nearby communities and ecosystems can experience negative amenity impacts from freight movements, including increased transport network congestion, habitat loss, reduced air quality, and noise pollution. These must be considered and managed to keep port operations acceptable to local communities.11 Our Advice on securing Victoria’s ports capacity found the most efficient approach to expanding port capacity –

middle of the century – is simply not possible without community support.12 Freight precincts and terminals maintain a central position in supply chains, as they connect freight networks and customers. Intermodal terminals can support these connections by enabling the rapid, cost-effective transfer of freight from one transport mode to another, for example, between road and rail. Effective terminal operations and sufficient capacity are therefore essential building blocks for the overall efficiency of supply chains. They also ease the transport burden for ports, reduce impacts for neighbouring suburbs and are essential for increasing the amount of freight transported and distributed by rail.13

Protecting land gives Victoria more options

Freight terminals and port capacity are necessary to meet the growing freight demand and support the arrival of the Inland Rail project. The price of land has grown faster than the rate of inflation, and industrial land values in different areas of Melbourne increased from 25% to 105% in the five years to 2019.14

In such circumstances, any delay in acquiring land for a corridor can add materially to the cost of a project.15

Protecting future options by reserving land and corridors will yield substantial cost savings. These savings could be further increased if land is acquired early.16

Acquiring entire corridors usually requires governments to make large, upfront outlays, using funds that can be otherwise used for more pressing infrastructure priorities. However, substantial funds can be saved through reserving a corridor and then progressively acquiring the properties.17 The Victorian Government’s Principal Freight Network aims to protect freight operations, precincts and corridors from urban residential encroachment. First established over a decade ago, it does not currently reflect freight corridors that have since been developed in regional areas and metropolitan Melbourne. Iterative reviews – including one currently underway – are opportunities to update protections to reflect emerging priorities.18

Recommendations to move more freight, faster and more reliably

Infrastructure Victoria recommends four major infrastructure initiatives to help keep the freight network efficient. These are described in recommendations 63 to 66 below and are shown in Figure 22. We also make recommendations relevant to freight transport in advocating for changes in travel behaviour (see section 2.3), reshaping the transport network (see section 3.1), and enhancing market access and productivity in regional Victoria (see section 4.1).

Figure 22: Proposed freight infrastructure connects freight terminals and ports.
This map shows proposed future investments in freight infrastructure, including optimising freight capacity at the Port of Melbourne, protecting potential for a new Bay West Port, new road and rail networks connecting to freight terminals, and a rail and road corridor in outer Melbourne.

Figure 22 Proposed freight infrastructure connects freight terminals and ports 300dpi 1

Recommendation 63: Optimise capacity at the Port of Melbourne

Support efforts to progressively optimise the Port of Melbourne’s capacity, and actively take steps to manage amenity implications for community acceptance, as identified in our Advice on securing Victoria’s ports capacity.

The Port of Melbourne is Victoria’s only container port and the busiest in Australia, responsible for around 36% of national container trade.19 It handles over 3 million Twenty-foot Equivalent Units (TEU) in goods each year, and over 8250 shipping containers and 850 motor vehicles each day.20

The port’s capacity – currently 4.4 million TEU a year – needs to grow to provide exporters reliable, cost-effective access to markets and keep costs low for importers.21 Trade volumes increased by 2.1% a year over the decade to 2018–1922 and will continue to grow.23 We anticipate demand of 4.2 to 5.5 million TEU by 2031, and 6.2 million to 8.8 million TEU by 2051.24 The port will also need to adapt to increasingly large container ships, with international vessels now being built that are too large for current facilities.25

Historically the port has expanded to meet increasing demand, but future development may be constrained by surrounding residential areas.26 Our research has found optimising the port’s capacity is the most cost-effective way to meet demand to around 2055. We estimate the Port of Melbourne’s capacity could be increased to 8 million TEU each year, at a cost of approximately $6.8 billion in capital and operating expenses.27 Building a second container port at Bay West (see recommendation 64) only becomes economically competitive once this capacity is exceeded.28

