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REGULATORY ANALYSIS
Contents
Executive summary
1 About this Regulation Impact Statement
1.1 Background
1.2 Purpose of this Regulation Impact Statement
1.3 RIS Structure
2 Background
2.1 General policy context
2.1.1 National Transport Commission Report
2.1.2 Safe Rates, Safe Roads Directions Paper
2.2 Specific policy context
2.2.1 Background to the sector
2.3 Road transport scenarios
3 Statement of the problem
3.1 Safety incident data
3.1.1 Death and accident rates
3.1.2 International comparisons
3.1.3 On-road risk factors
3.2 The link between remuneration rates and safety
3.2.1 Research findings
3.2.2 Consequences of no action
3.3 Summary
4 Objectives
5 Statement of Options
5.1.1 Option 1
5.1.2 Option 2
5.1.3 Option 3
xt of specified style in document.
6 Impact Analysis
6.1 Introduction
6.2 Identification of impacts on stakeholders
6.2.1 Option 1
6.2.2 Option 2
6.2.3 Option 3
6.3 Cost benefit analysis
6.3.1 Results
6.4 Sensitivity analysis
7 Consultation Statement
8 Implementation
9 Conclusion
Appendix A Road Transport Scenarios
Appendix B Scenario Modelling
Appendix C Data inputs and assumptions
Appendix D CBA model results
Appendix E Best case scenarios
Abbreviations
Abbreviation Description
ABS Australian Bureau of Statistics
ACTU Australian Council of Trade Union
ALTA Australia Livestock Transporters Association
ATSB Australian Transport Safety Bureau
BITRE Bureau of Infrastructure, Transport and Regional Economics
CBA Cost Benefit Analysis
CoR Chain of responsibility
DEEWR, Department of Education, Employment and Workplace Relations
the Department
DoIT Department of Infrastructure and Transport
GDP Gross Domestic Product
GVM Gross Vehicle Mass
HC Human Capital
HV Heavy Vehicle
ITLS Institute of Transport and Logistics Studies
NPV Net Present Value
NRTC National Road Transport Commission
NTC National Transport Commission
NTI National Transport Insurance
OBPR Office of Best Practice Regulation
OHS Occupational Health and Safety
PwC PricewaterhouseCoopers
RIS Regulation Impact Statements
the Directions Safe Rates, Safe Roads Directions Paper
Paper
the IC Act the Independent Contractors Act 2006
the NTC Report Safe Payments: Addressing the underlying causes of unsafe practices
in the road transport industry
tkm Tonne-kilometre
TWUA Transport Workers' Union of Australia
VoSL Value of Statistical Life
VoSI Value of Serious Injury
WTP Willingness to pay
Executive summary
Overview
PricewaterhouseCoopers (PwC) was engaged by the Department of Education, Employment and
Workplace Relations (DEEWR) to prepare a Regulation Impact Statement (RIS), including a Cost
Benefit Analysis (CBA), for establishing a Road Safety Remuneration Tribunal (tribunal) for employee
and owner drivers in the road transport industry. The tribunal's approach to setting pay and/or pay
related conditions would be research focused and evidence based. The tribunal would have discretion
to set rates of pay and/or pay related conditions for drivers operating in sectors of the road transport
industry, where necessary to improve safety outcomes.
The tribunal would also have discretion not to set a rate or remuneration related conditions. The
tribunal may also decide to only set remuneration related conditions, which may place an obligation on
hirers, employers and the supply chain to pay for any waiting, loading or unloading time, for example.
The obligation may also require owner drivers to be paid within a set time period, such as 14 or 30
days. The tribunal would also have a range of other functions, including dispute resolution.
When performing its functions, the tribunal would be required to take into account a range of criteria,
including the likely impact on business; the special circumstances of areas that are particularly reliant
on the road transport industry; and the likely impact on the national economy and the effect on the
movement of freight across the nation.
The options considered in this RIS relate to the Government's response to the 2008 National Transport
Commission Report, Safe Payments: Addressing the underlying causes of unsafe practices in the road
transport industry (the NTC Report).1
The problem
Truck driving is the occupation/industry with the highest incidence of fatal injuries. When a truck is
involved in a safety incident, the general public is also affected. If directly involved, then statistically it
is likely that the other party will suffer worse consequences than the truck driver. There are also costs
associated with the impact of shared infrastructure and monetised and non-monetised community
costs.
According to the Department of Infrastructure and Transport, in the 12 months to December 2010, 232
people were killed in 197 accidents involving heavy trucks. There were 25 deaths per 100,000 workers
in the industry in 2008-09 which is ten times the average for all industries.
While transport safety outcomes have improved over the years, there are still an unacceptably high
number of truck accidents. The concern is that without further action, the number of accidents will
remain high.
Speed and fatigue are often identified as the primary cause for a crash but it is a much harder task to
prove that drivers were speeding because of the manner or quantum of their remuneration. There is
some research to suggest that the remuneration for drivers is a factor in safety outcomes, however data
at this point in time is limited and being definitive around the causal link between rates and safety is
difficult. International research has found a correlation between remuneration and safety performance,
particularly where very low levels of remuneration are concerned (Rodriguez et al 2006, Nafuko et al
2007 and Belzer et al 2002). An Australian study found that drivers paid by a `payment-by-results'
method were twice as likely to report being fatigued on at least half of their trips than drivers paid an
hourly rate (Williamson et al 2001).
1
http://www.ntc.gov.au/filemedia/Reports/SafePaymentsFinalReportNov08.pdf
iv
About this Regulation Impact Statement
The NTC report found that market failures and payment rates and methods in the road transport
industry create an incentive for, or encourage, unsafe driving behaviours that contribute to poor safety
outcomes on the roads.
Moreover, stakeholder feedback has highlighted likely market failures that are leading to concerns with
existing remuneration levels for employee and owner drivers in some sectors of the industry. The
market failures relate to the low market power of owner drivers, behavioural issues around individual
decision making, and the significant barriers to exit from the industry. Remuneration rates for
Australian owner drivers appear to be low. According to analysis of 2006 Census data, almost 30 per
cent of owner-drivers are paid less than an assumed `notional award' remuneration.
Objectives
The objective of the proposed options is to improve safety performance in the road transport industry,
to reduce the number of deaths and injuries for both truck drivers and the general public. The aim of
Government action is to put in place measures which can result in a reduction of the financial
incentives for employee and owner drivers to drive in ways that increase the risk of death and injuries
on the road. Improving equity for owner drivers, in terms of income distribution, has also been
acknowledged as a major driver of related state government legislative action in recent years.
The options
This RIS examines potential impacts associated with three options:
1. maintaining the existing federal and state-based legislation for employee drivers and owner
drivers (where applicable) - this option is the base case for this RIS
2. introducing a voluntary system of payments for owner drivers and chain of responsibility
arrangements
3. establishing the tribunal, with discretion to set and maintain remuneration rates and/or
remuneration related conditions for employees, owner drivers and the supply chain, if safety
outcomes would improve as a result of the decision.
Impact analysis
The economic framework in this RIS responds directly to answering the key economic question,
namely:
`will the societal benefits from improved road safety offset the expected increase in the
resource cost and productivity of freight and cost to government from establishing and
implementing a road safety remuneration system for owner and employee drivers?'
Australia's freight task is forecast to continue growing. Heavy vehicles account for the largest
proportion of the road freight task in Australia. According to the Bureau of Infrastructure, Transport
and Regional Economics (BITRE), in 2007-2008 road transport accounted for approximately 1.7 per
cent ($17,988 million) of Australia's total gross domestic product (GDP) ($1,037,027 million) and
approximately 2.3 per cent (246,100) of total Australian employment (10,673,400).
There are approximately 231,900 truck drivers in the road transport industry, including an estimated
71,000 owner drivers. The industry has an ageing workforce in comparison with other employment
sectors, with more than 40 per cent of workers aged 45 years and over.
Critically, the options set out above do not prescribe a specific remuneration level or structure for
owner drivers and employees. Therefore, rather than seeking to estimate the net economic benefit of
specific pay rates for a specific road transport segment, the economic impacts of the options are
assessed in terms of three road transport scenarios, which provide a representative cross-section of the
road transport industry.
For the purpose of this RIS, the impact analysis has focussed on the following sectors or scenarios:
v
About this Regulation Impact Statement
· long haul road freight - half of the road freight in Australia (tonne kilometre) is classified as
`long distance' freight, with an average trip length of 300-500 kilometres. This segment of the
market is expected to account for 60 per cent of road freight by 2030. As such, most of the
interstate and part of the intra-state freight task falls within this category.
· short haul quarried - the quarrying industry in Australia is expected to generate revenue of
2
about $9 billion in 2010/11 . Road is the primary mode for moving product between rock
quarries, sand and gravel extraction sites, cement production and distribution facilities and
concrete batching plants throughout the nation.
· short haul agriculture - this is generally short haulage transport where most of the origins and
destinations are located within the same region. This sector accounts for approximately 15 per
cent of total road freight volume. The agricultural sector accounts for approximately 50 per
cent of heavy vehicles but contributed only 15 per cent of total network tonne volumes.
The direct costs and benefits were identified and monetised for Options 2 and 3 using the three above
sectors. The potential second round market responses from the introduction of Options 2 or 3 have not
been modelled because of data limitations, in particular a lack of information about supply and
demand for owner driver services and uncertainty about the actual number of owner drivers and
amount of the freight task they carry. The impacts of potential second round market responses are
discussed qualitatively instead.
The CBA focuses on quantifying the direct material impacts of the options, based on an assumption
that current wages are efficient. However, there is evidence to suggest that existing owner driver
remuneration may not be efficient because of an unpriced safety externality and other market failures
facing owner drivers. It is important to note that the scenario modelling results are purely illustrative
and are highly sensitive to the assumptions adopted.
In Option 2, owner drivers covered by the legislation may benefit from increased remuneration and
reductions in accidents. The community may also benefit from a reduction in accidents but may have to
pay a share of the costs of remuneration increases for owner drivers.
Under Option 3, if a tribunal chose to set a mandatory rate of remuneration for drivers in the road
transport industry, or a particular segment of it, the magnitude of direct costs and benefits arising from
this decision would depend on the coverage of the legislation establishing the tribunal and the
compliance rate of owner drivers and supply chain businesses with that rate. The scenarios model a
range of coverage and compliance rates, to demonstrate the range of potential impacts of any decisions
made by the tribunal.
The CBA results presented in the table below indicate that the costs outweigh the benefits for both
Option 2 (voluntary system) and Option 3 (mandatory system).
2
IBIS World 2011, Concrete slurry manufacturing in Australia, Industry Report C2633; Concrete and line manufacturing in Australia,
Industry report C2631; and Gravel and sand quarrying in Australia, Industry report B1411
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About this Regulation Impact Statement
CBA model results - Central estimates over 10-year period
Option 2 - voluntary 10% Option 3 - 60% coverage and
compliance rate 90% compliance rates
BCR NPV BCR NPV
Overall sector
0.49 -$44.4m 0.51 -$228.4m
The costs are significantly due to higher remuneration rates, especially for Option 3, which are likely to
be passed on in the supply chain and ultimately paid for by consumers. The benefits are derived from
improved safety (less road fatalities and injuries) for owner-drivers and other road users and less
property damage. The implementation costs for Options 2 and 3 are minor.
Scenario modelling (refer to Appendix E) shows that changes in coverage and compliance rates can
result in a significant increase in the BCR to that shown above, while changing the assumption on
existing remuneration being efficient can result in benefits without any economic cost. This suggests
the achievable outcome may be better than the results above, particularly if current remuneration is
inefficient and increases in remuneration move it towards and efficient level. The absence of definitive
evidence regarding the efficient wage means that, as previously noted, scenario models are highly
sensitive to the assumptions adopted. As such, it is arguable as to whether or not the results observed
in Appendix E would be achieved.
Conclusion
This RIS adopts a wide range of assumptions in the face of incomplete and uncertain data. While the
CBA results indicate that the costs outweigh the benefits with both Options 2 and 3, the results are
sensitive to the assumptions used. Changing the central assumption that existing remuneration is
economically `efficient' would have a significant impact on results for both Options 2 and 3.
There are valid economic grounds for establishing a tribunal, which is expected to cost about $5 million
per annum. The tribunal's approach to setting pay and pay related conditions would be research
focused and evidence based. The tribunal would have discretion to set rates of pay and/or pay related
conditions for drivers operating in sectors of the road transport industry, if there was evidence these
rates and/or conditions would improve safety outcomes. For example, the tribunal may consider to
only set remuneration related conditions, such as an obligation on hirers, employers and the supply
chain to pay owner-drivers for any waiting, loading or unloading time. Under Option 3, mandatory
payment to owner drivers for every one hour of waiting time could, in a best case scenario, result in an
economic transfer to owner drivers, with possible efficiency gains, of up to $155 million.
Option 3 is preferred over Option 2 because establishing a tribunal with the discretion to set rates of
pay and/or pay related conditions for drivers operating in sectors of the road transport industry, where
necessary to improve safety outcomes, can more effectively address current unacceptable levels of
safety and potential market failures.
vii
About this Regulation Impact Statement
1 About this Regulation Impact Statement
1.1 Background
PricewaterhouseCoopers (PwC) was engaged by the Department of Education, Employment and
Workplace Relations (DEEWR) to prepare a Regulation Impact Statement (RIS), including a Cost
Benefit Analysis (CBA), for establishing a Road Safety Remuneration Tribunal (tribunal) for employee
and owner drivers in the road transport industry. The tribunal's approach to setting pay and/or pay
related conditions would be research focused and evidence based. The tribunal would have discretion
to set rates of pay and/or pay related conditions for drivers operating in sectors of the road transport
industry, where necessary to improve safety outcomes.
This RIS substantially draws on previous work commissioned by the National Transport Commission
and two subsequent reports produced by DEEWR which involve: an economic analysis of the concept
of safe payment rates and a preliminary, high level RIS developed by DEEWR in 2011.
The analysis in the RIS builds on the existing data, collating and combining the available and, where
possible, updated information.
1.2 Purpose of this Regulation Impact Statement
The options considered in this Regulatory Impact Statement are proposed in the context of formulating
the Government's response to the 2008 National Transport Commission Report, Safe Payments:
Addressing the underlying causes of unsafe practices in the road transport industry (the NTC
Report).3
The NTC report presents the findings of the research which the NTC commissioned through Professor
Michael Quinlan and the Hon Lance Wright QC. The NTC report concludes that, on balance, there is
strong link between remuneration levels and safety performance. While Quinlan and Wright
recommended a number of options to address this issue, ultimately the NTC report endorsed an option
which involves a national scheme for setting mandatory safe rates covering both employee and
owner/drivers be established in the heavy vehicle industry. This is put forward as being the only viable
and direct mechanism for addressing the imbalance in bargaining power confronting owner/drivers
that ultimately impacts on-road behaviour and safety in the road freight industry.
In response to the NTC Report, in November 2010, DEEWR published the Safe Rates, Safe Roads
Directions Paper (the Directions Paper),4 which sets out a number of specific models by which the
recommendation of the NTC report could be implemented. Specifically, the Directions Paper calls for
feedback on the models canvassed which include the following:
· a new specialist tribunal with power to make orders regarding safe rates and related terms in
the road transport industry (Specialist Tribunal)
· a safe rates panel within Fair Work Australia with power to make orders regarding safe rates
and related terms in the road transport industry (Safe Rates panel)
· extending the Fair Work Act 2009 to owner drivers, with Fair Work Australia empowered to
make orders regarding safe rates and related terms in the road transport industry (Outworker
Model).
Following analysis of the submissions and the preliminary economic analysis, the tribunal model has
been further developed. The proposal now sets out a "two-step" process to determining remuneration
rates. The tribunal would firstly gather and analyse additional evidence to assess the impact that
3
http://www.ntc.gov.au/filemedia/Reports/SafePaymentsFinalReportNov08.pdf
4
http://www.deewr.gov.au/WorkplaceRelations/Policies/SafeRatesSafeRoads/Pages/default.aspx
viii
About this Regulation Impact Statement
existing remuneration and remuneration related conditions have on safety outcomes within particular
sectors of the road transport industry. Based on these assessments the tribunal would then consider
whether to set appropriate remuneration rates and/or remuneration conditions for that sector of the
industry.
This RIS examines the potential impacts associated with three options:
1. maintaining the existing federal and state-based legislation for employee drivers and owner
drivers (where applicable) - this option is the base case for this RIS
2. introducing a voluntary system of payments for owner drivers and chain of responsibility
arrangements
3. establishing the tribunal, with discretion to set and maintain remuneration rates and/or
remuneration related conditions for employees, owner drivers and the supply chain, if safety
outcomes would improve as a result of the decision.
It is important to note that the scenario modelling for both Options 2 and 3 is based on limited and
incomplete data. Therefore, in Option 3 for example, it would be up to the tribunal to decide on the
appropriate remuneration rates and/or remuneration related conditions if and where appropriate. The
CBA is therefore necessarily illustrative and highly sensitive to the assumptions adopted.
1.3 RIS Structure
The RIS sets out:
· background and context to the industry
· the regulatory problem, to the extent data allows
· the objectives for any regulatory intervention, which is linked back to reducing or addressing
the problem
· the options and advantages and disadvantages for those options
· the impacts for each option as well as three scenarios under a mandatory tribunal model
· a summary of the findings from the impact/scenario analysis.
ix
2 Background
The following is a high-level overview of key data and policies so as to put into context the issues
relating to rates of pay and/or pay related conditions and safety outcomes in the road transport
industry. In this regard there have been a number of developments in recent years around safety and
the current regulatory arrangements, particularly as they relate to owner drivers, the nature of the
freight task and the key road transport vehicle categories and sectors.
2.1 General policy context
In the 12 months to December 2010, 232 people were killed in 197 accidents involving heavy trucks.
These crashes are estimated to cost around $2 billion a year out of the total $15 billion costs of road
crashes (i.e. just over 13 per cent of total costs). The numbers of crashes resulting in a hospitalisation
involving a heavy truck are about three times those involving a fatality.5
Other data shows that while there were improvements in the early to mid 1990s where fatalities
resulting from heavy vehicles fell substantially, the numbers of fatalities have remained relatively static
since 1996. Since then the freight task has increased substantially, as have the registrations of
articulated vehicles. From 2000 to 2004, one in every five road deaths involved heavy vehicles, with
speed and fatigue widely acknowledged as significant factors.6
Governments have been concerned about the number of overall road incidents and have implemented a
number of reforms. These reforms include those relating to seat belts, breath testing and initiatives to
target speeding. There have also been some reforms that are directed specifically at the drivers of heavy
vehicles such as fatigue management, disclosure requirements and educational initiatives. So far, none
of these have dealt at a national level with the issue of owner driver remuneration and how that
remuneration relates to safety outcomes.
2.1.1 National Transport Commission Report
The National Transport Policy Framework comprises the reform agenda for Australia's transport
system. As part of this reform agenda, the Australian Transport Council (ATC) requested that the
National Transport Commission (NTC) investigate the underlying causes of un-safe practices in the
heavy vehicle transport sector.
In 2008, federal, state and territory transport ministers specifically requested that the NTC provide
report to the ATC on safe payments. Specifically, the NTC was tasked with:
"... identifying and assessing options for implementing a system of safe rates for both
employees and owner-drivers, recognising the special vulnerabilities of independent
contractors in the transport industry."
In response to these requests, the NTC undertook the Safe Payments Project. The aim of the project
was to develop recommendations on:
· whether there is a payments/safety link
· whether there is a safety case for regulatory intervention into `safe payments'
· options for regulatory reform.
5
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p.5.
6
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p.6-7.
x
Background
The NTC finalised its Report (Safe Payments: Addressing the Underlying Causes of Unsafe Practices in
the Road Transport Industry) in October 2008. Based on the commissioned research presented, the
Report found that there was a link between driver remuneration and poor safety outcomes in the heavy
vehicle industry.7
The NTC developed the following four options for a regulatory response for addressing the
safety/payments link along the spectrum as follows:
1. status quo--no new legislative reforms but implementation of existing NTC reforms
2. state-based regulatory system--current regulatory system and the implementation of owner driver
legislation in those jurisdictions that do not currently have it. No new Commonwealth regulation
3. national framework for employee and owner drivers--the establishment of a specialised body
under Australian Government transport legislation
4. national industrial relations scheme for all drivers--creation of a new chapter in the Workplace
Relations Act to establish and maintain safe payments for owner drivers and employees.
Option 3 was the NTC's preferred option as this was regarded as the optimal model for addressing the
link between payments and safety outcomes.
Specifically, Option 3 recommended the establishment of a specialised body under federal transport
legislation to:
· establish and maintain enforceable safe payments for employees
· establish and maintain enforceable safe payments for owner drivers
· settle disputes in a low-cost, accessible manner
· consider and, if necessary, bestow rights and impose obligations regarding safe payments on other
parties in the transport supply chain, and
· consider and, if necessary, bestow rights and impose obligations with respect to enforcement of
safe payments.
The NTC Report recommended that the Australian Transport Council (ATC):
1. recognise that payment rates and methods create an incentive for, or encourage unsafe on-road
behaviours such as speeding, fatigue and use of illicit substances which contribute to poor safety
outcomes in the trucking industry;
2. acknowledge that this link should be addressed through regulatory intervention;
3. recognise that safe payments for truck drivers requires a whole of government approach due to
linkages with transport law, workplace relations law and independent contractors/small business
law;
4. endorse the policy proposal in Option 3; and
5. request the federal Minister for Infrastructure, Transport, Regional Development and Local
Government to progress the issue in consultation with his Commonwealth Ministerial colleagues
and report back to the ATC in May 2009.
7
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p.19.
xi
Background
In November 2008, the ATC considered the NTC Report and advice about a national framework for
setting and maintaining safe payments systems in the road transport industry, including safe rates for
owner drivers and employees. The potential flow-on effects from payment rates and methods to unsafe
on road behaviours and poor safety outcomes in the trucking industry were noted. At that time,
Ministers represented on the ATC agreed that there was a case for investigating a whole of government
regulatory approach to address this issue.
2.1.2 Safe Rates, Safe Roads Directions Paper
As part of its response to the NTC Report, the Australian Government asked the Department of
Education, Employment and Workplace Relations (the Department) to consult with industry
stakeholders and develop models for possible reform in the industry. Following consultation with the
Safe Rates Advisory Group, the Department subsequently released the Safe Rates, Safe Roads
Direction Paper, which sets out models for implementing the preferred NTC option, with the aim of
addressing safety throughout the industry by developing legislative and other strategies to put in place
pay rates and methods that result in safer work practices in the transport industry.8
As set out above, the three models of tribunal outlined in the Directions Paper included:
· A New Specialist Tribunal
· A Safe Rates Panel within Fair Work Australia
· Extending the Fair Work Act 2009 to owner drivers.
