November 12, 2008
A rail car shortage will slow down transportation of Australia's biggest wheat crop in three years from eastern farms to ports, traders said on Tuesday (November 11, 2008).
The delays risk causing a short-term supply squeeze and highlight the challenges facing the world's second-biggest exporter after the end of AWB Ltd's decades-long marketing monopoly traders said.
The shortage of rolling stock is most prominent in the east, where half of Australia's wheat is grown. The problem is aggravated after major operators focused their energies on solving a chronic bottleneck in shipping coal, the price of which has surged.
Malcolm McMahon, general manager of merchandising at independent private grain trading firm Emerald Group said it is an industry problem in which there is a lack of rolling stock so you can't be sure you are going to have trains.
Emerald is one of 19 newly licenced wheat exporters in the market to accumulate sufficient grain for bulk shipments under Australia's deregulated wheat export system which came into affect on July 1.
He added that there is a real reluctance through the majority of the trade to sell tonnage on a FOB (free-on-board) basis through the port simply because you can't be sure that when it comes time to move the product from up country that you can do it.
The delays threaten to slow the delivery of a crop at about 20 million tonnes, a 50 percent increase from last year's drought affected 13 million tonnes. The harvest is carried out in the northern parts of the country and will peak in December.
But traders saw little lasting impact on prices.
AWB, still one of Australia's largest grain traders and GrainCorp Ltd have secured adequate rail capacity to move grain in Victoria and New South Wales, though rail shipments will be stretched over a full year, traders said.
Previously, the bulk of the eastern states harvest was railed to port storage facilities in the first few months after harvest, but a desire by rail operators to improve efficiencies has led to fewer locomotives and less rolling stock being devoted to grain.
Margins will be eroded as some traders turn to containers and trucking by road, add to this fall in prices of benchmark US prices-by two-thirds from their February record high-prices are now at their lowest in a year and a half.
Australia's largest rail freight business, listed infrastructure group Asciano Ltd's Pacific National, cut the number of trains available to transport grain a year ago as it expanded into the more lucrative coal freight business. A GrainCorp spokesman said despite Pacific Nation's cutbacks there was still sufficient rail capacity to handle a normal harvest though unlike previous seasons, movement of grain from country silos to ports would take place over a full year.
In the north-east state of Queensland, GrainCorp estimates there is a 750,000 tonnes rail capacity shortfall within state-owned Queensland Rail's system. Queensland is expected to produce 1.9 million tonnes of wheat and barley in 2008/09.
Queensland Rail's grain customers estimate rail capacity required over the next 12-18 months could be about 2.6 million tonnes, up from an average 560,000 tonnes over the past three years.