The Victorian Government should continue to support efforts to optimise the capacity of the Port of Melbourne. Investments in channels, terminals, transport networks and better operating procedures can progressively increase capacity. The timing and sequencing of upgrades will depend on trade growth, future vessel sizes, transport network development and congestion levels.29 As approvals and construction have long lead times, planning will need to be flexible to allow for upgrades to be delayed or brought forward.30

Capacity enhancements can be simple and relatively cheap initially, but will become more complex as the port’s capacity approaches 8 million TEU.31 Some costs will be borne by the port operator or funded by road tolls or stevedore rents. The Victorian Government may need to fund interventions with wider community benefits, such as new transport links which improve network performance.32 This could involve rail freight shuttles between Swanson Dock and suburban terminals, or reserving land for a potential freight rail link to Webb Dock. Alternative freight alignments to those identified in the Fishermans Bend Framework that could be more compatible with future land use33 should also be investigated.34

Increasing port activity risks more transport congestion, maritime habitat loss, reduced air quality and noise pollution in nearby areas.35 The Victorian Government will need to build and maintain community acceptance as the port grows and gets busier, through measures such as: regulating noise and emission standards for trucks and encouraging the use of zero emission vehicles (recommendation 2); moving more freight by rail; maintaining suitable buffers between the port and sensitive land uses36; and transitioning transport companies from congested sites in residential areas to industrial land with good road and rail transport access.37

Recommendation 64: Act now to protect the future Bay West Port option

Within the next five years, identify and secure land, and apply planning protection for transport corridors and buffers for a future Bay West Port, particularly for future road and rail connections. Monitor and report on the triggers to develop a new port, and commence and continue environmental assessment and monitoring over the next 30 years. Around 2040, begin detailed planning.

Our Advice on securing Victoria’s ports capacity found Victoria will not need a second major container port until around 2055.38 Detailed planning for a new port should start around 2040,39 or when triggered by other changes such as accelerated demand, congestion, amenity impacts or cost changes.40 The Victorian Government should act on our immediate recommendations, including:

  • Monitoring and publicly reporting on triggers for developing a new port
  • Undertaking further options analysis and environmental assessment
  • Identifying land for the port
  • Applying planning protection overlays for associated road and rail transport corridors and buffer zones, and
  • Beginning baseline environmental monitoring.

Action is needed immediately to secure road and rail access corridors connecting the future Bay West Port with the existing and future principal freight network, as significant land development pressures exist within the Urban Growth Boundary in Melbourne’s west, which may restrict future access to the Port.41

The Terms of Reference for our advice requested we prepare an assessment of the sites at Bay West and the Port of Hastings.42 We determined Bay West to be a superior container port location on nearly every criterion examined.43 It is more cost effective, flexible, scalable, and closer to existing and planned freight networks. This makes it far more economically efficient by making freight costs much cheaper. It has fewer and more easily managed environmental impacts and is further from existing homes.

The Bay West site interacts with other nearby land uses, including Melbourne’s Western Treatment Plant, sensitive coastal and marine habitats, and Melbourne’s growing south-western suburbs. The Victorian Government should place planning protection overlays on land for the port, associated road and rail transport corridors, and for buffer zones, particularly south and west of Werribee. This prevents urban encroachment, which could limit the port’s operational hours or reduce residential amenity. It also facilitates further infrastructure investment aligned with the Principal Freight Network to access the future port, help manage environmental impacts, and help stop land price inflation, reducing future land acquisition costs. For the best result, the Victorian Government can plan the site in consultation with relevant stakeholders such as Melbourne Water and Wyndham City Council.

The Bay West site involves interaction with internationally significant habitat, including the west of Port Phillip Bay and the Bellarine Peninsula Ramsar wetland. This is likely to lead to an extended and complex approvals phase during the development of the Bay West Port. The Victorian Government should create a transparent, long-run environmental evidence base by commencing baseline evidence gathering and environmental monitoring including for water quality, hydrodynamics, coastal and seabed morphology, coastal and marine habitats, and flora and fauna.44 This can inform a ‘working with nature’45 approach to the port’s development, to improve environmental outcomes, and support regulatory approvals.