The Department received submissions from 45 parties in response to the Directions Paper
2.2 Specific policy context
2.2.1 Background to the sector
Freight task and rates
Heavy vehicles account for the largest proportion of the road freight task in Australia. The road
transport industry is an important part of the Australian economy. According to the Bureau of
Infrastructure, Transport and Regional Economics (BITRE), in 2007-2008 road transport accounted
for approximately 1.7 per cent ($17,988 million) of Australia's total gross domestic product (GDP)
($1,037,027 million) and approximately 2.3 per cent (246,100) of total Australian employment
(10,673,400). Australia's freight task has increased at an annual growth rate of 5.6 per cent per annum
from 27.1 billion tonne-kilometres (tkm) in 1972 to 182.5 billion tkm in 2007 and this growth is
forecast to continue.9
In contrast, over the last 30 years road freight rates have been steadily declining in real terms. Crucial
to transport being able to meet the growing freight task is further improvements in efficiency,
productivity and safety outcomes in the road transport industry. The BITRE Freight Rates in
Australia, 1964-65 to 2007-2008 report suggests that between 1980-1981 and 2000-2001 real road
freight rates declined by 22 per cent, relative to average consumer prices. In more recent times though,
over the seven years since 2000-2001, real road freight rates have actually increased by 9 per cent.
8
http://www.deewr.gov.au/WorkplaceRelations/Policies/SafeRatesSafeRoads/Pages/default.aspx
9
BITRE Research Report 121, p. xv.
xii
Background
Current regulatory arrangements
Owner drivers and employees
There are approximately 231,900 truck drivers on Australian roads who can be classified by their
employment status as employee-drivers or owner-drivers.10 The estimated numbers of owner drivers in
Australia is approximately 71,000. These figures are broadly in line with the industry estimates that
around 30 per cent of drivers are owner-drivers11.
The industry has an ageing workforce in comparison with other employment sectors, with more than
40 per cent of workers aged 45 years and over12. According to the National Truck Accident Research
Centre, in 2009, drivers aged 45 years and above were involved in proportionally more accidents than
younger drivers13.
A range of legislative arrangements apply to owner drivers. These arrangements cover regulation of
safety in the road transport industry and regulation of owner driver contracts and remuneration
through commercial law or applicable state-based owner driver legislation.
Owner drivers are regulated by Commonwealth and state and territory legislation. This legislation
includes general commercial law and specific owner driver legislation. Existing regulation at the federal
level for owner drivers subject to Commonwealth laws includes the Competition and Consumer Act
2010 and the Independent Contractors Act 2006 (IC Act). Exemptions from the IC Act have been
granted to New South Wales (NSW), Victoria and Western Australia (WA), as they have specific
legislation that deals with owner drivers and their ability to make contracts.
As owner drivers are independent contractors, they are subject to commercial and not workplace
relations laws. To the extent that it is constitutionally possible, the IC Act overrides state and territory
laws that require independent contractors to be treated as employees or provide employment-like
entitlements, unless a specific exemption has been granted.
Unlike employees, who are afforded a safety net under workplace relations laws, owner drivers have
access to the Federal Court or the Federal Magistrates Court to review contracts, and to vary, or set
aside the contract if it is found to be unfair or harsh. In deciding whether a contract is unfair or harsh,
under the IC Act, the Court may consider the following:
· whether the total remuneration paid to the independent contractor is less than an employee doing
the same work would have received
· the terms of the contract when it was made
· the relative bargaining strengths of the parties to the contract
· any undue influence, pressure or unfair tactics which may have been used, and
· any other relevant matters.
In addition, owner drivers have access to the unfair contract regime under the IC Act, provided their
service contract falls within the scope of the IC Act.
Some states have introduced legislation addressing owner driver specific issues. These states recognise
owner drivers as a vulnerable group of workers and have introduced legislation aiming to improve their
position. Victoria and WA have adopted legislation that seeks to improve the situation of owner drivers
10
Unpublished ABS data, 2009.
11
BITRE 2003, Working paper 60: An overview of the Australian Road Freight Transport Industry, Canberra.
12
Australian Transport Council National Workforce Planning and Skills Strategic Plan, October 2009 (see
http://www.atcouncil.gov.au/documents/files/Workforce_Planning_and_Skills_Strategic%20Action_Plan-November_2009.pdf).
13
National Truck Accident Research Centre 2011, Major Accident Investigation Report, Brisbane
xiii
Background
by implementing disclosure requirements in the context of consignor/carrier relationships and
publishing guideline freight rates based on the need to ensure sustainable revenue levels, including
award-equivalent wages for owner-drivers.
In 2003, the Victorian Government released a report into the situation of owner drivers and forestry
contractors which identified a number of problems regularly suffered by owner drivers, including:
· low rates of income
· long hours of work
· health and safety effects and detrimental effects on families
· poor business skills
· information imbalances and ill-informed business decision making, and
· poor bargaining positions.
The Victorian report's recommendations moved away from the approach taken in NSW, where owner
drivers are 'deemed' to be employees with award rights. Instead, the report recommended treating
owner drivers as small businesses, within a framework of commercial laws. The report also suggested
giving owner drivers and forestry contractors some additional protections and avenues for challenging
harsh business practices.
Implementation of the WA and Victorian legislation, which include guideline rates and industry codes,
has occurred recently and evaluations have not been undertaken, so drawing any firm conclusions
regarding their impact would be difficult. Victoria has experienced a decline in relative fatality numbers
since 2004. The regulatory system took effect in December 2006. There is currently no data or analysis
on compliance with the guideline rates or take-up of other aspects of the legislation in that state. There
is also no obvious trend of improved fatality performance since commencement of the regulatory
framework in WA (in WA, legislation was enacted in 2007 and came into effect 1 August 2008 (with the
Code of Conduct taking effect from 1 July 2010).
NSW has for many years operated a system of contract determinations' under its industrial relations
system, setting rates and other employee like conditions for independent contractors in the transport
industry, resulting in drivers being provided with award-style protections. The NSW system applies
only to the intrastate or short haul sector (covering a diverse array of transport activities from
refrigerated transport to courier services) and only to owner drivers of a single vehicle operation.
While the NSW industry has had its rates subject to determination by an industrial tribunal, available
data does not allow for a meaningful analysis of performance. In 2007, NSW accounted for 32.4 per
cent of fatalities involving articulated trucks but only 20.5 per cent of kilometres travelled by
articulated trucks. Care should be taken with analysis of the data, as NSW is a major freight
thoroughfare and the mandatory system applies to a limited part of the road transport industry.
Transport and Safety Regulations
The states and territories have responsibility for regulation of the transport industry, as well as
occupational health and safety. Consequently, each state and territory has their own road rules, licence
categories, registration procedures and legislation that relate to the trucking industry.
Currently, a process is underway to nationally harmonise occupational health and safety laws, with Safe
Work Australia developing national model laws which the Commonwealth and each state and territory
will implement by the end of 2011.
xiv
Background
The NTC is primarily responsible for developing and evaluating model, national transport laws for
adoption in each state and territory. Table 1 below, provided by the NTC in 2010, outlines
implementation of model transport
Table 1 Implementation of model transport laws
NTC reform ACT NSW NT QLD SA TAS VIC WA
Mass & loading
Yes Yes Yes Yes Yes Yes Yes Yes
(M&L)
Oversize/
overmass
DNL Yes DNL DNL DNL DNL Yes Yes
vehicles
(OSOM)
Restricted
access vehicles DNL Yes DNL DNL DNL DNL Yes Yes
(RAV)
Compliance &
Enforcement In In
Yes Yes Yes Yes Yes Yes
Bill progress progress
(ATC 11/03)
Intelligent
Access Program
- Yes - Yes Yes - Yes -
(IAP)
(ATC 12/05)
Fatigue Not
In In
(ATC 02/07) - Yes Yes Yes Yes impleme
progress progress
nting
Speeding In
- Yes - Yes Yes Yes -
(ATC 01/08) progress
Dangerous In
Yes Yes Yes Yes Yes Yes Yes
goods progress
DNL = Does not use legislation
Source: NTC, 2010
Chain of responsibility (CoR) provisions have been developed to deal with four areas of road transport
activity, including fatigue and speeding, and requires that each party in the chain takes reasonable
steps to ensure that breaches of the road law do not occur. CoR apportions criminal liability to supply
chain parties who, through action or inaction, contribute to a breach and therefore bear a level of
responsibility for it.
For fatigue and speeding in particular, new restrictions have been introduced to deal with requests and
contracts or agreements that may encourage or require breaching driving hours or speed limits. The
legislation prohibits such requests in contracts or agreements.
Other on-road safety initiatives
Several other initiatives are being developed or considered by the Government and are likely to have an
impact on road safety, including:
xv
Background
· the establishment of the National Heavy Vehicle Regulator (NHVR), which is to commence in
14
2013 and will administer new national heavy vehicle laws
· the National Road Safety Strategy 2011-2020, which was recently endorsed by the Australian
Transport Council (ATC) and includes a series of specific initiatives to improve safety in the road
15
transport industry, and
· the Draft National Land Freight Strategy, which includes dedicated freight routes and is likely to
address a number of safety issues in the industry.16
These initiatives have been taken into account when examining the "status quo" position in relation to
the impact analysis around the introduction of safe rates which is presented in a later chapter.
2.3 Road transport scenarios
The road transport scenarios analysed in this RIS are defined in terms of the key market segments.
These segments are in turn defined by the major parameters which will comprise the cost benefit
analysis.
Underpinning these segments is an assumed typical supply chain. The supply chain refers to the
network of consumers, retailers, distributors, transporters, storage facilities, suppliers and producers
that transport goods that potentially may use two or more modes of transport from the point of
production to the point of sale, and includes all facilities used between those points. In particular, road
transport plays an important role that contributes approximately 40 per cent of the domestic supply
chain.
Figure 1 and This figure shows the role of road freight within the international import supply chain.
Figure 2 below present the role of road freight within the broader supply chain, both international and
domestic.
Figure 1: Overview of typical international import supply chain
FIRST LEG (outside Australia) SECOND LEG (in Australia)
To
Origin Consolidate To port Load Sea carriage To customer Customer
consolidation
or or
This figure shows the role of road freight within the international import supply chain.
Figure 2: Overview of typical domestic supply chain
14
http://www.ntc.gov.au/viewpage.aspx?documentid=1931
15
http://www.atcouncil.gov.au/documents/atcnrss.aspx
16
http://www.infrastructureaustralia.gov.au/freight/
xvi
Background
PICKUP FLOW DELIVERY FLOW
To De-
Origin Consolidation Line-haul To customer Customer
consolidation consolidation
or
Source: National Transport Commission 2009, Supply Chain Pilots Draft Position Paper, March 2009, NTC, Canberra, ACT.
This figure shows the role of road freight within the domestic supply chain.
Heavy vehicles account for the largest proportion of the road freight task in Australia. Australian road
freight statistics most commonly distinguish three broad heavy vehicle categories:
· light commercial vehicles - motor vehicles of less than 3.5 tonnes gross vehicle mass (GVM)
constructed for the carriage of goods;
· rigid trucks - motor vehicles exceeding 3.5 tonnes GVM with a load carrying area; and
· articulated trucks - motor vehicles constructed primarily for load carrying, and consisting of a
prime mover with a turntable device for towing a semi-trailer.
In 2001, about 80 per cent of freight vehicles were reported to be light commercial vehicles, with 15.7
per cent rigid trucks and 2.9 per cent articulated trucks17. According to the National Land Freight
Strategy Discussion Paper released in February 2011, approximately 18 per cent of relative road use is
by light commercial vehicles, with heavy vehicles using about 20 per cent18.
In addition to vehicle categories, the road transport industry can also be segmented according to
indicators such as trip length, commodity carried and location. For the purpose of this RIS, the impact
analysis will focus on the following sectors/scenarios which were selected on the basis of providing a
representative cross section of key road transport characteristics as follows:
· long haul road freight
Half of the road freight in Australia (tonne kilometre) is classified as `long distance' freight. In
general, long distance freight is classified as that which has an average trip length of 300-500
kilometres19,20. This segment of the market is expected to account for 60 per cent of road freight
by 203021. As such, most of the interstate and part of the intra-state freight task falls within this
category.
· short haul quarried
The quarrying industry in Australia is expected to generate revenue of about $9 billion in
22
2010/11 . Road is the primary mode for moving product between rock quarries, sand and
gravel extraction sites, cement production and distribution facilities and concrete batching
plants throughout the nation.
· short haul agriculture
The transport and logistics sector plays an important role in Australia's agricultural sector. This
17
BITRE Working Paper 60, p 24
18
http://www.infrastructureaustralia.gov.au/publications/files/NLFS_220211.pdf
19
Australian Transport Safety Bureau 2001, Driver fatigue: A survey of long distance transport companies in Australia, Information
Paper CR/198, ATSB.
20
ARTIO and Queensland Truck Association 2011, Response to Safe Rates, Safe Road Directions Paper, 11th February 2011,
http://www.qta.com.au/pdf/2011/Safe%20Rates%20Safe%20Roads%20Submission%20by%20ARTIO%20Qld%20&%20QTA%2
0Ltd.pdf.
21
BITRE 2011, Road Freight Estimates and Forecasts in Australia: Interstate, Capital Cities and Rest of State, Research Report
121, http://www.bitre.gov.au/publications/74/Files/Report_121.pdf.
22
IBIS World 2011, Concrete slurry manufacturing in Australia, Industry Report C2633; Concrete and line manufacturing in
Australia, Industry report C2631; and Gravel and sand quarrying in Australia, Industry report B1411
xvii
Background
is generally short haulage transport where most of the origins and destinations are located
within the same region. In the broader agricultural sector, the key sub-groups of commodities
are a) crops, b) livestock and other; and c) livestock products. This sector accounts for
approximately 15 per cent of total road freight volume (TKM)23.
Data suggests that the agricultural sector is comprised of shorter distance freight tasks
compared to other segments of the road transport market, on average. Moreover, the
agricultural sector accounts for approximately 50 per cent of heavy vehicles but contributed
only 15 per cent of total network tonne volumes.
Further information on these can be found in Appendix A.
23
ABS 2007, Survey of motor vehicle use, cat no. 9208.0
xviii
Statement of the problem
3 Statement of the problem
While much of the discussion over the last two to three years has been around establishing an
institution or powers to set safe rates, the underlying key issue being addressed relates to safety on the
roads and how remuneration levels contribute to safe outcomes. From this perspective, it is important
to examine the trends in safety incident data, the link between on-road safety outcomes and
remuneration and/or working conditions and, finally, the economic theory and possible market failures
and externalities relevant for safe rates.
3.1 Safety incident data
According to workplace safety data, truck driving is the occupation/industry with the highest incidence
of fatal injuries. In this context, the Australian Government considers that safety outcomes remain at
unacceptable levels, for both drivers and the broader community.24
When a truck is involved in a safety incident, the general public is affected. If directly involved then
statistically it is likely that the other party will suffer worse consequences than the truck driver. If
indirectly involved then there is an impact on shared infrastructure (damage and delays) and
monetised and non-monetised community costs. In this sense, the transport industry has a unique and
larger burden than many other industries in relation to safety outcomes.
According to the Department of Infrastructure and Transport, in the 12 months to December 2010, 232
people were killed in 197 accidents involving heavy trucks. There were 25 deaths per 100,000 workers
in the industry in 2008-09 which is ten times the average for all industries.
According to National Transport Insurance (NTI) data research, nearly half of all truck crashes in 2009
are reported to have involved inappropriate speed for the conditions and/or fatigue from either the
truck driver or the other driver in two vehicle crashes. Yet in terms of fatalities involving heavy vehicles,
most accidents are not primarily the fault of the truck driver. In fatal heavy vehicle crashes involving
other vehicles, the other driver was at fault in 82 per cent of the accidents.
3.1.1 Death and accident rates
In Australia, there has not been a significant shift in the annual number of fatalities resulting from
crashes involving articulated trucks between the early 1990s and 2007 despite the overall decline in the
annual road toll (Department of Infrastructure, Transport and Regional Development, 2007, 2008).
According to the Australian Transport Safety Bureau (ATSB), the 1,634 crash deaths in 2003 are
comparable to those in 1950, when there were 1,643 deaths. However, current death rates calculated as
a percentage of the population are of course much lower.
In 1950 the death rate per 100,000 people was 20.1 and the death rate per 10 000 registered vehicles
was 11.8. In 2003, the death rate per 100,000 people was 8.2 and the death rate per registered vehicles
was 1.2. These gains are for all registered vehicles. However, when different types of vehicles are
examined, it emerges that the safety gains for heavy freight vehicles are less than for all vehicles.25
Additionally, according to the Department of Infrastructure and Transport's (DoIT) "Fatal heavy
vehicle crashes Australia quarterly bulletin Oct-Dec 2010", during the 12 months to the end of
December 2010, 232 people died from 197 crashes involving heavy trucks. The statistics are broken
down as follows:
· 147 deaths from 127 crashes involved in articulated trucks
24
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p.5.
25
Australian Transport Safety Bureau
xix
Statement of the problem
· 85 deaths from 70 crashes involving heavy rigid trucks.
Also during the 12 months ending December 2010, fatal crashes involving articulated trucks:
· increased by 6.7 per cent compared with the corresponding period one year earlier
· decreased by an average of 5.1 per cent over the three years to December 2010.
In the same time period, fatal crashes involving heavy rigid trucks:
· decreased by 4.1 per cent compared the corresponding period one year earlier
· decreased by an average of 5.6 per cent per year over the previous three years.
When compared to overall road deaths, according to the Road deaths Australia June 2011" bulletin,
during the 12 months ended June 2011 there were 1,304 deaths. This is a 7.2 per cent decrease from the
12-monthly period ending June 2010, with 1,405 deaths in that period. 26
While the time periods for this data collection are not directly comparable to the heavy vehicle bulletin
time period, there remains a more positive downward movement in the direction of road deaths for
overall road deaths when compared to crashes for trucks - particularly for articulated trucks where the
latest statistics show an increase of 6.7 per cent over the corresponding period one year earlier.
This data appears to suggest that there is an issue around improving safety with regard to the heavy
vehicle sector, which does not seem to be improving its safety outcomes in line with the overall road
safety statistics.
3.1.2 International comparisons
The then NRTC received a commissioned report examining Australia's heavy vehicle safety record in an
international context in 2002. The report found that Australia's heavy vehicle fatality rate per truck
kilometre travelled was approximately mid-range in relation to a number of broadly similar countries
chosen for comparison. For example, fatality rates were found to be:
· 47 per cent higher than that for the United States and 39 per cent higher than Great Britain
· comparable with Canada and Germany, and
· 45 per cent below France and 55 per cent below New Zealand.
The study considered the reasons for Australia's apparently poor performance relative to the United
States and Great Britain. It concluded that the higher truck fatality rates on Australian roads could
largely be explained by the lower proportion of truck travel on divided and limited access roads in
Australia, with truck speed limits possibly also being a factor. Problems of low freight rates having an
adverse impact on safety were not mentioned in this paper.
Dr Jeff Potter of the NTC presented a comparison of Australia's heavy vehicle fatality rate (i.e. per
vehicle kilometre) with that of four other countries at a 2008 International Symposium on Heavy
Vehicle Transport Technology. This comparison used data from 2001 to 2005. Figure 3 below, is
reproduced from this presentation. It shows that Australia's fatality rate was below that of Denmark
but above that of the other three countries compared (Belgium, France and the United States).
Therefore, while it would appear that over time the Australian heavy vehicle industry has demonstrated
improved safety performance; its fatality rates remain higher in comparison to similar countries. This
may imply that there is still some way to go in terms of safety improvements in this area and that
without further action there may be no further downward movement in fatality rates. However, it is
26
BITRE, Road Deaths Australia, June 2011 and Fatal Heavy Vehicle Crashes Australia Quarterly Bulletin, Oct-Dec 2010.
xx
Statement of the problem
important to also note that international comparisons of safety are difficult due to differences such as
those in road infrastructure and other conditions.
Figure 3 International Comparisons of Heavy Vehicle Fatality Rates
Fatalities involving a HV per 100 million KM travelled
4.0
3.5
2001
3.0
2002
2.5 2003
Rate
2.0 2004
2005
1.5
1.0
0.5
0.0
AUS BEL DEN FRA USA
Country
Source: Analysis of International Heavy Vehicle Safety Data. Paper presented by Jeff Potter, National Transport
Commission, to the 10th International Symposium on Heavy Vehicle Transport Technology. Paris, May 19-22, 2008.
This chart shows fatalities involving a heavy vehicle per 100 million kilometres travelled in Australia, Belgium, Denmark,
France and the USA from 2001 to 2005.
3.1.3 On-road risk factors
The research continues to point out speeding and fatigue in the road transport industry as the major
factors impacting on road safety outcomes. The NTC also lists drug use, poor vehicle maintenance,
inattention and road or environmental conditions as other contributing factors to poor safety outcomes
in the road transport industry.27 Poor vehicle maintenance, for example, could be directly associated
with low remuneration rates, as owner drivers may not be able to afford the cost of regular
maintenance and/or may not be able to stop driving for maintenance purposes.
The NTC report also presents data based on NTI claims in excess of $50,000 in 2002-03, which show
that almost 30 per cent of heavy vehicle accidents are caused by fatigue and in excess of 25 per cent of
accidents are caused by inappropriate speed.28
The most recent NTI study into serious transport accidents involving heavy trucks reported to the
insurer during 2009 found that:
· inappropriate speed for the conditions was found to be the leading cause of serious accidents
causing 31 per cent of these accidents
· in 7 out of 10 serious truck crashes, no other vehicle was involved (this is a factor which is
often attributed to fatigue and/or speed)
· in fatal crashes involving other vehicles, the other driver was at fault in 82 per cent of the
accidents. The context behind this is while truck drivers are not necessarily at fault in the
majority of accidents, they need to be alert to other road users behaviour
27
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p. 7.
28
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p. 8-9.
xxi
Statement of the problem
· 23 per cent of serious truck crashes occurred on Australia's National Highway 1. Queensland's
Bruce and Warrego Highways were the worst with proportionally more incidents than any
other major roads
· the Hume Highway is the best performing highway with the fewest major accidents
· the bigger they are, the safer they are - B Doubles carry 46 per cent of freight yet account for
only 28 per cent of serious truck crashes. The explanation behind this is that semi-trailers are
disproportionately over overrepresented (60.1 per cent of major incidents) as they tend to
operate on the worst of the road network, with ageing equipment and less experienced
drivers.29
In summary, these findings suggest that speeding and fatigue remain problems in the road transport
sector. It also suggests that there may be variations in safety outcomes amongst different vehicle types
and/or on different routes. These issues will be explored further in the impact analysis section of the
RIS.
