ECONOMIC ANALYSIS OF DIRECT
INTERNATIONAL AIR-FREIGHT
OPERATIONS AT CANBERRA AIRPORT
REPORT FOR THE ACT GOVERNMENT, CHIEF MINISTER, TREASURY AND ECONOMIC
DEVELOPMENT DIRECTORATE
27 OCTOBER 2016
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Contents
Glossary ..........................................................................................................................................................................3
Executive summary .....................................................................................................................................................4
The Existing Opportunity ...................................................................................................................................... 5
The Reconfiguration Opportunity ...................................................................................................................... 6
The Catchment Exports Opportunity................................................................................................................. 7
Conclusions ............................................................................................................................................................... 8
Introduction................................................................................................................................................................ 10
The Canberra Airport catchment area ............................................................................................................... 12
The Catchment Economy ...................................................................................................................................13
Quantifying the freight opportunity .................................................................................................................... 15
Overview of international air freight ................................................................................................................15
The existing opportunity .....................................................................................................................................15
Determining the reconfiguration opportunity ..............................................................................................16
The latent export opportunity ...........................................................................................................................19
Enabling future transport network development .........................................................................................25
Estimating the economic impacts ........................................................................................................................ 27
The air freight scenarios ......................................................................................................................................27
The Existing Opportunity ....................................................................................................................................28
The Reconfiguration Opportunity ....................................................................................................................31
The Catchment Exports Opportunity...............................................................................................................33
Conclusion .................................................................................................................................................................. 37
General reliance restriction
This report is only for the use of the ACT Government (represented by the Chief Minister, Treasury and
Economic Development Directorate). It was prepared for the purpose of understanding the potential
economic opportunities of direct international freight access scenarios from Canberra Airport. You should
not use the advice for any other purpose. This report should not be used or relied upon by anyone else and
we accept no duty of care to any other person or entity. Due to the uncertain nature of economic data and
information available, Cadence Economics does not warrant the completeness or accuracy of the analysis or
estimates provided in this report.
© Cadence Economics Pty Limited 2016 www.cadenceeconomics.com.au
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Glossary
ABS Australian Bureau of Statistics
ACT Australian Capital Territory
ANZSIC Australian and New Zealand Standard Industrial Classification
BITRE Bureau of Infrastructure, Transport and Regional Economics
CBRJO Canberra Region Joint Organisation
CEGEM Cadence Economics General Equilibrium Model
CGE Computable General Equilibrium
GTAP Global Trade Analysis Project
GTEM Global Trade and Environment Model
FOB Free On Board
FTE Full Time Equivalent
GDP Gross Domestic Product
GIS Geographic Information System
GRP Gross Regional Product
HK Hong Kong
LGA Local Government Area
NPV Net Present Value
NSW New South Wales
SA2 Statistical area level 2
UAE United Arab Emirates
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Executive summary
Canberra Airport’s 2014 Master Plan clearly outlines a vision to develop the airport as a facility to
service the capital and surrounding region as a hub for passengers and freight. A key element of
this strategy is to move beyond domestic services and look to international markets. In terms of
developing international linkages for the region, flights commenced from Canberra Airport to
Wellington and Singapore in September 2016. In regards to freight, public statements made by
airport management have indicated that a $42 million investment is being considered to realise
the potential of Canberra Airport as a freight hub for the region.
Canberra Airport has a number of key advantages in relation to handling international freight.
Currently, international air freight services for New South Wales importers and exporters are
primarily provided by Kingsford Smith airport in Sydney. As Australia’s main international gateway,
Kingsford Smith is attractive in terms of its existing facilities and proximity to both the industry and
population in Sydney. However, as passenger demand through Kingsford Smith increases,
combined with the night-time curfew, that facility is nearing capacity.
By comparison, the Canberra Airport has no night-time curfew, significant runway capacity,
existing tarmac side warehousing facilities, land for development, and easy access to improved
road infrastructure. In addition, Canberra is close enough to both Sydney and Melbourne for
express goods to be delivered by road freight while still meeting the express delivery service
standards of major air freight operators. As well, Canberra Airport has great proximity to the
produce of South East New South Wales. These unique factors position Canberra Airport as a
viable alternative to the traditional international air freight gateways of Sydney and Melbourne to
provide international air freight services.
Against this background, this report presents an assessment of the international air freight
opportunity facing the ACT, the Canberra Region and the Catchment in relation to international air
freight operations at Canberra Airport. The findings of this report assist with the ACT Freight
Strategy, in particular through helping to develop a detailed understanding of the air f reight
opportunity.1 Similarly, the findings will inform future collaboration activities between the ACT,
NSW Government and the Canberra Region Joint Organisation (CBRJO) to capitalise on
prospective freight opportunities across the ACT/NSW region.
1 1 See, for example, https://www.transport.act.gov.au/about/policy/transport_planning_studies/act-freight-strategy/ACT-Freight-
Strategy-ACTGov-ACCESS.pdf (Accessed September 2016), Action 1.2.6 – “Investigate economic issues and opportunities associated
with the freight industry in the ACT and surrounding areas and develop a detailed understanding of the air freight opportunit y to
support direct international flights.”
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The analysis in this report is based on a detailed assessment of international air freight movements
undertaken by Auxiem Management Consultants (Auxiem). Auxiem are supply chain experts who
provide strategic advice to freight and logistics firms in relation to both domestic and international
markets (notably operating in Singapore) and have consulted with key market participants in the
context of this study. The analysis undertaken by Auxiem has been augmented by a detailed
consultation process of 19 trade representatives, industry participants and industry associations.
Economic modelling is then undertaken to quantify the potential benefits to the Canberra Airport
catchment region (the Catchment), the Australian Capital Territory (ACT) and New South Wales
(NSW) of different scenarios considering increased international air freight activity at Canberra
Airport.
Based on this analysis and industry consultation, three categories of international air freight
scenarios are considered in relation to the investment in capacity mooted by Canberra Airport
management:
The Existing Opportunity which is narrowly focussed on shifting international air freight
from the Catchment currently handled in Sydney and Melbourne to Canberra airport.
The Reconfiguration Opportunity which is based on consolidating international air freight
not only based on production in the Catchment but also to better balance international
trade lanes from Sydney and Melbourne to international freight hubs, resulting in
improved efficiency.
The Catchment Exports Opportunity builds on the reconfiguration opportunity as exporters
across the Catchment are assumed to take advantage of additional international air freight
capacity to increase export volumes.
The Existing Opportunity
It is estimated that 37,107 chargeable tonnes of international exports originating from the
Catchment leaves each year through Sydney and Melbourne Airport, valued at approximately
$226 million, as outlined in Appendix A. This equates to roughly one fully loaded 747 freighter of
international exports from the Catchment region per day.
Imports by international air freight into the Catchment, routed through Sydney Airport, are in
excess of these export tonnes based on consultation with freight and logistics firms. As such, under
this scenario a reasonable assumption is that the international air freight operation redirecting
flights to Canberra Airport will be able to balance exports and imports, in other words planes will
arrive full and leave full.
When considering the existing opportunity two scenarios are undertaken with different
assumptions made about the air freight displaced from Sydney airport. Under a conservative
assumption, there is no net increase in air freight services. In other words, the air freight services
reallocated to Canberra from Sydney are not replaced with additional exports (they are offset). The
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alternate assumption is that the international air freight relocated to Canberra allows for more
exports from NSW so that the aggregate freight task is unchanged in Sydney Airport (they are
additional).
The benefits accruing to the Catchment come in the form of lowering overall freight costs for
exporters and imports as well as additional activity from increased air and road transport activities
in the region, which yield benefits in terms of economic activity measured by Gross Regional
Product (GRP) and employment (shown in Figure 1).
Figure 1: Estimated benefits under the Existing Opportunity scenarios
Net Present Value (NPV) over the period 2016 to 2030 discounted using a 7 percent real discount rate.
The results show that the main benefits under the Existing Opportunity scenarios accrue to the
Canberra region. This is because the primary benefits under this scenario are driven by the
additional economic activity associated with the investment in international air freight services and
ongoing operations, which are located in the ACT. For example, employment is estimated to
increase on average by around 100 full time equivalent positions (FTEs) across the Catchment over
the period of the scenario (under both the offset and additional assumptions). Just over 90 percent
of this increase is in the ACT.
The Reconfiguration Opportunity
The Reconfiguration Opportunity scenario assumes a major transition in the structure of
international air freight services across Sydney, Melbourne and Canberra airports. The premise of
this reconfiguration is the current imbalances in international air freight that, through detailed
analysis by Auxiem, have been shown to exist and that can be ameliorated to a large extent
through a consolidation of activity through Canberra Airport with the appropriate road freight links
whilst meeting the current service level.
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Under this scenario, two configurations have been considered. The first considers a consolidation
of air freight from the three major international hubs of Singapore, Dubai and Hong Kong (3 lanes),
shifting 279 current Sydney and Melbourne flights to Canberra airport. The second considers
consolidation of air freight to and from Singapore, redistributing 113 flights that would otherwise
depart through Sydney and Melbourne.
The benefits under the Reconfiguration Opportunity scenarios (shown in Figure 2) are significantly
higher for the Catchment overall compared with the Existing Opportunity scenarios. This is directly
related to the volume of international air freight being reallocated to Canberra Airport, resulting in
lower transport costs. For example, employment across the Catchment is estimated to increase by
between 142 and 339 FTE on average under the Singapore and 3 lanes assumptions respectively.
This compares with an estimated increase in employment of around 100 FTE under the Existing
Opportunity scenario.
The bulk of the benefits across the Catchment are estimated to be in the ACT which, again,
accounts for around 90 percent of the employment benefits.
NSW is estimated to benefit from the Reconfiguration Opportunity due to efficiencies being
generated in international air freight operations. Employment in NSW is estimated to increase by
69 to 98 FTEs under the Singapore and 3 lanes assumptions respectively.
Figure 2: Estimated benefits under the Reconfiguration Opportunity scenario
Net Present Value (NPV) over the period 2016 to 2030 discounted using a 7 percent real discount rate.
The Catchment Exports Opportunity
The final scenarios consider the potential benefits the Reconfiguration Opportunity offers to
exporters in the Catchment area. Building on analysis by Auxiem, producers in the Catchment have
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available to them additional export capacity from Canberra Airport on the Singapore lane of over
5,600 tonnes after rebalancing has taken place.
