Rail & Highways

We pray the Gov’t makes more $60bn mistakes!

Can the media and shadow politicians get a grip? Since when should taxpayers complain when the government makes a huge error in our favour? We can pretty much stake our lives on the fact that 99% of government programs end up way more expensive than initially budgeted for. French Submarines anyone? NBN? We should be looking at the JobKeeper revision as a massive positive.

The federal government estimated that the JobKeeper program would initially cost $130 billion. Now it appears they overestimated it by $60 billion. That was driven by the idiosyncrasies of who would be eligible at the employer end – from the self-employed to big business and everything in between.

Given the limited time window, forgive the Treasury and Tax Office for not landing estimates on target. It is ridiculous to expect they could estimate such a fluid piece of legislation.

The unwelcome arrival of COVID19 and the sudden stay-at-home orders that ensued hardly gave a generous window of opportunity to apply Japanese level precision engineering to the process.

Our only criticism lies with the drip feed approach to restarting the hibernating economy. As we mentioned yesterday with respect to the 50 US states, so many appear to be copying each other rather than making bold data driven decisions based on facts not consensus.

The reality is that the Treasury will need to make many more multi billion dollar mistakes in the spirit of JobKeeper to help mitigate the damage caused by the looking trillion dollar deficits.

Perhaps the $60 billion saving can be redeployed to building a bullet train from Sydney to Melbourne. A 20-yr project that is just the type of infrastructure spending which ticks so many boxes – relieving pressure on the state capitol cities, housing, assist a growing population and provide lots of jobs.

Harley Davidson board finally ditches its pillion passenger

HD Delinq

We had been expecting for years that Harley Davidson (HOG) CEO Matt Levatich wasn’t the right person to lead the company out of years of misery. Finally, the board took that view too. In 2017 we wrote,

Harley-Davidson is suffering from divine franchise syndrome. It has failed to modernize its line up… its competitors do not seem to be suffering as BMW, KTM and Triumph hitting new shipment records.

We also wrote in 2018 that

“Harley is losing share in America, it’s largest market…Australia and Japan remain soft. Harley used to sell 16,000 units in Japan. In 2018 it will be lucky to ship 9,500.”

Unit sales in Japan fell below 9,000 units in 2019. An utter disaster.

Global sales went backwards for all 5 years of his tenure. 30+ day delinquency rates and annualised loss experiences are at 9-year highs. Instead of investing harder in solving the rout, the company embarked on an aggressive share buyback program to pad the softening earnings, which was expanded again this year, two weeks ahead of his departure.

We pondered last year,

How has CEO Matt Levatich managed to hold on over the past 4 years? Since taking the helm, volumes have fallen from 268,000 [to 228,000]. Revenues have shrunk from $6bn to $5.7bn and EBIT of $1.2bn to $733mn.”

In FY 2019 HOG global sales slumped to 218,000 units, revenues fell to $4.57bn and EBIT of $290m.

We never thought the maths added up. The strategy, which seemed formulated by a communications firm rather than one led by passionate bikers, was the problem. Its historic rival, Indian Motorcycles (Polaris Industries), has led with innovative products – such as the FTR1200 – that harked back to its flat track history. Indian parent Polaris Industries cites tough overall market conditions but is confident that “product” will be a major factor.

Image result for indian fTR750

The announcement of CEO Levatich’s departure should cause the shares to jump. The aftermarket is already showing +5%.  Going back in history, when failed CEO Jurgen Schrempp stepped down from Daimler-Chrysler, the shares added 10bn euro to its market cap the very next day. 

If Chairman Jochen Zeitz’s comments are anything to go by, Harley should bounce hard.

The Board and Matt mutually agreed that now is the time for new leadership at Harley-Davidson. Matt was instrumental in defining the More Roads to Harley-Davidson accelerated plan for growth, and we will look to new leadership to recharge our business.

The motorcycle industry needs a strong Harley. Let the healing begin.

Heathrow jettisons reality for religion

Forget economic planning for the next 20-30 years. Drag up the non-binding Paris Climate Accord (of 2015) and use it as an excuse to hobble economic growth by claiming the third runway at Heathrow Airport is illegal. Forget the fact that passenger growth is a true underlying reflection of travellers’ true feelings about climate change. When it comes to offsetting one’s own carbon footprint by electing to pay a penalty, the truth is that 98% of people couldn’t care less.

