KiwiRail Recovery Risks ‘Sinking On Cook Strait’

News Release 31 August, 2012

KiwiRail Recovery Risks ‘Sinking On Cook Strait’

KiwiRail needs to re-think its loss-making inter-island freight operations to have a realistic chance of commercial recovery, says shipping consultant Rod Grout.

Mr Grout said the state-owned operator's latest annual results showed yet again that efforts to regain inter-island rail freight volumes were hindering progress in other areas.

“Because of KiwiRail’s poorly performing assets in this ultra-competitive market, its already troubled $4.6 billion Turnaround Plan risks sinking on Cook Strait,” he said.

“Low revenue and depleted earnings reported for Interislander freight operations are in stark contrast to positive results for bulk import/export commodities such as milk products, logs and coal.

“There are good reasons for this discrepancy but KiwiRail seems determined to prove it can succeed on Cook Strait, despite another year of missed earnings targets.”

Mr Grout said the core problem was continued under-recovery on investments in a heavily rates-discounted market set by in-transit shipping lines.

"That means competing largely on price for full and part container loads between Auckland and Christchurch in attempts to recapture more business.

“But simple economics dictate a rail network with expensive infrastructure and purpose-built ferries costs far more to run than ships sailing directly between ports around the coast.”

No amount of volume growth in this sector would bring profits, as long as the cost of service delivery outweighed revenue returns, he said.

“A salient example of this was $56 million spent last year on one rail ferry for what KiwiRail argued was urgently needed extra freight capacity.

“Yet a year later the same people are blaming low inter-island revenue as a major reason for missing their full earnings targets.”

Mr Grout said the answer was glaringly obvious, if KiwiRail’s owners faced up to competitive realities in the freight transport sector.

“They should focus on overland, intra-island rail links where profits can be made and stop trying to revive an iron bridge relic from the 1960s.

“As each year proves to their cost, rail freight by sea is not a commercial proposition.”

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