Q+A: Railway that works will benefit NZ – Mainfreight boss
Q + A
Interviewed by CORIN DANN
CORIN Mainfreight is one of our true global companies, with business in 240 branches around the world. As such, the Auckland-based transport and logistics company is, I think, a good barometer of how business is faring. It’s been a turbulent week with the Chinese stock market plunge sending markets into a panic, so is it time for New Zealanders to feel worried about the economy? Don Braid is the group managing director for Mainfreight. Just before we get to that, I thought I’d ask you about the paid parental leave debate. You employ thousands of people, don’t you?
CORIN 6500 people. You must have a lot of paid parental leave. Do you support the idea of 26 weeks?
DON What wasn’t talked about in those discussions is what the cost is to business, so that’s a problem, and it’s messy. The key for us is to get those women back to work. That’s the key. Not often do they come back to work, and we would like to see them back in the workplace.
CORIN So you’re worried that they take the 18 weeks or whatever it is off.
DON Then they give you a call and say, ‘Thanks very much, but we’re not coming back.’
CORIN But as a general principle, if they do come back, do you support the idea?
DON We’re keen to have them back. We need more of those people we’ve spent a lot of time training and are passionate, energetic Mainfreighters. So we want them back in the workforce.
CORIN Very good. Where do you see things at with the economy at the moment? A lot of worry about the global growth, Chinese growth, and it may drag New Zealand down into a recession. Are you feeling optimistic?
DON We’re an optimistic company anyway. I think if you’re a farmer in this country, you’d be pessimistic. The milk money is one thing. But let’s look at the other side of the fence – you’ve got low interest rates, you’ve got low fuel, you’ve got an exchange rate helping our exporters, you’ve got increasing population and a housing market which is booming. Plus, you’ve now got a government and local council who need to invest in infrastructure for the next 10 to 20-odd years, with huge amounts to be spent. I think we should be positive about the economy.
CORIN Does that positivity translate into growth, though? Can we make it through the dip that we’re going into without going into what they call a technical recession, two quarters of negative growth?
DON Yes, I think so. The problem is we are far too exposed to dairy, and we need to try and find ourselves in different industries to continue that. But this 65 exchange rate with the US has got to help some of those exporters. That’s got to be good for other industry as well.
CORIN On those exporters, though, you’ve got a lot of exposure around the world, particularly to places like America. Do you see that global growth is in a reasonable shape, that there will continue to be demand for our exports?
DON Well, we see growth. And maybe some of that comes from market share as we grow in those bigger economies, but I think in the US we’ve still got a 3% GDP growth being touted as where their levels are at. We’re certainly seeing across Europe and in China there’s still growth there. Is the China growth at 7% or 4%? For us, we’re so small there, we don’t mind if it’s 4 or 7, there’s still plenty for us to do. People still need to eat and drink. The logistics industry normally keeps ahead of the GDP growth.
CORIN Are you seeing any slowdown, though, in your movement? Because that’s often an indicator, isn’t it?
DON Yes, I mean, we’ve seen a little bit. More so in Australia than in those other markets. And we’ve brought upon ourselves our own issues, where we’ve added cost and infrastructure to keep ahead of the growth curve for our business. But certainly, we can see it not being as strong as it was this time last year. But in saying that, we’ve brought a lot of those problems upon ourselves.
CORIN In what way?
DON We’ve added extra cost. In the Australian business, we’ve added about another 150 million of premises.
CORIN So that’s your business?
DON Our business, yes.
CORIN You mentioned about the overreliance on dairy. There’s a debate going on amongst economists and so forth at the moment suggesting—Should the government be incentivising the diversity away from that, finding ways to encourage other industries, or should it be left to the market? Should we just let dairy flounder so that people naturally go into other areas?
DON Dairy is a commodity. It’s going to be up one day, it’s going to be down the next. I guess I worry about asking the government to do those things. Let business get on and do what it does best. Too much emphasis, I think, is on the tech industry. The government’s got one agenda, and that’s to assist the tech industry. That’s not going to help manufacturing, that’s not going to help growth in this country. So I think allow business to get on and do it. Less bureaucracy in the way of young businesses needing to grow. And I think the other thing is for New Zealand businesses to look offshore, to look to those bigger markets. That’s the thing that Mainfreight’s done. And as we’ve gone around the world, those markets are huge. And the opportunities are still there for us. The competition is there, but the bigger the competition, the lazier they become.
CORIN Government puts huge money into what they call beachheads, to try and help companies get into these overseas countries. But it’s obviously not happening enough. What are we doing wrong?
