Off track with rail

 

The cost of propping up rail over the past fifty years can probably be totted up but itwould be a disheartening job. Whatever the result the message is likely to be thatrail, in its present form, is not a viable business in New Zealand. There may well be a case for subsidising urban passenger rail services and it’s not thefocus of this article. But it’s well past time to take a hard-nosed look at therail freight business in this country.

Taxpayers areabout to be landed with yet another bill for the rolling stock as thegovernment helps Toll Holdings extract itself from the financial pit it’sfallen into. Why do we keep chucking money at a business that doesn’t appear tostack up commercially?

Rail is potentiallyan efficient way of shifting bulk products over long distance. It’s fuelefficient and also uses less labour than road for every tonne-kilometre offreight. In that sense there’s a business case for rail, but it is probably limitedto a few products and routes. For example, transporting coal from the WestCoast to ship out of Lyttelton and steel from the mill at Glenbrook to the Port of Tauranga may be commercially viable. And there are probably other examples of railbeing the most cost-effective method of getting big tonnages of general freightbetween the major cities.

However, thedisastrous financial performance of rail freight over many decades tells usthat the majority of rail operations run at a loss. That’s generally a powerfulsignal to close the business and do something else with the capital unlessthere is a compelling social benefit associated with running the service.

Now there maybe some arguments why that may be the case – unfair treatment of rail versusroad in terms of public investment is a common one.

Let’s standback and ask a fundamental question. If we were starting from scratch today, wouldwe build all the rail tracks we currently operate? Unlikely! The last genuinelynew rail line we started building was more than fifty years ago in Nelson and thegovernment of the day bravely decided to abandon that project. Rail may havebeen a logical land transport mode over a hundred years ago when it was reallythe only form of land transport system capable of carrying reasonablequantities of goods and people. Times have changed, and technological progressin the motor vehicle industry has far outstripped what has occurred in rail,certainly in New Zealand.

The fact is New Zealand has a very small population and therefore the need to freightlarge quantities of goods over long distances is pretty limited. It seems hard tosee why we would maintain two comprehensive land transport systems for acountry with so few people spread so thinly.

Why notconsider focusing our scarce capital on the road network with more dualcarriage way main roads and allow bigger trucks to travel on these main routes.There’s probably a case for maintaining some core rail routes particularly inthe Auckland, Hamilton Tauranga triangle, and there may well be a case for shortrail links from major milk, meat and wood processing plants to ports. Coastalshipping might be a better way to transport large quantities of general freightaround the country than rail, given the long thin nature of the country and themany existing ports.

One of the problemswith always bailing out rail and encouraging businesses to use it, is that firmsinvest on the basis that rail will be available at reasonable cost. The dairyindustry for instance has developed large scale processing plants, at leastpartly on the assumption that it could transport liquid milk relatively cheaplyover long distances using rail. If that assumption was in fact not valid, andthey knew it, then the industry may have stuck to existing smaller dairyfactories located nearer the sources of the raw milk.

It would bea shame, if, when repurchasing the full train set, the government passes up theopportunity to better tailor our land transport system to the small size of the economy. It is an expensive luxury to maintain two comprehensive and capital-intensiveland transport systems. Freeing up the poorly performing capital that has been tiedup in many parts of the rail network would allow us to boost investment inother key infrastructure or at least put it to more productive use elsewhere inthe economy.

 

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