Australia is set for an unprecedented boom in road and rail construction in coming years, new forecast suggests.
Releasing its latest forecasts, economic consultancy BIS Oxford Economics said it expected the overall dollar value of construction work done on civil and engineering projects to surge from $88.7 billion in 2019/20 to almost $120 billion by 2022/23.
In addition to an upturn in mining construction, it said the rebound will be driven by unprecedented levels of spending on road and rail infrastructure.
All up, BIS expects activity on transport infrastructure to increase from $30.7 billion in 2019/20 to reach a peak of almost $50 billion by 2022/23 (see chart).
Speaking at an online conference on March 18, BIS Oxford Economics Principal Economist Nicholas Fearnley said the boom in transport construction which is expected to take place over coming years will differ from an earlier boom which was experienced in around 2012 and 2013.
That earlier boom was funded mostly by the private sector, was concentrated within regional areas and was associated with the mining boom and a need to transport commodities from mines to ports and export markets.
By contrast, the coming boom is being driven by public projects and is concentrated primarily within cities – mostly on the east coast.
“If you look back to the start of the last decade, you can see that activity also had a peak back then,” Fearnley said.
“But this was inspired by the mining investment boom and was a consequence of it. Not only did we have to build mines but we had to build railway lines to transport the commodities from the mines to the coastline and then also invest in harbours and ports so that we could load the commodities onto ships to send to international markets.
“A lot of this work was done in more remote areas and was funded by the private sector.
“If you look at our forecast period, we are going to surge past what we had in the mining boom. But a lot of this work is going to be funded by the government and is going to be done in population centres.
“The type of work and the location of the work is a bit different to what we have had in the past.”
(Note: some charts in this article relating to projects appear to imply that activity will fall sharply in the second half of the decade. This, Fearnley says, is not necessarily the case. The project charts are based on projects which are currently known. The number of projects which are slated for the second half of the decade (and their dollar value) will therefore increase in coming years as new projects are added to the known project pipeline.)
By sector, Fearnley said road construction activity will ramp up further as the next wave of projects such as Victoria’s North East Link and the NSW Western Harbour Tunnel and Beaches Link kick into gear.
Activity will primarily focus on major highway, arterial and toll road projects; work on local roads and subdivisions will remain relatively constant.
The biggest storey, however, is in rail, where the dollar value of work done is set to double thanks to a raft of major city works along with the Inland Rail freight line between Melbourne and Brisbane.
According to Fearnley, this marks a contrast with the previous rail construction boom which occurred in regional areas on the back of mining related developments.
One area that warrants attention is tunnelling.
Here activity is set to ramp up as work gets going on major urban road and rail projects.
Obviously, massive tunnel projects require specialist machinery such as tunnel boring machines along with specialised skills to assemble and operate these.
As a result, there is often significant publicity when the machines arrive. The idea of being trained in the specialist skills needed to operate them is often suggested as an attractive career option.
That, however, raises questions, Fearnley says, about how these skills will be able to be applied once the current wave of projects subsides.
Finally, whist new projects take the limelight, Fearnley talks of significant opportunities in maintenance.
Maintenance has been a particularly useful stimulus tool during the pandemic as it can be rolled out more quickly compared with new projects.
Particularly when it comes to local roads, meanwhile, stimulus benefits associated with maintenance can be spread across locations and can benefit larger numbers of localised contractors.
Simultaneously, quieter roads and trains have created opportunities for work to be done with lesser disruption.
Longer term, Fearnley says there will be opportunities in transport maintenance as the build up in capital stock of rail and other assets generates a larger asset base which needs to be maintained.
For these reasons, BIS expects elevated levels of maintenance work in FY 2021 and FY 22 amid COVID related stimulus.
This will be followed by a slight easing before activity returns to growth again from FY24 onward.
Moreover, Fearnley adds that significant upside potential to the forecasts exists in this area in the event of major natural disasters (the forecasts were issued before the NSW floods).
The effect of this can be seen through the ramp up in activity which followed the Queensland floods (see chart).
Whilst the boom in transport construction is beneficial overall, Fearnley cautions that the sheer volume of projects running simultaneously will stretch resources.
This could lead to cost blowouts and project delays.
Should such delays occur, the anticipated peak in 2023/23 could be pushed out and a ‘stronger for longer’ situation compared with what is implied in current forecasts could emerge.
“You can see that activity has picked up over the past few years in terms of major project work,” he says.
“But there is a massive ramp up to come.
“This creates a risk to our forecasts. Does the industry have the capacity to deliver this level of projects? Do we have the labour force etc to be able to do this work?
“This creates a risk that we may start to be see project delays as we reach capacity constraints. It also means that there may be budget blowouts from governments as they are trying to get through a massive pipeline of work.
“What we may end up seeing is that the peak in activity may not be in FY23 but may be later, and so this tsunami may turn into a stronger for longer situation.”
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