DON I think it has begun to happen. And I think MFAT and NZTE have certainly changed, particularly in the last four or five years. They’re aggressive, they understand Mainfreight; that it’s not just about trade between New Zealand and the rest of the world, it’s about trade all round the world for the Mainfreight offices, and they’re looking to help us wherever they can. There’s plenty of good stories. There’s Fisher & Paykel Healthcare, there’s Icebreaker.
CORIN But there’s not enough, is there?
DON No. We just need more. And a lot of that comes down to the New Zealand businesses having the gumption and taking the challenge and moving offshore themselves.
CORIN I’m interested in your thoughts on the IT industry, because it is held up by the government as one of the success stories. You’re saying too much emphasis there. Where should the emphasis be, then, if it’s not IT?
DON Look to other innovation. Look to other industries that have got the ability to compete on the world stage. It just doesn’t have to be in the tech sector. Too much focus on one area, and I think we see this with the government, I mean, they roll themselves into one particular sector and forget about the others.
CORIN Coming back to the diversity, is the best way to encourage these sectors tax breaks, R tax credits? Do we need more to lead them along?
DON Less bureaucracy. Leave the government out of it. Let the business get on and do it where the market’s at. We start subsidising things, we start to find…
CORIN But some would argue that the market has failed us, because it’s left us in this commodity cycle. We set up Fonterra and we’ve been left vulnerable.
DON We’ve left ourselves in that commodity cycle. We haven’t done anything in the last 10 or 15 years.
CORIN But how long can we wait for the market to do that? Don’t we need the leadership?
DON No, business has to do it. We are in that situation with Fonterra because we haven’t added value products. We’re still selling milk.
CORIN But they will argue they have, in fact, got quite a big brands business now, just perhaps not the scale they need.
DON Well, are they in the same category as the Nestles of the world? I don’t think so.
CORIN Fair enough. I wonder, then, about the Trans-Pacific Partnership deal. Do you see that as a crucial deal, given you’ve got exposure to the American economy, the size of that economy. Do you see that as crucial?
DON I don’t think it’s crucial, but if it helps trade between the countries that we are in, then we’re happy with that. We’ve been able to trade with countries all around the world without those trade deals. But it is quite interesting when you get to those countries and they start talking about free trade agreements and how that stimulates the local business community to talking to you. So if that stimulates that, then we’re happy.
CORIN There are a lot of worries about sovereignty and those sorts of issues with this deal. Have you had a chance to look at it in that sense? Do you worry about any of the trade-offs, or have we given most of that away?
DON Not really. We’re more interested in what we’re going to do with Mainfreight around the world than worrying about whether that’s going to fall over or not.
CORIN On the issue of KiwiRail, for people who aren’t familiar, you have rail and trucking businesses. Are you concerned about what you’re seeing with KiwiRail? Basically, the government’s going to tip in a couple of hundred million dollars a year for the foreseeable future.
DON So they should. The reality is it’s the last corridor that we’ve got to take the pressure off the roads. Mainfreight has increased it’s spend on KiwiRail by 100% in the last five years, six years. And I think that from ’91, when they sold it to Fay Richwhite, there’s been no investment in rail at all over that period of time until the government got hold of it again in 2008. What we need in this country is a transport policy and a transport strategy, and that involves rail, road and ports. And they’re all linked together. We’ve got a railway that’s a fixed cost, and it doesn’t have the volume on it that it needs to have on it. And the port strategy has a role to play with that.
CORIN What about road user charges? Couldn’t we increase road user chargers, disincentivise a bit of the trucking and put it back on rail?
DON Couldn’t we just actually take some of those road user charges that are paid and apply that to the survival of rail, rather than seeing it as a taxpayer-funded benefit?
CORIN Would you be comfortable, though, as someone who’s got a foot in both camps, to shuffle that around a bit, that breakdown?
DON Of course we would. We see that as being the right way to move it. Look, we don’t have a foot in both camps here. The way we see it is that this country needs good transport infrastructure. And unfortunately, we’ve got government ministers like Steven Joyce thinking that this is all about Mainfreight’s benefit. It’s not to Mainfreight’s benefit; it’s actually to New Zealand’s benefit that we get a railway that works.
CORIN Why is that? Is it simply less trucks on the road? What is the benefit really of rail? What’s the difference?
DON You take what we move on rail today and move that back on to road, that would be another 21,000 trucks a year. That’s ludicrous. Our roading infrastructure won’t hold up to that. We’ve got an increasing population. If we had high-speed passenger rail between Hamilton and Whangarei, we’d feed Auckland, we’d take the housing bubble out of the situation.
CORIN But you’re talking billions and billions of dollars of infrastructure to do that.
DON The railway is there.
CORIN But to run high-speed?
DON Absolutely, it’s capable. All we’ve got to do is have a government with a transport strategy that involves that.