KiwiRail accepts challenge to go ‘commercial’

By Dave MacIntyre

Similarly, Joyce’s comments that rail in New Zealand needed to aim for a more commercial approach and to balance its books eventually, without the $90 million annual subsidy it now gets, have been portrayed as a hard-line approach.
A wider perspective however shows Joyce has actually shown a commitment to rail, both in the passenger area and also the freight business.
Investment in new locomotives and wagons to come on stream next year has been approved and a study of Joyce’s comments provides a more upbeat resonance – “…we’re actually encouraging them and working them very hard to get to the point where than can survive without subsidy – and I’m pleased that they are taking a more commercial approach now…”
Added to this was the debate that ensued following the report, ‘KiwiRail: Doomed to Fail?’, published by Luke Malpass, a policy analyst at the Centre for Independent Studies.
In order for rail to come close to commercial equilibrium (to break even), the network had to shrink from 4,000 kilometres to 2,300 kilometres, Malpass said.
“Many of the unprofitable lines must be closed while the government prepares to sell off separate parts of rail to interested parties in the private sector,” he said.
“The rail system needs to shrink substantially to become viable in the long term.
“Only then will taxpayers be insulated from further political expediency and foolishness.”
However KiwiRail has been boosted by the news that Fonterra sees rail as an integral part of its logistics strategy going forward.
Development
Moreover, the nation’s biggest shipper has come up with a discussion paper for a future supply chain for the country, which sees major expansion for rail.
KiwiRail chief executive Jim Quinn, interviewed by Lloyd’s List DCN, also took a long-term view, both about the size of the network and NZ government support.
“If you look back 25 years there would have been a strong case then for closing the milk run [central North Island] and the coal route [South Island],” Quinn said.
“Today, those are two of our most heavily-trafficked routes. If those had been closed down then, that growth could never have occurred. Close any area of track down and you lose it for good.
“What it shows is the need for the development of an integrated supply chain so the future role of rail is known. We need to look forward and see what the country needs.”
As far as the NZ government was concerned, Quinn was adamant that Joyce was being supportive, and was fair in what he was asking of the rail operation.
“The shareholder has challenged us to come up with a business plan and that is as it should be,” Quinn said.
“It’s not unreasonable for the government to expect us to reduce costs and drive up productivity.
“At the same time the government has told us it will fund projects for which there is a sound business case.”
On that score, Quinn said management and the board were working with the government on a business plan to be presented before Christmas.
The new integrated model, bringing together the track and operating sides of the business, had been a forward move.
Big player
“I had no idea just how much caution surrounded the previous set up,” Quinn said.
“This wasn’t because it was Toll who operated the business, it was because Toll operated a freight forwarding and trucking business that was competing with other freight movers.
“Now, we can be seen as a neutral player in the market, able to partner with any and all The growth options are huge. There is no shortage of options or opportunities.
“One thing we know is that we will be a big player in the full wagon load and full container load markets but we aim to be bigger too with the aggregators of cargo – the Tolls, Mainfreights and Peter Bakers.
“We need to be open and easy to deal with for freight movers. We need to integrate into their supply chains and offer added value to their businesses.
“We must keep focused on what we can control and deliver better day by day.”
Much will hinge on the business plan being developed now.
KiwiRail believes a step up in service delivery will occur once the new locos and wagons arrive in mid 2010. Track improvements and infrastructure are already underway.
Putting rail on a “pay for yourself” basis is a longer-term plan but as Quinn argued, “with the projected freight growth in NZ, there needs to be an integrated strategy for the future”.
“Rail can be the backbone of that strategy.
“We can’t do everything but we can play a much larger role in the future.”

Source: Lloyd’s List Daily Commercial News – www.lloydslistdcn.com.au