Recommendation 65: Deliver a new intermodal freight terminal for Inland Rail

In the next year, determine the preferred new intermodal terminal and facilitate its delivery, transport links and the surrounding precinct to operate soon after the Melbourne to Brisbane Inland Rail project is completed. Progress planning for another intermodal freight terminal and precinct, and secure necessary land.

Soaring future freight volumes, and sizeable road freight transport movements, requires developing an intermodal freight network.46,47 Intermodal freight terminals connect road and rail networks to customer-facing industry operations. Strategically located terminals with good transport connections facilitate efficient freight movement and keep supply chain costs down.48 They work best in manufacturing and logistics precincts, separated from incompatible land uses, such as housing.

Victoria’s growing freight task requires more intermodal freight terminals, including developing connecting transport networks, and avoiding operating restrictions from incompatible land uses. Plan Melbourne identifies the Western Intermodal Freight Terminal at Truganina, in Melbourne’s west, and the Beveridge Intermodal Freight Terminal in Melbourne’s north, as State Significant Transport Gateways.49,50 They are priorities in the Victorian Freight Plan.51

The Inland Rail alignment will improve Melbourne to Brisbane freight travel times and efficiency.52 Inland Rail began construction in 2018, and is scheduled for completion in 2025.53 Victoria has no freight terminals capable of handling the double stacked, 1.8 kilometre trains the project will enable. Accommodating these larger trains requires extensive and costly modification of bridges, overpasses, and other infrastructure to reach existing freight terminals. Melbourne’s current major freight hub at Dynon is approaching capacity and will not be able to efficiently cope with growing numbers of larger trains.

To take full advantage of Inland Rail, a new terminal needs to be delivered as soon as practical, although this may not be in time for the opening of Inland Rail. The Victorian and Australian governments need to determine which of the terminals is to be developed first, and an appropriate project delivery model. Both proposed new terminals are strategically located and can accommodate these longer, double stacked trains. They have major road access and are in designated State Significant Industrial Precincts. The Beveridge terminal is near Inland Rail and the interstate rail network, as well as the proposed outer metropolitan road and rail corridor (see recommendation 66). However, it is far from current industry locations. The Western Intermodal Freight Terminal could connect to the interstate rail network with a proposed new rail connection as part of the proposed outer metropolitan road and rail, which could also ultimately connect it to the proposed Bay West Port (see recommendation 64).

The Western terminal is better located to attract more freight onto rail, although it needs a new rail connection. It is located closer to more customers and logistics warehouses, can better realise supply chain efficiencies, and congestion benefits. Many industry and community stakeholders support its higher priority,54 and the Victorian Government believes it should be developed first.55 The Victorian and Australian governments are developing a project business case to confirm the first terminal for delivery.56

After identifying the preferred terminal site, the Victorian Government should rapidly deliver the terminal so that it is operational as soon as possible after the Inland Rail project is completed. This includes identifying preferred private sector partners and securing land. For the Western site, the Victorian Government will need to work with the Australian Government to deliver the outer metropolitan rail corridor. This includes conducting required environmental assessments and developing connecting transport corridors, including the Principal Freight Network. It also includes changing land use planning settings, including to protect the terminals from encroaching development, and consider terminal access for rail freight shuttles from Port of Melbourne.

Regardless of the sequence, the Victorian Government should progress planning for terminals and the surrounding precincts, and secure necessary land. Delays could drive up land acquisition costs, introduce uncertainty that discourages investors, or allow incompatible surrounding land development.

Recommendation 66: Construct an outer metropolitan road and rail corridor

Within two years, determine staging for the outer metropolitan rail and road corridor. Subject to detailed business cases, start construction of priority sections, starting with the E6 motorway by the end of this decade. Progressively stage corridor development for completion in the next 30 years. Provide a freight rail link to coincide with the opening of the Western Intermodal Freight Terminal.

