Transport: Rail

Description

Background and history

99. Like roads, New Zealand's rail network supports the delivery of freight and passenger movement services (an overview of the network is provided in the Analysis section that follows).

100. Rail has a history that involves periods in private ownership, as a government department, and as a government corporation. The first railway in New Zealand was opened in 1863. Lines were initially built by provincial governments and tended to be fragments of rail connecting ports to the hinterland. In 1876, these fragments were brought under central government control, and a century-long process began of joining them together into a single national network. Initially, moving people between urban centres was the primary motivation for creating this national network, while moving freight long distances was only a complementary use. Even today the most heavily-used parts of the network involve relatively short distances (e.g., Auckland to Tauranga, or the West Coast to Christchurch), rather than the entire main trunk lines.

101. New Zealand’s difficult topography, together with budget considerations, resulted in the adoption of a narrow-gauge track standard, which has constrained the average speed of rail services ever since. In addition, the country’s small and highly dispersed population has mitigated the formation of economies of density (running more trains on existing tracks). Since rail has high fixed costs (the tracks, formations, signalling systems) and low variable costs, it tends to benefit more from economies of density than economies of network size (creating more tracks to attract more freight).[24]

102. As New Zealand’s road network grew in parallel with the rail network, the former began to offer better connectivity and economies of scope. Road transport can provide door-to-door delivery and a speed of delivery that rail struggles to match. In addition, the majority of freight movements (73 per cent) are over shorter distances within regions and thus not a natural market for rail[25], which becomes economic only over long distances.

103. In 1980, rail carried approximately 30 per cent of all goods but following deregulation, its market share dropped significantly. It now carries about 6 per cent of freight tonnes (but 15 per cent of net tonne kilometres).[26]

104. A period of restructuring in the 1980s in response to rail’s reduced role led to significant changes in the business: staff numbers reduced dramatically between 1983 and 1991, and productivity doubled. Private ownership from 1993 resulted in further improvements and, nominally at least, operating profits. From a government department of some 20,000 people in the 1970s, KiwiRail now runs a similar level of freight operations with around 3,500 employees. Despite these efficiency improvements, successive owners (whether private or public) have still failed to generate sufficient revenue to cover the long-term capital costs of the rail network. This has resulted in the running-down of physical assets through reduced investment in maintenance, renewals and upgrades of both the track infrastructure and the rolling stock. Because rail assets are long-lived, the business can continue for some time, albeit unsustainably.

105. Political and public concern about under-investment in the rail network resulted in government ownership of the track network in 2004, and consequent subsidisation of the private rail operator (through public investment in the track network) led to full public ownership of the entire rail business in 2008.

106. Government ownership has resulted in a renewed effort to improve capital assets through a government subsidy and capital grants, although the level of investment is still not enough to meet the long-term asset replacement rate.

Assets

107. The size of New Zealand’s national rail network has changed little since the early 1990s, and is approximately 4,000km.

108. There are four main parts to the rail network:

• A national freight network, carrying a range of goods but with a comparative advantage in the transport of bulk commodities such as coal, milk, logs and steel. It also has a role in moving containerised import/export goods to and from major ports, long-distance transport of containerised goods, and general (inter-modal) freight between major cities;
• An interisland ferry service, which is part of the KiwiRail business primarily because of its strategic role in transporting rail across the Cook Strait, acting as a link in the national rail network. However, the bulk of interisland ferry revenue (79 per cent) comes from commercial road freight, passengers and their vehicles, rather than from rail;[27]
• A long-distance passenger service, the primary focus of which is providing a domestic and international tourism experience; and
• Two metropolitan passenger networks, in Auckland and Wellington, which are supported by ratepayer, taxpayer and road-user subsidies on the basis that reduced congestion and/or increased mobility of commuters brings social, economic and environmental benefits.

109. While the four parts of the business have some common costs and share parts of the track network they can, for the most part be viewed quite separately. For example, the metro rail services are predominantly contracted out by the two regional councils, and utilise special-purpose infrastructure not needed by freight rail operations. In addition, at peak times, metro services actively compete with and crowd out freight services on the parts of the network they share.