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Paying for productivity

Paying for productivity

Peter Harris AO is the Chairman of the Productivity Commission, which is tasked by the Australian Government to provide advice on economic, social and environmental issues. Peter was a key presenter at the Australian Logistics Council Forum held in Sydney in early March.

The Productivity Commission released a report last year titled Shifting the Dial. One point noted was that infrastructure decisions could be enhanced by taking out the ‘utopia’ factor in their preparation. The report’s focus on congestion was especially welcomed by the transport and logistics industry, and it stated that the problem costs the Australian economy $19 billion per year, which – without action – could grow to $31 billion by 2031.

When introducing Peter, Michael Kilgariff, Managing Director of the Australian Logistics Council (ALC) said: “When we talk about the national freight and supply chain strategy, we aren’t just discussing a niche project relevant to a narrow section of the economy. An efficient and safe supply chain is fundamental to securing greater national productivity. It is a pre-condition to a dynamic and competitive economy and, in turn, creates the jobs and wage growth of the future.”

“First off, efficient distribution handling is one of the great enablers in the economy,” said Peter. “Since the time that the digital economy first started having its largest impacts through its Googles, its Amazons and its Netflixes, productivity growth started declining, and it has bounced along much lower than the average since about 2004. People are looking for the translation of the digital economy into the productivity statistics.”

He added that, unlike B-doubles, B-triples, intermodal terminals, deep channels, double stacking and the like, the great potential advent in improving productivity in the industry may come from the creation and distribution of products that years ago either didn’t exist or were just novelties. “It’s particularly true in urban areas where, like Uber, Uber Eats has been a major translating factor to the suggestion under-35s today buy more meals on any night of the week than they prepare for themselves,” said Peter, adding that supermarket chain, Coles, has reported a 2.5 per cent drop in retail sales, perhaps because people are getting more meals delivered from other sources.

“The transport industry may not think that things like that affect them, but the point is that something such as Uber Eats is going to add to urban congestion,” said Peter. “Every one of those delivery trips is adding to a change in delivery patterns – to the point that in New York City, now they are considering introducing a congestion charge and [the authorities] have got sufficient cooperation from among the likes of Uber – they’re tracking vehicles with Uber’s cooperation and collecting the data with the view of in the future applying a congestion charge.”

A major mental shift towards the idea of charging for road use has taken place, he noted. “In an environment like Manhattan, that’s a significant change,” he added. “It’s now becoming a more serious option in developed cities around the world, and it’s driven a lot by these types of logistics changes and technology.”

Peter explained that the traditional process for purchasing items has changed in recent years thanks to the rise of e-commerce. “Traditionally you might have gone and fetched for it yourself at a convenient time, often when the road surface wasn’t really busy,” he said. “Now, particularly in the US, with the advent of Amazon and the attempt by Walmart to compete with them, this is all being delivered at a time that is convenient to you – which may well be not very convenient to the driver of the delivery service.

“We’ve had an increase in online sales in Australia, but not in the nature of what Amazon has induced in the US with 60 tonnes of freight each year per person. I’m not saying it’s going to hit us in the same way. We are a different kind of country. I don’t think Amazon is here by accident, and I don’t think it’s just going to settle down in the corner quietly.”

This “conundrum in productivity” is of particular importance to the Productivity Commission, since its effect is being felt not only by the transport industry, but in most industries. “We can see, at least in the case of the transport and logistics industry, the contributions you are making to the efficiencies of the other product-like industries,” said Peter. “In agriculture and mining, we are all familiar with the use of autonomous vehicles. They are likely to get off the mining development platform and out onto the road space at some stage, and these things are going to have to be managed via the entity that is going to be most challenged by this. It’s the regulators who are going to have to learn to cooperate with it and how to manage it. Because the advent of this technology – we think – is probably going to induce an important shift in productivity, and productivity is the underpinning of wage increases.

“It’s unnatural to have relatively low wage settlements around the world because of low productivity, and you’ll need to shift that productivity to see wage settlements rise sustainably. There’s still this hankering for ‘yes we’d like to see wage settlements increased a bit faster and a bit sooner’ and the logic in that is that you’ll have to see productivity shift faster and sooner.”

The bottom line, explained, is there’s going to be a big pressure on the road infrastructure created by a variety of changes, and as a consequence people are going to have to learn how to invest more efficiently in urban infrastructure – from roads to logistics centres – with a better anticipation of shifting patterns driven by consumers and technology. “The money is not going to be available to do that and we know that,” said Peter. “Investing in infrastructure is incredibly expensive and yet to get better improvements that’s what we are going to have to do. We are going to have increasingly expensive infrastructure and we are going to have to find revenue sources to fund it. Right now, roads are pretty congested anyway. In the US, all this increased activity will not be offset by a reduced number of people undertaking journeys for other purposes. I think some people in the planning world have comforted themselves that with all the goods delivered by parcel handlers like StarTrack, people won’t be using their own vehicles, so therefore there will be some sort of offset. It hasn’t been so in the US – the numbers are very large in the US, and we’d expect by now that impact would be discernible and – again – it’s not there.”

Pressures are going to come from enhancement in productivity through technology, he added, which will be the primary driver for increased wage settlements and a more balanced economy in the future. “All those things are going to come at the cost of significant investment in infrastructure to facilitate that technology use,” said Peter. “It costs you something to build a ‘thing’ in electricity and gas and water as a supplier. It then costs people to use it. That’s not the case in land transport, generally. We have nominal charging in roads and a whole bunch of taxes and charges that are meant to be proxies for this kind of thing.”

The Productivity Commission’s Shifting the Dial report details a model impacting not only heavy vehicles, but also all vehicles using that primary road infrastructure. It will involve the collection of all revenue and rededication of that revenue to the improvement of not just road infrastructure but even other elements. “Unless we actually deal with the problem holistically as we do with every other piece of infrastructure then you can have these processes but they’re not going to achieve anything,” said Peter.

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