This scenario is stylised in nature. During the consultation process we were unable to establish a
clear cut, latent demand for international air freight services from the Catchment area. In other
words, based on broad ranging discussions with relevant stakeholders across the Catchment, there
was no definitive evidence that the lack of international air freight services at Canberra Airport was
acting as significant barrier to producers in the region. Rather, it is assumed that the availability of
these services to a major international freight hub will result in entrepreneurs across the Catchment
looking to take advantage of export markets in markets where the region is well placed,
particularly agricultural production.
The benefits under the Catchment Exports Opportunity scenario (shown in Figure 3) are
significantly higher for the Catchment overall compared with the Reconfiguration Opportunity
scenario. This is directly related to the additional volume of exports. Notably, the benefits of this
scenario accrue mainly to the catchment outside of the ACT. For example, employment in the
Catchment excluding the ACT is estimated to increase by between 110 and 134 FTE on average
under the Singapore and 3 lanes assumptions respectively.
Figure 3: Estimated benefits under the Catchment Exports Opportunity scenario
Net Present Value (NPV) over the period 2016 to 2030 discounted using a 7 percent real discount rate.
Conclusions
The analysis undertaken in this report illustrates a significant opportunity exists for international air
freight services at Canberra Airport, but that magnitude and geographic spread of the benefits are
varied:
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Under the Existing Opportunity scenario, the most narrowly based scenario, the bulk of the
benefits are shown to accrue to the ACT region.
Under the Reconfiguration Opportunity scenario, based on a substantial consolidation of
international air freight, the estimated economic benefits are larger and accrue mainly to
the ACT and NSW regions.
Under the Catchment Exports Opportunity scenario, where exports are assumed to
increase from the Catchment area, the benefits are largest and accrue to the entire
Catchment, including the ACT, and NSW.
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Introduction
Air freight is critical in moving time sensitive and high value products into and out of Australia.
Goods such as pharmaceuticals, electronics and certain fresh, short shelf life agricultural products
depend on air freight. This has increased the emphasis on reliable, cost effective and efficient
international air freight services. In addition, air freight is an important contributor to the
underlying the viability of airline operators.
For New South Wales and the ACT, Kingsford Smith airport in Sydney is currently the port of
choice for the bulk of incoming and outgoing air freight, with smaller levels of trade through the
Brisbane and Melbourne airports. The co-location of Kingsford Smith to the state’s economic base
is the characteristic that has historically made it the port of choice. However, Kingsford Smith is
reaching capacity as passenger demand increases and other factors, such as the night-time curfew,
competition for landing slots, road traffic congestion and geographical constraints on expansion,
conspire to make that airport less attractive for international freight operations.
Indeed, air freight is a critical element of the proposed need for a second Sydney airport at the
Badgerys Creek site. This airport is unlikely to be operational until around 2025 if construction was
to commence next year. It is also not known whether this airport would also be constrained by
noise curfews in a similar manner to Kingsford Smith.
By comparison, the Canberra Airport has no night-time curfew, significant runway capacity, land
for development, and easy access to improved road infrastructure. In addition, Canberra is close
enough to both Sydney and Melbourne for goods to be delivered by road freight while still
meeting service standards demanded for express freight. Importantly, the ownership structure of
the airport allows for relatively easy and low cost reconfiguration to accept both international air
freight and passenger services. These unique factors position Canberra Airport as a logical
alternative to the traditional international air freight gateway of Sydney (and to a lesser extent
Melbourne and Brisbane) to service importers and exporters in New South Wales.
Canberra Airport’s 2014 Master Plan clearly outlines a vision to develop the airport as a facility to
service the capital and surrounding region as a hub for passengers and freight. A key element of
this strategy is to move beyond domestic services and look to international markets. In terms of
developing international linkages for the region, flights commenced from Canberra Airport to
Wellington and Singapore in September 2016. In regards to freight, public statements at the
recent Air Freight Symposium made by airport management have indicated that a $42 million
investment is being considered to realise the potential of Canberra Airport as a freight hub for the
region.
Against this background, this report presents an assessment of the international air freight
opportunity facing the ACT and the Catchment in relation to international air freight operations at
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Canberra Airport. The analysis presented in this report builds on a previous study conducted by
Cadence Economics titled ‘Economic Analysis of Direct International Air Freight Operations on the
ACT economy’, finalised in December 2015. With that as the starting point, this analysis has been
augmented by a detailed assessment of the international air freight movements undertaken by
Auxiem Management Consultants (Auxiem). Auxiem are supply chain experts who provide
strategic advice to freight and logistics firms in relation to both domestic and international markets
(notably operating in Australian and Singapore) and have consulted with key market participants in
the context of this study. This analysis has been enhanced by a detailed consultation process
undertaken by Cadence Economics and Auxiem of 19 trade representatives, industry participants
and industry associations. Economic modelling is also undertaken to quantify the potential benefits
to the Canberra Airport catchment region (the Catchment), the Australian Capital Territory (ACT)
and New South Wales (NSW) of different scenarios considering increased international air freight
activity at Canberra Airport.
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The Canberra Airport catchment area
Canberra Airport is the primary regional airport for the ACT and surrounding regions. Significant
recent investment through the ‘AirVolution’ project has seen the new terminal increase in size by
approximately five times. Apart from the significant increase in the terminal’s capacity, additional
flexibility has been introduced for the airport to service commercial international air traffic.
In addition to the core aviation activities the airport precinct is host to a number of other economic
activities, including retail operations hosted at the Majura Park Shopping Centre, commercial
activities hosted out of the Brindabella Business Park, and the recently constructed hotel
accommodation operated under the Vibe brand. Building ownership at the Canberra Airport
precinct is relatively unique compared to many other airports servicing major cities, with most
buildings on the site owned by the Canberra Airport.
As mentioned above, this report represents an update of a December 2015 study undertaken by
Cadence Economics and Auxiem titled ‘Economic Analysis of Direct International Air Freight
Operations on the ACT economy’. That previous report contained an area known as the ‘Canberra
Catchment’, an unofficial geography agreed between the ACT Government and Canberra Airport
and used (including outside these reports) when considering access to services including air travel.
The Canberra Region Joint Organisation (CBRJO) is the basis for much of the ACT Government’s
official regional engagements activities. This geography also aligns with the NSW Government
South East Strategic Planning Region.
Figure 4 shows the geographical boundaries of this original Catchment area, used in the previous
study, highlighted in light orange. This area encompasses the ACT and 61 NSW SA2 regions over
130,000 square kilometres. It ranges from the south coast of New South Wales to Nowra, and
extending west to capture towns including Temora, Wagga Wagga, Holbrook and Hay.
For this analysis, the defined area of the Canberra catchment has been expanded to consider a
wider range of regional areas that might take advantage of international air freight services at
Canberra Airport. Shown in brighter orange in Figure 4, the regional definition of the catchment
has been broadened to include 8 SA2 regions of Cowra, Cowra Region, Forbes, Grenfell, Blayney,
Orange, Orange – North and Orange Region, which together form the LGAs of Weddin, Cowra
and Orange.
In addition, this report also details the impacts for the Canberra Region – a region acknowledged
by the ACT and NSW Governments. LGAs in the Canberra Region include Yass Valley,
Queanbeyan-Palerang, Goulburn-Mulwaree, Hilltops, Upper Lachlan, Eurobodalla, Bega Valley,
Snowy-Monaro and Wingecarribee. This geography aligns with the NSW Government South East
Strategic Planning Region. The Canberra Region Joint Organisation (CBRJO) is the basis for much
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of the ACT Government’s official regional engagements activities. For clarity this region is shown in
Figure 4 encompassed by a dashed line.
Notably, while Kingsford Smith might be most frequently thought of as the natural alternative to
Canberra Airport, a great deal of the Catchment is closer to Melbourne than to Sydney – for
example, Hay is approximately 420km from Melbourne and 720km from Sydney.
Figure 4: The Canberra Catchment
Source: Cadence Economics
The Catchment Economy
The economic profile of the Catchment is summarised in Chart 1, which shows an estimate the
proportion of value added by industry2 as a measure of economic activity in the Canberra Region,
Catchment, in the combined NSW and ACT region and in Australia.
2 The estimate of value added determined using the value of wages paid by each industry in each geography as a proxy. In the absence
of any data source that allows decomposition of GOS and Taxes less Subsidies on Production we make the implicit simplifying
assumption that (for example) capital to labour ratios by region are constant. Data at this level is constructed from ABS Table Builder
queries of the 2011 Census.
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As expected, the presence of the federal government in Canberra sees a relatively high proportion
of economic activity in the Public Administration and Safety sector. This is offset by a relatively low
proportion of activity in Mining, Manufacturing and Financial and Insurance Services.
Chart 1: Share of economic activity in the ACT, the Canberra Region, the Catchment and NSW,
2011
Source: ABS 2011 Census and Cadence Economics estimates
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Quantifying the freight opportunity
A key question when considering the feasibility of an international air freight facility at Canberra
Airport revolves around potential demand for services. This includes the potential demand for
outbound services by exporters in the Catchment, as well as importers.
In assessing the magnitude of the opportunity, three questions have been asked:
1. What are the potential benefits from reallocating existing trade flows to and from the
Catchment area?
2. Is there a potential for Canberra Airport to become an international freight hub based on
existing international air freight movements to and from Sydney and Melbourne Airports?
3. Is there a latent export opportunity from the Catchment that is not being realised through
the lack of access to international air freight services at Canberra Airport?
Two approaches were taken to consider potential demand for international air freight services at
Canberra Airport. The first was to review international air freight data from the Catchment as well
as broadly from Sydney and Melbourne Airport. The second was a detailed consultation process of
a range of trade representatives, industry participants and industry associations in the Catchment.
Overview of international air freight
The Canberra Airport and the Catchment is conveniently located within major sources of air freight
importing and exporting activities and road freight flows on the eastern seaboard. Australian
international trade is dominated by imports, which is reflected in the most recent3 ABS estimate of
the balance of goods and services trade suggesting trend estimate exports of $26,045 million and
imports of $28,403 million in June 2016 for a deficit of $2,358 million. Over the twelve months to
June 2016, exports of goods and services totalled $311 billion with imports of $347 billion for a
deficit of approximately $36 billion. Significantly, metal ores made up nearly one quarter of the
value of Australian exports in this period, the bulk of which are exported from Western Australia.