Stopping Heathrow’s 3rd runway follows a dangerous path. Surely councils can see airport expansion benefits the community more than impedes it. Why do councils fall for tales of doom spewed by activists who often haven’t the first clue about what they are protesting about other than what they have read in The Guardian or heard from Hollywood star Emma Thomson who flew in from NY to tell them to panic?

Officers at Uttlesford District Council in Essex had recommended the approval of proposals to increase London Stansted Airport’s passenger cap to 43mpa in 2018 from 35m. However, the council’s special planning committee members rejected the scheme in January 2020.

Bristol Airport applied to the North Somerset Council to expand capacity by 30% in 2017, to keep up with the faster than expected demand. It was recommended for the jobs that would be created but the council rejected it, despite assurances the airport itself would be net-zero emissions in its operations.

While the activists may well rejoice at stopping the expansion, some fast facts about Heathrow Airport should send chills down the spines of Westminster:

  1. Currently operating at 98% capacity with 473,000 flights a year (capped at 480,000). It was 350,000 in 1991.
  2. Civil Aviation Authority notes Heathrow handled 80.9m passengers in 2019 up from 63m in 2002 and 40m in 1991. 
  3. Heathrow handles 50% of all London’s flights and 27% of all UK flights.
  4. Heathrow estimates 30% for business, 35% for holidays and 35% for visiting friends and relatives.
  5. 65% of passengers are going to the UK. 35% use Heathrow as a hub to connect.
  6. 76,000 are employed at Heathrow Airport.
  7. Heathrow is the 7th busiest airport in the world.

Demand is growing. Moreover, Britain’s population is expected to swell from 66m today to over 73m by 2045, the largest country in Europe.

The simple thing is facts don’t matter. Despite today’s modern fleet of aircraft burning 15-20% less fuel and spewing far lower emissions of planes even 10 years old, hysteria wins the day.

By the International Air Transport Association’s (IATA) own admission, global air travel in totality is only 2% of man-made CO2 emissions. That is to say that all air travel is responsible for 0.00003% of CO2 in the atmosphere. Heathrow makes up 0.1% of all commercial flights globally.

Not to worry, IATA has got behind the movement to do its bit for climate change too. In a two page flyer, it covered the idea that we reckless passengers must consider our carbon footprint but at the same time help the U.N. raise $40bn in taxes, sorry ‘climate finance,’ between 2021 and 2035.

The Carbon Offsetting & Reduction Scheme for International Aviation (CORSIA) is the vehicle which the UN’s International Civil Aviation Organization (ICAO) intends to liberate us from our sins and help fund the waste so endemic in the NY based cabal. Wherever the UN is involved expect a sinister agenda behind the virtue.

All airlines have been required to monitor, report and verify their emissions on international flights since Jan 1, 2019. Operators will be required to buy “emissions units” from the UN. If one asked the UN would it prefer emissions to be cut or taxes to be raised, it would select the latter every time.

What of the UN IPCC summits going forward? How will activists, government officials and observers manage to get to upcoming climate conferences if their ability to fly is curtailed? Best allow for expansion to ensure their vacuous jollies remain uninterrupted, especially after Greta Thunberg’s efforts caused a 50% rebound in attendees at Madrid.

Forget fears of Brexit hurting the economy. Just let green councils run amock based on religion. The ultimate irony will be when airlines, bursting at the seams, request to put on larger aircraft to cope with the growth that has been restrained by the infrastructure.

XPT – Facts and Figures

Image result for xpt trains

While the media has been quick to point fingers, are there any data buried inside the annual reports and releases from NSW Trains/Transport NSW in the lead up to the tragic derailment at Wallan yesterday that point to problems?

On Feb 18, 2020, several days before the accident, Transport for NSW made the following statement:

The NSW Government is replacing the ageing NSW regional rail fleet of XPT, XPLORER and Endeavour trains, which includes trains that are up to 37 years old.”

A contract with Momentum Trains for the $2.8 billion project to design, build, finance and maintain the new regional rail fleet, along with a new purpose-built maintenance facility in Dubbo. This is an artist’s impression of the new rolling stock.

In the 2013/14 Annual Report,

Around 65 new state-of-the-art trains, including some 520 new carriages, will carry passengers to the Central Coast, Newcastle, Blue Mountains and Illawarra. The first train is expected to be in service by 2019 and the new fleet will be progressively rolled out through to 2024.” was announced. Unfortunately, 2023 is the realistic time frame for the first trains to arrive.

