Railroaded

For a mere $708m (or about $165 each) we all took proudownership this week of one slightly used rail and ferry network.   Add to thischeque, the money needed for track maintenance and upgrades of rolling stockand the public investment will be well in excess of $1 bn.  

Labour’s buyback of the rail network was the naturalconsequence of their earlier decision to maintain a rail monopoly when Labourbrokered Toll’s purchase of New Zealand Rail in 2003.   In both 2003 and thisyear there has been an element of conservative thinking in the decision makingby the government, where concern for maintaining the status quo has superceded anythoughts about what might be in the best interests of New Zealand.   Just because we have a rail network is not grounds for ensuring its survival, butsurvival at any cost seems to be Labour’s current mantra, and this has influencedtheir thinking on rail.  

It is perhaps natural for people to think of something largeand tangible like the railways as having some intrinsic value in its ownright.   Yet despite their long presence in New Zealand, rail services aresimply a means to an end: shifting goods and people to where they need to go.  In this regard, although superior to the canal boats and horse drawn carriagesthey replaced in the 19th century, rail is a less enticing transportsolution in the 21st century.   Train movements are limited to wheretracks run.   Our topography and the narrowness of the rail gauge limits thespeed of train travel in New Zealand.   The smallness and wide dispersion of ourpopulation limits access to high volume routes.  

The net impact is that rail offers a useful transportsolution to a very limited number of customers: mainly exporters wishing tomove large volumes of products from a focal production point to a port.   AfterSolid Energy, Fontera and a few forestry companies there are not many otherwell-paying rail users left.   And this was probably the impasse that developedbetween Toll and the government.   Any rational business would ceasenon-performing operations and concentrate on areas where demand is highest.   Theseinclude transporting coal from the West Coast to Lyttleton, dairy products toTauranga or Auckland, and wood products from the Bay of Plenty to Tauranga.  These lines and rail services have value to the exporting companies and offerprofitable opportunities to rail services.  

Rail finds it difficult being profitable in other areasbecause rail is not well suited for transporting small quantities to a widerange of destinations.   Even in Wellington where there is a reasonable urbanrail system, no company would consider using rail as a means of distributingproducts around the region.   Even if the price was right, the issue wouldremain about transporting products from the station to their finaldestination.   Road transport dominates because it is a cost effective andversatile means of delivering people and goods to where they need to be.   Thefuel cost is just one, typically minor, part of goods delivery.   Equallyimportant are handling costs and timeliness of delivery.    

There may be some valid arguments for maintaining and evenextending light rail options in urban centres.   If commuter use is sufficientlyhigh, local train services can potentially be profitable.   But even if not,there may be valid arguments for public support given that commuter servicescan potentially ease congestion on roads and in city centres.  

Neither the provision of local commuter services nor bulkproduct transportation requires the maintenance of a monopoly national railservice.   Transporting coal across the South Island does not have to beprovided by the same company that shifts dairy products in the North Island.   Indeed there seems little reason why the large exporters involved could not makeprivate arrangements about who provided rail services.  

The issue facing exporters to date has been that railservices have been government ordained monopolies.   The arrival of KiwiRailwill not change the choices facing companies like Fonterra.   It is either dealwith the rail monopoly or use road transport.   The rail monopoly simply has toprice to a point below what would make road transport viable.   There is littleincentive for them to price any lower – indeed the incentive will be to gougeour major exporters for as much as possible in order to cross-subsidise rail’sother loss making operations.

Taking ownership of rail also creates unnecessary conflictsof interest for the government.   For example, any increase to road user chargesor fuel taxes will directly benefit the rail business.   This exposes thegovernment to criticism that transport policy is being set for the benefit of KiwiRailand its principal sponsor, Labour, and not the general welfare of NewZealanders.

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