The existing opportunity
Key to measuring the existing freight opportunity is developing an estimate of the level of exports
from the Catchment area that currently departs via Kingsford Smith and Melbourne airports. As
there is no off-the-shelf data product that provides this information, we undertook a
decomposition based on a combination of international trade statistics from MariTrade, ABS 2011
Census data, GIS analysis and specialised freight analysis by Auxiem.
3 ABS 5368.0 - International Trade in Goods and Services, Australia, Jun 2016
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The central assumption in this parameterisation process was that, owing to proximity, any exported
product that originates in the Catchment area would be exported via Canberra Airport rather than
Kingsford Smith or Melbourne if the service were available.
This rule is applied to existing exported product destined for China, Hong Kong, Singapore and
the United Arab Emirates. We include each of these end destinations based on the assumption
that rerouting is able to occur freely as required.
A detailed account of this process and the assumptions is provided in Appendix A.
Determining the reconfiguration opportunity
Utilising airport capacity for international freight in a city of similar size to Canberra is not without
precedent either locally or internationally. While having only been in operation for a year, the
Brisbane West Wellcamp airport in Toowoomba hosts direct international freight flights.
Internationally, the Glasgow Prestwick airport is located approximately 50 kilometres from the city
centre of Glasgow in the town of Prestwick, and from April 2014 to March 2015 hosted over
12,000 tonnes of freight.4
Similarly, the Bangor International Airport in Maine, USA, is located in a city of similar population to
Canberra and has historically been a joint military and civil facility. It is a comparable distance to
other major airports in Boston and Montreal.
Bangor International Airport has similar advantages to Canberra International Airport, with
uncongested, curfew free access. Leveraging these attributes this airport has developed into a
freight hub with over 500 cargo landings annually5 with major customers being UPS and FedEx.
The Canberra Airport has a number of attractive properties that make it an ideal geographical
location as an international freight hub, providing a centre of gravity to both the economic centres
of Sydney and Melbourne, the lack of a night time curfew and immediate access to high quality
road infrastructure.
When assessing the opportunity presented by reconfiguration of international freight services the
analysis is driven by the end goal of addressing existing trade imbalances for freight into and out
of Sydney and Melbourne on a lane by lane basis, with the ultimate aim of increasing the efficiency
of the overall freight task.
4 http://www.aircargoweek.com/glasgow-prestwick-appoints-cargo-director-aims-grow-freight/
5 See http://www.flybangor.com/assets/July2016StatisticsRpt081916.pdf , accessed October 2016
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For example, existing data indicates that on the Singapore trade lane imports dominate exports
from Sydney at 40,381 tonnes and 25,641 tonnes respectively, while from Melbourne imports are
less than exports at 31,327 tonnes and 40,330 tonnes respectively – yielding a total trade
imbalance of 23,743 tonnes on the trade lane. By reallocating 9,053 tonnes of freight to Canberra
Airport we are able to redistribute freight into underutilised international airfreight capacity by
road freight (reducing the cost of the domestic component), while achieving balanced trade flows
in Melbourne and Canberra, with a trade imbalance of only 5,647 tonnes in SydneFy as compared
to 14,740 tonnes currently.
This process is repeated separately for the Hong Kong and the United Arab Emirates trade lanes,
with a detailed account of this process and the assumptions provided in Appendix B.
Perhaps the most notable future competing investment when considering freight reconfiguration is
the development of a second Sydney airport at Badgerys Creek. The development of a second
airport for Sydney has been a topic of public discussion for many decades, including historical
proposal for Canberra Airport to be the second Sydney airport in conjunction with high speed rail.
More recently however the choice of development at the Badgerys Creek site has firmed
significantly, including associated infrastructure development such as the Western Sydney
Infrastructure Plan at a value of $3.6 billion over a period of 10 years.6
While any development at the Badgerys Creek site will undoubtedly add significantly to both
freight and passenger capacity in the Sydney region, there remains a number of key advantages
for international air freight reconfiguration to include Canberra Airport, in particular the advantage
of an existing curfew free operation, the geographical advantage, and the advantage of Canberra
airport being a facility already in operation.
The geographical advantage: In combination with the existing lack of night time curfew, Canberra
Airport has a strong geographical advantage over the Badgerys Creeks site. While Badgerys
Creeks is well located to service Sydney, Canberra Airport is some 200 kilometres closer to
Melbourne using present day road networks. The advantage of geography is the key differentiator
for Canberra airport – and without it the modal switch in the freight balancing strategy from air
transport to road transport that drives the productivity uplift could not occur.
6 See http://www.rms.nsw.gov.au/projects/sydney-west/infrastructure-plan/, accessed September 2016
18
Additionally, with the population of Western Sydney slated to increase by a million people by the
early 2030’s7 the existing issues of traffic congestion faced by freight moving through Kingsford
Smith Airport have the potential to be replicated to some extent at the Badgerys Creek site.
For express freight in particular this geographical differentiator strengthens the case considerably
for Canberra Airport to be a key element of the east coast air freight network. While the future
development of a second Sydney airport at the Badgerys Creek site will be transformative for
freight and passenger movements in Sydney itself, the geographical reach of an express network
out of Sydney from this site is unlikely to be remarkably different to the existing Kingsford Smith
airport.
The curfew advantage: The current airport operations plan for the second Sydney airport is for
curfew free operations with associated NSW Government planning controls in the area. However,
there remains strong opposition to curfew free operations, for example from the Blacktown City
Council.8
With Western Sydney often a key battleground in State and Federal politics and the airport not
scheduled to be operational until at least 2025, there is no guarantee that the plan for curfew free
operation will remain intact over the coming decades.
By way of comparison, Canberra Airport currently operations without night time curfew. This is
particularly important for express freight networks, with night time curfews impacting the
geographical range over which service standards are able to be maintained. Importantly with the
proximity of Canberra Airport to the NSW/ACT border, the NSW Government’s Draft South East
and Tablelands Regional Plan notes that the NSW Government will “protect the current and future
operations of the airport by placing restrictions on the location of residential development in the
vicinity.”9
The timing advantage: Disregarding the curfew risk, the congestion risk and the geographical
issues identified, under current plans the second Sydney airport is not slated to be operational until
2025 at least, assuming development proceeds according to existing plans.
Given the likely levels of population growth to this time, and with the investment required for
handling of international air freight at Canberra Airport comparatively small and risk free, this gives
the Canberra Airport a full decade at least to contribute to international freight productivity on the
7 See http://westernsydneyairport.gov.au/resources/faq.aspx, accessed September 2016
8 See http://www.blacktown.nsw.gov.au/News_and_Events/News/2016/July/Blacktown_starts_curfew_petition, accessed September 2016
9 Draft South East and Tablelands Regional Plan, May 2016, P59
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eastern seaboard. This period of time presents ample commercial opportunity for capital
investment in the Canberra region, for example in warehousing and handling facilities, in advance
of the future opening of the second Sydney airport.
The latent export opportunity
A key consideration in this analysis is whether the lack of access to international air freight services
at Canberra Airport is acting as a significant barrier to exporters in the Catchment region servicing
international markets. This ‘latent’ export opportunity is not possible to determine readily from
existing data sources. To counter this, a range of industry participants, peak bodies and
government representatives were consulted to ascertain the nature and scope of any export
response to the development of international air freight facilities at Canberra Airport.
Around 40 consultations were initiated in this process, with substantive feedback obtained from 19
individuals and organisations.
A key theme of the feedback received was either that the potential opportunities for local
international air freight had not been considered in detail, or that the participants were largely
unaware of the possibility and had not considered alteration of their business to take advantage of
possible export opportunities. In other words, the lack of international air freight services was not
considered a substantial barrier to exporters in the Catchment region.
Consultation Case Study: Freight and parcel handler
Discussions with a major handler of parcels expressed reserved support for Canberra
based international freight services. A key concern was whether there was the required
local demand to support such a services, especially in light of the existing infrastructure
used in both Sydney and Melbourne.
The concept of freight reconfiguration was met with some level of interest, however again
the existing capital investments in Sydney and Melbourne was seen as a barrier to
reconfiguration of existing operations. This feedback highlights the importance of the
degree of capital stickiness for different industries or companies when evaluating the
economic impacts of freight reconfiguration.
Consultation Cast Study: Bulk processed food producer and exporter
We consulted with a significant producer in the region, currently exporting to a large
number of foreign countries, and one of the two exporters of containers through Sydney’s
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main port. The consultation quickly indicated that the price of air freight was a major
impediment to exporting by air across the range of commodities they produce, being
largely bulky in nature.
Notably, the exports include beef, lamb and goat meat products, which at present are
largely exported via sea freight. While meat products are often identified as being highly
suitable for air freight, the consultation indicated that only a small percentage of their meat
products would be suitable to be exported via air freight through Canberra Airport, with
the remainder to be exported via sea freight as per current practices.
Consultation Cast Study: The truffle industry
Truffles are a prime example of a product ideally suited to export via air freight. Truffles
have a very short product lifespan once harvested of approximately 21 days to a month,
and are an exceptionally high value product with values in the thousands of dollars per
kilogram depending on the variety. Australia currently produces approximately 8 tonnes of
truffles per annum, with approximately 75 to 80 percent originating in Western Australia.
Consultation indicates that the bulk of truffles currently exported is via the express post
network.
The status of Perth Airport as a curfew free airport with direct international freight access
was noted as a particular strength in Western Australia, with growers able to harvest during
the day and have their product delivered to international consumers within 24 hours. This
compares to European markets which (depending on the day of the week the truffle was
harvested) can take up to a week for products to reach the consumer.
At a high level, the potential for local, curfew free international air freight we met with
optimism by members of the truffle growing community consulted. It was noted in
particular that the speed of freight keeps you competitive on international markets, while
reliability of your freight network prevents costly mistakes. Reliability of the existing service
out of Kingsford Smith was noted as a particular deterrent to exporters in the area based
on historical lost or delayed deliveries. Brisbane Airport was noted as an example of an
airport that suffers less from product loss or delay.
In addition the importance of a local aggregator of product was highlighted. The industry
on the east coast was characterised as consisting of many small producers, many of which
may not have the scale to effectively market their product in foreign markets when
compared to their west coast counterparts.