The 2017/18 AR also discussed the announced fleet upgrades. 
According to the 2016/17 Annual Report, “Sydney Trains is responsible for the maintenance of the rail assets. Sydney Trains charges NSW Trains for the maintenance of rolling stock, infrastructure and stations utilised by NSW Trains, and recovers associated costs.

Problems with the existing fleet were revealed relatively frequently in press releases and annual reports.

On page 25 of the NSW Trains 2018/19 Annual Report, it clearly states,

Temporary speed restrictions impacted services to Moree, Brisbane and Melbourne during the year. Trains were required to travel at reduced speeds due to extreme weather conditions and infrastructure issues. In addition, trespass and copper wire theft in the Victorian ARTC network also affected our ability to meet the punctuality target.

The reliability of the ageing XPT fleet has affected punctuality and we are working closely with the fleet, maintainer to minimise the impact on customers.

XPT Reliability

As we can see XPT punctuality vs the other regional services it compares to shows a marked drop off to 55.7%.

In the 2017/18 Annual Report, NSW Trains noted,

Signals passed at danger (SPADs) continued to trend upwards during the reporting period. There were 39 SPADs in 2017–18, which is 15 per cent higher than the previous year.

Note in 2018/19 that had climbed again to 42.

SPAD

Lost Time Injury Frequency Rates (LTIFR), which is a combination of physical and psychological stress revealed the following. A more than doubling of the previously recorded peak. Were staff feeling the pressure of the ailing fleet and infrastructure?

LTIFR

In the 2016/17 AR further problems were flagged with infrastructure problems.

Temporary speed restrictions put in place by the Australian Rail Track Corporation (ARTC) were imposed periodically throughout the financial year and the number of these increased from January to June 2017. The speed restrictions significantly affected Intercity services on the Southern Highlands line and Regional services on the Melbourne and Canberra lines between Campbelltown and Goulburn

Copper wire theft from the ARTC network affecting signal operation on the main South line during February 2017 and June 2017 caused delays to Southern Highlands Intercity and South Regional services. To improve reliability and reduce customer delays, NSW TrainLink worked closely with ARTC and John Holland to better track work possession planning, prioritise rollingstock projects with Sydney Trains, the maintainer of the NSW TrainLink fleet, and develop plans for extreme weather conditions.

In August 2013, a big push had been rolled out to improve reliability of the rolling stock.  Rob Mason, CEO of NSW Trains said in the statement:

In addition to daily maintenance and our already high standards, there have been a number of measures implemented aimed at reducing the likelihood of faults on our XPT fleet.”

These measures include:

  • frequent replacement of components such as wheel bearings
  • an anti-corrosion program, including examinations for corrosion and minor repairs communication systems upgrades
  • establishment of a Reliability Improvement Program Team tasked with investigating incidents and creating solutions for future issues.”

In the 2017/18 AR, on p. 19 NSW Trains note,

Automatic Train Protection (ATP) is being installed on trains and tracks to boost safety across the electrified network. The ATP system monitors train speed and will alert the driver if the train has exceeded the permitted speed. It will also automatically apply the emergency brake if necessary…The first stage of the ATP System implementation (Newcastle Interchange to Cockle Creek) is planned for March 2019.

In defence of NSW Trains, the annual reports all point to the acknowledgement of the problems with rolling stock and infrastructure.  Sabotage and theft of crucial safety systems seem to have played a role. Was that responsible for the increase in SPAD incidents? Is this a factor for the crash at Wallan?

It seems that V-Line train drivers had been warned (on advice from the Australian Rail Track Corporation) on Wednesday in a memo which stated that some of its trains would be diverted through the 15km/h Wallan Loop on Thursday. Apparently, the signal hut at Wallan had been damaged by the bushfires. In December 2019, Infrastructure Australia knocked back a proposal to upgrade the line from Melbourne to Albury as a national priority.

Plenty more tales will be told as the result of the investigation but it appears that these problems have been well flagged by NSW Trains since 2013/14.

Nothing to be proud about

Biz Ivest

Flipping through the latest RBA Chart Pack, it is no surprise that business investment keeps sliding off a cliff. As a % of GDP, it has slid from a peak of 18% off the short-term trough of 14% (GFC) to 11%, which now puts it at 1994 levels. It proves the old adage that businesses don’t invest because interest rates are low, they invest because they have confidence in the cycle.

Our government should be looking at this with alarm bells. It doesn’t take too much imagination to work out that political instability has played its part.