3.2 The link between remuneration rates and safety
3.2.1 Research findings
The NTC report found there was a link between driver remuneration and safety outcomes in the heavy
vehicle industry. The NTC Report, which was based on commissioned research and other findings,
concluded that economic factors, including pressure applied throughout the supply chain, create an
incentive for truck drivers to speed, work long hours and use illicit substances.30 For example,
Williamson et al (2001) found that drivers compensated through a `payment-by-results' method were
twice as likely to report being fatigued on at least half of their trips than drivers who are paid by an
hourly rate. They also found that, while there was no statistically significant difference between
employee characteristics in the incidence of breaking working hours regulations, 46.6 per cent of owner
drivers reported the need to do enough trips to earn a living as the reason for breaking these
regulations, while only 25.6 per cent of employee drivers reported that they were likely to do the
same.31
Research carried out by Rodriguez et al (2006) found a strong correlation between driver pay rates and
crash risk. The report notes that at low pay levels, the net effect of a higher pay rate is lower crash risk,
but this occurs at a declining rate as pay rises continue and at high pay levels reverse. In summary this
study found that there is a significant probability that there is a correlation between remuneration and
safety performance, particularly where very low levels of remuneration are concerned.
Other research directly comparing remuneration and safety also demonstrated statistically significant
correlations between pay and safety performance, albeit different findings. These reports found:
a. a very small effect (Nafuko et al 2007)
b. a very large effect (Belzer et al 2002).
Low Market Power
Furthermore, owner drivers are reported to face low market power. While there are high capital costs of
entry into the industry, according to stakeholder submissions, most potential owner drivers are able to
take out leasing contracts with the usual array of finance companies. The key concern however, is the
significant amount of debt associated with owning a truck and the fact that it is a depreciating asset.
29
National Truck Accident Research Centre 2011, Major Accident Investigation Report, Brisbane.
30
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p 19.
31
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p 14.
xxii
Statement of the problem
This puts pressure on owner drivers to take on work in order to cover costs and can be a significant
barrier to exit.
Conventional economics usually models people choosing between uncertain outcomes as exhibiting
risk aversion; that is, they dislike variations (both gains and losses) from an expected amount.
However, many experiments show that people tend to evaluate choices from a `reference point' (say
current income, wealth or market prices) rather than the expected value of a choice. More importantly,
people suffer more from a loss than they benefit from an equivalent gain (evaluated from this reference
point).32
In the context of owner drivers, this can be linked to the anecdotal evidence provided in submissions to
the NTC Report which described the situation of owner drivers accepting unfavourable contracts terms
as this is seen as better than not having contract at all. This is also linked to the market failure
described above in terms of truck drivers not being able to easily exit the industry without significant
penalty, i.e. a barrier to exit.
A further concern with behavioural issues around individual decision-making is that, where
asymmetrical bargaining positions are at play, the capacity of individuals to make calculated and
considered decisions is further compromised.33 Submissions from various unions and individuals
certainly indicate that the bargaining power of larger firms is substantially greater than that of
individual owner drivers. Contract outcomes for individual owner drivers are unlikely to be optimal in
this environment.
Low Average Earnings
Available data indicates that remuneration rates for Australian owner-drivers have been low over a
long period. The most recent data on owner driver remuneration was reported in 2003, when the
average pre-tax profit was $20,638 following payment of expenses (from ACIL Tasman, 2003, Freight
rates and safety performance in the road freight industry, A report prepared for the Standing
Committee on Transport Working Group, p. viii). In today's terms, this could be considered to equate
to an average income or wage equivalent of $29,465 before tax.
PwC has examined ABS Census 2006 data to estimate the extent of remuneration to owner-drivers. The
data was segmented into an assumed or "notional award" band which is below $600 per 35 hour week.
The numbers of employee and owner drivers that fell below that threshold was taken as a proportion of
the total number of drivers in the respective categories to identify the proportions which are underpaid.
Analysis indicates that 29 per cent of owner drivers are underpaid.
Table 2 Proportions of drivers below `notional award' remuneration
Weekly income Average point
band estimate Owner managers Owner managers
(as defined by ($2011)(1) of incorporated of
2006 Census) (no.) unincorporated
(no.)
Nil income 0 43 59
$1-$149 120 39 81
$150-$249 240 94 141
$250-$399 420 460 477
32
Productivity Commission 2008. Review of Australia's Consumer Policy Framework, Canberra, Appendix B, p6.
33
Productivity Commission 2008. Review of Australia's Consumer Policy Framework, Canberra, Appendix B, p16.
xxiii
Statement of the problem
Weekly income Average point
band estimate Owner managers Owner managers
(as defined by ($2011)(1) of incorporated of
2006 Census) (no.) unincorporated
(no.)
$400-$599 599 1,477 1,332
Total 7,257 7,268
% `underpaid' 29 29
Note (1): The average income estimate per income band was extrapolated in considering the
skewness of distribution towards the mean point - towards >$1,000 / right of the distribution - as per
the observed normal distribution. i.e. in each income group, the estimated average income has been
adjusted accordingly above the mid-point where appropriate and rounded to the nearest $50. Then
the estimates were escalated by WPI.
Note: the information above has been retrieved based on all truck drivers working in the road freight
sector and working more than 35 hours per week. Of the drivers who reported working a minimum
of 35 hours per week and reported an average of more than 40 hours per week, those with a reported
income below $600 per week are defined as underpaid in the model. In the absence of data on
incomes by grade, the analysis was unable to describe the award rates by experience and grade nor
the mix of drivers' experience level.
From 1 January 2010, the national workplace system commenced operation and most employee drivers
across Australia became covered by a safety net comprising the National Employment Standards and
modern awards. Under the national workplace relations system, one of four modern awards apply to
employee drivers depending on the sector of the industry they work in:
· Road Transport (Long Distance Operations) Award 2010
· Road Transport and Distribution Award 2010
· Transport Industry (Cash in Transit) Award 2010
· Waste Management Award 2010
Most modern awards are subject to transitional arrangements for a range of pay and pay related
matters. Transition from pay rates contained in pre-modern awards to the modern award standard
commenced on 1 July 2010 and will be completed by 30 June 2014.
In comparison to owner drivers, the current award rate for a grade 4 long distance vehicle driver is
$24.47 per hour. A standard working week under the award is 38 hours but data suggests that truck
drivers work up to 9 hours per week overtime, which would be paid at a higher rate (for example, time
and a half). An award wage for a 47 hour week, using these assumptions, would be $65,530.66 per
annum before tax. Many employee drivers would be on higher rates, as they would be covered by
enterprise agreements.
The issue highlighted above regarding the proportion of owner drivers being underpaid relative to the
assumed notional award would appear to be linked to the fact that, according to behavioural economics
theory, people do not make decisions in a considered or calculated fashion; they often use `rules of
thumb' in making complicated decisions.34 In the context of owner drivers, this can be referenced back
to the ACTU and TWUA submissions which indicate that owner drivers do not necessarily have the
right information with which to negotiate an appropriate freight rate in order to recover an appropriate
an amount to reflect their labour cost.
34
Productivity Commission 2008. Review of Australia's Consumer Policy Framework, Canberra, Appendix B, p5.
xxiv
Statement of the problem
In fact, the 2005 Victorian report into the industry which gave rise to that state's Owner Drivers and
Forestry Contractors Act 2005, found that owner drivers may accept rates that do not provide them
with an adequate income plus return on their investment due to inadequate knowledge of the costs that
they incur in operating their business. The disclosure requirements and some other aspects of the
Victorian legislation are predicated on this rationale.
It can of course also be argued that owner drivers that have been involved in the industry are unlikely
to remain ignorant of their cost function and that, given that most owner drivers have substantial
industry experience, the size of this information asymmetry is unlikely to be great. However, even in
this context, a second market failure may be relevant: by the time owner drivers reach this level of
understanding of their cost function, many may have commitments such as long-term truck leases
which cannot easily be liquidated, at least without significant penalty. This situation is described as
constituting barriers to exit, and constitutes another standard example of a market failure.
Another explanation for drivers accepting low rates of pay is that people tend to care about the
present.35 For example, people may think that they will stop smoking tomorrow, but when tomorrow
comes, they overweight the present benefits of smoking relative to the larger costs of lifetime addiction.
In the context of owner drivers, this can be linked to the evidence presented in as part of the NTC
report and union submissions which show that owner drivers feel pressured to accept work even if it is
not on favourable rates as it allows them to meet their immediate truck lease and other commitments.
A related behavioural issue, which is related to people valuing the present, is what is referred to as "the
endowment effect" which is a strong driver behind people's reluctance to change. An aversion to change
increases the importance of choosing the correct default option for policies designed to engender
change.36 In the context of owner drivers, this can be linked to the evidence presented in submissions
which shows that owner drivers feel pressured to continue to honour existing freight contracts even if
they are not struck on favourable terms. Again, this may also point to barriers to mobility/exit where
drivers feel compelled to keep working under what they perceive to be universally unfavourable
conditions due to financial pressure associated with capital investments in their vehicles, etc.
35
Productivity Commission 2008. Review of Australia's Consumer Policy Framework, Canberra, Appendix B, p6.
36
Productivity Commission 2008. Review of Australia's Consumer Policy Framework, Canberra, Appendix B, p16.
xxv
Statement of the problem
Long working hours and unpaid working time
Past research and submissions to the NTC Report received from owner-drivers, the TWUA and
industry associations highlight other issues relating to payment systems.
There is evidence to suggest that owner-drivers work long hours. For example, in the week prior to the
November 2002 ABS Labour Force Survey, employers working full time in their business worked an
average of 58 hours per week. Therefore, owner-drivers appear to be working long hours for low
remuneration.
Unpaid queuing time, or demurrage, was highlighted as a major issue in the transport industry during
fatigue related reforms. It was also highlighted that many drivers are not paid for time spent loading
and unloading their vehicles when making or picking up deliveries. This can encourage drivers to make
up for the lost time by fitting in that extra trip. The issue of `back loading' has also been highlighted in
submissions by stakeholders as a significant problem for owner-drivers. This is where drivers are paid
significantly less for the back leg of a trip, which is particularly problematic where they have little or no
load for the return leg.
A behavioural issue that comes into play to make up for what are perceived to be "lost earnings" is
overconfidence. Put simply, this where people overestimate their own abilities to, for example,
effectively recover costs. Svenson (1981) found that 80 per cent of respondents rated themselves in the
top 30 per cent of drivers. Ausubel (1999) found that individuals over-respond to low pre-teaser
interest rate offers on credit cards. Those who accept offers naively think they will not borrow much on
the credit card after the teaser rate is removed. In the context of owner drivers, this can be linked to the
fact that despite the safety risks inherent in driving under time pressure or while fatigued, it is argued
in submissions that drivers continue to perform work under these circumstances in order to make up
for unpaid working time.
3.2.2 Consequences of no action
The Australian road transport industry generally has a strong safety performance and key safety
initiatives, such as CoR and fatigue management laws which are being bedded down, so further
improvements in road safety can be expected to continue. Important initiatives including the NHVR
and the National Road Safety Strategy should have a positive effect on road safety. Governments are
also continuing to invest in road infrastructure, including quality rest stops, divided roads and
improved freight corridors, which the NTC put forward as major catalysts for a safer road transport
industry.
However, as the current system does not address the link between remuneration and safety, no action
may mean that the financial incentive to engage in practices which are often a factor in heavy vehicle
crashes - speeding, working long hours and using illicit substances - would remain and potentially
undermine these other Government investments. Improvements in road transport laws are underway
but the current system is reported in stakeholder submissions to lack consistency and uniformity and is
complex at the state level, especially for owner drivers.
Despite the developments outlined earlier, it would appear that the investigation of further reforms
may be warranted in relation to low remuneration and inappropriate payment systems for owner
drivers, which are antecedent factors to fatigue and speeding. Although the fatigue laws should provide
a good incentive to improve industry practices, they do not specifically address practices such as unpaid
queuing time. Currently, costs for unpaid working time, such as time spent queuing, is a cost which is
absorbed by drivers, creating no incentive for other parties to address the efficiency issues leading to
that practice. By requiring the real cost of this time be passed on in the cost of moving those goods,
there may be efficiency gains and potential improvements in safety outcomes.
The highly competitive nature of the transport industry and the commercial pressures placed on
drivers are widely acknowledged through numerous reports and inquiries including the NTC Report
into Safe Payments, where the Australian Trucking Association submission highlighted that:
xxvi
Statement of the problem
"economically powerful industry clients have the commercial influence to determine the price of
transport services and, in many circumstances, key conditions relating to the performance of
transport work. Successive instances of contracting out to small fleet operators and owner-
drivers can exacerbate this phenomenon, particularly in the long distance sector."
The operation of the transport market and its competitive nature can affect owner drivers' abilities to
achieve payment rates and methods that would allow them to perform their work legally and safely.
Addressing drivers' lack of bargaining power is critical to establishing a system of safe payments. On
this basis, a remuneration system to address the safety link may be an important step in further
requiring those up the chain of responsibility to address those incentive factors.
3.3 Summary
While transport safety outcomes have improved over the years - and certainly relative to increasing
population and increased freight - there are still an unacceptably high number of truck accidents. The
concern is that without further action, the number of accidents will remain high.
There is some research to suggest that the remuneration for drivers is a factor in safety outcomes,
however data at this point in time is limited and being definitive around the causal link between rates
and safety is difficult. For example, speed and fatigue are often identified as the primary cause for a
crash but it is a much harder task to prove that drivers were speeding because of the manner or
quantum of their remuneration.
Despite the fact that studies and academic literature have not conclusively proven the extent to which
rates and safe transport outcomes are related, there are a number of market failures or factors that
would suggest that it is not unreasonable to expect that the manner in which owner drivers are
remunerated will impact on safety. One of the most pressing of these relate to the ability of owner
drivers to appropriately assess risk and how their driving behaviours (including negotiating
appropriate freight rates) impacts on safety. The other relates to the impact of the supply chain and
relative bargaining power and that those up and downstream of the driver do not bear the direct impact
associated with an accident (unless they are unlucky enough to be the `other party') - this relates to an
externality argument whereby rate and remuneration agreements don't adequately account for the risk
and expected cost of an accident.
Broken down into simple terms, this means that owner drivers cannot adequately take into account the
risk factors involved when negotiating freight contracts - either due to lack of full information and/or
economic pressures - which results in unsafe on road behaviour which ultimately impacts the driver
and other road users. It is important to note in all of this that the consumer is not directly impacted and
that those up and down the supply chain generally do not incur the full cost of an accident. Indirect
impacts on the community include the cost of health care following heavy vehicle accidents and
infrastructure replacement costs, etc.
These findings appear to support the NTC Report which ultimately found that the regime covering
owner drivers needs to be mandated as:
"attempts to set minimum rates for owner drivers on a voluntary basis have repeatedly failed ...
because they lacked the capacity to ensure meaningful coverage and compliance (inevitably
breaking down under competitive pressure)".37
37
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, p.43.
xxvii
Objectives
4 Objectives
The primary objective associated with the safe rates proposal is to improve safety performance in the
heavy vehicle industry. The desired outcome is safer driving practices and fewer crashes for truck
drivers. This will reduce the number of deaths and injuries for both truck drivers and the general
public, given the high percentage of victims who are not occupants of the heavy vehicle involved in the
collision, and reduce non-human costs such as property damage.
The aim of Government action to achieve the objective and desired outcome is to reduce the incentive
for employee and owner drivers to drive in ways that increase the risk of deaths and injuries on the
road. While there are already systems in place to penalise drivers who speed or drive when fatigued, the
Government can play an important role in removing financial incentives to drive unsafely.
Improving equity for owner drivers, in terms of income distribution, has been acknowledged as a major
driver of related state government legislative action in recent years. Evidence from submissions and
available data shows that owner drivers generally work longer hours and are paid considerably less
than employee drivers.
To the extent that market failures can be addressed through safe rates then this will also improve
equity for owner drivers. It is considered that addressing these factors is important as they may be
leading to under recovery of efficient transport resource costs.
A further consideration around the safe rates proposal is to ensure that it does not undermine the
economic efficiency of the industry. This implies that the proposal's outcomes need to be proportional
to the safety issues it is seeking to address.
xxviii
Statement of Options
5 Statement of Options
As discussed in the background section, the options considered in this Regulatory Impact Statement
are proposed in the context of formulating the Government's response to the 2008 National Transport
Commission Report, Safe Payments: Addressing the underlying causes of unsafe practices in the road
transport industry (the NTC Report). This report presented extensive research and data and ultimately
presented options for the Government to respond in relation to the development of a safe payments
system for owner drivers.
Accordingly, this RIS examines the potential impacts associated with three key options:
1. maintaining the existing federal and state-based legislation for employee drivers and owner
drivers (where applicable) - this option is the base case for this RIS
2. introducing a voluntary system of payments for owner drivers and chain of responsibility
arrangements
3. establishing the tribunal, with discretion to set and maintain remuneration rates and/or
remuneration related conditions for employees, owner drivers and the supply chain, if safety
outcomes would improve as a result of the decision.
5.1.1 Option 1
Option 1 comprises the Base Case for this RIS. It involves maintaining the current regulatory
frameworks in the road transport industry that deal with employee driver pay and conditions
separately to arrangements for owner drivers (status quo). This option incorporates relevant initiatives
scheduled to commence in the near future, including establishment of the National Heavy Vehicle
Regulator and commencement of the national heavy vehicle laws, as well as the National Road Safety
Strategy 2011-2020.
Detail on the current regulatory arrangements for both owner drivers and employee drivers can be
found in Section 2 - Background.
Option 1, by definition, is not expected to change the remuneration arrangements for either employee
drivers or owner drivers. Further detail on this and other anticipated impacts is provided in the
following impacts analysis section.
5.1.2 Option 2
This option involves implementing a suite of measures, such as:
· legislating against unsafe practices
· setting guideline rates of remuneration and conditions
· expanding accreditation schemes, and
· introducing accessible dispute resolution services.
The suite of measures would address inequity issues for owner drivers in the road transport industry,
with development of industry standards and guideline rates, as well as regulating some particular
problem areas, such as payment for loading/unloading and waiting.38
This non prescriptive system of payments and conditions applying to owner drivers and the supply
chain could be implemented in several ways. For example, the Victorian model of setting a guideline
rate of pay for owner drivers, established in the Owner Drivers and Forestry Contractors Act 2005,
38
Putting in place effective compliance monitoring and enforcement activities may be challenging and self reporting of breaches will
be essential.
xxix
Statement of Options
could be replicated in other states and territories. This would require the states and territories to agree
to the proposal.
Another approach would involve a guideline or voluntary rate and other industry standards established
at the national level, for example, as part of an industry code of practice. This approach could be
implemented as a policy initiative or using a regulatory approach. Funding for the suite of measures
could be provided by both governments and the industry.
An industry council could be established to oversee implementation of the suite of measures, including
development and publication of guideline rates, as well as setting other industry standards. The
Government could be responsible for introducing accessible dispute resolution services, which may
involve making better use of current systems. If the suite of measures includes legislating against
unsafe practices, the Government could develop the legislative framework and establish a compliance
system.
Key features of this approach are:
· voluntary system
· includes guideline rates or costing models of pay and payment methods for owner drivers
· includes industry participants, who identify and set the standards, for example voluntary
industry standards such as Australian Logistics Council Code or the Australian Trucking
Association's TruckSafe
· overcomes information imbalances through improved education and training:
- for owner drivers to assist them to operate their businesses, and negotiate fairer
contracts and
- for employees and employers with targeted information on awards,
employer/employee obligations and the role of the Fair Work Ombudsman
· includes supply chain participants, such as governments and retail industry, who can assist
with meeting the standard by requiring compliance with the standard at all levels of the
supply chain.
Further detail on this option and its expected impacts is provided in the following impacts section.
It should be noted that there is limited evidence on the effectiveness of the voluntary system. Owner
driver voluntary schemes in Victoria and Western Australia have not been evaluated, so the effect
guideline rates and conditions have on the remuneration and working conditions of owner drivers
cannot be assessed.
5.1.3 Option 3
This option would result in the implementation of a national legislated system for employee and owner
drivers, as well as the supply chain, with discretion to set mandatory rates of pay and conditions for
owner drivers. For example, pay rates and/or pay related conditions could be set for owner drivers in
certain industry sectors, where there is evidence that supports the need for action to address pay and
conditions to encourage safe driving practices. The mandatory rates of pay and pay related conditions
would be used as a safety net during commercial contract negotiations.
The national legislated system could be either:
· establishing a tribunal; or
· setting up another system of setting mandatory rates, such as by ministerial determination or
a statutory industry body or by extending the Fair Work Act coverage to owner drivers (i.e. the
Outworker Model).
xxx
Statement of Options
The legislation establishing a tribunal and the compliance functions could be in line with those set out
in the FW Act. In this case the tribunal would be a statutory body, supported administratively by Fair
Work Australia (FWA).
In order to limit the impact on the economy and avoid regulatory duplication, the tribunal would be
required to take into account the following criteria when performing its functions:
· the need to promote safe, flexible, efficient and productive work practices
· the effectiveness of any industry based measures already in place to address safety and
remuneration issues
· the likely impact on business, including the owner driver, road transport and supply chain
businesses, such as productivity, employment costs and the regulatory burden
· the special circumstances of areas that are particularly reliant on the road transport industry,
such as rural, regional and other isolated areas, including any localised impacts on
employment, prices and services
· the likely impact on the national economy and the effect on the movement of freight across the
nation
· the need to avoid unnecessary overlap with the Fair Work Act 2009, the national heavy vehicle
laws and other relevant laws, such as workplace health and safety, independent contractor and
other transport legislation.
The regulatory framework would also:
· include the road transport industry supply chain, as it can be the cause of unsafe driving by
employee and owner drivers
· provide a simple and easy to understand minimum standard of remuneration and
remuneration related conditions for employee and owner truck drivers and those using the
road transport industry
· educate and inform the road transport industry about the minimum standard of remuneration
and remuneration related conditions, as well as other safety related initiatives
· ensure that the guaranteed minimum standard of remuneration and remuneration related
conditions cannot be undermined by agreements of any kind.
The tribunal's discretionary powers could result in road safety remuneration orders made for some
sectors of the industry and/or orders setting out remuneration related conditions only. Another
potential outcome is the tribunal declining to make a road safety remuneration order. The tribunal
would decide on the appropriate remuneration rates and/or remuneration related conditions if and
where appropriate. With this high level of discretion, together with the need for the tribunal to consider
the economic impacts of any decision, the CBA is illustrative only. For example, the tribunal will have
to consider a range of issues, including the efficient rate of owner drivers.
Conduct of matters before the tribunal could be in line with those established for FWA, with particular
reference to the functions of the Minimum Wage Panel. The powers of the tribunal to inform itself in
relation to matters it was considering would be broad and allow all road transport industry participants
and other interested parties to contribute. It would be able to use a range of approaches, including (but
not limited to):
· undertaking or commissioning research
· inviting oral or written submissions
xxxi
Statement of Options
· requiring documents, records or other information to be provided
· taking evidence under oath or affirmation
· conducting inquiries
· holding a hearing.