21
Consultation Case Study: The Poachers Way
The Poachers Way is a group of producers in the Canberra region (including Canberra,
Bungendore, Lake George, Gundaroo, Hall, and the Murrumbateman), including vineyards
and boutique processed food manufacturers. Poachers Pantry is a notable business in the
group, with production including both processed foods (notably, smoked meats) and wine.
Consultation with a key member of the Poachers Way with products including cured meats
suggested that the presence of local direct international air was not anticipated to make a
significant difference to their operations. As a guide the business aims for freight to make
up no more than eight to ten percent of the cost base, which is difficult to achieve when
using air freight. As boutique producers it was also noted that aside from cost concerns
they were unlikely to be able to export in significant enough volumes in their own right,
with a consolidator likely to be required to reach the scale required for effective air
transport.
Historically there had been some attempts to reach export markets using air freight
through Sydney Airport, however difficulties ensuring that temperature control was
maintained had resulted in goods being rejected at the destination market, particularly as a
result of meat products being aggregated with cut flowers, which require temperature
control of only 10 degrees versus 2 to 4 of processed meat products.
Consultation Case Study: Wine wholesaler and distributor
Fine wines are a common anecdotal example of a high value commodity with potential for
international air freight. To test the likelihood of wine being exported by air we consulted
with a wine wholesaler and distributor owned by one of Australia’s largest beer, wine and
spirits companies.
While fine wines are certainly high value for their weight and volume, the speed of
transport is in general not a key concern, mitigating one of the key benefits of local
international air freight. The one example of the benefit of high speed delivery was built
around the example of release of a highly desirable wine. In this instance there is very high
initial demand from (for example) foreign restaurants, which is desirable to be met with a
small initial consignment over air freight, to be followed up by the traditional route of sea
freight. In this instance air freight serves as an initial enabler, rather than the long term
export route.
It was noted however that the details of the freight route itself were only a small part of the
set of barriers to international exports, with differences in language, cultural customs, and
22
legal structures (including copyright protections and restrictions around vertical integration)
being among the barriers for local business. Examples given included the recent difficulties
faced by Penfolds in the Chinese market as a result of trade mark squatting, resulting in
costly legal disputes and settlements, and of export negotiations being threatened by a
lack of awareness of the importance of an expensive purchase (for example, wine) during
business negotiations in parts of Asia to signal sincerity of intent.
Aside from low awareness of the potential for direct freight access out of Canberra airport, three
key themes emerged around goods handling, foreign market navigation, and the potential value
of local industry cooperatives.
The importance of associated infrastructure and handling practices
Many agricultural products require specialised handling facilities or must be handled in a specific
manner to avoid rejection at the destination port. In the case of shellfish, for example, there are
facilities in Australia that must be certified by the destination country, and many raw or processed
food products must be subject to temperature control.
A number of stakeholders noted that the presence of existing infrastructure at Melbourne and
Sydney meant they would need to see the development of comparable infrastructure at Canberra
before seriously considering altering their existing arrangements.
Against this, two participants reported having difficulty with goods handling at Sydney airport,
including processed meats that must be stored at 4 degrees ultimately being rejected after being
aggregated with cut flowers at 10 degrees, while truffles had been repeatedly lost or delayed when
being handled through Sydney airport resulting in lost or reduced value. In both instances these
experiences had provided a disincentive to pursuing future export opportunities, and so there is
potential opportunity simply through providing an enhanced product handling experience and
restoring confidence in local producers.
Difficulty navigating foreign markets
A number of respondents raised difficulty in understanding foreign business markets and practices
as a barrier for small to medium enterprises successfully engaging in export markets. In the wine
export market the example of “trademark squatting” in China was given, in particular a legal
dispute in 2014 involving Penfolds in which a local businessman had filed for trade mark protection
for the company’s Chinese brand, resulting in a costly litigation process.
A further example was given in the form of Australian businesses not being aware of cultural
norms when engaging in business negotiations in Asian markets, resulting in potentially missed
export opportunities.
23
It was noted in consultations that the TradeStart network already offers assistance to local
businesses to engage in foreign markets. Some of the issues raised in consultations may be able to
be mitigated by engaging with the TradeStart network, highlighting the value of increased
awareness of these services in export facing sectors.
The value of industry cooperatives
In local industry sectors that are characterised by multiple business operating at comparatively
small scale the costs of engaging in export markets can easily outweigh the benefits. Key examples
in the Canberra Catchment include boutique foods and beverages such as truffles, processed
meats and small scale wines.
In the case of the truffle producing sector approximately 750 kg are produced in the catchment,
with the local industry primarily composed of many small, boutique producers. By way of
comparison the West Australian market has larger producers who more actively engage in export
markets. In West Australia producers also have access to a curfew free airport with direct
international freight links in the form of Perth Airport.
Through consultation with the truffle sector the potential value in a local industry cooperative or
aggregator was stressed, which would allow smaller local producers to tie into international
markets while spreading the market access costs across a larger group of businesses.
The learnings from direct consultations
Through the course of the consultations we were unable to uncover substantive evidence of any
straight forward, off-the-shelf opportunities - that is, instances where businesses identified access
to international freight services at the Canberra Airport as their primary obstacle to accessing
international freight opportunities.
It is important to note that while this doesn’t immediately support some of the informal or
anecdotal evidence of strong local demand for international air freight access, it also does not
establish that growth opportunities do not exist. There are two immediate reasons why growth
opportunities from international freight access are likely to still exist.
In the first instance, no consultation process will be able to cover all companies for whom local
access to international freight would fundamentally change their decision to pursue international
markets. There are likely to be businesses in the area who either were not approached or who
chose not to speak to us who would value local international freight access very highly.
On an ongoing basis there is scope for continued data collection and consultation by the public
sector in this regard. Regular consultation with the (current or potential) exporting business
community through (for example) economic development officers and Trade Start officers has the
potential to highlight opportunities missed in the current process.
24
Secondly, there is an element of what is known as ‘path dependency’ to business development in
any region. In this case, the lack of international air freight services in close proximity to businesses
in the Catchment area means that opportunities to export may not have been ‘front of mind’
during their development. It is not implausible that, as Canberra Airport develops international air
freight services, businesses across the Catchment expand their view in relation to growth
opportunities beyond the domestic market.
Areas of future growth potenti al
As noted above, the consultations undertaken in this study were unable to uncover substantive
evidence of any straight forward, off-the-shelf export opportunities. Again, this does not preclude
existing demand that was simply not found, nor future demand for freight services that does not
exist at present due to (for example) path dependency.
Looking forward it will be valuable for governments in the region to identify future potential
sources of demand as they materialise. One notable source of future demand for international air
freight services is in protein exports to Asia – in particular Australian meats - and a key mechanism
for this export path to develop in significant quantities is through direct foreign investment in
Australian agricultural land.
The 2016 Register of Foreign Ownership of Agricultural Land10 notes that foreign ownership in
NSW/ACT is the lowest in the country at 4.1 percent, against a national average of 13.6 percent,
with the bulk of foreign ownership being either from the United Kingdom or the United States. In
comparison the report Demystifying Chinese Investment in Australia11 indicates that a total of
$USD11.1 billion was invested in Australia from China, with $AUD375.2 million in agribusiness.
Further, “NSW is the top destination for Chinese direct investment in 2015, attracting 49.3% of the
total”.
While agribusiness investment from China made up only 6 percent of investment in 2015, and in
absolute terms the current stock of Australian agricultural lands held by Asian interests is low,
Australia is (for example) the second largest destination of Chinese foreign investment. With the
increased wealth of the ever expanding Asian middle class and the associated demand for high
quality protein this trend is likely to continue. Positive identification of and interaction with
international companies actively investing in Australian agribusiness could prove a valuable
strategy for local governments.
10 See https://firb.gov.au/files/2016/08/Register_of_foreign_ownership_of_agricultural_land.pdf, accessed September 2016
11 See http://demystifyingchina.com.au/reports/demystifying-chinese-investment-in-australia-april-2016.pdf, accessed September 2016
25
A further avenue for development is strengthening the awareness of existing export assistance
programs in local industry. The TradeStart network (for example) offers services that may assist
with some of the difficulties with international trade identified during the consultation process – for
example, cultural tips for doing business overseas, foreign commercial practices, and market entry
and strategy advice. Indeed, during consultation with the TradeStart network it was noted that
engagement with the TradeStart network may have helped to avoid issues such as the trademark
squatting experienced by Penfolds.
Enabling future transport network development
The development of international air freight in Canberra, whether through capturing the existing
opportunity for air freight currently carried through Sydney or Melbourne or reconfiguration of the
existing east coast freight network and balancing of international air freight lanes, relies not only
on the physical presence of the airport but also on the continued development of suitable
surrounding industry and infrastructure.
For international air freight leaving the country the typical mode of transport from the consigner to
the port of destination for aggregating and staging is via road freight. Road freight networks in
particular are highly competitive and commoditised, and the associated capital is relatively
standard and mobile.
Consignees have a range of freight forwarders to choose from, and many businesses will
benchmark multiple freight forwarders to ensure they have access to the most competitive rates
possible. As is to be expected, there is already a well-functioning road freight network in the
Canberra region ranging from small scale couriers to line-haul operators.
With the land side capital requirements (excluding customs and AQIS facilities) relatively modest,
one important factor for the development of international air freight at Canberra Airport will be
the availability of competitively priced tarmac side infrastructure to attract international freight
operators such as couriers and freight forwarders. Currently, the nearest sites suitable for
warehousing and transport depot activities lie in Fyshwick and Queanbeyan, at approximately 5km
and 10km driving distance respectively.
Much of the land immediately adjacent to the Canberra Airport however is relatively undeveloped
and currently zoned as NUZ1, which specifically disallows12 many of the uses associated with
transport networks, including car parks, freight transport facilities and warehouses. Access to the
land is straightforward via Pialligo Avenue and Majura Road.
12 See http://www.legislation.act.gov.au/ni/2008-27/copy/110372/pdf/2008-27.pdf, accessed October 2016
26
While elements of the logistics chain, in particular the staging areas, are ideally situated directly on
tarmac side infrastructure, there is scope for local government to assist in the development of local
international air freight operations through appropriate rezoning. This has the key benefits of
being a relatively costless operation, both in upfront investment and ongoing liability.