Australia was once regarded as the vanguard of political stability in the region which made it a sensible investment choice for domestic and international investors as a place to do business. There was a comfort in knowing that there wouldn’t be revolving door prime ministers and flip flops on policy positions. After all, much business investment takes years to get to the production stage.

The Howard years saw our business investment surge. Sensible fiscal policy was a feature too. While Rudd can be forgiven for GFC causing a slump in business investment it resumed until political instability put the mocker on business confidence.

We have been running deficits ever since and cranking up the national debt (we wrote about it here) because it is clear we don’t have sensible free-market conditions to self sustain direct investment at anywhere the levels we need.

Instead, we kowtow to radical activists who try to stop investment in projects like Adani and conduct illegal secondary boycotts on businesses like Greyhound Australia and Siemens without repercussions.

Whether coal is evil or not is irrelevant. The problem is such activism, which is further supported by ideologically corrupted government environmental departments – that push their own agenda on granting approvals – doesn’t endear domestic industries or foreigners to invest in us. These are dangerous precedents. All of this tokenism when we only need look at the realities of what will happen down the line.

Don’t take our word for it. Even our domestic businesses are leaving.

Thanks to Australia’s ridiculous energy prices, Aussie company Bluescope confirmed the expansion of capacity in Ohio. In Feb 2019, the company CEO said, “much cheaper energy in the United States is a major driver of the company’s preparedness to invest in a $1 billion expansion in Ohio.”

In 2017, Tomago Aluminium reported, “We have to grow to be competitive and to be ahead of the curve, but when the spot price went to $14,000 [per megawatt hour] we had to take that load off. It’s just not sustainable. You can’t smelt at that price. We have had to curtail or modulate the load [on occasions] or we get hammered by the price…We cannot continue to keep paying those prices. We have to find a solution. The prices are crippling”

Aust Manuf.png

Unfortunately, 28 years of unfettered economic expansion has made us complacent. We think this economical miracle has no off-ramp.

None of this is remotely surprising.

Can we honestly say that the impact of higher electricity prices hasn’t been a factor in pushing away investment in engineering and manufacturing? So this mad push for renewables will not alleviate this pressure. Germany is the perfect beta-test crash dummy. It predicted flat prices. They doubled from those forecasts.

GEP.png

Yet our political class is playing with fire.

We never thought Australia was realistically going to have a surplus when it was announced. Secretly there must be a sigh of relief in Treasury that the impacts of the bushfires and coronavirus will provide a convenient scapegoat to miss those targets under the premise of ‘doing the right thing.’  And no that does not mean the government is glad those two catastrophes have happened from a humanistic approach.

We need proper reforms. We need to ditch these notions of political correctness in public policy. We are as unimaginative as many other governments around the world. Living on a low-interest rate fuelled debt bomb. Kicking the can down the road simply does not work. Why aren’t politicians convicting their cases with evidence rather than folding to ideological positions held by fringe dwellers on Twitter?

When we visited Israel on a business delegation in 2018, Israeli PM Benjamin Netanyahu uttered the only 4 words that mattered for investors – “we want your business.” The innovation nation knows what it is good at and is prepared to back it to the hilt.

It would be so nice if our government spent some time in Israel to discover that we have it all wrong. Because we are only storing up a rude awakening. When our economy does suffer from the eventual ramifications of all of that lack of investment, the public will be howling that they can’t pay their mortgages, that they can’t get decent jobs and they can’t keep the lights on. None of that would have been necessary if they had been more open to business.

The ultimate result will be that we’ll put ourselves deeper into debt to fund some monster infrastructure projects that will provide short term relief, not long term solutions.

The foreign investors that could have helped had we treated them in a more dignified fashion will just buy our assets at fire-sale prices instead. Then we’ll have another moment to howl at the moon.

That will be the true price of our complacency. Experience is a hard teacher. You get the test first and the lesson afterwards.

Aspirational Goulburn is growing so fast it even has an Aston Martin Drive

5 years ago, this area was a barren wasteland on the outskirts of Goulburn, a country town around 200km south of Sydney. 1 hour north of Canberra.

Just look at how many new homes have been built since then. 100s. More under way.

One wonders if this neighborhood has a high water market for aspirational car ownership with an Aston Martin Drive as one of the street names.

In 2010 Goulburn Mulwaree Council had 28,000 residents. It is forecast to be around 31,000 this year, or an 11% jump. Goulburn City itself has grown from 22,017 in 2012 to a projected 23,500 in 2020, or a 7% rise.

