All aboard the train

You might have seen the bumper sticker Without trucks Australia stops: a sad but true comment on our addiction to oil. Few appreciate the role transport plays in creating the wealth that most take for granted. Adam Smith pointed out in Wealth of Nations that specialization of tasks leads to greater efficiencies and higher production. But to realise the wealth that increased production potentially brings, a product must be delivered to a consumer.

At the heart of the global economy is the ability to move huge volumes of products rapidly nationally and around the world. The great increase in global wealth of modern times has been made possible by the rise of international trade enabling us to take advantage of the improved economies of production on a global scale. To illustrate, take a sample of any 10 items within easy reach and you’ll realise that nearly everything you own is produced overseas. This is particularly evident in developed countries where manufacturing has been in decline for decades.

The energy for this system is provided nearly entirely from one source: oil. It provides 95% of the energy for our transport needs, and this energy share is unlikely to change in the near future as, for most transport, currently there is no easy alternative. Oil’s high energy density makes it uniquely attractive as a transport fuel. Finding a cheap and plentiful fuel that for the same volume stores the equivalent energy of oil presents a formidable challenge. Where alternatives are possible, a change is unlikely for decades due to the constraints of replacing a global fuel distribution infrastructure, and aircraft, road, rail and maritime fleets.

In addition to the current Middle East turbulence which is driving oil prices higher, a disturbing fact noted by many academics and industry experts is that global oil production is likely to reach a maximum in the near future. Oil production has plateaued since 2004 despite the oil price rising over the same period from $US30 per barrel to over $US100 today. The Australian Association for the Study of Peak Oil predicts a global production maximum by 2012+5 years. Notably, Australia’s Macquarie Bank has warned of a supply crunch by 2012.

The relationship between the price of oil and growth is clear: four of the five previous recessions were preceded by sharp increases in the price of oil. Once the global economy returns to sustained growth, it is unlikely that future demands for oil will be met, which will lead inevitably to pain at the bowser, restraining demand and, ultimately, the economy.

Future economic growth can only be achieved either by new discoveries of plentiful cheap oil, which is increasingly improbable, or by finding ways to do more with less. Fortunately, there are areas where the efficiency of our transport system can be improved. The first priority will be to eliminate wasteful practices. One example is the transportation of produce over long distances to central processing locations only to return to its source for sale. Also, road and air transport are notoriously wasteful of energy and governments should legislate to encourage their substitution for rail and sea where possible. This can be assisted by co-operation at the federal level to better integrate state-based rail transport. Delivery time is also an important factor as the amount of energy expended in freight is directly related to speed, air transport being a good example. We may need to wait much longer for goods in the future.

Increasing wealth may ultimately depend on a great leap forward in transport that enables us to cheaply and efficiently move goods around the globe. Until then, increasing the efficiency of our current freight systems will enable us to grow in the future. Transport should remain a top priority of the national reform agenda if we are to achieve future growth and maintain national wealth.