In conjunction with the compliance agency, the tribunal could also have education functions, which
could include development of model contracts for industry sectors. These functions could be used as an
alternative to setting a remuneration rate and/or remuneration related conditions or they could be
used more broadly across the industry, to address equity issues for truck drivers.
If the non-tribunal approach was used, the Government would establish a regulatory framework, which
include setting up an industry advisory council to provide advice on the evidence linking remuneration
and remuneration related conditions. The council could also assist the Government to set any rates or
conditions, which would be issued in the form of a ministerial determination.
An alternative approach would involve a government agency having responsibility for investigating and
providing advice on rates and/or remuneration related conditions. Both models could have other
functions, similar to those set out for the tribunal, including education and development of resources,
such as model contracts. As part of this regulatory framework, compliance issues also need to be
addressed.
xxxii
Impact Analysis
6 Impact Analysis
6.1 Introduction
The broad approach to the impact analysis is guided by the Australian Government's Best Practice
Regulation Handbook.39 However, the impact analysis was conducted in the context of the following
considerations:
· Given the short study period, this RIS draws on two recent reports, an economic analysis of
the concept of safe payment rates40 and a Preliminary RIS developed by DEEWR in 201141.
This RIS builds on the existing analysis, collating and combining the available information to
produce a quantified Cost Benefit Analysis (CBA) of the options.
· It is not an objective of this RIS to assess whether the remuneration received by owner drivers
recovers efficient cost. While there is evidence that freight rates in some segments of the
owner driver market significantly under-recover costs, the extent of this under-recovery, from
an economic perspective, must be measured from an efficient rather than observed cost base.
However, for the purposes of this RIS, it is assumed that observed freight costs are efficient.
· This RIS recognises that there is a comprehensive heavy vehicle regulatory framework
(including Road Rules, Heavy Vehicle Driver Fatigue Model Legislation and Chain of
Responsibility Legislation) in place which contributes improving road safety outcomes.
However, this RIS focuses on the potential safety impacts specifically related to regulation and
legislation concerning driver remuneration.
· This RIS relies upon the considerable research contained in the National Transport
Commission's (NTC) `Safe Payments' Report which links the level of remuneration and the
ante decedents of road crashes such as speeding, drug use and fatigue. 42 The RIS is limited to
using the few existing studies which empirically estimate the relationship between
remuneration levels and safety (these are described below in Appendix C).
· The options do not prescribe a specific remuneration level or structure for owner drivers and
employees. Rather, Option 3 describes the establishment of a framework with the power to
determine a specific `safe' rate of pay where appropriate based on the evidence. 43 Indeed, a
key role of the safe rates Tribunal outlined in Option 3 is to:
o investigate rates of pay and conditions in the industry based on research and
evidence, with the discretion to determine mandatory rates for some drivers as
appropriate. For example:
- set up a work program, so higher risk industry sectors are researched
and investigated in priority order (the intention is to provide scope
for an approach similar to the Modern Award review process)
- have discretion to set and maintain rates of pay and/or conditions for
both employee and owner drivers
- consider market issues and impacts on road transport businesses and
the economy, including cost of living pressures and impacts on rural
39
Australian Government 2010, Best Practice Regulation Handbook, Department of Finance and Deregulation, Australian
Government, Canberra.
40
Jaguar Consulting 2011, Economic Analysis of Regulating Rates of Payment and Conditions for Safety in the Road Transport
Industry, Revised Final Paper prepared for the Department of Education, Employment and Workplace Relations, August 2011.
41
Department of Education, Employment and Workplace Relations 2011, Progressing the Government's Response to the 2008
National Transport Commission Report, Safe Payments: Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry and the 2010-2011 Safe Rates, Safe Roads Directions Paper, Regulation Impact Statement developed by the
Department of Education, Employment and Workplace Relations.
42
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008.
43
Options 1 and 2 seek to maintain the existing legislative/regulatory frameworks relating to owner-driver/employee remuneration
and expanding the pay guideline systems in Victoria and Western Australia to other jurisdictions.
xxxiii
Impact Analysis
and regional areas, as currently occurs with FWA decisions on the
minimum wage.
Therefore, rather than seeking to estimate the net economic benefit of specific pay rates for a
specific road transport segment, the economic impacts of the options are assessed in terms of four
road transport scenarios which provide a representative cross-section of the road transport
industry in terms of:
· proportion of freight carried by owner drivers
· expected effectiveness of the policy44
· commodity transported
· jurisdiction
· transport distance
· vehicle type, and
· existing owner driver remuneration level and structure.
These scenarios and associated logistics chains are defined in Appendix A.
· The impact analysis defines the economic, transport demand and crash rate data required to
undertake a robust CBA of the options. However, review of the literature and discussions with
key stakeholders highlighted significant data gaps. The RIS clearly identifies these data gaps.
Where possible, values are assumed and/or ranges are provided. The materiality of the impact
of data issues on the CBA results is discussed. Finally, impacts are discussed qualitatively in
the absence of data.
· The RIS focuses on quantifying the material impacts of the policy. Given the short study time
frame and data gaps, the economic framework in this RIS responds directly to answering the
key economic question, namely:
o will the societal benefits from improved road safety offset the expected increase in
the resource cost of freight and cost to government from establishing and
implementing a safe rate of pay for owner and employee drivers?
Other potential market responses such as mode shift of freight to rail, suppression of freight demand
are discussed briefly, as are distributional and potential competition effects.
6.2 Identification of impacts on stakeholders
This section identifies the key stakeholders that would be materially impacted by the options. It also
identifies the expected impacts.
The key stakeholders defined in this RIS are:
· truck drivers - including both owner-drivers and employee drivers
· the community - including the end consumer and other road users
· supply chain intermediaries (other than truck drivers) - including the manufacturer,
wholesaler, retailer, freight forwarder, freight business owner, warehouse operator, etc
· Government - largely responsible for establishing (or extending), operating, monitoring and
enforcing new or existing heavy vehicle regulatory frameworks relating driver pay levels
and/or conditions.
44
Effectiveness is broadly measured by the proportion of owner-drivers which would be covered by the new pay framework and the
level of compliance by owner-drivers, i.e. the driver negotiates freight rates based on the minimum safe rate of pay rather than
entering into some form of strategic behaviour to maximise their likelihood of winning work.
xxxiv
Impact Analysis
6.2.1 Option 1
Option 1 comprises the Base Case for this RIS. By definition, it is not expected to change the
remuneration arrangements for either employee drivers or owner drivers.
Any `pay' related improvements in road safety will only occur if increasing proportions of drivers
(rather than numbers of drivers) receive remuneration and conditions outlined in the relevant
legislation and guidelines.
However, there is significant uncertainty surrounding existing remuneration levels, particularly for
owner-drivers. Moreover, estimating the change in the proportion of drivers which would be covered
under the existing regulatory framework over time would also be subject to a high level of uncertainty.
Therefore, this RIS assumes that Option 1 would have marginal incremental impacts.
6.2.2 Option 2
According to submissions made to the Safe Rates, Safe Roads Directions Paper, some owner drivers
and smaller fleet operators are facing financial pressures due to power imbalances between themselves
and the larger companies contracting for their services. These issues were raised in submissions
responding to the Directions Paper. Another common theme to emerge was the lack of business skills
and understanding of operational costing structures amongst this group.
The voluntary option would build on and enhance the status quo. It would involve implementing a suite
of voluntary measures, using the current regulatory framework or establishing new legislation. This
approach, with a package of voluntary measures, would attempt to address the imbalances encountered
by owner drivers and small fleet operators such as information asymmetry and limited bargaining
power, and through influencing driver behaviour also improve safety standards in the industry. A
secondary likely outcome of this voluntary approach would be to address equity outcomes. For
example, according to the Victorian Report of Inquiry into Owner Drivers and Forestry Contractors
(2005), the Victorian owner driver system was expected to improve the bargaining position of owner
drivers and potentially improve productivity across the industry.
The National Transport Commission has reported that operators who voluntarily manage their own
risk have been found to reduce the number and lessen the severity of any crashes. The availability of
additional information, including guideline rates, may also ensure that potential new owner drivers are
fully informed and could prompt some to rethink entry into the industry and/or entering into an
unfavourable financial position.
This approach could also address practices identified by industry as problematic and resulting in
unsafe driving practices. These industry practices include non payment for waiting, loading and
unloading, which may provide an incentive for truck drivers to speed or ignore fatigue rules to make up
lost time. Remuneration related conditions, such as the requirement to pay for waiting, loading and
unloading, could be established as part of a mandatory code of practice, for example, or within another
regulatory framework. Any changes to current industry practices such as unpaid waiting time may also
provide an important signal to transport companies and warehouse to increase efficiency by
minimising waiting times (see Option 3 for further details).
The key expected impacts with Option 2 are summarised in Table 3.
Direct Benefits
On balance, it would appear that the main impact of the voluntary system for owner drivers would be to
reduce the information asymmetry and address the asymmetrical bargaining position they face when
negotiating with businesses. With the publication of guideline rates and prescriptions on certain kinds
of conduct, owner drivers would be in a better position to negotiate better rates for jobs and conditions
that do not require them to take excessive risks. Reduced levels of underpayment should reduce the
xxxv
Impact Analysis
incentive to undertake unsafe behaviours as a means to `make ends meet' and thereby reduce the risk of
a crash. Consequent benefits of this are the avoidance of death, injury or need for truck repairs.
Voluntary measures aimed at addressing information and bargaining asymmetries may lead to some
safety improvements from businesses being less likely to set unreasonable conditions on owner drivers.
However, the highly competitive nature of the transport industry and commercial pressures placed on
drivers can be expected to limit compliance with voluntary measures such that the extent of safety
improvement is uncertain and fatalities may not be reduced to the extent they would be with
mandatory increases to owner driver rates and conditions (Option 3).
There is great uncertainty over the level of compliance with guideline rates and how much owner driver
rates may increase above the base case, if at all. While Victoria and Western Australia have regulatory
frameworks establishing voluntary measures and industry organisations have set up schemes in sectors
of the industry, such as the Australian Logistics Council's codes and the Australian Trucking
Association's voluntary accreditation systems, there is limited evidence to support voluntary
approaches being effective. This suggests that compliance with guideline rates is likely to be very low.
Evidence from Victoria shows that heavy vehicle fatalities have reduced since the introduction of
measures similar to the voluntary measures outlined above. However, it is not possible to attribute the
safety improvements to the introduction of the measures, as improvements began before the measures
were introduced and the level of compliance with guideline rates and other aspects of the measures are
unknown.
Adding quasi regulation, in the form of a voluntary scheme, may have limited safety or economic
impacts. According to stakeholders, only those industry participants already striving to meet a high
business standard, such as the `big industry players', may change behaviour in response to
implementation of these voluntary measures. Small business operators, including owner drivers and
small fleet owners, may find compliance difficult or costly, so not worth the effort. Compliance will be
difficult, as the scheme is only voluntary and any sanctions incorporated may not deter non
compliance.
There is also a risk that voluntary measures, including guideline rates, may be seen as an aspirational
goal by industry participants, and not necessarily reflective of current or achievable practice for large
sectors. Small business operators, including owner drivers and small fleet owners, may find
compliance difficult or costly, so not worth the effort.
For Option 2, given the issues outlined above, the level of compliance with the guideline rate is
assumed to be around ten per cent in the most likely scenario.
Based on an assumption that Option 2 will cover the entire owner driver sector, since additional
information on costs faced by owner drivers and guideline rates will be of use to all owner drivers and
not just those specifically covered by legislation, and that around ten per cent of owner drivers will
increase their remuneration to a guideline rate (assumed to be the minimum wage), adoption of Option
2 may be expected to save some lives on Australian roads. This would result in some savings to
Government from health service costs for people who are seriously injured in truck crashes, although
these savings are not included in the scenario modelling. Further detail on this scenario modelling may
be found in Appendix C.
Direct Costs
Costs to government would include implementation of the voluntary scheme, as well as the costs
involved with providing dispute resolution processes, publishing guideline rates, industry targeted
information and related education campaigns, and developing codes of practice and accreditation
schemes.
Any increases in the cost of owner driver services are likely to be passed onto supply chain participants,
including retailers, and then onto the consumers. For the purpose of this RIS, it is assumed that
businesses contracting owner drivers will pass all costs onto supply chain participants and increases in
xxxvi
Impact Analysis
costs will be passed onto subsequent supply chain participants, such that the increase in the cost of
owner driver services will ultimately be met by consumers.
Overall Benefits/Costs
The above costs and benefits discussion suggests there will be direct benefits to drivers from increasing
remuneration and improved safety outcomes. Direct benefits and costs will also be incurred by
Government and the community (including consumers) from improved safety outcomes, increased
costs for goods that have been transported by owner drivers and costs of establishing and maintaining
the industry council. However, it is also important to consider the second round economic impacts of
an increase in owner driver remuneration, including possible reductions (or increases) in demand for
owner driver services, substitution with employee drivers or rail or sea transport and overall gain or
loss of economic efficiency.
The overall costs (or benefits) to the economy will depend on the extent to which increases in owner
driver remuneration eliminate (or create) economic inefficiencies caused by inefficient freight rates.
This is determined by the starting position of owner driver remuneration relative to the efficient price,
the elasticity of supply of owner driver services and the elasticity of demand for owner driver services.
The overall benefits and costs from gains or losses in economic efficiency and changes in demand for
road transport services are expected to be very limited for Option 2, since compliance with the
voluntary guideline rate is expected to be very low.
Since there are considerable barriers to exit from the owner driver industry, it is reasonable to assume
that, at least in the short run, supply of owner driver services is highly inelastic. On this basis,
increasing owner driver remuneration for a small proportion of drivers through a guideline rate will be
a transfer from the community to owner drivers, up to the point where remuneration reaches the
efficient price. It will not result in any improvements or reductions in economic efficiency unless the
guideline rate is set at above the efficient price, in which case it will create costs for owner drivers and
the community by introducing economic inefficiencies. The costs and benefits of the proposal, in the
short run, would be represented by costs to Government, benefits from any improved safety outcomes
and any economic efficiencies.
Over the medium-long term, however, supply of owner drivers is not inelastic since, as given enough
time, people can raise enough funds to purchase a truck or negotiate the sale of a truck. If owner driver
remuneration is assumed to be efficient (i.e. covers costs of labour and safety externalities), since
owner drivers are accepting existing rates, then the adoption of a higher guideline rate by some owner
drivers will create some loss of economic efficiency. This may be moderated depending on the price
elasticity of demand for owner driver services and the extent to which businesses subcontracting to
owner drivers can and are willing to substitute to employee drivers.
There are, however, reasonable grounds for assuming that owner driver remuneration is likely to be
inefficient as it does not recover all costs, in particular, costs associated with safety externalities. In
this case, where guideline rates result in an increase in owner driver remuneration, this may improve
economic efficiency by correcting the distortion of the unpriced safety externality for the small
proportion of drivers who receive an increase. The total economic costs or benefits of the proposal are
determined by the balance between economic gains from moving from the existing rate up to the
efficient price and losses from setting the guideline rate beyond the efficient price.
There is no evidence available to suggest what is the efficient price for owner driver services. Also, there
is no information available on the medium-long term price elasticity of supply of owner driver services
and only a limited amount of information on the price elasticity of demand for road transportation (but
this is not limited to owner drivers, which would be more elastic because of the presence of a readily
available substitute, being employee drivers). Therefore, while evidence on existing owner driver
remuneration is available, we are not able to quantify the expected gains or losses in economic
efficiency resulting from the introduction of Option 2.
xxxvii
Impact Analysis
The modelled scenarios therefore are based on the assumption that current rates are efficient and
hence any move away from that efficient starting position represents a cost. This in fact is a major
driver of the scenario results. While this is an initial starting assumption, further clarification on what
actually constitutes an efficient base salary would improve the modelling results presented later in the
RIS. An alternative modelling scenario for Options 2 and 3 where current remuneration rates are
considered inefficient is presented for illustrative purposes in Appendix E.
If it is assumed that owner driver remuneration does not recover efficient costs and the efficient price
for owner driver services is at least equal to the minimum wage, introducing a guideline rate at the
minimum wage under Option 2 would be expected to result in some economic efficiency gains.
However, these gains would be small because of the expected very low rate of compliance with the
guideline rate. The gains would be shared between the community and owner drivers. Similarly, if
current owner driver remuneration does recover efficient cost, economic efficiency losses arising from
increases in owner driver remuneration would be shared between the community and owner drivers.
Employee drivers are a close substitute for owner drivers in a wide range of circumstances. However,
with such low expected compliance with any guideline rate in Option 2 and compliance spread across
the whole road transport industry (i.e. not limited to a particular segment), the impacts of Option 2 on
relative prices between owner drivers and employee drivers and any substitution effects are likely to be
insignificant. Since compliance with the guideline rate is not mandatory, it is likely that businesses that
comply with the guideline rate will do so because they are willing to pay owner drivers the guideline
rate rather than substitute to an employee driver. It can be reasonably assumed that businesses who
would substitute at the guideline rate will simply not offer the guideline rate to owner drivers.
The voluntary measures are not expected to have any impact on competition. Owner drivers and
businesses would be free to negotiate rates, despite the presence of a guideline rate. Owner drivers will
still have significant scope to compete on price, including labour costs, and innovate and make
efficiencies in their business.
xxxviii
Impact Analysis
Table 3: Incremental impacts of Option 2 by stakeholder
Impact type Stakeholder
Broader supply chain
Truck drivers Community operators (other than truck Government
drivers)
A small percentage of drivers who,
Financial
along with their supply chain, The community will ultimately bear
costs and
comply with a guideline rate will the small financial cost of increased
safety Government will incur incremental
receive an increase in remuneration. prices for the goods transported by
improvements costs associated with the voluntary
The financial situation of remaining the small proportion of drivers who
Broader supply chain operators are system including resourcing an
owner drivers will not change as receive an increase in remuneration.
unlikely to experience any net industry council to develop, promote
market failure issues regarding low The extent of this increase is highly
financial costs. Any increase in costs and disseminate guideline rates and
bargaining power and incentives to sensitive to the assumed level of
from operators up the supply chain other communications. The
undercut competitors to win work compliance with guidelines rates.
will most likely be recovered from Government may also accrue some
remain with a voluntary system. The The community may share safety
operators down the supply chain. savings from health service costs
small percentage of drivers who benefits from the introduction of a
because of fewer serious injuries
receive an increase in remuneration guideline rate with a small
resulting from truck crashes.
may share benefits from improved percentage of owner drivers who
safety outcomes with the receive an increase in remuneration.
community.
The small proportion of owner
Economic
drivers who receive an increase in
costs/benefits The community may share with Broader supply chain operators will
remuneration will share in small
affected owner drivers some small share in any economic benefits or
economic benefits or costs from the
economic benefits or costs from the costs from the introduction of a
introduction of the guideline rate
introduction of a guideline rate that guideline rate that increases
with the community. Remaining
increases remuneration for some remuneration for some owner
owner drivers will potentially
owner drivers. The community may drivers. These benefits/costs will be
continue to experience economic
also continue to bear the costs of a in the form of increased/decreased
loss arising from remuneration that
higher incidence of heavy vehicle demand for their products or
does not recover efficient cost and
crashes. services.
may be associated with a higher
incidence of crashes.
xxxix
Impact Analysis
6.2.3 Option 3
As previously described, this option involves the implementation of a national legislated system for
employee and owner drivers, as well as the supply chain, with discretion to set mandatory rates of pay
and pay related conditions for truck drivers. For example, pay rates and/or pay related conditions
could be set by a tribunal for owner drivers in certain industry sectors where the tribunal is satisfied
that the remuneration and remuneration related conditions are having a negative effect on safety
outcomes. These rates of pay and/or pay related conditions would be used as a safety net during
commercial contract negotiations. The tribunal would also have discretion to not set pay or pay related
conditions for any truck drivers.
The impact of the introduction of a mandatory approach to setting rates and/or remuneration related
conditions is uncertain, as the system will establish discretion over setting the rates and/or
remuneration related conditions, as well as the quantum and/or parameters of any order or
determination. In establishing mandatory rates and/or conditions the tribunal could be required to
take into account a number of considerations including the likely impact on owner drivers and
businesses in the supply chain, competition in the road transport industry, the special circumstances of
rural, regional and other isolated areas, and the likely impact on the national economy.
The overall impact on owner drivers and the community is uncertain. As per Option 2, owner drivers
covered by the legislation will benefit from increased remuneration and reductions in the costs of
accidents. The community will also benefit from a reduction in the costs of accidents but will have to
pay the costs of remuneration increases for owner drivers. While the overall costs and benefits to owner
drivers will be the same as in Option 2, the extent of direct costs and benefits will be much greater for
Option 3 because the mandatory option is expected to result in a remuneration increase for a much
greater proportion of owner drivers. This will also increase the magnitude of second round economic
effects, resulting in some substitution and competition effects. For Option 3, there may also be some
efficiency gains from pay-related conditions that provide incentives for supply chain businesses to
improve efficiency, such as mandatory remuneration for waiting and/or loading time.
If a tribunal chose to set a mandatory rate of remuneration for drivers in the road transport industry, or
a particular segment of it, the magnitude of direct costs and benefits and second round economic costs
and benefits arising from this decision will depend on the coverage of the legislation establishing the
tribunal and the compliance of owner drivers and supply chain businesses with that rate.
For the purposes of scenario modelling in this RIS, coverage of the new owner driver legislation is
assumed to be 60 per cent across the entire owner driver industry, with no variation in different
segments of the industry. In practice, coverage is likely to differ by segment, for example it is expected
that the legislation will achieve greater coverage of interstate long haul drivers than intrastate short
haul drivers. However, 60 per cent coverage is assumed for consistency as there is limited evidence
available that enables more precise estimation of coverage for the new legislation within the owner
driver industry.
Again, for the purposes of scenario modelling this RIS, it is assumed that compliance with a mandatory
rate of owner driver remuneration set by a tribunal is 90 per cent. Although the rate set by the tribunal
will be mandatory for owner drivers and supply chain businesses, in practice achieving 100 per cent
compliance may be difficult. Truck drivers are very mobile and will not necessarily have the
documentation or records necessary to demonstrate compliance or take action up the supply chain to
ensure payment of the safe rate. With only some sectors and some trips covered by the safe rate,
industry participants and compliance officers may have difficulty confirming whether or not a
mandatory rate set by the tribunal applies to their work.
It is possible that a tribunal may choose to set a mandatory rate of owner driver remuneration in
particular segments of the road transport industry. In this RIS, three possible scenarios have been
modelled. The direct benefits and costs for owner drivers and the community in each scenario will
differ depending on the size of each segment, with larger segments resulting in greater direct costs and
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Impact Analysis
benefits. Information on the number of owner drivers expected to be covered by a mandatory rate of
owner driver remuneration in each segment are available in Appendix C.
The key expected impacts with Option 3 are summarised in Table 4.