27
Estimating the economic impacts
Infrastructure investments, such as a potential upgrade to Canberra Airport to facilitate
international air freight, have broader economic impacts than simply the revenue and costs
associated with the specific asset. An appropriate tool for considering these broader economic
impacts is an economy-wide, computable general equilibrium (CGE) model.
Accordingly, we have applied the Cadence Economics General Equilibrium Model (CEGEM) for this
analysis to consider the range of economic impacts associated with the potential development.
These impacts range from the direct investment and operation of the facility, the reduction in road
freight costs in the Catchment for exporters and importers on key economic variables such as
aggregate economic output (gross regional product, or GRP), investment and employment.
Computable General Equilibrium models are the framework of choice for measuring the impact of
development scenarios such as that discussed here. The CEGEM model is Cadence Economics’ in-
house Computable General Equilibrium model, and is a multi-region, multi-sector representation
of both the international and the Australian economies at the aggregate and sub national levels.
The model has significant flexibility in its sectoral and regional specification, and as such is ideally
suited to analysis of this type. For additional detail on the CEGEM model see Appendix B.
The timeframe for the analysis extends from the current day to 2030, and assumptions in the
baseline of the CEGEM model such as GRP, population and employment growth have been
harmonised to ACT Government projections where possible, and revert to trend estimates in the
long run. The funding of any capital expansion required in this development is assumed to occur
privately.
The air freight scenarios
In undertaking the scenario, two economic development paths for the ACT and the Catchment are
considered. The first scenario is a reference case, or ‘business-as-usual’, scenario under which
Canberra Airport does not develop an international air freight facility. Under this scenario,
Kingsford Smith remains the main freight hub for the ACT and the Catchment.
Based on this analysis and industry consultation, three international air freight scenarios are
considered in relation to the investment in capacity mooted by Canberra Airport management:
The Existing Opportunity which is narrowly focussed on shifting international air freight
from the Catchment currently handled in Sydney to Canberra airport.
The Reconfiguration Opportunity which is based on consolidating international air freight
from not only the Catchment but also Sydney and Melbourne to better balance import
and export volumes resulting in improved efficiency.
28
The Catchment Exports Opportunity builds on the reconfiguration opportunity as exporters
across the Catchment are assumed to take advantage of additional international air freight
capacity to increase export volumes.
The Existing Opportunity
It is estimated that 37,107 chargeable tonnes of exports leaves the Catchment each year through
Kingsford Smith and Melbourne Airports, valued at approximately $226 million. This equates to
roughly one 747 freighter landing at Canberra airport per day. A detailed overview of the
estimation process applied is presented in Appendix A.
Imports by international air freight into the Catchment, routed through Sydney Airport, are in
excess of these export tonnes based on consultation with freight and logistics firms. As such, under
this scenario a reasonable assumption is that the international air freight operation will be able to
balance exports and imports, in other words plane will arrive full and leave full.
The core assumptions for this scenario are:
1. A capital investment at the Canberra Airport of $42m.
2. A reduction in the price of road freight required to transport goods to and from the airport
of $0.14 per kilo for those goods previously routed through Kingsford Smith Airport, and a
reduction of $0.38 per kilo for those previously routed through Melbourne.
3. A total of 37,107 chargeable tonnes per annum for exports from the Catchment are re-
routed from Kingsford Smith Airport to Canberra Airport. A similar volume of imports is
also re-routed from Kingsford Smith Airport to Canberra Airport.
The reduction in the road freight task as a result of international air freight through Canberra
Airport is calculated through a two-step process:
First, a benchmarking exercise has been undertaken by Auxiem, calculating a median road
freight rate per route (that is, to Melbourne, Sydney and Canberra) based on an up to date
28 carrier portfolio.
Second, an average distance reduction is calculated for freight previously departing
through each of the Melbourne and Sydney ports and now departing through Canberra.
The $0.14 and the $0.38 per kilogram charge for freight previously departing Sydney and
Melbourne respectively is then a direct consequence of the reduced freight distance and the cost
of the route change.
Under this scenario, two assumptions are made about the air freight displaced from Sydney airport.
Under conservative assumptions, there is no net increase in air freight services. In other words, the
air freight services reallocated to Canberra from Sydney are not replaced with additional exports
(they are offset). The other assumption is that the international air freight relocated to Canberra
29
allows for more exports from NSW so that the aggregate freight task is unchanged in Sydney
Airport (they are additional).
The offset scenario described in this section is included to present a “worst case” lower bound to
the economic impacts and in large part to test the sensitivity of results in the ACT and Catchment
to a pessimistic assumption on the air freight impacts at Kingsford Smith airport. The outcome that
air freight is completely offsetting is unlikely to materialise in reality.
The results are reported for three regions: the Catchment (which includes the ACT), the ACT only
and the ACT plus NSW (which includes the Catchment area and the rest of NSW).
The benefits of the Existing Opportunity scenarios are summarised in Table 1 and Table 2. The
results are presented as net present values (discounted over the period from 2016 to 2030 using a
7 percent real discount rate), averages over the period, peak results over the period and long run
outcomes (results at 2030).
The benefits of the Existing Opportunity scenario under the conservative offset assumptions are
summarised in Table 1. The results under this scenario indicate benefits to the ACT and Catchment
regions as a result of:
increased investment, production levels, employment and wages as economic activity
associated with international air freight services is redirected to the ACT;
having to pay less for road freight on exports from the region; and
having to pay less for road freight charges on imported consumption goods.
The results show that the main benefits under the Existing Opportunity scenario (offset) accrue to
the ACT region. This is because the primary benefits under this scenario are driven by lower freight
costs that are relatively higher in the ACT compared with the Catchment (notably on imports) and
the additional economic activity associated with the investment in international air freight services,
and ongoing operations, are located in the ACT. For example, employment is estimated to
increase on average by around 100 full time equivalents (FTEs) across the Catchment over the
period of the scenario (under both the offset and additional assumptions). Just over 90 percent of
this increase is in the ACT.
30
Table 1: Estimated benefits under the Existing Opportunity scenario (Offset scenario)
NPV (GRP)/Average
(FTE)
Peak Long
Run Canberra Region GRP $166 $21 $19
Employment (FTE) 97 118 92
Private expenditure1 3 $315 $41 $41
Catchment GRP $181 $22 $21
Employment (FTE) 102 123 98
Private expenditure $320 $41 $41
ACT GRP $157 $20 $17
Employment (FTE) 94 115 89
Private expenditure $313 $40 $40
ACT + NSW GRP $56 $10 $4
Employment (FTE) 56 72 52
Private expenditure $108 $15 $15
Source: Cadence Economics modelling. Net Present Value (NPV) over the period 2016 to 2030 discounted using a 7 percent real
discount rate.
At a sectoral level, the employment impacts are heavily concentrated in the air transport sector in
the ACT, with an average increase of 221 full time equivalent employees in the sector in the
Additional scenario, with the combined wholesale and retail trade sector increasing employment
by 12 full time equivalent positions. This is partially offset by crowding out in other economic
sectors, most notably in business services (excluding finance and insurance) where employment is
reduced by 61 full time equivalent positions.
While outside the ACT the employment impacts are comparatively muted, wholesale and retail
trade and the public services sector in the catchment outside the ACT each increase employment
by 26 full time equivalent positions each.
13 Private Expenditure represents the increase in consumption of goods and services by households in each region.
31
Table 2: Estimated benefits under the Existing Opportunity scenario (Additional scenario)
NPV (GRP)/Average (FTE) Peak Long Run
Canberra Region GRP $164 $21 $18
Employment (FTE) 97 117 92
Private expenditure $313 $40 $40
Catchment GRP $175 $22 $20
Employment (FTE) 101 121 97
Private expenditure $314 $40 $40
ACT GRP $157 $20 $17
Employment (FTE) 94 115 89
Private expenditure $313 $41 $41
ACT + NSW GRP $225 $28 $27
Employment (FTE) 108 129 104
Private expenditure $314 $41 $41
Source: Cadence Economics modelling. Net Present Value (NPV) over the period 2016 to 2030 discounted using a 7 percent real
discount rate.
The Reconfiguration Opportunity
The Reconfiguration Opportunity scenario assumes a major transition in international air freight
across Sydney, Melbourne and Canberra airports. The premise of this reconfiguration is the current
imbalances in international air freight that, through detailed analysis by Auxiem, have been shown
to exist and that can be ameliorated to a large extent through a consolidation of activity through
Canberra Airport with the appropriate road freight links.
Under this scenario, two configurations have been considered. The first considers consolidation of
air freight to and from Singapore, resulting in a total of 113 flights being reallocated to Canberra
Airport. The second considers a consolidation of 279 air freight flights from the three major
international hubs of Singapore, Dubai and Hong Kong (3 lanes). With four B-double trucks worth
of road freight required for a single average air freighter this translates to an additional 452 to
1,116 B-doubles on local roads per annum
The benefits under the Reconfiguration Opportunity scenario are summarised in Table 3 and Table
4 and are significantly higher for the Catchment overall compared with the Existing Opportunity
scenarios. These benefits are directly related to the volume of international air freight being
reallocated to Canberra Airport, resulting in lower transport costs. For example, employment
across the Catchment is estimated to increase by between 142 and 339 FTE on average under the
32
Singapore and 3 lanes assumptions respectively. This compares with an estimated increase in
employment of around 100 FTE under the Existing Opportunity scenario.
The bulk of the benefits across the Catchment are estimated to be in the ACT which, again,
accounts for around 90 percent of the employment benefits.
NSW is estimated to benefit from the Reconfiguration Opportunity due to efficiencies being
generated in international air freight operations. Employment in NSW is estimated to increase by
69 to 98 FTEs under the Singapore and 3 lanes assumptions respectively.
Table 3: Estimated benefits under the Reconfiguration Opportunity scenario (Singapore only)
NPV (GRP)/Average (FTE) Peak Long Run
Canberra Region GRP $210 $27 $22
Employment (FTE) 135 160 129
Private expenditure $427 $56 $56
Catchment GRP $228 $29 $25
Employment (FTE) 142 167 137
Private expenditure $430 $56 $56
ACT GRP $198 $25 $21
Employment (FTE) 130 155 125
Private expenditure $425 $56 $56
ACT + NSW GRP $450 $59 $59
Employment (FTE) 199 226 200
Private expenditure $520 $69 $69
Source: Cadence Economics modelling. Net Present Value (NPV) over the period 2016 to 2030 discounted using a 7 percent real
discount rate.
