1950 - 2000
For much of the twentieth century, most long distance freight in New Zealand was moved by rail. The road transport industry developed to serve local markets but was heavily restricted in its right to carry long-distance freight.
Restrictions on road transport were formally introduced in 1936 to protect railways against increasing road competition and, in the opinion of legislators at the time, to establish price stability in freight transport.
Road freight limitations
There was a limit on the distance that goods could be hauled by road. For many years it was 30 miles but was increased progressively to 40 miles and then 150km in 1977, with an increasing range of commodities exempt from restrictions.
Road transport operators could carry goods further than the 150 kilometres, but only by being granted an exemption to do so by a network of Transport Licensing Authorities that held regular sittings around the country to hear applications.
Apart from restrictions on the length of road journeys, there were also restrictions on entry into the industry. New entrants had to prove that there was a need for their services and that they would not disadvantage existing operators. Transport Amendment ActIn November 1983, the Transport Amendment Act began the deregulation of road transport. It made two significant changes. Firstly, the restriction on the number of road transport operators was replaced with a system that required operators to prove that they were capable and qualified to run a trucking business.
Secondly, the 150km restriction was gradually phased out. Until 1986, road transport operators were still required to pay for a permit from the Ministry of Transport on a per tonne-day basis. But after 1986, the road transport industry was freed from all restrictions.
Effect of deregulation on rail
Deregulation had a profound effect on rail's freight income. It is estimated that about 30% of goods - mostly long distance traffic - was carried by rail in 1980. By 1988, rail had lost a significant proportion of the nation's freight traffic, both long and short haul.
Deregulation, and its effects on rail business, had a significant effect on the later decision to privatise.
Large scale electrification
New Zealand's biggest rail electrification project - involving the NIMT between Hamilton and Palmerston North - was undertaken in the 1980s. The electrification of the whole NIMT had been proposed in 1950, in response to post-war coal shortages, but the government instead opted for diesel propulsion. The idea was revived during the oil shocks of the 1970s, and electrification of the central section was approved in 1980.
This project involved the erection of more than 10,000 concrete poles, while a number of tunnels had to be ‘daylighted' or have their floors lowered to accommodate overhead wires. Electrification was completed in 1988, at a final cost of around $250 million. Unlike the Wellington suburban lines, which use a 1.5kV DC system, the NIMT uses 25kV AC.
In 2007 the government announced another major electrification project, with work on the Auckland suburban network due to be completed by 2013.
A number of factors combined to persuade the National Government in the early 1990s to sell the rail network and its freight and passenger business.
In straitened economic circumstances, the sale of state assets was favoured as a means of both raising money and avoiding the need to invest in those assets. The rail industry had already been corporatised and staff numbers greatly reduced from the heady days of the 1970s.
Road transport had been deregulated in 1983, freeing it up to compete with rail. This, and the progressive increase in the permitted size and weight of trucks, led to a significant loss of rail freight traffic over the remainder of the decade. At the same time, the rail industry needed heavy investment in both network infrastructure and rolling stock to modernise and be competitive.
To the Government of the day, leaving this to the private sector seemed a sensible solution.
Steps to privatisation
In 1990, New Zealand Rail Ltd was incorporated as a limited liability company wholly owned by the Government. In September 1993, following a bidding process, the company was sold to Tranz Rail Holdings. Principal shareholders included Wisconsin Central Transportation Corporation, Berkshire Partners LLC and Fay Richwhite & Company.
New Zealand Rail Ltd became Tranz Rail Ltd in 1995 and the company was listed on the New Zealand stock exchange in 1996.
The change appeared to bring benefits through the early years. Costs were reduced and freight volumes increased. But a recapitalisation, increased debt, and management changes combined to sap profitability and performance in the late 1990s and early 2000s.
Debt prevents investment
Growing levels of debt reduced the amount of capital available for investment in the network. At the same time, a move of the corporate office to Takapuna in Auckland reduced the opportunity for interaction with Government and government agencies.
In 2002, the Government negotiated with Tranz Rail to buy back the Auckland suburban network. Auckland local authorities through Auckland Regional Council's transport agency the Auckland Regional Transport Authority, became responsible for providing suburban rail services through a contracted operator.