Direct Benefits
Setting a safety-related remuneration rate and/or related remuneration related conditions for either
the entire heavy vehicle sector or specific sub-sectors may improve safety outcomes in those sectors by
reducing the incentive to speed, drive fatigued, use drugs, not maintain vehicles, or drive overloaded
vehicles. It would therefore be reasonable to expect that improved safety outcomes would result in
fewer road transport fatalities and injuries, which would lessen the impacts for the driver involved in
any crashes, their families, the industry and the community. This would include the benefits of avoided
property damage as modelled in the CBA. These improved safety outcomes would also result in savings
to Government from health service costs for people who are seriously injured in truck crashes, although
these savings are not included in the scenario modelling.
Direct Costs
Costs to government from Option 3 would include the establishment of a statutory body, such as a
tribunal or industry body, or a non statutory body. The cost of the latter is likely to be less. This option
will also include enforcement and compliance costs, which are likely to be similar for the tribunal or
non-statutory body. This cost to Government is incurred regardless of any decisions that the tribunal
may or may not make in future over setting mandatory rates of remuneration or conditions for owner
drivers. If the tribunal, for example, does not set a mandatory minimum pay rate and/or pay related
conditions for a particular industry sector, the cost to Government would remain, but the impacts
would be low.
Where a pay rate and/or pay related condition is set, Option 3 is expected to lead to increased prices for
goods in sectors of the industry. Businesses that contract owner drivers who are covered by a
mandatory rate of remuneration may face increases in the costs of hiring owner drivers. These business
would be expected to pass these costs on down the supply chain to non-transport businesses, including
retailers, and finally to consumers.
For the purpose of this RIS, it is assumed that businesses contracting owner drivers will pass all costs
onto supply chain participants and increases in costs will be passed onto subsequent supply chain
participants, such that the increase in the cost of owner driver services will ultimately be met by
consumers. As the increases in costs are expected to be spread widely, the increases are likely to be
insignificant for individual consumers.
Overall Benefits/Costs
REMUNERATION RELATED CONDITIONS
The body established to investigate the link between remuneration and safety will have the discretion
to set remuneration related conditions for sectors of the industry, which could be in place of or in
addition to pay rates. These conditions could include the requirement to pay for any waiting, loading or
unloading time, or to pay within a set period of time, such as 30 days.
According to NatRoad, the National Road Transport Operators Association, distribution centres
regularly require drivers to wait up to ten hours before loading or unloading. Drivers are not paid for
this waiting time and cannot claim the waiting time as an official rest break, which impacts on both
income and fatigue management. Only a minority of operators are successful in negotiating payment
for this waiting time. The loss of ten hours driving time is an incentive to make up for lost time, by
driving additional hours, speeding or contravening mandatory fatigue management systems.
Any changes to these practices will provide an important signal to transport companies and warehouse
to increase efficiency by minimising waiting times. Distribution centres, for example, would have a
financial incentive to reduce waiting times, which would result in trucks being back on the road faster
xli
Impact Analysis
and, possibly, being more productive. This approach would also result in the supply chain participant
taking responsibility for payment in areas that they can directly impact.
There are no data available to indicate how many owner drivers are required to wait regularly, how
often they are required to wait and how long they are required to wait for. However, if every hour of
mandatory waiting time per driver (covered by and complying with the mandatory scheme) per
working day was to be remunerated, this could result in an economic transfer to owner drivers of up to
$155 million.
As well as resulting in more efficient scheduling by supply chain participants, truck drivers may also
have an incentive to become more efficient with the prospect of more efficient use of their time,
including use of GPS or other electronic monitoring devices and better vehicle maintenance, so
breakdowns are avoided.
Similar to Option 2, the above discussion highlights the possible costs and benefits from increasing
remuneration, improved safety outcomes and costs to Government and the community (including
consumers). There may also be second round economic impacts of an increase in owner driver
remuneration.
Any tribunal decision to introduce mandatory rates and/or conditions may generate transfers between
owner drivers, road transport supply chain participants and the community (consumers of goods
transported by heavy vehicles). The overall costs (or benefits) to the economy will depend on the extent
to which increases in owner driver remuneration eliminate (or create) economic inefficiencies caused
by inefficient freight rates. This is determined by the starting position of owner driver remuneration
relative to the efficient price, the elasticity of supply of owner driver services and the elasticity of
demand for owner driver services.
The impacts discussed in Option 2 are the same for Option 3. However, the setting of mandatory rates
of remuneration for owner drivers may be expected to result in much greater benefits or costs from
improvements or reductions in economic efficiency because the proportion of owner drivers covered by
a mandatory rate in Option 3 is expected to be much greater than the proportion of owner drivers who
would comply with a guideline rate.
If existing levels of remuneration for owner drivers, either across the whole industry or in particular
segments of the industry, do not recover efficient cost, setting a mandatory rate of remuneration for
owner drivers up to the efficient cost may result in substantial gains from improvements in economic
efficiency. However, if existing owner driver remuneration does recover efficient cost and a tribunal
sets a mandatory rate of owner driver remuneration that is above the efficient cost, this may result in
substantial losses from introducing economic inefficiencies. This illustrates the importance of the
tribunal using a rigorous evidence based approach in considering appropriate rates of remuneration for
individual industry sectors.
As mentioned earlier, the modelled scenarios are based on the assumption that current rates are
efficient and hence any move away from that efficient starting position represents a cost. This in fact is
a major driver of the scenario results. While this is a valid initial starting assumption from which to
conduct the modelling, an important design feature of Option 3 is that the tribunal has discretion over
setting rates and will only set a mandatory rate if it is clear that existing rates for owner drivers are
below the efficient rate and unpriced safety externalities are part of the reason for this. This will
minimise the risks of generating losses from introducing economic inefficiencies by the tribunal setting
a mandatory rate. Further clarification on what actually constitutes an efficient base salary would
improve the modelling results presented later in the RIS.
In considering costs and benefits of this approach, to achieve economic benefits from the proposal,
much will depend on the ability of the body charged with setting the pay rates and/or pay related
conditions to identify segments of the road transport industry where current owner driver
remuneration does not recover efficient costs and unpriced safety externalities are part of the reason
for this. As mentioned above, the tribunal has discretion over setting mandatory rates, including the
rate set and segments of the road transport industry where a mandatory rate will apply. This design
xlii
Impact Analysis
feature enhances the likelihood of Option 3 introducing economic benefits by enabling the tribunal to
set mandatory rates only where it is clear that existing owner driver rates do not recover efficient cost.
The costs and benefits from gains or losses of economic efficiency are highly sensitive to the number of
people covered by a mandatory rate of owner driver remuneration and the rate set. The number of
people covered by a mandatory rate will determine the extent of costs and benefits across owner drivers
in the road transport industry and the community. For example, if a mandatory rate is set for short
haul agriculture that is well above the efficient price, this will result in costs from increasing economic
inefficiencies that will have a substantial impact on owner drivers in this segment of the industry and
the parts of the community that consume these products. However, the overall economic impact will be
small since short haul agriculture represents only a very small part of the road transport industry.
The ability to set rates of remuneration for particular segments of the road transport industry is crucial
because efficient costs may differ by industry segment. If recovery of efficient cost is an issue in the
short haul agriculture sector, setting a mandatory rate of remuneration across the whole industry may
provide benefits through gains in economic efficiency in the short haul agriculture segment, but these
benefits are likely to be outweighed by costs introduced from losses in economic efficiency in other
segments of the road transport industry. Businesses in regional areas may be particularly affected
because of the impact of safe rates on backhaul arrangements. In the current system, owner drivers will
accept significantly lower rates on backhaul trips, given they are making that return trip anyway. The
introduction of mandatory rates and/or conditions may mean that drivers could not carry loads on
backhaul trips for rates below the `safe rate'. This would increase costs for businesses in regional areas
that provide goods to the larger markets. These impacts could be minimised if a reduced rate is
established for backhaul trips.
In terms of impacts on competition, employee drivers are a close substitute for owner-drivers in a wide
range of circumstances. With significant coverage and compliance possible from the setting of a
mandatory rate, there may be some shift in relative prices between employee and owner drivers hence
resulting in some shift in terms of competition between these groups. As can be reasonably expected,
any shift in relative prices between two close substitutes will most likely lead to a substitution effect,
with demand shifting toward the relatively cheaper substitute. The extent of any substitution effect will
depend on the mandatory rate set by the tribunal. If the mandatory rate is set at lower than road
transport award rates (i.e. at the minimum wage, as assumed in the modelled scenarios), owner drivers
may still be cheaper than employee drivers in many circumstances and substitution between the two
would be limited.
If rates for owner drivers set at a rate sufficient to make their services more expensive than employee
drivers, there could be a shift in employment in the industry away from owner drivers and toward
employee drivers. As part of this shift, some companies could move toward establishing their own
fleets instead of contracting freight services. The Productivity Commission (2006) has estimated the
own price elasticity of demand for road freight to be -0.431. That is, a 10 per cent increase in the price
of road freight would be expected to lead to a reduction in demand of 4.3 per cent. However, this
elasticity would be greater for owner drivers due to the presence of a readily available substitute.
While the bulk of any drop in demand for owner-driver services can be expected to reflect a shift
toward the use of employee driver services, a smaller proportion will reflect a shift toward the use of
rail freight services where these are potential competitors. A small proportion may also reflect an
overall fall in the demand for freight services.
The introduction of a mandatory pay rate may address any issues associated with pressure exerted
throughout the supply chain by large companies with commercial dominance, which leads to driver
remuneration being driven down and the possibility of poor safety practices being adopted by drivers
as a result. Despite this, the National Transport Commission Report concluded that the transport
industry will still be able to compete fairly following the setting of mandatory, minimum rates for
xliii
Impact Analysis
owner drivers.45 Owner drivers will still have strong incentives to compete with each other through
savings on other components of their overall freight rate to win work.
45
National Transport Commission 2008, Safe Payments - Addressing the Underlying Causes of Unsafe Practices in the Road
Transport Industry, National Transport Commission, October 2008, Executive Summary, p2.
xliv
Impact Analysis
Table 4: Incremental impacts of Option 3 by stakeholder
Impact type Stakeholder
Broader supply chain
Truck drivers Community operators (other than truck Government
drivers)
Owner drivers who are covered by a
Financial mandatory rate of remuneration and The community will ultimately bear
costs and not already receiving that rate will the financial cost of increased prices
safety Government will bear additional
receive an increase in remuneration. for goods transported by owner
improvements costs of establishing and
Some drivers will not be covered by drivers. The extent of this increase is Broader supply chain operators are
(note: costs administering the proposed tribunal
the legislation. For those who are highly sensitive to the assumed unlikely to experience any net
and benefits compared to the status quo,
covered, any mandatory rate may coverage of the legislation, the financial costs from Option 3. Any
are for the including the monitoring the
apply to owner drivers across the proportion of the road transport increase in costs from operators up
overall industry is complying the safe rates.
road transport industry or only in industry covered by a mandatory the supply chain will most likely be
industry The Government may also accrue
particular segments of it. Drivers rate and the rate itself. The recovered from operators down the
scenario) some savings from health service
who receive an increase in community may share safety supply chain.
costs because of fewer serious
remuneration may share a small benefits along with a relatively small
injuries resulting from truck crashes.
amount of benefits from any number of owner drivers who
improved safety outcomes with the receive an increase in remuneration.
community.
Owner drivers who receive an
Economic
increase in remuneration from a The community will share with
costs/benefits
mandatory rate of remuneration will affected owner drivers the economic
share in any economic benefits or benefits or costs from the
costs from the introduction of the introduction of a mandatory rate of Broader supply chain operators in
mandatory rate. remuneration that increases industries where a mandatory rate of
remuneration for some owner remuneration is set and which use
For some drivers, the choice of drivers, including benefits that may drivers covered by the legislation
operating structure may change if be accrued from efficiency gains will share in any economic benefits
industry substitutes towards made from reducing waiting times. or costs. These benefits/costs will be
employee driver services. Demand Community will also benefit where in the form of increased/decreased
and hence revenues may fall as the resources invested in the transport demand for their products or
market adjusts to reduce sector either attract an efficient services.
uneconomic freight flows return improving productivity or are
(suppressing demand) and the ultimately redeployed into other
potential for mode shift of existing sectors.
road freight.
xlv
Impact Analysis
6.3 Cost benefit analysis
This section summarises the key direct costs and benefits for the community anticipated under the key
options, that is:
· Option 1 - status quo (base case)
· Option 2 - voluntary approach
· Option 3 - mandatory safe rates
The detail behind the scenarios can be found at Appendix A which conceptually describes and
highlights the key parameters which were used to monetise the costs and benefits. The CBA only
captures the direct costs and benefits of the stakeholders - truck drivers, community, broader supply
chain operators (excluding the truck drivers) and government. In practice, the direct costs and benefits
will induce second round or `transmitted' impacts but those impacts are not captured in this analysis as
they are uncertain and difficult to measure.
As noted previously, the four road transport scenarios used in this section have been developed to
illustrate the possible impacts of potential decisions made by the tribunal.
The key data and assumptions that were used to estimate the costs and benefits identified under the
various scenarios can be found in Appendix C. The method with which the data was combined to
estimate the costs and benefits for the purposes of CBA is described below.
Approach
The economic appraisal framework in this RIS is based on a multi-modal CBA methodology. Like all
CBA frameworks, the approach requires the appraisal of projects on an incremental basis (i.e.
comparing the options to the Base Case or `without option' case).
The direct regulatory costs with each option were provided by DEEWR and streamed accordingly.
The safety benefits are estimated by quantifying the reduction in the number of Base Case incidents by
scenario using the elasticities and associated assumptions discussed in Appendix C. The extent of
crash reduction is based on the implied percentage change in remuneration with the options compared
with the current average remuneration experienced by underpaid owner drivers and employees by
scenario, although it must be stressed these are assumed inputs for the purposes of modelling the
agreed scenarios. The incremental change in crash by type by year is then monetised by applying the
relevant VoSL (Value of Statistical Life), VSI (Value of Statistical Injury) and property damage values.
In an economic (rather than a financial) CBA, movement towards an efficient level of remuneration
would comprise a benefit rather than a cost. However, demonstrating such a benefit requires
estimation of an efficient rate of remuneration. This is beyond the scope of the RIS. However, scenario
analysis contained in Appendix E identifies the impacts of assuming that the (national) minimum wage
approximates an efficient level of remuneration.
The final direct cost in the RIS is the annual increase in remuneration enjoyed by underpaid owner
drivers. This is simply calculated as the difference between the Base Case average remuneration for
underpaid drivers and the proposed remuneration with the options. The key difference between the
options is that the voluntary and mandatory options have different levels of assumed compliance and
hence, all other things being equal, the incremental remuneration cost with the mandatory option will
be higher.
xlvi
Impact Analysis
General assumptions
The general appraisal assumptions used in this CBA are as follows:
· cash flows are expressed for financial years ending June
· cash flows are included in the period in which they occur
· the Base Year of the appraisal is 2011/12
· prices are expressed in 2011/12 dollars, unless otherwise stated
· the evaluation period for all options is 10 years, beginning from the Base Year
· future net benefits are discounted to the base year (2011/12) using the endorsed real discount
rate of 7 per cent.
Measures of economic performance
This CBA provides the following measures of economic performance:
· Net Present Value (NPV) - the difference between the present value (PV) of total incremental
benefits and the PV of the total incremental costs
· Benefit Cost Ratio (BCR): ratio of the PV total incremental benefits net of PV of total
incremental PV of capital costs.
Scenarios that yield a positive NPV imply that the incremental benefits of the option exceed the
incremental costs over the evaluation period. Finally, a BCR greater than one indicates that option
benefits exceed regulatory and remuneration costs.
6.3.1 Results
The results of the CBA measure the net direct benefits for the community with each option compared
with the Base Case. The options are assessed across the national heavy vehicle sector as a whole for
Option 2, i.e. across all owner drivers in Australia, while a disaggregation by sector is provided for
Option 3.
It should be noted that the expected safety benefits would be shared between the community and
owner drivers. The proportion of safety benefits that would be accrued by the community and the
proportion accrued by owner drivers are not able to be distinguished from the available data.
Therefore, for the purpose of this CBA analysis, all safety benefits are assumed to be accrued by the
community.
Based on conventional economic measures and the assumptions used in this RIS, both options
generate a BCR below one and a negative NPV. That is, the additional costs associated with increased
remuneration exceed the additional road safety benefits expected.
However, the results are highly sensitive to the assumptions adopted and they should be considered in
the context of the following issues:
· This RIS uses a wide range of assumptions which would, in effect, comprise the outcomes of a
research agenda for a proposed remuneration body such as a tribunal. The results in the RIS
indicate that there are strong grounds to at least establish a remuneration body to investigate
pay/condition issues in the road freight sector. For example, the incremental regulatory costs
of Option 3 are $5.0 million per year to fund the establishment and operation of a
remuneration body. This translates into a total cost over the ten year evaluation period of
PV$32.6m (Appendix D). Comparing this to the safety benefits of approximately PV$56.6m
xlvii
Impact Analysis
for the voluntary option alone (Appendix D) indicates that there are strong grounds for
establishing a remuneration body to investigate and develop the evidence base required to
address the data issues identified in this RIS. Further economic analysis would be needed to
assess whether any recommended changes in rates are desirable.
· The road safety benefits assessed in this RIS are also considered very conservative based on
the assumptions used. The road safety elasiticities used in this RIS are sourced from a limited
number of international studies. Further empirical work is required to validate these results
for the Australian case. It may be the case that the elasiticities would differ by road freight
segment, resulting in a higher weighted elasticity across the industry. Moreover, the
incremental safety benefits are net of the savings expected from non-remuneration related
safety programs currently in place (see discussion below). The possible uplift in road safety
associated with adding remuneration related safety programs to the current suite of
approaches has not been investigated. While the RIS assumes that there will be different
levels of risk in each segment (proxied by the number of crashes), it assumes that drivers' risk
profiles do not vary across segment. This is a simplifying assumption given incomplete and
uncertain data.
· Notwithstanding the elasticity levels, the results of the RIS shows that there are diminishing
marginal safety benefits associated with increases in remuneration. The potential maximum
safety benefits are determined by the net avoidable crashes after the effectiveness of
alternative safety programs are taken into account. This RIS assumes and segments the
number of crashes on the network and forecasts these based on the expected effectiveness of a
range of other heavy vehicle safety programs. This results in a significant decline in road
crashes over time on an already (relatively) low number of fatalities. The RIS then assumes
that the avoidable crashes are restricted to 25 per cent over the entire ten year period to
ensure that only those crashes which are based on driver fault and antecedents of pay related
crash causes are captured. Therefore, while the incremental costs of remuneration increase
significantly at higher compliance rates, there is not a commensurate increase in crashes
avoided.
· The key cost in this RIS is incremental remuneration. This in turn is dependent upon the
assumed remuneration profile across owner drivers and hence, the proportion which is
defined as `underpaid'. Significant further research is required to validate these data as the
difference between the average weighted remuneration for `underpaid' drivers and the
proposed remuneration with the options is the key determinant of incremental option cost.
Further research may indicate that the weighted average current remuneration and hence, the
proportion of underpaid drivers is different to that identified in the assumptions and is likely
to vary by road freight sector. The key difference between the options is the assumed level of
compliance, i.e. the higher the level of compliance, the higher the incremental remuneration
costs, given the assumed proportions of `underpaid' owner-drivers. Therefore, marginal
changes in the proportion of `underpaid' owner drivers will have a significant impact on the
results of this RIS, and
· The RIS also does not comment on whether observed remuneration is economically efficient.
Given the establishment of market failures such as information asymmetry or barriers to exit,
from an economic rather than financial perspective, increase in remuneration towards an
efficient level would actually comprise a societal benefit rather than a cost. Again, the
establishment of an efficient level of remuneration is a task that would be undertaken by the
remuneration body. Further investigation may indicate that existing remuneration levels are
not recovering efficient labour costs, in which case a proportion of the incremental costs
identified in this RIS would be re-defined as an economic benefit and would significantly
change the economic results.
xlviii
Impact Analysis
Table 5: CBA model results - Central estimates
Option 2 - voluntary 10% Option 3 - 60% coverage and
compliance rate 90% compliance rates
BCR NPV BCR NPV
Overall sector
0.49 -$44.4m 0.51 -$228.4m
Specific sector
Long Haul 0.30 -$199.2
Agriculture 0.89 -$1.9m
Quarry 0.29 -$51.1m
6.4 Sensitivity analysis
A range of sensitivity analyses were undertaken on the central case results above, including the
variation of the:
· elasticity of crash rates in response to changes in remuneration
· remuneration rate
· compliance rates
· coverage (Option 3 only), and
· value of statistical life.
Elasticity of crash rates in response to changes in remuneration
Sensitivity analysis using alternative elasticity of crash rates in presented in Table 6 below where the
central case elasticity is changed to -1.5 and -2.5 rather than -2.0 in the modelled case.
Table 6: Comparison of options - change in elasticity
Option 2 - voluntary 10% Option 3 - 60% coverage and
compliance rate 90% compliance rates
Elasticity BCR NPV BCR NPV
-1.5 0.37 -$55.2m 0.38 -$286.9m
-2.0 (Modelled case) 0.49 $44.4m 0.51 -$228.4m
-2.5 0.62 -$33.6m 0.55 $209.7m
xlix
Impact Analysis
The results in the table above indicate (as expected) that the economic viability of the options increase
with a higher crash elasticity of -2.5. However, for both options the costs still significantly outweigh the
benefits. The interesting outcome of this sensitivity test is that changes in elasticity have a greater
impact on the net benefits at lower compliance rates. This is expected given that if close to 100 per cent
of drivers receive a change in remuneration, the incremental increase in remuneration is such that the
25 per cent cap of remuneration related avoidable crashes is reached. This is a key finding as it sets a
limit as to the marginal benefit of pursuing safety outcomes using remuneration. Obviously, this trade-
off is based on a number of assumptions made in this RIS and which would need to be validated by the
Tribunal.
Further sensitivity tests were conducted to examine the value of elasticity in order to achieve a BCR of
one while the other components are held constant in the model.
In Option 2, the BCR will reach one when the elasticity is equal to -4.23, i.e. each ten per cent increase
in remuneration will result in a 42.3 per cent reduction of crashes. Considering that this value
substantially exceeds the elasticity expectations concluded from the literature, it implies that a change
in elasticity is unlikely to make Option 2 economically viable unless other conditions of the model are
altered.
In Option 3, the solution does not exist. In other words, the model indicates that the BCR is unable to
achieve one regardless of the value of elasticity as the cost to society always outweighs the benefits of
reduced crash costs.
Safe rates
Table 7 below shows the results of the sensitivity analysis where remuneration rates are altered. The
results in the table above indicate that the economic viability of the options decrease with higher levels
of remuneration.