33
Table 4: Estimated benefits under the Reconfiguration Opportunity scenario (3 lanes)
NPV (GRP)/Average (FTE) Peak Long Run
Canberra Region GRP $433 $55 $43
Employment (FTE) 331 375 333
Private expenditure $928 $121 $121
Catchment GRP $442 $56 $44
Employment (FTE) 339 378 336
Private expenditure $934 $122 $122
ACT GRP $394 $50 $38
Employment (FTE) 296 337 288
Private expenditure $902 $118 $118
ACT + NSW GRP $933 $119 $119
Employment (FTE) 470 514 477
Private expenditure $1,138 $149 $149
Source: Cadence Economics modelling. Net Present Value (NPV) over the period 2016 to 2030 discounted using a 7 percent real
discount rate.
As in the Existing Opportunity scenario, the increase in employment in the ACT is largely driven by
the air transport sector, with an average increase of 307 full time equivalent positions over the
modelling period in the case of Singapore only, and 657 full time equivalent positions in the 3 lane
scenario.
In NSW the sectoral results are significantly higher than in the Existing Opportunity scenario.
Construction, wholesale and retail trade, business services, and the public services sector increases
employment on average over the period by 48, 35, 37 and 102 full time equivalent positions
respectively in the 3 lane scenario, and 21, 22, 13 and 53 positions in the Singapore only scenario.
The Catchment Exports Opportunity
The final scenarios consider the potential benefits the Reconfiguration Opportunity offers to
exporters in the Catchment area.
These scenarios are stylised in nature. This is because the consultation process did not result in a
clear cut, latent demand for international air freight services from the Catchment area. In other
words, based on broad ranging discussions with relevant stakeholders across the Catchment, there
was no definitive evidence that the lack of international air freight services at Canberra Airport was
acting as significant barrier to producers in the region. Rather, it is assumed that the availability of
these services to a major international freight hub will result in entrepreneurs across the Catchment
34
looking to take advantage of export markets in markets where the region is well placed,
particularly agricultural production.
The scenarios considered in this section are based on the reconfiguration scenarios, with the only
difference being the level of exports from the Catchment outside the ACT. When considering the
export levels we assume that Catchment producers are able to utilise the 5,647 tonnes of capacity
imbalance remaining on the Singapore export lane in both scenarios. As might be expected the
key difference in the economic outcomes in turn accrue to the Catchment outside the ACT.
As a consequence of using the 5,647 tonnes of imbalance on the Singapore lane for the basis of
the Catchment Exports Opportunity scenarios there is no increase in the number of truck
movements between Sydney and Canberra. Rather, the empty road freight capacity from
Canberra to Sydney that exists in the Reconfiguration Opportunity scenarios is utilised, completely
removing any international air freight imbalance on the Singapore lane out of Sydney, Canberra
and Melbourne airports.
The additional 5,647 tonnes of production in the area assumed in this scenario would increase
local road traffic to some extent, however this is anticipated to be modest. For example, if the
increased production were carried by 8 tonne non-articulated vehicles operating at 50% capacity
an increase of approximately 11 vehicle movements per weekday in the Canberra Catchment
would service the local freight requirements.
The benefits under the Catchment Exports Opportunity scenario are significantly higher for the
Catchment overall compared with the Reconfiguration Opportunity scenario. This is directly related
to the additional volume of exports. Notably, the benefits of this scenario accrue mainly to the
catchment outside of the ACT. For example, employment in the Catchment excluding the ACT is
estimated to increase by between 110 and 134 FTE on average under the Singapore and 3 lanes
assumptions respectively.
Notably in both the Singapore only and the three lanes growth scenarios the economic outcomes
are very slightly reduced as compared to the reconfiguration scenarios. This reflects the balance
between the “crowding in” (for example, increased purchases of business services in the ACT by
exporters in the remainder of the catchment) and “crowding out” (for example, increased
commodity prices resulting from international export competition) impacts of increased exports
from the remainder of the catchment resulting in a slight net reduction in activity. This very small
percentage reduction is heavily offset by the large increase in economic activity outside the ACT.
35
Table 5: Estimated benefits under the Catchment Exports Opportunity scenario (Singapore only)
NPV (GRP)/Average (FTE) Peak Long Run
Canberra Region GRP $296 $37 $34
Employment (FTE) 162 186 156
Private expenditure $528 $69 $69
Catchment GRP $514 $65 $63
Employment (FTE) 234 270 230
Private expenditure $767 $99 $99
ACT GRP $193 $25 $20
Employment (FTE) 127 153 121
Private expenditure $415 $54 $54
ACT + NSW GRP $726 $97 $97
Employment (FTE) 282 318 282
Private expenditure $811 $106 $106 Source: Cadence Economics modelling. Net Present Value (NPV) over the period 2016 to 2030 discounted us ing a 7 percent real discount rate.
Table 6: Estimated benefits under the Catchment Exports Opportunity scenario (3 lanes)
NPV (GRP)/Average (FTE) Peak Long Run
Canberra Region GRP $495 $62 $51
Employment (FTE) 337 377 330
Private expenditure $1,012 $132 $132
Catchment GRP $717 $90 $81
Employment (FTE) 428 478 425
Private expenditure $1,259 $163 $163
ACT GRP $388 $50 $37
Employment (FTE) 293 335 284
Private expenditure $892 $117 $117
ACT + NSW GRP $1,197 $155 $155
Employment (FTE) 548 600 555
Private expenditure $1,416 $185 $185 Source: Cadence Economics modelling. Net Present Value (NPV) over the period 2016 to 2030 discounted us ing a 7 percent real discount rate.
36
Again the employment impacts in the ACT are largely concentrated in the air transport sector, with
an average employment increase of 307 and 656 FTE positions in the Singapore only and the 3
lanes scenarios respectively, matching the reconfiguration opportunity scenario closely.
In NSW the employment in the manufacturing sector (which incorporates processed foods)
increases significantly, at an average of 184 and 199 FTE positions in the Singapore only and the 3
lane scenarios. Increased capital investment in NSW stimulates the construction sector, with
employment increasing by 32 and 61 FTEs respectively.
37
Conclusion
This report presented an assessment of the international air freight opportunity facing the ACT and
the Catchment in relation to international air freight operations at Canberra Airport.
The analysis was based on a combination of a detailed quantitative analysis of air freight
movements augmented by a consultation process of trade representatives, industry participants
and industry associations.
Economic modelling was also undertaken to quantify the potential benefits to the Canberra Airport
catchment region (the Catchment), the Australian Capital Territory (ACT) and New South Wales
(NSW) of different scenarios considering increased international air freight activity at Canberra
Airport.
Three scenarios were considered.
Under the Existing Opportunity scenario, which narrowly considered shifting international air
freight from the Catchment currently handled in Sydney to Canberra airport, the analysis showed
that economic benefits in terms of activity (measured by GRP) and employment. The bulk of these
benefits accrued to the ACT region.
Under the Reconfiguration Opportunity scenario, which was based on a substantial consolidation
of international air freight from not only the Catchment but also Sydney and Melbourne to better
balance import and export volumes resulting in improved efficiency, the estimated economic
benefits were larger. The benefit were directly related to the volume of international air freight
being reallocated to Canberra Airport. The bulk of the estimated benefits in the Catchment region
accrued to the ACT which, with associated benefits to NSW due to efficiencies being generated in
international air freight operations.
Under the Catchment Exports Opportunity scenario, the Reconfiguration Opportunity scenario was
augmented with illustrative assumptions about increased exports from the Catchment area to take
advantage of additional international air freight capacity to increase export volumes. The
illustrative nature of this scenario reflected the information gathered from the consultation process
that did not result in a clear cut, latent demand for international air freight services from the
Catchment area. That said, the estimated benefits from this scenario were significantly higher for
the Catchment overall compared with the Reconfiguration Opportunity scenario. This is directly
related to the additional volume of exports. Notably, the benefits of this scenario accrue mainly to
the catchment outside of the ACT.
38
Appendix A – Determining the existing opportunity
Given the specific regional definition of the Catchment area there is no detailed export or import
data available from typical sources such as the Australian Bureau of Statistics (ABS). As such, the
first stage of the analysis was to estimate export and import data for the Catchment area. The
main data source available was provided by MariTrade, a commercial data provider who estimates
international trade data and identifies export goods produced in New South Wales departing
Brisbane, Sydney and Melbourne airports for selected destinations based on ABS data.
Based on MariTrade data, the bulk of the goods produced in New South Wales exported via air
freight leaves through the Kingsford Smith airport. Exports to Australia’s five main destinations,
China, Hong Kong, New Zealand, Singapore and the United Arab Emirates, in 2015 were
approximately 59,400 deadweight tonnes valued at $2,957 million FOB, up from 33,800 tonnes
valued at $1,441 million FOB in 2014.14 This represents around 93% of air freight related exports
from New South Wales by weight and 97% by value. Some goods from New South Wales are
exported through Melbourne and Brisbane airports, although in much lower quantities, at 2,375
tonnes via Melbourne and 2,185 tonnes via Brisbane. An analysis of calendar year 2014, 2015 and
2016 (January to July) data confirms that demand for air freight export services are highly elastic
with respect to exchange rates – with a demand elasticity of between -6 and -8.
Determining the existing opportunity
Given the relative imbalance of trade in favour of imports versus exports, it is important to consider
the potential level of exports that could be reasonable expected from the Catchment. A
conservative approach has been adopted in this context in that the basis for the export analysis are
international air freight services currently required by the Catchment, using Kingsford Smith airport.
No consideration is made of any potential supply side responses from the Catchment from having
access to lower cost transport links to overseas.
Establishing the potential base of export activity from the Catchment relies on a disaggregation of
existing freight movement data in the MariTrade data set for goods produced in New South Wales
and exported through the airports of Brisbane, Sydney and Melbourne.
For goods that are currently exported through Brisbane, we assume this is the port of choice either
because they are either produced too far north of Sydney, or that there is a particular feature of
Brisbane airport or the surrounding industry or infrastructure that would make them unsuitable for
14 Free On Board – the value of goods including all charges up to and including loading of the goods onto the aircraft.
39
export via Canberra Airport. As such, these exports are excluded from the potential base of export
activity15.
