An empirical analysis of Australian freight rail demand

The impact of an unannounced shock in freight rate, international trade and business cycle on the non-bulk freight rail demand in Australia is examined by using a VAR model and an annual data set encompassing four decades (1970-2011). Results based on VAR, impulse response functions and variance decompositions suggest that freight rate and the volatility of the Australian dollar are the most dominant determinants. The availability of an alternative mode, such as road, could be attributed to this considerable response to the freight rate. Macroeconomic conditions favourable to bulk freight demand, such as a depreciated Australian dollar, have a similar impact on non-bulk rail freight.