Table 7: Comparison of options - change in remuneration rate
Option 2 - voluntary 10% Option 3 - 60% coverage
compliance rate and 90% compliance rates
Safe Rates BCR NPV BCR NPV
$15.51
Modelled case / National 0.49 -$44.4m 0.51 -$228.4m
minimum wage
$16.5146
Transport Industry Council
Rates and Costs Schedule 2010 0.51 -$57.7m 0.41 -$366.7m
- Semi-Trailer (Bogie Drive, 6-
axle)(1)
$26.3547
the Road Transport (Long 0.53 -$188.0m 0.12 -$1,911.9m
Distance Operations) Award
2010 - Grade 4(2)
Note (1): The hourly rate is evaluated based on total hours up to 8 hours a day, 1,840 hours a year.
Note (2): The minimum hourly driving rate is calculated by dividing the minimum weekly rate ($675.60) by 40,
and multiplying by 1.3 (industry disability allowance) and 1.2 (overtime allowance).
Compliance rates
Table 8 below shows the results of the sensitivity analysis where compliance rates are altered.
46
Workforce Victoria 2011, Transport Industry Council Rates and Costs Schedule 2010 - Semi-Trailer (Bogie Drive, 6-axle) (p. 8)
http://www.business.vic.gov.au/busvicwr/_assets/main/lib60070/diird%20615%20-%20od%20rc%20transport%20semi-
trailer%20update.pdf
47
Fair Work Australia 2011, Road Transport (Long Distance Operations) Award 2010 - 21 June 2011 edition (p. 17)
http://www.fwa.gov.au/documents/modern_awards/pdf/MA000039.pdf
l
Impact Analysis
Table 8: Comparison of options - change in compliance rates
Option 2 - voluntary option Option 3 - 60% coverage
(Modelled case = 10%) (Modelled case = 90%)
Compliance rates BCR NPV BCR NPV
10% 0.49 $44.4m 0.32 -$54.3m
50% 0.53 -$189.5m 0.48 -$141.4m
90% 0.35 -$471.8m 0.51 -$228.4m
Again, the table above indicates that the incremental remuneration costs are directly linked to the level
of compliance. The Option 3 scenarios with a higher compliance rate demonstrate a higher net cost to
society.
Coverage rate
Table 9 below shows the results of the sensitivity analysis where coverage is altered.
Table 9: Comparison of options - change in coverage
Option 3 -90% compliance
rates
Coverage BCR NPV
40% 0.49 -$163.1m
60% (Modelled case) 0.51 -$228.4m
80% 0.42 -$353.0m
Similar to the sensitivity test on compliancerates, the result indicates that the incremental
remuneration costs are directly linked to the level of compliance. The Option 3 scenarios with a higher
compliance rate demonstrate a higher net cost.
Value of serious injury
Table 10 demonstrates the results of altering the VoSI used in this analysis.
li
Impact Analysis
Table 10: Comparison of options - change in VoSI
Option 2 - voluntary 10% Option 3 - 60% coverage and
compliance rate 90% compliance rates
VoSI BCR NPV BCR NPV
($26,000) 14.9% of VSLY 0.37 -$55.4m 0.38 -$288.0m
$396,222 (Modelled case) 0.49 -$44.4m 0.51 -$228.4m
$792,444 (100% higher than
0.63 -$32.6m 0.64 -$164.7m
central case)
The results in the table indicate that the viability of the options improve by adopting higher estimates
of VoSI. However, the costs still outweigh the benefits for all options.
lii
Consultation Statement
7 Consultation Statement
The Safe Rates Advisory Group (SRAG) was formed to provide expert industry advice to the
department. The SRAG assisted with developing the options canvassed in the Safe Rates, Safe Roads
Directions Paper (the Directions Paper). The Group was established by the Australian Government in
late 2009 and included employee, employer and industry representatives, along with safety and
regulation experts. SRAG recommended a tribunal approach to addressing remuneration related safety
issues by setting pay rates and/or pay related conditions.
The Department received submissions from 45 parties in response to the Directions Paper. Of these
submissions, 21 supported the mandatory option. 14 submissions did not support any of the options
put forth in the Directions Paper and preferred a `status quo' approach. The remaining ten
submissions supported a voluntary model.
There was strong support for implementation of the mandatory approach from unions, individual
drivers, and driver groups, including the Australian Council of Trade Unions (ACTU), the Transport
Workers Union (TWU), the Australia Road Transport Industry Organisation (ARTIO), the Australian
Long Distance Owner Drivers Association (ALDODA), Transport Forum WA (TFWA), the Victorian
Transport Association (VTA), Unions NSW (UNSW), and the Owner Drivers Association of SA
(ODASA).
Large employers/fleet operators that made submissions, including TOLL Group, Ron Finemore Pty Ltd
and Woolworths Ltd, argued that any measures introduced should be voluntary. In general, industry
groups and employer representatives, such as the Australian Chamber of Commerce and Industry
(ACCI), the Australian Trucking Association (ATA) and the South Australian Road Transport
Association (SARTA), did not support any of the options outlined in the Paper, advocating for a `status
quo' approach, with suggestions for various improvements of current regulation via harmonisation and
enforcement. The Australian Industry Group's (AIG) and the Australian Logistics Council (ALC)
submissions supported the introduction of voluntary measures, while the Australian Livestock
Transporters Association's (ALTA) submission expressed support for a mandatory option in general.
Linfox did not make a submission during the consultation period but expressed its support for
submissions made by the national and NSW branch of the ARTIO, which argued that there is a need for
substantial policy reform in the area of remuneration systems in the road transport industry.
If a decision to set mandatory rates was taken, the South Australian Freight Council advocated for a
specialist transport tribunal and Woolworths Limited and the ARTIO supported a Safe Rates Panel in
Fair Work Australia. ACCI indicated that consideration should be given to the establishment of an
independent body outside the FW Act that only deals with owner drivers and which is limited to the
heavy vehicle transport industry. The National Road Transport Operators Association (NATROADS)
supported a tribunal limited to pay and conditions matters and the Cement Concrete Aggregates
Australia supported a tribunal without dispute resolution powers.
The state government submissions provided a range of views. The then NSW Government supported a
mandatory option and the WA Government supported a voluntary approach. The South Australian
Government, represented by SafeWork SA (which consulted the Department of Transport, Energy and
Infrastructure) supported the mandatory option, stating that regulation has the potential to create a
more sustainable and attractive industry, with greater certainty and productivity for clients. The
Queensland Government advised that it withheld support for any changes until a thorough economic
analysis had been performed and their submission recommended consideration of voluntary options
for improving road safety.
Regarding the implementation of mandatory rates of pay for the road transport industry, the concerns
most commonly raised in submissions included:
liii
Consultation Statement
· the uncertain nature of the link between remuneration and safety outcomes
· the potential for a negative impact on the industry and flow-on effects on the economy
· the difficulty of setting and enforcing mandatory rates.
It should be noted that the tribunal model set out in the Directions Paper has been modified, with
the tribunal now to have discretion regarding whether or not to set a rate. Before making an order,
the tribunal will have to consider impacts on the industry and economy, as well as rural and
regional areas.
The establishment of a tribunal could include implementing a research secretariat, which would be
adequately resourced to ensure that informed decisions are made. A compliance agency, such as
the Fair Work Ombudsman (FWO), would be suitably resourced to monitor and enforce
compliance with any orders of the tribunal. This could be done in a similar manner to the FWO's
current activities which include investigating specific complaints, as well as education campaigns
and publications.
liv
Implementation
8 Implementation
Responsibility for the individual measures underpinning the implementation and review of the Road
Safety Remuneration System will rest with the relevant portfolio Minister, noting that the Minister for
Jobs and Workplace Relations has had overarching responsibility for this initiative since inception and
is best placed to maintain overall oversight.
The Minister will establish a high level steering group to establish the Road Safety Remuneration
System. This steering group consists of members from relevant agencies including the Department of
Education, Employment and Workplace Relations, the Department of Infrastructure and Transport
and the Department of Innovation, Industry, Science and Research, in addition to members from Fair
Work Australia (FWA) and the Fair Work Ombudsman (FWO).
To meet the Government's commitment to consult throughout the implementation process with
stakeholders, the Safe Rates Advisory Group has been re- established by the Minister. The aim of this
advisory group is to draw together industry experts, to provide advice on legislation and various
implementation issues as they arise.
A tribunal will be established, to have discretion to establish and maintain enforceable orders for
employee drivers and owner drivers in sectors of the industry. Members of the tribunal will be drawn
from FWA and the Road Transport Industry.
The tribunal will be supported by a research secretariat within the existing FWA infrastructure, which
will carry out or procure further empirical research into links between remuneration and safety in the
road transport industry. The tribunal, with the support of the secretariat, may also undertake a
number of other related projects, including development of guideline remuneration rates or model
contracts for owner drivers, which can be used for educational purposes.
The separate education and compliance function will be performed by the FWO, alongside its existing
statutory responsibilities under the Fair Work Act 2009. The FWO will be responsible for
communicating information about the Road Safety Remuneration System and where necessary enforce
any orders made by the tribunal.
Evaluation of the Road Safety Remuneration System will be an important aspect of the overall project.
The Evaluation process will be two-fold, including the on-going evaluation of the implementation
process by the Steering Committee at key milestones and evaluation by Government and the
Parliament, using annual and other reports provided by agencies responsible for the Road Safety
Remuneration System. The Government will also be able to initiate a review, which would include a
comprehensive analysis of the Road Safety Remuneration System, how it is operating and its impact on
employers, employees, contractors, the road transport industry, the economy, the community and
governments.
lv
Conclusion
9 Conclusion
The options considered in this RIS relate to the Government's response to the 2008 National Transport
Commission Report, Safe Payments: Addressing the underlying causes of unsafe practices in the road
transport industry (the NTC Report).48 The background to this report is that while heavy vehicle
transport safety outcomes have improved in recent years, particularly given the growth in population
and freight task, there are still a high number of truck crashes resulting in fatalities and serious injuries
- which include the general public.
This RIS has examined the potential impacts associated with three options:
1. maintaining the existing federal and state-based legislation for employee drivers and owner
drivers (where applicable) - this option is the base case for this RIS
2. introducing a voluntary system of payments for owner drivers and chain of responsibility
arrangements
3. establishing the tribunal, with discretion to set and maintain remuneration rates and/or
remuneration related conditions for employees, owner drivers and the supply chain, if safety
outcomes would improve as a result of the decision.
The overall impact on owner-drivers and the community of both option 2 and option 3 is uncertain.
With Option 2, owner drivers covered by the legislation may benefit from increased remuneration and
reductions in accidents. The community may also benefit from a reduction in accidents but may have to
pay a share of the costs of remuneration increases for owner drivers. However, compliance with the
guideline rates would be voluntary, so that the level of take up could vary substantially.
Under Option 3, if a tribunal chose to set a mandatory rate of remuneration for drivers in the road
transport industry, or a particular segment of it, the magnitude of direct costs and benefits and second
round economic costs and benefits arising from this decision would depend on the coverage of the
legislation establishing the tribunal, the scope of the order and the compliance of owner drivers and
supply chain businesses with that rate.
In Option 3, while the direct costs and benefits to owner drivers and the community may be the same
as for Option 2, the extent of these direct costs and benefits could potentially be much greater if the
tribunal sets a remuneration rate because the mandatory option is expected to result in a remuneration
increase for a much greater proportion of owner drivers and corresponding greater road safety
improvements.
This RIS has attempted to model a range of scenarios to illustrate the potential direct costs and benefits
of different actions by the tribunal. The CBA results need to be treated with caution due to a wide range
of assumptions in the face of incomplete and uncertain data. The scenario modelling results are purely
illustrative and are highly sensitive to the assumptions adopted. The modelled scenarios are based on
the assumption that current remuneration rates are efficient and hence any move above that efficient
starting position represents a cost. This in fact is a major driver of the scenario results. Based on the
findings of the NTC report and stakeholder submissions, however, there appear to be reasonable
grounds for assuming that owner driver remuneration may be inefficient and not recover all costs,
particularly those associated with safety externalities. This is due to the possible existence of the
market failures described earlier.
The indicative CBA results indicate that the direct costs outweigh the direct benefits for Option 2
(voluntary system) and Option 3 (mandatory system). However, this does not take into account the
potential economic benefits of addressing any current market failures. Option 3 is recommended over
48
http://www.ntc.gov.au/filemedia/Reports/SafePaymentsFinalReportNov08.pdf
lvi
Conclusion
Option 2 because establishing a tribunal to address the link between remuneration rates and safety can
more effectively address current unacceptable levels of safety and potential market failures.
lvii
Appendices
Appendix A Road Transport Scenarios
Appendix B Scenario Modelling
Appendix C Data inputs and assumptions
Appendix D CBA model results
lix
Appendix A Road Transport Scenarios
As mentioned in the body of the report, the road transport scenarios analysed in this RIS are defined in
terms of the key market segments. These segments are in turn defined by the major parameters which
will comprise the cost benefit analysis.
Long haul road freight
Half of the road freight in Australia (tonne kilometre) is classified as `long distance' freight. In general,
long distance freight is classified as that which has an average trip length of 300-500 km49,50. This
segment of the market is expected to account for 60 per cent of road freight by 2030. 51 As such, most of
the interstate and part of the intra-state freight task falls within this category.
The key long distance freight routes are identified below in Figure 4.
Figure 4: Long distance transport freight routes
Source: BITRE 2009, Road and rail freight: competitors or complements?, Information Sheet 34,
http://www.bitre.gov.au/publications/23/Files/IS34_RoadRailFreight.pdf.
This figure shows the key long distance freight routes across Australia.
In contrast to the mix of customer types in the short distance freight market, the long distance market
mainly comprises larger business and wholesale customers. It is common practice in the long distance
49
Australian Transport Safety Bureau 2001, Driver fatigue: A survey of long distance transport companies in Australia, Information
Paper CR/198, ATSB.
50
ARTIO and Queensland Truck Association 2011, Response to Safe Rates, Safe Road Directions Paper, 11th February 2011,
http://www.qta.com.au/pdf/2011/Safe%20Rates%20Safe%20Roads%20Submission%20by%20ARTIO%20Qld%20&%20QTA%2
0Ltd.pdf.
51
BITRE 2011, Road Freight Estimates and Forecasts in Australia: Interstate, Capital Cities and Rest of State, Research Report
121, http://www.bitre.gov.au/publications/74/Files/Report_121.pdf.
lxi
sector for transport companies to provide a fixed freight rate quotes. The price generally reflects best
practice in terms of estimates for loading and unloading times and suitable time slot arrangements.
Table 11 below presents key descriptive statistics for the long distance road transport market.
Table 11: Long haul freight market descriptive statistics
Indicator Description
Freight task volume Approximately 151.8 billion TKM in 201052.
Proportion by
jurisdictions, by TKM
NSW (30.6%)
QLD (21.3%)
VIC (20.0%)
WA (16.8%)
SA (7.8%)
TAS (1.8%)
NT (1.5%)
ACT (0.2%)
Source: ABS 2010, Survey of motor vehicle use, cat no. 9208.0.
Note: Total freight TKM including short distance trips.
This figure shows the proportion of long haul freight by TKM per jurisdiction (New South Wales, Queensland,
Victoria, Western Australia, South Australia, Tasmania, Northern Territory and Australian Capital Territory).
Key commodities by
tonnes carried Crude materials, inedible,
except f uels (31.8%)
Food and live animals (14.9%)
Manuf actured goods (13.54%)
Other commodities, not
elsewhere specif iced (12.9%)
Mineral f uels, lubricants and
related materials (8.5%)
Machinery, transport equipment
(5.9%)
Other commodities (12.5%)
Source: ABS 2010, Survey of motor vehicle use, cat no. 9208.0.
Note: Total freight TKM including short distance trips.
This figure shows the proportion of key commodities (crude materials, inedible, except fuels; food and live
animals; manufactured goods; other commodities, not elsewhere specificed; mineral fuels, lubricants and related
materials; machinery, transport equipment; and other commodities) of long haul freight by tonnes carried.
Remuneration level and The drivers are generally awarded on performance-based payment
structure systems:53
· most long distance employee drivers operate articulated vehicles and
are paid a cents per kilometre (CPK) rate under the Road Transport
(Long Distance Operations) Award 2010; and
· owner-drivers are paid by a variety of mechanisms (including per load,
weight, volume or distance) but are most commonly paid a CPK or
load rate.
52
BITRE 2011. Road freight estimates and forecasts in Australia: interstate, capital cities and rest of state
53
NATRoad 2011. Natroad response to the `Safe rates, safe roads' direction paper
lxii
Short haul quarried
The quarrying industry in Australia is expected to generate revenue of about $9 billion in 2010/1154.
Road is the primary mode for moving product between rock quarries, sand and gravel extraction sites,
cement production and distribution facilities and concrete batching plants throughout the nation.
Table below presents key descriptive statistics for the short haul quarried products market.
Table 12: Short haul quarried descriptive statistics
Indicator Description
Estimated No detailed information - but mainly short haul operations and mixture of
proportion of owner owner-drivers and employee drivers55
drivers
Freight task volume The industry produces 8.9 million tonnes of cement and 23.9 million m3 of pre-
mixed concrete per annum, 56 transport by approximately 12,000 heavy vehicles
across the nation
Proportion by
jurisdictions
NSW (32.4%)
VIC (22.8%)
QLD (20.7%)
SA (9.4%)
WA (8.7%)
TAS (3.2%)
NT (1.9%)
ACT (0.9%)
Source: IBIS World 2011
This figure shows the proportion of revenue per jurisdiction (New South Wales, Queensland, Victoria, Western
Australia, South Australia, Tasmania, Northern Territory and Australian Capital Territory).
Estimates based on the revenue distribution of a) concrete slurry
manufacturing, b) cement and lime manufacturing and c) gravel and sand
quarrying Industry report.
Key commodities by The key material and products include: stone, limestone, gravel and sand used
tonnes carried to product building and construction materials such as cement, concrete, bricks,
tiles, pavers and roads paving.
Key vehicle types In general, loose material is mainly transported by dump trucks which are
classified as articulated trucks
Remuneration level No details are available
and structure
54
IBIS World 2011, Concrete slurry manufacturing in Australia, Industry Report C2633; Concrete and line manufacturing in
Australia, Industry report C2631; and Gravel and sand quarrying in Australia, Industry report B1411
55
Cement Concrete & Aggregates Australia 2011. CCAA submission - Safe Rates, Safe Roads
56
Cement Concrete & Aggregates Australia 2011. CCAA submission - Safe Rates, Safe Roads
lxiii
Short haul agriculture
The transport and logistics sector plays an important role in Australia's agricultural sector. For
instance, the road transport is largely used to transport livestock between farms and stations, as well as
transport to and from saleyards, feedlots, processing establishments and live export ports across the
country. The former generally refers to the short haulage transport where most of the origins and
destinations are located within the same region.
In the broader agricultural sector, the key sub-groups of commodities are a) crops, b) livestock and
other; and c) livestock products. This sector accounts for approximately 15 per cent of total road freight
volume (tkm). 57
Data suggests that the agricultural sector is comprised of shorter distance freight tasks compared to
other segments of the road transport market, on average. Moreover, the agricultural sector accounts for
approximately 50 per cent of heavy vehicles but contributed only 15 per cent of total network tonne
volumes. Australia Livestock Transporters Association (ALTA) cited that:
"approximately 50% of all registered heavy vehicles in Australia are held by farmers, and
businesses classified as being in `agricultural, forestry, fishing and hunting' comprise more
than 50% of all enterprises that operate heavy vehicles in Australia"58
Table 6 below presents the key descriptive statistics for the short haul agricultural transport market.
Table 6: Short haul agricultural freight market descriptive statistics
Indicator Description
Estimated Industry estimates indicate that this sector is dominated by the owner-operator
proportion/number as 86 per cent of ALTA's members indicate that they operate five or fewer trucks
of owner drivers and a large proportion of these are classed as `owner-drivers'59
Freight task volume Up to 288 million tkm per annum60
Proportion by Victoria, Queensland and New South Wales are the key jurisdictions which
jurisdictions represent 25, 23 and 21 per cent of total agricultural gross value added in
Australia, respectively61
Key commodities by · crops - cereals for grain, canola, cotton, fruits, hay, vegetables, etc
tonnes carried
· livestock and other - cattle and calves, sheep and lambs, etc, and
· livestock products - wool, milk and eggs.
Key vehicle types The task is carried mainly by articulated trucks, accounting for more than 70 per
cent of total tkm62
57
ABS 2007, Survey of motor vehicle use, cat no. 9208.0
58
Australian Livestock Transports Association 2011. Submission upon Safe Rates, Safe Roads Directions Paper (p. 12)
59
Australian Livestock Transports Association 2011. Submission upon Safe Rates, Safe Roads Directions Paper
60
ABS 2007, Survey of motor vehicle use, cat no. 9208.0
61
ABS 2010. Principal agricultural commodities produced cat no. 7501.0
62
ABS 2007, Survey of motor vehicle use, cat no. 9208.0
lxiv
Appendix B Scenario Modelling
This section of the impact analysis identifies and defines the key costs and benefits expected with the
options.
The discussion is largely conceptual, highlighting the key parameters which will be used to monetise
the costs and benefits. The values assigned to these parameters and how they are combined to estimate
the costs and benefits are discussed in the CBA.
It is anticipated that the initial role of the tribunal will be on data collection and analysis in order to
determine and examine these key driver cost and remuneration parameters. The role of the Tribunal is
discussed further in the `Economic Costs' section.
Driver remuneration
This RIS assumes that the Tribunal would seek to set minimum remuneration for owner drivers that
would yield at least minimum wage incomes (net of expenses) for owner-drivers. Therefore, the key
expected effect of the options involves a change in the level (and potentially structure) of remuneration
for owner drivers and employees. Given the very competitive nature of the road freight industry, this
increase would be reflected as a commensurate increase in road freight rates.
However, the CBA does not seek to estimate the change in freight rates to the extent to which this
change would be transferred along the relevant supply chain (by a measure notionally equal to the
increase in remuneration) and hence, is a distributional issue which is addressed qualitatively.
Therefore, the total economic cost of carrying a given volume of road freight would increase in line with
higher remuneration.63
The proportion of total change in remuneration that will eventually comprise an economic cost (and
hence, feature in the CBA) depends upon what extent the industry substitutes employee for owner
drivers and whether the increase in owner driver remuneration, in particular, moves freight rates
towards or above an `efficient level'.
Estimating the number of owner drivers covered under each option
The number of owner drivers and employees that would experience a change in remuneration with the
options is a key input to estimating the change in the cost of freight.
The Base Case number of owner drivers is provided by market segment and extrapolated over the
evaluation period to 2020/21.
The second step involves estimating the proportion of Base Case owner drivers which would experience
a change in remuneration with Option 2 and Option 3, respectively. These are based on estimates of
relative compliance between the voluntary options and mandatory options with 60 per cent coverage.
This conservative level of coverage has been assumed given the Commonwealth constitutional
limitations.
Finally, data collected in this RIS indicates that not all owner drivers receive a remuneration level
below a minimum wage. This RIS assumes that drivers will not experience a reduction in remuneration
with the options and hence, only that proportion of owner drivers which currently receive below
minimum wage will be affected, rather than the total number of drivers.