Of the remaining goods currently exported through Sydney and Melbourne, it was necessary to
assign the export data from the MariTrade commodity classification to each region across New
South Wales at the SA2 level of regional detail. This was done by prorating the MariTrade
commodity level data across industries and regions based on industry employment figures from
the 2011 ABS Census at the 2, 3 or 4 digit ANZSIC level as appropriate. For major agricultural
commodities16 produced in the region, the agricultural census is used to ensure that the volume
and geographical distribution of agricultural production is correctly calibrated.
To ensure that the correct potential export base that might be captured by Canberra Airport, we
separately consider the proportion of freight that currently leaves via Melbourne and Kingsford
Smith, and the proximity of the associated economic activity to each airport as well as Canberra
Airport.
To convert from physical mass to chargeable tonnage, industry standard cubic conversion factors
are applied to both air and road freight, with 167kg per chargeable tonne for the air freight
component and 250kg for the road freight component. Each commodity sub group in the
MariTrade data is assigned to one of seven specific gravity ranges with individualised chargeable
weight by cubic metre for air and road separately.
Additionally, when allocating chargeable tonnage to the Canberra Airport, we do not reallocate
live animal exports, acids, and explosives owing to the specialised facilities required.
Finally, to calculate the total FOB cost impact we utilise the volume of freight redirected, the per
commodity weight classifications, separate treatment of the reduced road freight component, the
differentials in landing costs by airport, and the anticipated warehouse and handling costs of an
ACT facility as compared to market rates for Sydney and Melbourne.
The analysis suggests that there is the potential based on existing production levels for a total of
7,853 tonnes of freight to be exported through the Canberra Airport, at a total chargeable weight
of 37,107 tonnes and equivalent to 101.7 chargeable tonnes daily, with approximately three
quarters of the freight by weight being agricultural commodities.
15 There are known examples of goods produced in the Catchment area that are in fact exported through Brisbane airport for
scheduling reasons, however without significantly more detailed analysis it is impossible to isolate these examples.
16 ABS Cat 7121.0
40
Appendix B – Determining the reconfiguration opportunity
Current Freight Flows In total flows, there is a significant imbalance in trade flows in both Sydney and Melbourne. The study will investigate in detail how leveraging Canberra as a freight hub can reduce the total cost of freight into Australia whilst:a) Meeting and or improving the current service levelsb) Increase the utilization of airfreight assets used to service the marketc) Improve freight transfer rates utilizing cheaper more efficient freight
modes (domestic road versus air).
129K Tonnes
Current Flows
178k Tonnes
265k Tonnes
158k Tonnes In 2015, Exports exceeded Imports 29k tonnes by Air
In 2015, Imports exceeded Exports by 87k tonnes by Air
Total Sum of 2015 Inbound Total Sum of 2015 Outbound TOTAL MEL & SYD
Destination Country Outbound vs Inbound %
CAN 2,698 1,025 38%
CHINA 27,214 44,338 163%
INDI 1,370 651 48%
INDO 10,722 6,040 56%
JP 10,969 4,800 44%
KR 3,476 4,552 131%
MY 32,881 19,779 60%
NZ 46,864 47,765 102%
OTHER 10,845 11,792 109%
PH 4,096 3,814 93%
SG 71,708 65,972 92%
TH 16,944 15,669 92%
TW 1,824 1,587 87%
UAE 43,700 44,959 103%
UK 9,955 2,765 28%
US 57,909 19,413 34%
VTM 5,405 3,134 58%
HK 35,728 38,230 107%
Grand Total 394,306 336,284 58,022
Source: The Bureau of Infrastructure, Transport and Regional Economics
The detail The following pages will identify the key trade lanes and the cost impact of leveraging Canberra to balance trade lane movements and therefore reducing total cost of freight in the Australian market.
42
Leveraging Canberra to balance the trade flows By rerouting freighters into Canberra (113 Flights per annum) the trade lane can be brought into balance
ORIGN DESTINATION FLOW Tonnes
Singapore Sydney IN 40,381
Sydney Singapore OUT 25,641
Utilisation 63%
ORIGN DESTINATION FLOW Tonnes
Singapore Melbourne IN 31,327
Melbourne Singapore OUT 40,330
Utilisation 129%
Conclusion: Total imbalance of 23.7k Tonnes per annum in trade flow.
NEW
ORIGN DESTINATION FLOW Tonnes
Singapore Sydney IN 31,327
Sydney Singapore OUT 25,680
Utilisation 82%
NEW
ORIGN DESTINATION FLOW Tonnes
Singapore Melbourne IN 31,360
Melbourne Singapore OUT 31,277
Utilisation 100%
NEW
ORIGN DESTINATION FLOW Tonnes
Singapore Canberra IN 9,053
Canberra Singapore OUT 9,053
Utilisation 100%
Capacity 113 Flights pa
9k tonnes freight9k tonnes freight
Current trade flows – Imbalance By rerouting freighters into Canberra (113 Flights per annum) the trade lane can be brought into balance
43
Leveraging Canberra to balance the trade flows By rerouting freighters into Canberra (52Flights per annum) the trade lane can be brought into balance
Conclusion: Total imbalance of 10.1k Tonnes per annum in trade flow.
Capacity 52 Flights pa
4k tonnes freight4k tonnes freight
Current trade flows – Imbalance By rerouting freighters into Canberra (52 Flights per annum) the trade lane can be brought into balance
NEW
ORIGN DESTINATION FLOW Tonnes
Hong Kong Sydney IN 19,931
Sydney Hong Kong OUT 20,263
Utilisation 102%
NEW
ORIGN DESTINATION FLOW Tonnes
Hong Kong Melbourne IN 11,600
Melbourne Hong Kong OUT 13,807
Utilisation 119%
ORIGN DESTINATION FLOW Tonnes
Hong Kong Sydney IN 24,091
Sydney Hong Kong OUT 20,263
Utilisation 84%
ORIGN DESTINATION FLOW Tonnes
Hong Kong Melbourne IN 11,637
Melbourne Hong Kong OUT 17,967
Utilisation 154%
NEW
ORIGN DESTINATION FLOW Tonnes
Hong Kong Canberra IN 3,828
Canberra Hong Kong OUT 3,828
Utilisation 100%
44
Leveraging Canberra to balance the trade flows By rerouting freighters into Canberra (114 Flights per annum) the trade lane can be brought into balance
ORIGN DESTINATION FLOW Tonnes
Singapore Melbourne IN 31,327
Melbourne Singapore OUT 40,330
Utilisation 129%
Conclusion: Total imbalance of 19.5k Tonnes per annum in trade flow.
Current trade flows – Imbalance By rerouting freighters into Canberra (113 Flights per annum) the trade lane can be brought into balance
ORIGN DESTINATION FLOW Tonnes
UAE Sydney IN 23,780
Sydney UAE OUT 14,650
Utilisation 62%
ORIGN DESTINATION FLOW Tonnes
UAE Melbourne IN 19,920
Melbourne UAE OUT 30,309
Utilisation 152%
NEW
ORIGN DESTINATION FLOW Tonnes
Singapore Melbourne IN 31,360
Melbourne Singapore OUT 31,277
Utilisation 100%
Capacity 114 Flights pa
9.1k tonnes freight9.1k tonnes freight
NEW
ORIGN DESTINATION FLOW Tonnes
UAE Sydney IN 14,660
Sydney UAE OUT 14,650
Utilisation 100%
NEW
ORIGN DESTINATION FLOW Tonnes
UAE Melbourne IN 19,920
Melbourne UAE OUT 21,189
Utilisation 106%
NEW
ORIGN DESTINATION FLOW Tonnes
UAE Canberra IN 9,120
Canberra UAE OUT 9,120
Utilisation 100%
45
Summary of costs savings and assumptions
Aircraft
Vol for freight Capacity
Cost per Nautical
Mile
Cost per Nautical Mile Ton
Singapore Cost per KG
Hong Kong Cost per KG
UAE Cost per KG
McDonnell Douglas MD-11 543.1m3 82,000 32.26 $ 0.39 $ 1.41 $ 1.68 $ 2.71
Boeing 747F (Freighter) 601.4m3 95,000 77.43 $ 0.82 $ 2.75 $ 3.28 $ 5.28
Boeing 777 (Freighter) 550m3 103,000 58.64 $ 0.57 $ 1.92 $ 2.29 $ 3.69
Boeing 767 (Freighter) 438.5m3 56,000 44.61 $ 0.80 $ 2.69 $ 3.21 $ 5.17
Average $ 53.24 $ 0.64 $ 2.19 $ 2.62 $ 4.21
AIR ROAD TOTAL
Excess Capacity Current (tonnes) New (tonnes) Reduction (tonnes) Cost per ton Cost reduction pa Cost reduction pa Cost reduction pa
SINGAPORE 23,742 5,730 18,012 $ 1,836 $ 43,192,667 $ 7,242,768 $ 50,435,435
HONG KONG 10,158 2,872 7,286 $ 2,190 $ 20,838,813 $ 4,138,862 $ 24,977,675
UAE 19,519 1,279 18,240 $ 3,525 $ 83,960,767 $ 4,679,751 $ 88,640,518
$ 147,992,247 $ 16,061,380 $ 164,053,627
Appendix C – Detail on data sources and methodology
The following appendix provides additional technical detail on the assumptions, parameters and
methodology employed to estimate the changes in freight costs and the capital requirements.
Preliminary additional analysis of the market viability and opportunity is also provided.
Freight: cubic conversion by freight mode
Calculated Freight
The base data used in the analysis provides the gross weight of freight by category. To determine
the economic impact of freight a cubic conversion was applied to determine the chargeable
weight for both road and air modes of transport.
For each commodity sub group, the data was classified into 8 categories for cubic conversion
depending on the density of the product category.
Specific gravity tables from http://www.simetric.co.uk/si_materials.htm were used as a reference for
the conversion. Increased cubing through packaging was also factored into the categor isation
based on quantitative basis.
Each commodity sub group was assigned a classification from Table A1 and the corresponding
conversions for road and air freight were applied.
Parameters
Air freight - A cubic ratio was applied to convert the gross weight into chargeable airfreight based
on the standard airfreight conversion practice. The cubic conversion used is 1 cbm = 167 kg
Road Freight - A cubic conversion was also applied to convert the gross weight into chargeable
road based on the standard road conversion practice. The cubic conversion used is 1 cbm = 250
kg
Removal of commodity sub groups - A classification of “X” was used to remove any commodity
sub group identified not to move through the ACT gateway, e.g. livestock due to specific AQIS
requirements.