The question remains will the infrastructure keep up?

The link between laundry and high speed rail

Having lived in Japan for two decades, it was so easy to take things such as this dry-cleaning message for granted. The way it was put in a plastic zip-lock bag with the item stuck to the docket. Complete attention to detail.

I didn’t realise how much I missed this part of the culture. Yet it transcends across every facet of life.

Take the bullet train. JR Central, the owner of the main Tokaido Line reported the following in its latest annual report.

In over 50 years there have been zero accidents. The railway has spent JPY3.5 trillion with a “t” ($35bn) in safety and maintenance alone. Safety and reliability are paramount to growing ridership.

The train runs 368 services a day servicing 466,000 passengers. It had an average delay of 0.7 minutes per train service. For the environmentalists, the Tokaido Line emits 1/12th the CO2 per passenger of a commercial aircraft. So there is a green lining too.

When attending the Australia vs NZ cricket on a hot day earlier in the month, “The Light Rail Service has stopped working. Buses will operate in their place” popped up on the big screen. The entire 30,000 crowd burst out into spontaneous laughter. How much bigger joke could this project get? How can it take 50 minutes to get to Randwick from Circular Quay?

In short, a French designed train built in India couldn’t operate because the temperature expanded the track causing it to become jammed. If being delayed for over one year wasn’t embarrassing enough, who knew Australia had hot days from time to time?

Our Sydney Metro has also been plagued by setbacks. Same situation. French designed trains made in India. Breaking down in tunnels and so forth. Driverless they may be but rudderless too.

Yet the Japanese are about to take the bullet train to a new level. The MAGLEV will allow passengers to get to Nagoya from Tokyo (300km) in 40 minutes! Imagine a trip to Canberra in that time? Tokyo to Osaka (500km) will only take 67 minutes.

If we think that Australia has grown its population by 2.2m (+10%) since 2013, our airports won’t be able to handle the extra expansion. At the moment, there are 54,500 flights annually between Sydney and Melbourne. On a daily basis around 27,000 people make this pilgrimage.

By comparison, the Tokaido Line runs around 78,000 passenger per day bettwen Tokyo and Nagoya. 145,000 between Tokyo and Osaka.

High speed rail is a no brainer for Australia. As a former ANU student some 30 years ago, I often made the journey from Sydney to Canberra. The distance between Liverpool and Campbelltown is around 20km. 30 years ago they were separated. Now housing has expanded from either direction along the Hume Highway such that the two towns are more or less connected by numerous new suburbs. The population is putting pressure on new housing.

Many public servants who work in the nation’s capitol, Canberra, now live in Goulburn, a country town some 45 minutes out. Shuttle buses now run between the two towns such has been the trend.

If the population keeps expanding at a 10% clip every 6 years, the infrastructure just won’t keep up. If Australia isn’t thinking about high speed rail for much longer, it will be too late. To think such rail infrastructure will take 20 years to execute.

The record tells us that the Japanese are the best partners to develop the HSR in Australia. Surely we have had enough bad experiences with the French to date to want to have them run another project. Trains or submarines. The Chinese have hardly ingratiated themselves by canceling visas of our politicians. They don’t have the safety record of the Japanese, either.

The Japanese build things to last. Is it any wonder the Japanese ensure the sleepers have higher volcanic ash content to ensure their long-life? Not in China. Hence why one of China’s high speed trains derailed in 2011 because of a cracked sleeper with lower ash content. Even worse the authorities ended up just digging a hole and pushing the crashed rolling stock in and burying it.

The Taiwanese have probably made the most sensible recent HSR investment. Ridership has grown from 15.5 million in 2007 to around 67.4 million today. Punctuality is also 99.8%. Sound familiar? It should do.

The Japanese-led Taiwan Shinkansen Consortium won the contract by a combination of soft loans and flexible structures. The Taiwanese government also introduced flexible depreciation, refinanced the debt terms and bought a majority of the publicly listed railway. It has now made capital gains on its investment! They bought Japanese rolling stock made by Kawasaki Heavy Industries which has been bulletproof.

So it is high time the Australian and state governments started to think about getting their act together on HSR. Japanese technology is the only sensible option. It is competitive, reliable and if you have had any friends attended the Rugby World Cup last year, they’ll all tell you how amazing the bullet train was.

Oh and the airlines should love the high speed rail as it will free up slots to use on better routes. Even better they could be partners to running the rail operating system.