These estimates and the underpinning assumptions are provided in Appendix C.
Estimating the observed remuneration for owner drivers
63
Based on the proportion of road freight carried by owner drivers and not accounting for potential mode shift to rail or shift of
freight task to employee drivers.
lxv
The first step in estimating the change in aggregate national income with the options is to estimate the
current level of remuneration received by owner drivers and employees.
Drivers who work within the road transport industry are categorised according to their employment
type being either employee drivers, who work for businesses and/or smaller fleet operators, or self-
employed owner-drivers. While the employee drivers and owner-drivers are considered to operate in a
`single market' and perform the same work, current frameworks deal separately with these two
employer types.
Employee drivers are dealt with by a variety of industrial awards, including modern awards and
enterprise agreements. Assessment of the economic efficiency of these award rates is outside the scope
of this RIS.
Owner-drivers are paid a mix of tonnage rates, kilometre rates, per load and hourly rates and it is
impossible to examine them collectively because they vary significantly from company to company and
state to state and in most cases these freight rates are not published.
This RIS uses ABS Census data on income distribution for `truck drivers' in the road freight industry.
The 2006 Census64 data identifies individual weekly income for `truck drivers' (who work over thirty-
five hours a week) in the road freight transport industry by employment type. These are presented as a
frequency distribution, i.e. the number of drivers by particular income bands. These data also allow the
estimation of the weighted average income by type of driver and the proportion of drivers (by type)
which currently receive remuneration below an assumed "notional award" wage.
The approach used to estimate these incomes is detailed in Appendix C. Employees are not
considered here because, as mentioned earlier, they are already subject to the modern award or
enterprise agreements.
Estimating the change in remuneration with the options
Estimating the change in remuneration with the options requires comparison of observed
remuneration for `underpaid' drivers with remuneration that would potentially prevail with the
voluntary and mandatory options, respectively. This RIS makes a simplifying assumption that the
remuneration levels that would prevail with the mandatory options would be similar to the national
minimum wage,65 while the same for voluntary option.
There is a range of other State based awards and guidelines available. However, to maintain simplicity,
a single award and guideline rate has been selected, both which base remuneration on a simple hourly
rate.
The percentage change in remuneration with the options is calculated with respect to the weighted
average income received by those drivers in the 2006 Census income bands comprising " notional
below-award rates".
The approach used to estimate the change in remuneration with the options is detailed in Appendix
C.
Economic costs of road crashes
Composition of road safety costs
64
Australian Bureau of Statistics 2007, 2006 Census - Australia, Individual Income (weekly) (INCP) and Occupation 93 (ASCO2)
(OCC93P) by Employment Type (EMTP) and Industry of Employment (ANZSIC06) (IND06P)
65
Fair Work Ombudsman 2011. National minimum wage, http://www.fairwork.gov.au/pay/national-minimum-
wage/pages/default.aspx
lxvi
The key expected benefit with the options is a reduction in fatalities, serious injuries and property
damage crashes. There may also be a small increase in productivity due to less time lost in freight
movement due to a reduction in crashes.
Reducing crashes generates benefits because road crashes impose economic cost on road users and the
broader community. Crash costs include internal costs, which are damages and risks to the individual
travelling by a particular vehicle or mode, and external costs, which are un-compensated damages and
risks imposed by an individual on other people66.
Alternatively, the crash costs categorised from the perspective of the key market and non-market
effects are shown below in Table 7.
Table 7: Definition of economic costs of road crashes
Market
Non-market
Human Vehicle General
Labour in the
Ambulance costs Repairs Travel delays
household
Insurance
In-patient hospital costs Towing Quality of life
administration
Casualty's pain and
Labour in the workplace Unavailability of vehicle Police, property, fire
suffering
Uncompensated grief
Insurance claims Productivity and loss incurred by
family and friends
Workplace disruption
Funeral
Coroner
Source: Victoria Transport Policy Institute 2009, Transportation Cost and Benefit Analysis II - Health and
Safety Benefits, VTPI. www.vtpi.org/tca/tca0503.pdf; Roads and Traffic Authority NSW 1999, Economic
Analysis Manual - Appendix B - Economic Analysis Parameters Updated for 2009, Roads and Traffic
Authority, NSW.
Quantifying the change in road safety outcomes
The options seek to reduce the economic and social costs of heavy vehicle accidents related to low levels
of remuneration for owner drivers.
This is in turn pursued by increasing the proportion of owner-drivers and employees who receive a safe
rate of pay and hence, reduce the likelihood of on-road behaviours which lead to road crashes. This RIS
relies upon the limited number of studies which quantify the relationship between remuneration and
road safety to estimate the expected reduction in crashes. The results of each of these studies are shown
below in Table 8.
Table 8: Economic costs of road crashes
Author Result Comment
66
Victoria Transport Policy Institute 2009, Transportation Cost and Benefit Analysis II - Health and Safety Benefits, VTPI.
www.vtpi.org/tca/tca0503.pdf
lxvii
Belzer et al Finds strong, statistically significant links Study concludes that it is difficult to come up with a
(2002)67 between remuneration levels and safety single summary estimate of the effect of driver pay,
outcomes. Results indicate that a 10% increase as elasticities vary across datasets and model
in remuneration rates is associated with a specifications, but conservatively estimates that the
reduction in crash numbers of between 9.2 % relationship between safety and pay probably is
and 34% better than 2:1.
Rodriguez Finds that a 1% increase in pay rates from The authors note that increases in remuneration
et al median levels lead to a 1.33% decrease in crash initially reduce crash incidence, but at a declining
(2006)68 risk. However, the authors note that the size of rate. The U-shaped relationship found to exist
the effect on crash risk declines with further pay between remuneration and safety suggests
rises and that the relationship between pay rises substantial practical difficulties in determining
and accident risk eventually turns negative. optimum remuneration levels from a safety
perspective and the potential for significant safety
costs to result if regulated remuneration levels fail to
identify this optimum level accurately.
Nafukho et Study consists of a regression analysis Despite the low explanatory power of the
al (2007)69 conducted in respect of six variables considered compensation variables they demonstrate a strong
to be related to accident risk, including salary and positive effect on driver performance, which
and paid time off. The authors find that the six determines highway safety. However, Nafukho et al's
variables all have statistically significant impacts results in relation to the estimated size of the
on accident risk. However, the extent of the coefficient - that is, the extent of the relationship
relationship between the remuneration variables between safety performance and remunerations -
and accident risk was found to be substantially are very different from those of Belzer et al.
smaller than the relationships estimated in the
Belzer and Rodriguez studies. Specifically, the
six variables were found in total to explain only
3.2% of the variation in accident rates, while
paid time off and salary were among the least
significant variables, accounting for 0.4 per cent
of the variation in accident rates.
Previous economic analyses commissioned by the Department provide a detailed critique of these and
further studies. 70
The findings of this critique indicate that:
· directly comparing remuneration and safety does demonstrate statistically significant
correlations. However, results vary substantially
· the three most recent papers, summarised above, show a) a very small effect, b) a very large
effect and c) a U shaped curve, in which a large positive effect of initial remuneration rises
eventually turns negative, and
· the literature is very limited in size and focuses on employee drivers.
In response to the uncertainty surrounding the extent to which heavy vehicle safety can be improved by
creating a remuneration safety net, it is important to conduct further investigation aiming to address
the issues above prior to determining a safe rate. One of the practical approaches to the issues is to
commission a body that will investigate the implementation of safe rates which may cover the topics
included, but not limited to:
· identifying and addressing the data gaps in order to conduct the necessary investigation
around the current state of owner drivers' remuneration, and
67
Belzer, MH., Rodruigez, DA. & Sedo, SA. 2002, Paying for Safety: An Economic Analysis of the Effect of Compensation on Truck
Driver Safety, sponsored by Science Applications International Corporation and Federal Highway Transport Safety Administration.
Available at: www.ilir.umich.edu/SweatshopsOnWheels/PayAndSafetyReport.pdf
68
Rodriguez, DA, Targa, F & Belzer MH, 2006. Pay Incentives and Truck Driver Safety: A Case Study. Industrial and Labour
Relations Review, Vol 59, No. 2, January 2006.
69
Nafukho, M., Hinton, BE. & Graham, CM 2007, A Study of Truck Drivers and their Job Performance Regarding Highway Safety,
Performance Improvement Quarterly 20(1), pp 65-78.
70
Jaguar Consulting (2011).
lxviii
· conduct analysis which shows the extent of correlation between remuneration and high risk
drivers on the road.
As such, this RIS provides an indicative economic evidence base for establishing a body that will
investigate the implementation of safe rates. There is prima facie evidence of the need for such an
institution given the commencement (2010) of a major case control study of factors contributing to
heavy vehicle crash involvement in Australia. However, this study commenced in 2010 and hence,
results are not available for the purposes of this RIS71.
Monetising the road safety outcomes
The research findings above are used to quantify the road safety effects with each of the options. These
road safety effects are monetised by adopting relevant Values of Statistical Life (VoSL) and Value of
Serious Injury (VSI) and property damage.
The literature provides a range of values for VoSL and VSI. The main difference between reported
values is attributable to the underlying estimation methodology. There are two main methods for
estimating VoSL and VSI: the Human Capital Approach (HC) and Willingness to Pay (WTP).
Historically, most countries (including Australia) have used the HC or Gross Output approaches to
valuing a reduction in mortality risks. Gross output approaches include (including combinations):
· the cost of restitution method, concerned with the direct costs generated by accidents, for
example property damage, emergency services, cost of delays, etc, and
· the HC approach, focussed on the loss of future productivity of the victim. This approach is
based on accounting principles: the benefit of avoiding a premature death is given by the
present value of the income flow the economy could lose in that case.
These gross output approaches were concerned with the effect of road accidents on output and income,
i.e. if an accident were to occur, what would be the direct cost of the accident and the loss of future
productivity by the victim as a result of their death or injury. The focus is on the value of lives ex-post
(after) the accident.
However, such approaches are open to some criticism for not capturing the ex-ante (in advance of
knowing whether an accident will occur or not) value people place on safety in terms of avoiding the
fatality or injury in the first place and the non-human/external costs of road crashes. Put simply, the
value a community places on avoiding an injury or fatality can be higher than the value of the loss of
future income if an accident occurred.
An important conceptual advance was achieved in the 1960s by valuing road safety according to
subjective preferences, i.e. the affected population's preferences for the reduced probability of death or
severe injury. Road safety in this context is defined as a public good, and the community demand, and
hence, value for this public good is given by the summation of each individual's WTP for this good.
This approach can explained through the following reasoning:
· there is no reasonable upper bound on the value of life in the conventional meaning, i.e. there
is no reasonable trade-off between wealth and the certain loss of one's own or another's life
· however, everyone takes risks, some of which could be avoided at the expense of either time or
money. When people expend wealth to avoid potentially fatal risks, or accept wealth to take
such risks, they implicitly define a trade-off between wealth and the probability of death or
injury
71
Mark Stevenson, Lisa N Sharwood, Keith Wong, Jane Elkington, Lynn Meuleners, Rebecca Q Ivers, Ron R Grunstein, Ann
Williamson, Narelle Haworth, and Robyn Norton. The Heavy Vehicle Study: a case-control study investigating risk factors for crash in
long distance truck drivers in Australia BMC Public Health. 2010; 10: 162. Published online 2010 March 26.
lxix
· in the context of road safety, individuals have subjective preferences and make trade-offs
between wealth and reductions in the risk of their premature death or injury (ranging from
severe or minor) from their use of roads, and
· the sum of these individual trade-offs is the amount of wealth society is willing to expend in
exchange for road safety improvements which reduce the probability of death or injury.
Importantly, road safety is not valued on the basis of the cost of accidents or the loss of income by
victims, but is viewed as the value of a reduction in risk. Increasingly, countries are valuing road safety
improvements using WTP rather than the HC. This generally yields higher benefits for risk avoidance.
As a result, the social net benefit of safety policy measures has increased in recent years in the
developed world, prompting many road safety interventions, otherwise not socially profitable.
The estimates of VoSL, VSI and property damage crashes are presented in Appendix C.
Regulatory costs
This section qualitatively describes the key regulatory costs (costs to government) involved with
establishing and operating each option. An estimate of these costs is provided in Appendix C.
Option 2 - Voluntary approach
Option 2 would involve a range of costs to government. Broadly, these include:
· implementation of a national system of non compulsory payments and conditions applying to
owner drivers and the supply chain states in all jurisdictions;
· costs involved with providing dispute resolution processes and publishing guideline rates or
costing models according to vehicle types, freight tasks, cost recovery etc, industry targeted
information (i.e. model contracts for owner drivers) and related education campaigns; and
· development and implementation of non prescriptive measures, such as voluntary codes of
practice and accreditation schemes with application to the supply chain and road transport
industry.
Option 3 - Mandatory approach
The key costs associated with the mandatory option involve the establishment of a tribunal. This option
will also include enforcement and compliance costs.
lxx
Appendix C Data inputs and assumptions
This section identifies the key data and assumptions that are used to estimate the costs and benefits
identified earlier.
Number of owner drivers and employee drivers
The economic costs associated with an increase in remuneration with the options are a function of the
number of owner drivers and employees which will experience a change in remuneration by segment.
The first task involves estimating the total number of owner drivers and employee drivers, nationally.
There are approximately 231,900 truck drivers on Australian roads72 who can be classified by their
employment status as employee-drivers or owner-drivers. Advice from DEEWR indicates that the
estimated numbers of owner drivers in Australia is approximately 71,000, although some other data
sources suggest the number can vary between 20,000-150,000.73
This figure is broadly in line with the industry estimates that around 30 per cent of drivers are owner-
drivers. 74
The estimates for the Base Year are then projected in line with the expected increase in the road freight
task growth over the evaluation period75 and are presented below in Table 9.
Table 9: National owner driver and employee numbers
Financial year Employee Driver Owner driver
201276 160,900 71,000
2022 225,900 99,700
In the absence of further data, the proportion of the owner-drivers and employee drivers are assumed
to be the same across each scenario.
The total number of owner drivers with the Base Case was then segmented according to the scenarios
defined in Section 6.3.
The basis for segmentation is shown below in Figure 5.
72
Information provided by the Department from non-published ABS data
73
Jaguar Consulting (2011, p. 46)
74
BITRE 2003, Working paper 60: An overview of the Australian Road Freight Transport Industry, Canberra.
75
BITRE 2011, Road freight estimates and forecasts in Australia: interstate, capital cities and rest of state
76
Information provided by the Department from non-published ABS data
lxxi
Figure 5: Estimated truck drivers by sector77
Agriculture,
3.6%
Quarried,
15.5%
Long Haul, Short haul,
61.8% 38.2%
Other, 19.1%
This figure shows the estimated proportion of truck drivers by sector (long haul, short haul, agriculture, quaried and other).
The proportion of long haul and short haul heavy vehicle driver is estimated based on the survey
conducted by Wright and Quinlan (2008) which includes responses from 613 drivers in Australia. Of
the sample, 379 (or 61.8 per cent) indicates over 90% of assignments belong to long haul and therefore
assumed to be the long haul drivers. In the short haul market, the estimated number of driver by sector
is referenced by the commodity share of rigid truck - the predominant vehicle type in the short haul
market. The estimated proportion of agriculture short haul drivers is approximately 3.6 per cent of
entire industry while the quarried segment accounts for 15.5 per cent of all truck drivers.
It is assumed that this segmentation remains constant over the evaluation period and that the scenarios
capture 80 per cent of the total number of owner drivers and employees.
The next step involves identifying the proportion of owner drivers and employees which receive
remuneration levels below national minimum wage. These proportions are derived from income
distribution data ABS Census 2006 data presented Table 10.
77
Proportion of truck drivers across the long and short haul was extrapolated from the survey conducted by Wright, L. and Quinlan,
M. (2008). Safe payments - addressing the underlying causes of unsafe practices in the road transport industry.
lxxii
Table 10: Proportions of drivers below `notional award' remuneration
Weekly income Average point
band estimate Owner managers Owner managers
(as defined by ($2011)(1) of incorporated of
2006 Census) (no.) unincorporated
(no.)
Nil income78 0 43 59
$1-$149 120 39 81
$150-$249 240 94 141
$250-$399 420 460 477
$400-$599 599 1,477 1,332
Total 7,257 7,268
% `underpaid' 29 29
Note (1): The average income estimate per income band was extrapolated in considering the
skewness of distribution towards the mean point - towards >$1,000 / right of the distribution - as per
the observed normal distribution. i.e. in each income group, the estimated average income has been
adjusted accordingly above the mid-point where appropriate and rounded to the nearest $50. Then
the estimates were escalated by WPI.
Note: the information above has been retrieved based on all truck drivers working in the road freight
sector and working more than 35 hours per week. Of the drivers working a minimum 35 hours per
week and reported average of more than 40 hours per week, those with a reported income below
$600 per week are defined as underpaid in the model. In the absence of data on incomes by grade,
the analysis was unable to describe the award rates by experience and grade nor the mix of drivers'
experience level.
The ABS Census data was segmented into a "notional award" band which is above $600 per week and
working at least 35 hour per week. The numbers of employee and owner drivers that fell below that
threshold was taken as a proportion of the total number of drivers in the respective categories to
identify the proportions which are underpaid. The data indicates that 29 per cent of owner drivers are
currently underpaid.
As discussed, the national workplace system commenced operation and most employee drivers across
Australia become covered by a safety net comprising the National Employment Standards and modern
awards. Under the national workplace relation system, one of four modern awards applies to employee
drivers depending on the sector of the industry they work in. In essence, we have assumed that the
award rate paid to employee drivers represents an appropriate safe rate for their work and they would
not experience any changes in remuneration under either option.
Through the information above, the model assumes a weighted weekly averaged income for those
underpaid owner drivers at approximately $510.90 in contrast to the national minimum wage of
$620.40.
The `underpaid' proportions are assumed to remain constant with the Base Case over the evaluation
period.
78
A small number of households and businesses usually report nil or negative incomes in the ABS surveys. These are often excluded from any
analysis related to income distribution and financial well-being, as research from the ABS has shown that the expenditure of many of these
households and businesses is similar to that of households and businesses earning much more, so these incomes are considered an unreliable
measure of a household's standard of living.
lxxiii
The data presented above are combined to estimate the annual number of underpaid owner drivers by
segment with the Base Case below in Table 11.
Table 11: Number of `underpaid' owner drivers by segment (2012 - 2021)
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Long Haul
12,69 13,34 13,93 14,48 15,02 15,65 16,87 17,82
16,315 17,371
7 9 9 0 8 2 3 2
Agriculture
740 778 812 843 875 912 950 983 1,012 1,038
Quarry
3,184 3,348 3,496 3,632 3,769 3,926 4,092 4,232 ,357 4,470
Overall sector
20,54 21,60 22,55 23,43 24,31 25,32 26,40 27,30 28,10 28,83
5 1 6 0 6 6 0 3 8 9
Source: PwC estimates
The final step involves defining when and to what extent the options will affect the baseline number of
`underpaid' owner drivers. That is, the number of underpaid owner drivers that will experience a
change in remuneration (estimated below).
In both options, the model assumes that the tribunal will be established in 2012/13 and taken effect
from 2013/14 onwards. However, note that the tribunal may not be able to reach a decision until then
2013/14 in practice.
The actual numbers of owner drivers that will be affected by the options are based on the following
assumptions:
· Option 2 - scenario comprising ten percent of owner drivers, and
· Option 3 - scenario covering 60 per cent of owner drivers and assumes of those covered
owner drivers, 90 per cent of them will comply and results in 54 per cent of actual adoption
rates.
The number of owner drivers whose remuneration would change is identified by option below in Table
12 and Table 13.
Table 12: Number of owner drivers impacted by Option 2 (2012 - 2021) - under the
assumption of 10% compliance rates
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Overall sector
0 0 2,256 2,343 2,432 2,533 2,640 2,730 2,811 2,884
Source: PwC estimates
lxxiv
Table 13: Number of owner drivers impacted by Option 3 (2012 - 2021) - under the
assumption of 90% compliance rates
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Long Haul
0 0 7,527 7,819 8,115 8,452 8,810 9,111 9,380 9,624
Agriculture
0 0 438 455 473 492 513 531 546 561
Quarry
0 0 1,888 1,961 2,035 2,120 2,210 2,285 2,353 2,414
Overall sector
12,18 12,65 13,67 14,25 14,74
0 0 13,131 15,178 15,573
0 2 6 6 4
Source: PwC estimates
Owner driver and employee remuneration - current
The estimate of the economic cost associated with increased remuneration with the options firstly
requires an estimate of the weighted average income for that proportion of drivers who are currently
`underpaid'. It is assumed that those drivers who currently receive above award or guideline income do
not experience a change in remuneration.
A distinction needs to be made between remuneration, the focus of the options and freight rates, which
reflect total income including the return to labour or remuneration. The incremental impacts of the
options will be on driver remuneration. The extent to which freight rates change in line with
remuneration and how the change in freight rates are distributed along the commodity supply chain is
a distributional issue which is addressed qualitatively in this RIS.
The measure of owner driver income used in this RIS is based on 2006 ABS Census79 data which
identifies individual weekly income for `truck drivers' (who work over thirty-five hours a week) in the
road freight transport industry by employment type. This RIS identifies the notional current
remuneration based on an income distribution as this allows the identification of those proportions of
owner drivers and employee drivers which are currently underpaid and hence, would be impacted by
the options.
The ABS data indicates that the weighted average weekly income for `underpaid' owner drivers is
$510.90, on average based on 2011 dollars. These are escalated from 2006 estimates using the relevant
Wage Price Index (WPI).
The national minimal wages is $15.51 per hour published by Fair Work Ombudsman has been adopted
as the central case for the model and assumed 40 hours per week on average.80
Voluntary and mandatory option remuneration
The remuneration with the options in this RIS is proxied by the current national minimum wages for a
vehicle driver, i.e. $15.51 per hour. 81
79
Australian Bureau of Statistics 2007, 2006 CENSUS - Australia, Individual Income (weekly) (INCP) and Occupation 93 (ASCO2)
(OCC93P) by Employment Type (EMTP) and Industry of Employment (ANZSIC06) (IND06P)
80
Fair Work Australia 2011. National minimum award wage. http://www.fairwork.gov.au/pay/national-minimum-
wage/pages/default.aspx
lxxv
Given the 2006 Census data indicates the vast majority of truck drivers work between 35 and 40 hours
per week, it is assumed drivers will be remunerated on the basis of 40 hours. A wage for a 40 hour
week, using these assumptions, would be $620.40 or $32,260 per annum.
The increases in remuneration implied by the voluntary guidelines are excessive compared with current
remuneration experience by `underpaid' drivers. This RIS therefore assumes that both Option 2 and
Option 3 would imply a safe rate similar to that proposed by the current national minimum wage of
$15.51 per hour.
