Call For Urgent Review Of Future Rail Viability

Media Statement 22/07/02

Major Rail Freight Users Call For Urgent Review Of Future Viability

Some of New Zealand’s largest exporters have formed an action group to participate in the major public policy debate that has developed on the future of rail services in New Zealand.

The Rail Freight Action Group, which includes Fonterra, Carter Holt Harvey, Solid Energy and Fletcher Challenge Forests as well as several of the larger freight forwarders and liner shipping companies, warns that the international competitiveness of New Zealand’s key export industries is at stake.

Serious concerns have been expressed by many users about the performance and pricing of rail services. These costs may make up to a third of total transport costs involved in exporting New Zealand produced goods to distant international markets, yet international benchmarking suggests rail costs should be much lower.

“While various options have recently been publicly discussed the Rail Freight Action Group believes that unless a number of key criteria are met New Zealand’s export competitiveness will be threatened,” says a statement by the group, issued today.

“The cost of supplying a product to a distant market may well be more important than production costs, when it comes to New Zealand competing with other countries, so this is a vital issue for New Zealand.”

The companies also warn that if rail freight services are allowed to collapse major users would have to fall back on road and coastal shipping, resulting in many thousands of extra trucks on the roads each day.

The Rail Freight Action Group believes a way must be found urgently to ensure that New Zealand business is well served by a mix of rail, road, and shipping services which are competitive, sustainable and economically efficient.

“There has been no opportunity for competition in rail freight as Tranz Rail has the exclusive right to operate rail freight services throughout the entire network and this issue would need to be addressed should the government be involved in the future ownership of the rail network.”

The group says its comments at the deteriorating situation do not mean it is anti Tranz Rail, although it is concerned about the company’s financial situation and operating performance.

“Our focus is to work with the various parties to see if an efficient and competitive rail freight service can be achieved, in the interests of New Zealand.”

MAJOR CONCERNS

Among the Rail Freight Action Group’s major concerns: -

- Provision of an efficient, competitive, sustainable rail network is critical to meet exporters’ requirements.

- Prices such as track access charges must be based on realistic asset values. Supply chain costs, in particular land transport costs, can determine whether or not an exporter able to compete in a particular market, and are therefore extremely important.

- The current government draft land transport strategy does not refer to economic efficiency which is critical to ensuring the best value decisions are made in respect to transport infrastructure.

- Tranz Rail appears unable to fund proper maintenance of tracks and rolling stock from its own resources. Some exporters say they have been asked to front up with cash for routine maintenance of wagons. The sustainability of rail has therefore been jeopardised by a demonstrable lack of commitment to maintaining national infrastructure assets.

- If the Government is considering reacquiring the national rail network the Action Group would be endeavouring to seek assurances that;

- A competitive track access regime would be introduced. The existing model has clearly not worked and the group is concerned that one monopoly would be replaced by another monopoly. A regime which allows a competitive provision of rail freight services is essential.

- Any price paid for the rail network must reflect the actual value of the network not a value inflated by accounting activities.

“We are extremely concerned that the company appears to be unable to fund the appropriate maintenance of the system,” says a spokesperson for the Action Group. “It appears too much money may have been stripped out of the company, and its low credit rating will now make further borrowings difficult and expensive.”

The companies involved in the Rail Freight Action Group represent a significant percentage of Tranz Rail’s freight revenues and they are keen to see a sensible and prompt resolution to the issue.

ACTION NEEDED NOW

“If a viable national rail network is to be maintained in New Zealand, the time for action is now,” says the Rail Freight Action Group.

“There are no doubt several options which the government could pursue in their discussions with Tranz Rail from subsidising track maintenance via Transfund, through specific operating subsidies to full purchase of the network. However it is imperative that the chosen option must focus on economic efficiency and that implies the price paid will be extremely important and a competitive access regime must be the outcome”.

“If the system is allowed to really disintegrate, major freight users will desert rail for other transport systems, wherever they can, and it will then be very difficult to build up viable rail freight services and tempt customers back.”

“Exporters in many western countries, including Australia, enjoy the benefit of efficient rail freight services with competition keeping prices realistic,” says the Rail Freight Action Group.

“In New Zealand we have a monopoly, no competition, variable service, concern about investment in maintenance of the infrastructure and Tranz Rail’s lease on the tracks still has 60 years to run.”

ends

Issued Monday July 22 on behalf of the Rail Freight Action Group by Porter Novelli

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