Victoria’s economic diversity means it can generate jobs using many different skills, helping counteract shocks in one industry sector with strengths in others. Large plots of land for industry, logistics and manufacturing, with efficient transport connections to major international and interstate freight gateways, help Victoria’s economy expand, especially in growing communities to the north and west of Melbourne and in regional Victoria. The road network carries most of Victoria’s freight, but rail serves some important markets, such as transporting bulk commodities and containers interstate.

This growing freight task will see truck movements balloon, with freight truck numbers having already increased by more than a third in the 10 years to 2017.57 Rail freight movements are also expected to grow, especially on interstate rail corridors. The COVID-19 pandemic further accelerated demand for industrial land for logistics and revealed deficiencies in local manufacturing capability for critical industries, accentuating low vacancy rates in industrial sites across Melbourne. Greater certainty about the future development of freight networks will build investor confidence in financing the development of the planned freight network and nearby industrial precincts.58

The proposed outer Metropolitan Ring Road and E6 transport corridor aims to support economic development and support jobs growth in Melbourne’s outer north and west. The proposed E6 motorway runs from the Metropolitan Ring Road at Thomastown, up to Beveridge. From there, the corridor runs south-west through Mickleham, Diggers Rest and Rockbank, to west Werribee. The project also involves constructing a road link to connect the outer ring road with Melbourne Airport and a connection to Deer Park Bypass. The corridor provides the backbone of the transport connections between current and future industrial and logistics precincts with international and interstate transport terminals, including the proposed Bay West Port (see recommendation 64), the proposed western and Beveridge intermodal freight terminals (see recommendation 65), Melbourne and Avalon Airports, and the Port of Geelong. The corridor is also planned to have a rail line to connect the western intermodal freight terminal to the interstate rail freight network, including the new Inland Rail project, and allow for a future extension to the Bay West Port.

Melbourne’s outer north and west could become home to over 800,000 more people from 2018 to 2051. Some places are particularly dependent on the development of this corridor, such as in Donnybrook. These parts of Melbourne have an underdeveloped road network, without equivalent road options compared with the well-developed system of arterials, motorways and freeways in the city’s established areas. As a motorway, the corridor would provide strong traffic flow, producing better travel times for motorists and more reliable freight movements, helping keep supply chains efficient.

Regional freight also benefits by bypassing Melbourne’s suburbs, allowing more direct access to major international and interstate gateways.

Our strategic assessment focused on the road component, progressively developed from the eastern to western end. It produced a positive case for the project with strong private vehicle and road freight efficiency benefits. Road sections attracting higher levels of demand include:

  • The E6, particularly the southern end with the opening of North East Link
  • Sections linking the north and western growth areas to the growing Melbourne Airport area
  • A section to the north-west of Werribee that would provide connectivity to WIFT and surrounding industrial areas.

These sections addressed critical network constraints, especially over significant river crossings or through geographical barriers, where the arterial road network is constrained. Initial planning work for the outer metropolitan road and rail corridor is complete, with a public acquisition overlay in place since 2010. Since the planning overlay was put in place, significant planning developments have occurred, including identifying the Bay West Port site, and significant major project commitments such as North East Link and Inland Rail. Planning and project business case development is underway, including the project’s staging, timing and costs.

This should include a program review of the whole corridor, used to determine sections of greatest benefit.

Our modelling found that a pricing approach, such as congestion management tolls (see recommendation 51), should be considered to manage the road’s use and potential flow on effects to the broader motorway network. This could help the project better achieve its outcomes and prevents new constraints appearing elsewhere. The Victorian Government should construct the E6 motorway soon after the opening of North East Link, which ends at the Metropolitan Ring Road. It should determine the timing and detailed design of future stages of the corridor, and reflect this in an updated corridor planning and acquisition overlay, securing additional land that the corridor alignment may require. The rail freight link should be delivered to broadly coincide with the proposed timing for the western intermodal freight terminal. Project planning should include considering better public transport connections to La Trobe NEIC and Melbourne Airport, the appropriate treatment of Aboriginal cultural heritage areas such as river and major creek valleys,59 and contribution to open space connectivity, tree canopy improvements and native vegetation off-sets, including accelerating the acquisition and preservation of the Western Grasslands Reserve.60

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