Cubic Conversion Formulae
Air Freight: 1CBM = 167kg FORMULA: Air Cubic Factor X 167 = chargeable weight
Road Freight: 1 CBM = 250kg FORMULA: Road Cubic Factor X 250 = chargeable weight
47
Table A1: Cubic Conversion of Freight
Freight rates
Road Freight
Pricing comparison is based on Auxiem freight market benchmarking. Each rate used is the
median price per route based on a 2015 carrier portfolio which consists of 28 Australian road
freight providers.
Road Freight price input
Freight price differential was used to highlight the price variance of any freight diverted from
Sydney and / or Melbourne gateway to Canberra gateway.
Air Freight
A comparison of distances to key destinations (Table A2) was undertaken to determine price
variances in operational costs of the service
Parameters
Air freight rates - Pricing is assumed to be constant due to nominal variance in overall distance
flown.
Road freight rates - Pricing comparison is based on Auxiem freight market benchmarking. The
methodology is based on the median price per route based on a 28 carrier portfolio.
Factor
Cubic
Conversion (kg)
Calculated Weight by
CBM (kg) Road Factor
Cubic
Conversion (kg)
Calculated weight by
CBM (kg)
A 1 167 167 2 250 500
B 2 167 334 1 250 250
C 3 167 501 2 250 500
D 4 167 668 3 250 750
E 5 167 835 3 250 750
F 6 167 1002 4 250 1000
G 7 167 1169 5 250 1250
X 0 167 0 0 250 0
AIR FREIGHT ROAD FREIGHT
Classification
48
Table A2: Comparison of distances by destination
To Sydney (km) Canberra (km) Variance (km) Variance (%)
Dubai 12057 11934 -123 -1.02%
Singapore 6300 6217 -83 -1.32%
Hong Kong 7402 7415 13 0.18%
Guangzhou Baiyun 7537 7551 14 0.19%
Shanghai Pudong 7874 7933 59 0.75%
Auckland 2162 2302 140 6.48%
TOTAL 43332 43352 20 0.05%
49
Appendix D – The CEGEM model
CEGEM is a multi-commodity, multi-region, dynamic model of the world economy. Like all
economic models, CEGEM is a based on a range of assumptions, parameters and data that
constitute an approximation to the working structure of an economy. Its construction has drawn
on the key features of other economic models such as the global economic framework
underpinning models such as GTAP and GTEM, with state and regional modelling frameworks such
as Monash-MMRF and TERM.
Labour, capital, land and a natural resource comprise the four factors of production. On a year-by-
year basis, capital and labour are mobile between sectors, while land is mobile across agriculture.
The natural resource is specific to mining and is not mobile. A representative household in each
region owns all factors of production. This representative household receives all factor payments,
tax revenue and interregional transfers. The household also determines the allocation of income
between household consumption, government consumption and savings.
Capital in each region of the model accumulates by investment less depreciation in each period.
Capital is mobile internationally in CEGEM where global investment equals global savings. Global
savings are made available to invest across regions. Rates of return can differ to reflect region
specific differences in risk premiums.
The model assumes regional labour markets operate in a model where employment and wages
adjust in each year so that, for example, in the case of an increase in the demand for labour, the
real wage rate increases in proportion to the increase in employment from its base case forecast
level. The coefficient of adjustment is chosen so that the employment effects of a shock are largely
eliminated after about ten years. Labour supply is determined by demographic factors.
CEGEM determines regional supplies and demands of commodities through optimising behaviour
of agents in perfectly competitive markets using constant returns to scale technologies. Under
these assumptions, prices are set to cover costs and firms earn zero pure profits, with all returns
paid to primary factors. This implies that changes in output prices are determined by changes in
input prices of materials and primary factors.
The advantage of a global model such as CEGEM is that it accounts for bilateral trade flows of all
commodities between regions. Goods are imperfect substitutes, implemented through the
Armington assumption. The model does not require the regional current account to be in balance
as the capital account can adjust to maintain balance of payments equilibrium.
Base data
The starting point for the base data in CEGEM is the global database produced by the Global
Trade Analysis Project (GTAP). This database is comprised of 140 country and regional groups and
57 production sectors. The Australian component of this database was supplied by the Productivity
50
Commission, and is based on Australian input-output tables produced by the Australian Bureau of
Statistics (ABS).
For the purposed of this exercise, the database has been aggregated to the 19 sectors shown
Table D1. The Australian economy is split into the ACT, the Canberra Catchment region excluding
the ACT, NSW excluding the Canberra Catchment and the rest of Australia.
Table D1: Sectors and Regions in CEGEM
Number Sector Number Region
1 Agriculture 1 ACT
2 Coal 2 Canberra Catchment ex ACT
3 Oil 3 NSW ex Canberra Catchment
4 Gas 4 Rest of Australia
5 Other Mining 5 Rest of the world
6 Processed Foods
7 Rest of Manufacturing
8 Electricity
9 Water
10 Construction
11 Trade
12 Land transport
13 Water transport
14 Air transport
15 Communications
16 Finance and Insurance
17 Other Business Services
18 Recreational Services
19 Other Services and Government
Dynamics
CEGEM is a recursive dynamic model that solves year-on-year over a specified timeframe. The
model is then used to project the relationship between variables under different scenarios, or
states, over a predefined period. This is illustrated in Figure D1. This shows the reference case
scenario forms the basis of the analysis. The model is solved year-by-year from time 0, which
reflects the base year of the model, to a predetermined end year (in this case 2030).
The variable represented on the vertical axis of Figure D1 could be one of the hundreds of
thousands represented in the model ranging from macroeconomic indicators such as real GRP to
51
sectoral variables such as the exports of thermal coal. In the figure, the percentage changes in the
variables have been converted to an index (= 1.0 in 2005) and are projected to increase by 2030.
Set against the reference case scenario is a ‘scenario projection’. This scenario represents the
impacts of imposing a policy shock. That results in a new projection of the path of the variable
over the simulation time period. The impacts of the policy change are reflected in the differences
in the variable at time T. It is important to note that the differences between the reference case
and policy intervention scenario are tracked over the entire timeframe of the simulation.
Figure D1: Dynamic simulation using CEGEM
0
0.5
1
1.5
2
2.5
3
2016 2018 2020 2022 2024 2026 2028 2030
Cadence Economics – About Us
Cadence Economics is a boutique consulting firm specialising in applied economic analysis,
established in April 2015. The Directors of Cadence Economics have a combined 66 years of
experience as professional economists, with 42 years of those years with Deloitte Access
Economics (previously Access Economics). In that time we have developed a track record of
providing industry associations with a wide range of economic consulting services including
economic impact assessments of large scale investment projects and government procurement,
applied CGE modelling, economic contribution studies, policy and regulatory advice and economic
forecasting.
Steve Brown, Managing Director, Cadence Economics, BEc (ANU), MBA (Melbourne University),
has worked in the field of applied CGE modelling for 25 years. In the public sector, Steve
commenced worked on the ORANI model and SALTER world trade model at the Industry
Assistance Commission. He finished his public sector career as the Head of Global Modelling at the
Australian Bureau of Agriculture and Resource Economics where he oversaw the development of
GTEM and its application to global policies such as trade liberalisation and climate change
response policy.
Dr Bob Scealy, Director, B Math/Comp Sci (UOW), PhD (ANU), is a highly experienced quantitative
economist, specialising in the development and application of economic models to questions
including federal and state government policy, project investment, the impacts of technology and
the local consequences of foreign shocks. He specialises in particular in Computable General
Equilibrium modelling, with a background of model development and application at the Federal
Treasury, the CSIRO, and Deloitte Access Economics.
George Michalas, Director, Cadence Economics, BEc (ANU), BLaws (ANU), George has widespread
experience in economic modelling techniques including economic contribution and impact
modelling and cost benefits analysis. Prior to joining Cadence Economics, George spent eight
years at Deloitte Access Economics, and the Department of Industry and the ABS prior to that.
Steve Corcoran, Director and Company Secretary, BEc (First Class Hons, ANU), is a leading
economist and policy adviser, with 20 years of private sector economic consulting experience,
previously with Deloitte Access Economics. He assists governments, industry associations and
businesses to participate in, and influence, the public debate on economic issues, and to conduct
quantitative analysis of economic issues.
Auxiem Management Consultants – About us
Auxiem is a supply chain practice with experience in international supply chain, domestic
distribution and warehouse design and automation. A key area of our practice is in the new
economy where we have played an integral part in developing strategies and suppor ting the
growth of e-fulfilment from domestic and international markets. Our engagements by industry
53
players and users provides a competitive advantage of industry developments and changes in
consumer demands and market conditions.
Dino Pertsinidis - Principal
Dino Pertsinidis is a supply chain and logistics professional with over 20 years’ experience spanning
Australia and the Asia Pacific and EMEA regions. Dino has a Bachelor of Economics, and a Post
Graduate Diploma in Applied Finance and Investment. As a Principal of Auxiem, Dino has been
engaged by companies such as DHL Express, Singapore Post, Abraaj Private Equity and others to
assist in development of supply chain strategies. Prior to returning to Australia, Dino worked in
senior management roles with leading global third party logistics providers (DHL and Agility).
Based in Asia for 10 years, Dino has designed and delivered multimodal supply chain solutions to
many of the Forbes Global 100 companies to improve their performance in the highly competi tive
Asian market.
Bruce Whiting – Principal
Bruce has over 20 year’s global experience in Supply Chain and Finance Outsourcing with a
Masters of Management from the Macquarie Graduate School of Management. He has hands on
experience managing multiple warehouse and transport operations for Toll and designed and
managed major DC builds incorporating sophisticated MHE. Bruce has developed sophisticated
cost models to respond to various transport and warehousing requirements that incorporated full
labour planning, productivity assumptions, volume inputs and business case metrics. Bruce spent 4
years as a Senior Manager with Accenture’s Supply Chain Practice working on major Supply Chain
transformation projects. (e.g. Woolworths, Arnott’s & BHP) He also spent 4 years in the USA
working with Accenture’s Business Process Outsourcing business working with a major
Pharmaceutical client to outsource their back office accounting functions.