Road safety benefits
The road safety benefits are estimated by firstly identifying the number of fatalities, serious injuries
and property damage crashes by segment, with the Base Case. These are extrapolated over the
evaluation period to reflect the effect of non-pay related heavy vehicle safety programs on road safety
outcomes and net increase in response to the forecast freight volume growth. These are shown below in
Table 14.
Table 14: Number of fatalities, serious injuries and property damage crashes with Base
Case
Total FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Long Haul
Fatalities 880 87 88 88 88 89 89 89 88 86 89
Serious injuries 3,345 330 333 335 336 337 339 337 333 328 336
Property damage 5,933 585 591 594 596 598 601 598 591 582 597
Agriculture
Fatalities 150 15 15 15 15 15 15 15 15 15 15
Serious injuries 750 56 57 57 57 57 58 57 57 56 57
Property damage 1,010 100 101 101 101 102 102 102 101 99 102
Quarry
Fatalities 209 21 21 21 21 21 21 21 21 20 21
Serious injuries 794 78 79 80 80 80 80 80 79 78 80
Property damage 1,409 139 140 141 141 142 143 142 140 138 142
Overall sector
Fatalities 2,378 235 237 238 239 240 241 240 237 233 239
Serious injuries 9,040 891 901 905 907 912 916 911 901 886 909
Property damage 1,59 1,60 1,60 1,62 1,59
16,034 1,581 1,617 1,616 1,572 1613
8 6 9 4 8
Source: PwC Estimates
The total number of incidents by type for 2011/2012 was escalated by the fatality number in 2010
sourced from the Australian Road Fatality Statistics by the forecast freight task volume by BITRE. For
serious injury figures, a ratio of 4.48 serious injuries to each fatality was adopted from Jaguar
Consulting.82 Following a similar approach, a multiplier of 1.45 was adopted to estimate property
damage crashes from fatal and serious injury crashes estimated from the NSW 2009 accident figures
reported from NSW Centre for Road Safety.83 Extrapolating the crash information, the estimated ratios
81
Fair Work Ombudsman 2011, National minimum wage, http://www.fairwork.gov.au/pay/national-minimum-
wage/pages/default.aspx
82
Jaguar Consulting (2011, p. 32)
83
NSW Centre for Road Safety 2009. Road traffic crashes in New South Wales - Statistical statement for the year ended 21
December 2009
lxxvi
of serious injury and property damage to the number of fatalities adopted in the model are 3.80 and
6.74 respectively.
The crash numbers by sector were estimated using information on Australian heavy vehicle accident
database collected by Curnow (2002).84 The analysis of the reported figures suggests that the long haul
operations accounts for 37 per cent of the total crashes and agriculture (livestock) carriers represent 10
per cent of the short haul heavy vehicle accidents. Holding the distribution constant over time and the
proportion of total crash numbers assumed in the model are 37.0, 6.3 and 8.8 per cent for the long
haul, agriculture and quarry carriers over the evaluation period.
The effectiveness of the options in reducing the number of incidents annually is based on elasticities
sourced from the reviewed studies reviewed. These studies relate the expected percentage change
incidents to the expected change to driver remuneration.
The implied elasticities from each of the studies are summarised below in Table .
Table 22: Road safety elasticities with respect to changes in remuneration
Author Findings Conditions
Belzer et al. The study for the individual driver Although the statistical test indicates the
(2002) concludes that a 10% increase in the correlation is strong, there are other
mileage rate is estimated to reduce the factors contributes to the crash rate
probability of a crash by 21%. Note that variations, e.g. driver's experience and
the model found the degree of elasticity experience.
diminishes with an increase in rates.
Rodriguez et al A 1% increase in pay rates from median The elasticity is limited to the observed
(2006) level leads to a 1.33% decrease in crash U-shape relationship which implies the
risk, for those drivers currently receiving size of the effect on crash risk declines
the industry median award. with further pay rises and that the
relationship between pay rises and
Extrapolation of the U-shape "pay accident eventually turns negative.
incentive to truck driver safety" suggests
increasing pay 10% to the median level
can approximately reduce crash
probability by around 20%.
Nafuko et al. The study concludes six variables have The study does not explicitly discuss the
(2007) explanatory power but are limited to coefficient of elasticity. On the basis of
only explaining 3.2% of the variation in contradicting to the hypothesis that
accident rates. Of those variables, three increasing remuneration will reduce the
of them are pay related which includes crash rates, this study's finding
the safety bonus, paid time off and therefore not included in the model.
salary. A correlation test suggests that
the crash rate demonstrates a negative
relationship with the safety bonus (i.e.
higher safety bonus will lead to lower
crash rates) but positively with the
salary (i.e. increase in salary will have a
positive response to the crash
probability).
Notably, all these three studies do not distinguish between crash factors, e.g. whether the cause of crash
was due to drivers at fault or not or due. The studies examine the overall crash rates against the
variables, by ignoring proportion of crashes that are contributed by the drivers or being due to specific
84
Curnow, G. 2002 Australian Transport Safety Bureau heavy truck crash databases - What do the statistics tell us? National
Heavy Vehicle Safety Seminar, Melbourne, October 2002
lxxvii
pay related issues. Therefore, the proportion increases in remuneration are taken from the weighted
average of underpaid drivers only.
This RIS assumes the relevant elasticity for all segments and crash types is a ten per cent increase in
remuneration will lead to 20 per cent reduction in crash rates - assuming that current remuneration is
not substantially below the industry median as per the literature.
The application of the elasticity is also subject to the issues such that the extent of crashes which are
attributable to driver behaviours which are pay related factors, such as speeding and driving while
fatigued. In NSW, speed and fatigue contributed to approximately 22 per cent of heavy truck crashes
between 2008 and 2010.85 This statistic is broadly in line with the other Australian statistics which
indicate this ratio is between 18 to 34 per cent. 86
Importantly, this RIS assumes that up to 25 per cent of the crashes are attributable to pay-related
antecedents and this applies to all sectors and both owner-drivers and employees. In other words, the
changes in crash rates to the extent to which they are affected by remuneration is capped at 25 per cent.
The U-shaped relationship has another important implication to evaluate the crash risk. The findings
indicate the drivers receiving lower compensation are likely to have higher crash rates - i.e. the crash
rates are not equally distributed across driver remuneration bands. In the absence of detailed data, the
RIS assumes that underpaid drivers are twice as likely to be involved in a crash.
Having identified the savings in crash numbers by segment, an appropriate economic value is applied
to estimate the savings. The OBPR's Guidance Note on VoSL argues that an appropriate base case
figure for VoSL is $3.5 million. This figure is based on research by Abelson87. An alternative figure of
$6.0 million has been calculated by Access Economics on behalf of the Office of the Australian Safety
and Compensation Council. 88 Both of these figures are based on meta-analyses of relevant research,
using Willingness to Pay (WTP) methodologies.
The WTP approach is widely, though not universally, regarded as superior to alternative (typically
human capital based) approaches in calculating VoSL figures. It can be noted, however, that these
alternative approaches generally yield significantly lower VoSL figures. Figures within the range $1.5 -
$2 million are reasonably typical results where human capital based approaches are adopted.
Given the preference of OBPR for the use of a WTP methodology for VoSL purposes, a methodological
complication arises from the fact that most estimates of injury costs are based on less comprehensive
approaches (typically involving calculation of medical costs and productivity losses) which, at least
arguably, substantially understate true costs and are in any case not methodologically consistent with
the VoSL approach required to be taken by OBPR.
However, some literature argues that serious injuries should be valued in terms that are consistent with
the VoSL figure used, by adopting an estimate that represents a proportion of the VoSL figure. A review
of sources indicates that accepted values are in the range of 0.20 to 0.23 times the estimated VSL89.
This approach is preferred to alternatives because it is comprehensive and it effectively adopts a
consistent WTP approach to valuing both fatalities and injuries.
More recently PwC, in association with the Institute of Transport and Logistics Studies (ITLS) at the
University of Sydney, undertook a stated choice study to estimate VoSL and Value of Serious injury
85
NSW RTA 2011. Heavy truck crash data analysis - single truck crashes, p. 49, retrieved on 27 September 2011:
http://www.rta.nsw.gov.au/roadsafety/downloads/heavy-truck-crash-data0911.pdf
86
Jaguar Consulting (2011, p. 42)
87
Abelson, P. 2007, Establishing a Monetary Value for Lives Saved: Issues and Controversies, Paper prepared for the Office of
Best Practice Regulation.
88
Access Economics 2008, The Health of Nations: The Value of a Statistical Life. Report prepared for the Office of the Australian
Safety and Compensation Council.
89
Soby, BA., Ball, DJ. & Ives, DP. (1993). Safety Investment and the Value of Life and Injury. Risk Analysis, Vol. 13, No. 3, June
1993, pp 365-370.
lxxviii
(VoSI).90 This study, unlike meta-analyses referred to above, was the first of its kind in Australia to
empirically estimate values, albeit for road safety outcomes in NSW. Also, unlike the methodological
issues pertaining to injuries, this study directly estimates the VoSI using a WTP approach and
differentiates these values for urban and non-urban contexts. The summary results of this study are
shown below in Table 15.
Table 15: WTP estimates of VoSL and VSI
($) VoSL VoSI Value of Injury
Urban 5,582,130 410,821 98,758
Non-Urban 6,123,981 571,693 140,521
Source: PwC and ITLS (2008)
Similar to the VoSL, the literature suggests a significant range of approaches to determining the value
of serious injury. Particularly, the OBPR's VSL guidance note suggests the use of disability weights for
injuries which reference to The burden of disease and injury in Australia.91 The value suggested for
road accidents is a weight of 0.149 of the Value of Statistical Life Year (VSLY). In the absence of
detailed injury information, it was not possible to define the estimates of the VoSI, particularly for
heavy vehicle crashes only.
Alternatively, we have assumed that VoSI as a function of VoSL which is independent to the time or
duration of injury. Extrapolation of the BITRE data suggests the possible value of VoSI is
approximately ten per cent of the VoSL.
Based on the information above, this RIS adopts the road crash values:
· value of statistical life (VoSL) at $3.5 million;
· value of serious injury at approximately 10 per cent of the VoSL;92
· property damage costs (such cost refers to the damage of property only) are estimated at
$8,148.93
In the CBA, all the figures above have been escalated from the reported year to 2011 dollars. i.e. the
VoSL has been escalated from 2007 to 2011 while the same adjustment has been made to property
damage values.
Regulatory costs
This section presents the incremental cost to government with each of the options. It should be noted
that these estimates may not include all expected costs and hence, should be considered conservative.
Further detailed analysis is required to identify and estimate the range of costs involved.
Option 2 - Voluntary approach
The key costs involved with Option 2 include remuneration for industry council members and for
materials associated with marketing and publishing. Remuneration comprises a large proportion of
the expected total annual cost.
Estimates provided by DEEWR indicate that the annual cost with Option 2 would be $1.25 million
(2012 dollars) between 2012/13 and 2020/21.
90
PwC and ITLS 2008, Economic Valuation of Safety Benefits, Final Report prepared for the Roads and Traffic Authority NSW,
Sydney.
91
Mathers C, et al.. 1999, The burden of disease and injury in Australia, AIHW cat. no. PHE 17, AIHW, Canberra
92
BITRE (2006) Cost of road crashes in Australia 2006, Research report 118
93
RTA 1999, RTA Economic Analysis Manual, 2009 Updated Economic Parameters.
lxxix
Option 3 - Mandatory option
The costs associated with establishing and administering the tribunal is estimated at approximately $5
million per year (2012 dollars) and comprises of:
· funding to tribunal members and supporting staff
· cost to compliance agency staff
· continuous research budgets
· education, and
· other resources such as promotion and marketing.
Estimates provided by DEEWR indicate that the annual cost with Option 3 would be $5.0 million (2012
dollars) between 2012/13 and 2020/21.
lxxx
Appendix D CBA model results
This section presents the streamed incremental benefits and costs of the options. These are combined
to generate the option CBRs and NPVs.
As discussed, the costs to the economy refer to the government's regulatory cost (including establishing
and administering the tribunal) and the incremental remuneration for the drivers whom are currently
underpaid. The costs for each of the options have been developed using a base set of assumptions
outlined in the report's Appendices.
Table 16: Incremental regulatory costs
Total NPV FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
($m ($m
2012) 2012)
Option 2 11.3 8.1 0 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.25
Option 3 45.0 32.6 0 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
Note: table may not total due to rounding
As advised by the Department, the costs of establishing and administering the tribunal, for Option 2
and Option 3 have been estimated at $1.25 million and $5.0 million per annum, respectively
Option 2 - voluntary options with 10% compliance rates
Option 2 refers to the voluntary scheme where the results below present the estimated impacts
assuming a 10 per cent compliance rate, i.e. for every 100 underpaid drivers, 10 will experience a
change in remuneration with Option 2.
Table 17: Incremental remuneration for `underpaid' drivers
Total NPV FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
($m ($m
2012) 2012)
Overall sector
115.5 79.6 0 0 12.7 13.2 13.7 14.3 14.8 15.2 15.6 16.0
Note: table may not total due to rounding
Affected owner-drivers will receive approximately 21.4 per cent increase in remuneration with Option
2.
The incremental remuneration is determined by proportion of underpaid drivers which are affected by
the option. The number of affected owner drivers is then multiplied by the change in the annual
remuneration (subtracting their current weighted average of annual remuneration from the proposed
remuneration with the option).
The result will vary significantly according to the compliance rate assumed and the weighted average
annual remuneration of underpaid drivers.
lxxxi
Table 18: Incremental crashes avoided
Total FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Overall sector
Fatalities 11 0 0 1 1 1 1 1 1 1 1
Serious injuries 43 0 0 5 5 5 5 5 5 5 5
Property damage 76 0 0 9 9 10 10 10 9 9 10
Note: table may not total due to rounding
The incremental crashes avoided are applied to the relevant crash costs to estimate the incremental
crash costs below.
Table 19: Incremental crash cost savings
Total NPV FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
($m ($m
2012) 2012)
Overall sector
Fatalities 44.5 31.1 0 0 5.6 5.6 5.6 5.6 5.6 5.5 5.4 5.6
Serious
16.9 11.8 0 0 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
injuries
Property
0.7 0.5 0 0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
damage
Note: table may not total due to rounding
The number of crashes avoided and the reduction of crash costs is assumed for the purposes of
quantifying the scenarios to be proportional to the size of relevant sectors. These crash cost savings are
incremental to the expected improvements in road safety expected with the National Road Safety
Strategy 2011-2020 which aims to reduce fatalities by up to 30 per cent over the decade.
Over the evaluation period, it is anticipated the ten per cent compliance rate will save approximately 11
lives on Australian roads and with a total benefits of $44.5 million in the next decade. The estimated
road safety improvement is equivalent to a further 0.6 per cent improvement above baseline
improvements achieved through non-pay means.
Option 3 - Option 3 - 60 % coverage and 90% compliance rates
Option 3 is mandatory and assumed a 60% coverage with 90% of covered owner-drivers comply, i.e. for
every 100 underpaid drivers, 54 of them will experience a change in remuneration.
lxxxii
Table 20: Incremental remuneration for `underpaid' drivers
Total NPV FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
($m ($m
2012) 2012)
Specific sector
Long
385.5 265.7 0 0 42.3 43.9 45.8 47.7 49.3 50.8 52.1 53.5
Haul
Agricultu
22.5 15.5 0 0 2.5 2.6 2.7 2.8 2.9 3.0 3.0 3.1
re
Quarry 96.7 66.6 0 0 10.6 11.0 11.5 12.0 12.4 12.7 13.1 13.4
Overall sector
623.8 429.9 0 0 68.5 71.1 74.1 77.2 79.8 82.2 84.3 86.5
Note: table may not total due to rounding
Option 3 exhibits a significant increase in total remuneration across the sector as the mandatory safe
rates will apply to the majority of underpaid drivers. The financial impacts are a function of the number
of underpaid drivers and current remuneration level.
Modelled results indicate the entire sector is anticipated to bear an increase in remuneration cost of
around $100 million in the first year of the option being introduced (2013/14). The owner-drivers will
receive around 21.4 per cent increase in remuneration compared with existing assumed pay rates.
Table 21: Incremental crashes avoided
Total FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Long Haul
Fatalities 22 0 0 3 3 3 3 3 3 3 3
Serious injuries 85 0 0 11 11 11 11 11 11 10 11
Property damage 151 0 0 19 19 19 19 19 19 19 19
Agriculture
Fatalities 4 0 0 0 0 0 0 0 0 0 0
Serious injuries 15 0 0 2 2 2 2 2 2 2 2
Property damage 26 0 0 3 3 3 3 3 3 3 3
Quarry
Fatalities 5 0 0 1 1 1 1 1 1 1 1
Serious injuries 20 0 0 3 3 3 3 3 3 2 3
Property damage 36 0 0 4 4 5 5 5 4 4 5
Overall sector
Fatalities 61 0 0 8 8 8 8 8 8 7 8
Serious injuries 231 0 0 29 29 29 29 29 29 28 29
Property damage 409 0 0 51 51 51 52 51 51 50 51
Note: table may not total due to rounding
As a result of higher compliance rates, it is anticipated that additional one to three fatalities would be
avoided per year per modelled sector. This represents close to a 3.5 per cent improvement of heavy
vehicle road safety compared to the base case forecast.
lxxxiii
Table 30: Incremental crash cost savings
Total NPV FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
($m ($m
2012) 2012)
Long Haul
Fatalities 88.9 62.0 0 0 11.1 11.1 11.2 11.2 11.2 11.1 10.9 11.2
Serious
33.8 23.6 0 0 4.2 4.2 4.3 4.3 4.2 4.2 4.1 4.2
injuries
Property
1.4 1.0 0 0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
damage
Agriculture
Fatalities 10.6 15.1 0 0 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
Serious
4.0 5.8 0 0 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
injuries
Property
0.2 0.2 0 0 0 0 0 0 0 0 0 0
damage
Quarry
Fatalities 14.7 21.1 0 0 2.6 2.6 2.7 2.7 2.7 2.6 2.6 2.7
Serious
5.6 8.0 0 0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
injuries
Property
0.2 0.3 0 0 0 0 0 0 0 0 0 0
damage
Overall
sector
Fatalities 240.3 167.7 0 0 30.0 30.1 30.2 30.4 30.2 29.9 29.4 30.2
Serious
91.4 63.7 0 0 11.4 11.4 11.5 11.5 11.5 11.4 11.2 11.5
injuries
Property
3.8 2.6 0 0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
damage
Note: table may not total due to rounding
As a result of heavy vehicle road safety improvements, Option 3 will generate a benefit of around $42
million per annum over the evaluation period.
The results above are combined to produce the measures of economic merit below:
Table 31 Measures of economic performance
Option 3 - mandatory 90%
Option 2 - voluntary 10%
compliance rate of the 60%
compliance rate
coverage
BCR NPV BCR NPV
Overall sector 0.49 -$44.4m 0.51 -$228.4m
lxxxiv
Appendix E Best case scenarios
This section defines and presents the results of two additional scenarios. These scenarios are defined
as `best case' scenarios, i.e. scenarios which adopt specific assumptions (within the constrained CBA
framework) that lead to the maximisation of net benefits or minimisation of net costs. It should be
noted that scenarios differ from the sensitivity analyses identified earlier. Unlike sensitivity analyses,
scenarios imply the alteration of multiple variables concurrently. It should be further noted that PwC
does not endorse these scenarios as containing reasonable assumptions and/or likely or reasonable
outcomes, but rather has included them for illustrative purposes to demonstrate the sensitivity of the
modelling and the assumptions used.
The first scenario recognises that that there are diminishing marginal benefits in terms of safety
beyond certain levels of remuneration compliance and coverage and hence, incremental remuneration
cost. This is because the total number of avoidable crashes in a particular year is capped at 25 per cent.
Through an optimisation exercise, coverage and compliance rates are identified beyond which
additional remuneration increases do not yield additional safety benefits. These assumptions are:
· Option 2, effective rates = 50% (compliance rate)
· Option 3, effective rates = 20% (40% coverage x 50% compliance rate)
· Elasticity -2.5, i.e. 1% increase of remuneration leads to -2.5% of crashes, on average
The results of this scenario analysis are shown below in Table .
Table 32: Scenario analysis - optimising coverage and compliance rates
Option 2 - voluntary 50% Option 3 - 40% coverage and
compliance rate 50% compliance rates
BCR NPV BCR NPV
Overall sector
0.62 -$153.4m 0.56 -$83.4m
Specific sector
Long Haul 0.34 -$78.4m
Agriculture 0.99 -$0.1m
Quarry 0.32 -$20.2m
The results of the scenario analysis shown above indicate that the additional costs would still outweigh
the additional road safety benefits, albeit marginally in the case of the short haul agricultural sector.
The second scenario presented below recognises that any movement towards an efficient remuneration
rate would comprise a benefit in an economic CBA, rather than a cost. In the absence of any detailed
data, this RIS conservatively assumes that observed remuneration is `efficient' and therefore, any
increases in remuneration with the options would comprise an economic cost.
However, this scenario assumes that the efficient remuneration rate is higher than the average
remuneration observed in the market and that it is (simplistically) proxied by the national minimum
wage. However, as noted earlier in this RIS, estimation of an efficient remuneration rate is beyond the
scope of this study. This RIS also does not provide any supporting evidence that the minimum wage
would approximate an efficient rate. This scenario is put forward for illustrative purposes only to draw
attention to the fact that further research in relation to the efficient remuneration rate may indicate
lxxxv
that it is higher than average remuneration observed in the market and as a result, the central case
estimates of incremental remuneration costs in this RIS are relatively optimistic.
The results of the second scenario analysis are shown below in Table .
Table 22: Scenario analysis - defining the minimum wage as an efficient remuneration
level
Option 2 - voluntary 10% Option 3 - 60% coverage and
compliance rate 90% compliance rates
BCR NPV BCR NPV
Overall sector
5.54 $37.0m 7.48 $210.9m
Specific sector
Long Haul 4.59 $72.3m
Agriculture 12.87 $13.9m
Quarry 4.37 $17.0m
Theoretically, given that the observed average remuneration for underpaid drivers is below the national
minimum wage, any movement towards the minimum wage would comprise a benefit. The large CBRs
in this scenario are unsurprising and reflect that all remuneration related economic costs are avoided,
ie. a `no-regrets' policy.
However, this is a highly contentious area. In the absence of detailed research, there is significant
uncertainty surrounding the actual efficient rate.
Moreover, CBA is partial equilibrium framework, ie. it is not capable of adequately capturing the effects
of options which affect quantities and prices in multiple markets. The key implication of this is that
even if further research does indicate that the efficient rate is higher than the observed remuneration
rate, significant (non-marginal) increases in remuneration would not simply translate into
commensurate benefits. Significant flow on-economic costs may be expected in related markets,
impacts which would not be adequately captured in a CBA.
lxxxvi
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