KiwiRail view on rail legislation

Group Chief Executive Greg Miller gave this address to the Transport and Infrastructure Select Committee on the Land Transport (Rail) Legislation Bill on February 20.

The draft NZ Rail Plan lays out a pathway for sustainable planning and funding that will allow rail to play the important role it should in the country’s transport system.

Currently, 92 per cent of freight in New Zealand does not travel by rail. The reason is simple. Our rail lines and our freight systems are so run down that it has taken a huge level of commitment from both the Government and from our team to start moving the company into a position where it can return to profit. The truth is there is far greater demand for our services than we are able to supply.

The way rail has been funded in the past has resulted in short term decision making. That means we have not been able to translate current demand into growth due to historic short term decisions that have seen cost cutting resulting in lack of drivers, locomotives, wagons and fully usable track. Those decisions have resulted in higher track and machinery maintenance costs, higher repair costs and higher costs from driver shortages that knock on to cause freight service limitations and increased costs from overtime, travel and accommodation.

Commercially, as a company on the back foot, KiwiRail has had to accept trade terms that are not advantageous to KiwiRail. We have had no capacity for market reclamation.

Our strategy to return to profitability and deliver a good return to our shareholders is threefold. We aim to run more services, get the equipment we need to be able to grow capacity, and put in place the technology that will enable us to track freight, and track profit and loss centres.

Increasing our service offering brings increased cost to the business. As we move through this phase, we have to bring our customers on that journey as we renegotiate terms of trade and lessen the burden on our shareholder.

The draft New Zealand Rail Plan plays an important role in our turnaround plan.

At the moment, KiwiRail has to seek Crown funding on an annual basis to support required investment in the national rail network. This short-term funding approach is not suitable for long-life infrastructure assets.

The new planning and funding model will address this by establishing a long-term programme of network investment through the National Land Transport Fund. Not only does this approach treat road and rail equally, having a long-term strategy for planning and funding rail investment gives KiwiRail the certainty we need to make effective business decisions.”

This will help to make KiwiRail commercially viable. The rail plan is not something that pits road freight against rail. It recognises the fact that we work together.

New Zealand’s largest road freight companies are our loyal supporters, and they welcome this integrated strategy.

As KiwiRail continues to grow its customer base of primary exporters, including log, dairy, meat, fish, general freight, we and our customers can all see the benefits of this legislation and the way it will enable our road and rail infrastructure to serve these important exporters.

Road freight is complementary to rail. New Zealand’s shorter haul aggregate users don’t use rail because they don’t have rail that goes to where their customers are.

Rail terminals, however, act as a hub, a place where freight can be taken off roads and put onto rail that is designed to take heavy loads, and transported to ports or other cities for domestic distribution.

Today, I’d like to address a few other myths. The term highway robbery has been mentioned recently, but that’s far from the truth.

Let’s start by going back a decade. In 2010, heavier and longer vehicles, known as High Productivity Motor Vehicles or HPMVs, were allowed onto our roads. In 2013, New Zealand saw the introduction of 50MAX trucks – carrying up to 50 tonnes with nine axles compared to eight for standard heavy combinations.

Effectively, this gave trucks a ten tonne advantage over rail, which can only carry 40 tonnes per wagon. And what is more pertinent, NZTA at the time flatlined the cost of road maintenance, not knowing the impact of 50 tonne trucks on the road maintenance bill in the future. Many of our roads are not designed for these huge weights.

Ten years on you just need to travel the rural roads to see the full level of damage and number of pot holes made by logging trucks, agricultural trucks, dairy trucks and the like, coming off the road onto the highway with those great big payloads.

The road transport sector currently does not pay 100 per cent of the road maintenance bill despite causing much of the damage.

KiwiRail is owned by the crown and operates commercially for wider economic benefit with its track. Every country in the world is currently investing in rail to offset the cost of road maintenance.

Returning freight to rail where possible means savings on road maintenance.

The last study that looked at the value of rail outlined $1.5 billion in benefits per annum.

Our value is not just in our value to NZTA road maintenance savings.

Our customers support rail because of the economics, scale and environmental benefits. 

Freight moved by rail results in 66 per cent lower carbon emissions than freight moved by road. Rail freight is not just efficient long distance. Every one of our customers has a lens on the environmental impact and incorporates these benefits into every rail decision made.

We send more than 100 trains a week from Auckland to Tauranga across a rail network, through the Kaimai tunnel to Tauranga, a distance of 246kms.

The economics, volumes, frequencies easily justify the train services. Why would the Port, and largest shipping lines use us if our services didn’t stack up commercially?

We offer thing the road sector can’t, and we work hand in hand with the road sector to support New Zealand businesses.

The draft New Zealand Rail Plan is a way to return rail to complement road.

It is an historic change in the way rail is treated in New Zealand. It reflects the growing role rail is playing in all markets it serves, including supporting big road freight operators nationally, which is consistent with trends overseas.

With increasing freight volumes, growing road congestion and maintenance costs and the need to meet emission reduction targets, rail is a critical part of our transport system. 

The draft Rail Plan is about making sure that rail – whether freight or passenger services – is funded fairly and sustainably over the decades ahead. It’s about making sure our network is up to standard, which for our customers means schedule integrity and reliability, and provides them the confidence to make greater use of rail.

Overall, the draft NZ Rail Plan sets the right conditions that will allow rail to grow, for the benefit of all New Zealanders.