Rail

Description

Background and history

Like New Zealand's roads, the rail network supports the movement of goods and people throughout New Zealand.

From 1863 when the first railway in New Zealand was opened, rail has experienced an uneven history involving periods in private ownership, as a government department, and as a government corporation. Railway 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 to join 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. Today the most heavily-used and profitable 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 line.

New Zealand's difficult topography, together with budget considerations, resulted in track design, tunnel clearances, steep grades and bridge standards that have constrained the average speed of rail services. In addition, the country's relatively small and highly dispersed population has constrained the formation of economies of density. 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.^[59]

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 a door-to-door service and faster delivery. Rail freight performs more efficiently where there is a need to convey volumes from point to point, such as from a coal mine to a port, and where speed of delivery is of secondary importance to cost. Rail is not as efficient where the freight task is dispersed, requires multiple handling, or is time-sensitive.

Rail also becomes more efficient over long distances, with the exception of short hauls of freight in congested urban areas, such as from sea ports to inland ports, or short hauls associated with the point to point movement of bulk materials. However, the majority (73%) of freight movements in New Zealand are over shorter distances and thus not a natural market for rail.^[60]

In 1980, rail carried approximately 30% of all goods but following deregulation, trucks were able to haul freight longer distances and rail's market share dropped significantly. It now carries about 6% of freight tonnes (but 15% of net tonne kilometres - that is, the amount of freight as measured by a combination of weight and distance travelled).^[61]

A period of restructuring in the 1980s in response to rail's reduced role, including establishment as a corporatised state-owned enterprise, 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 changes 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 4,000 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. Internationally this is not unusual for national rail networks, which often require a certain level of government subsidy. In New Zealand it 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 before the backlog of asset renewal and capital requirements catches up and a choice has to be made between capital expenditure or ceasing operations on parts of the network.

Political and public concern about under-investment in the rail network resulted in Government buy-back of the track network in 2004. Subsequent government concern about an effective ongoing subsidy for the private rail operator, through public investment in the track network, led eventually to full public ownership of the entire rail business in 2008.

Government ownership has resulted in a renewed effort to improve capital assets through capital grants and a government operating subsidy, although the level of investment is not yet sufficient to meet the long-term asset replacement rate for the entire network, or to catch up on deferred maintenance and renewals. Nevertheless, the Government recognizes the contribution that rail makes to New Zealand's transport system and to the economy. The projected growth in the freight task, particularly in agricultural exports and bulk commodities, the increased containerisation of goods, rising fuel costs and capacity constraints on our state highways (and the fact that there is spare capacity on the rail network) all point to a continued role for rail in New Zealand. The difficulty will be determining the viable parts of the network and therefore the appropriate level of investment that reflects and protects this future value.

Figure 23: Historical rail capital expenditure (excluding metro)

Source: KiwiRail