Q+A: Corin Dann interviews Jim Quinn
Q+A: Corin Dann interviews Jim Quinn
Q+A understands the Gisborne-Wairoa line is to be
mothballed following the slip. Quinn won’t confirm,
however, saying, “Our responsibility is to look at the
commercial aspects of the challenge.”
Kiwirail
CEO paints bleak picture for passenger services in New
Zealand, says freight’s where the money’s at; he won’t
use that to subsidise passenger rail
“There’s
no doubt at all getting the freight business right is what
will create the sustainable railroads… There is no other
business I’ve got that has the potential to put the
margins in that we need.”
“There is an
opportunity for the passenger business, but… it can’t be
run from some emotional view that it’s cool to have a
scenic train.”
Quinn backs Chinese locomotives,
says he doesn’t regret the deal: “These locomotives have
done 2 million kilometres on the track…. and without these
locomotives in our fleet, we simply wouldn’t have
coped.”
Says the locomotive failures aren’t
“costing us at all”; Labour’s wrong to claim
otherwise.
KiwiRail’s freight revenue up 25% in
past two years and market share is growing.
“Our customers are not seeing service failure.
They’re seeing us improving every day.”
KiwiRail has cut investment into the track by about 200
million over the next three years, spending less on assets.
“We also, though, have a very clear mandate.
Our job is to sit down and make the right commercial
calls.”
Backs ferry service to Clifford Bay:
“It’s an obvious thing” in terms of bringing Auckland
and Christchurch closer.
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Q + A
CORIN
DANN INTERVIEWS JIM QUINN
GREG New Zealand
Railways, Tranz Rail, Toll, now KiwiRail. Whatever the
name, our rail network has a long and proud history. But
is KiwiRail going off the rails? Does rail even have a
future in this country? This past week Labour released a
leaked report confirming major problems with the cheaper
Chinese trains that arrived here in 2009. So many
problems, in fact, that KiwiRail isn’t taking the second
batch of locomotives due at the end of the year until they
are sorted out. Labour MP Clare Curran says the report
vindicates her concerns that New Zealand bought cheap and
got cheap and signed the death warrant for Dunedin’s
Hillside Workshops in the process. It’s the latest in a
string of bad news stories for KiwiRail, so its chief
executive, Jim Quinn, is with political editor Corin Dann in
Wellington.
CORIN
Thank you, Greg. Good morning, Jim.
JIM QUINN – KiwiRail Chief Executive
Good morning, Corin.
CORIN Could we
start with these Chinese locomotives? Do you regret now
having gone with the Chinese?
JIM
No, I don’t at
all. Look, we’ve— we’re in the middle of our plan.
One of the things we’re trying to do is to renew our
rolling assets. We’ve been buying diesel locomotives
offshore for years and years and years, so, you know, the
‘60s since we’ve been buying them. One of the
challenges KiwiRail has is that every locomotive we’ve
bought -- because of the big gaps between times that we’ve
bought them -- have effectively been a bespoke build, so we
have to design them from the wheels up. And we design them
into a very tight envelope, so both the weight we can afford
to have them be on our tracks and the size of them means
that we’re compressing a lot of technology—
CORIN How much does
it costing you, though, the repairs here? Because Clare
Curran argues, for example, that the alternators are stuffed
in some of them and you’re going to have to spend $5
million, you know, getting right into the engine to fix
them.
JIM
Oh, that’s just
not true. The manufacturer has stood behind these all the
way through. They’re continuing to, so we’ll work with
them to finalise any of the issues we’ve got and to put
them straight. So this isn’t costing us at all. I’m
not sure where Clare got that.
CORIN But is it
costing you time? Is it slowing down what you’re trying
to achieve with this whole turnaround plan? Because
you’re having to wait now to fix these things up.
JIM
Sure, we’d like to be moving faster if we could,
but let’s be clear. These locomotives have done 2
million kilometres on the track. They’ve done 15,000
services. We’ve just got through a busy summer peak,
Fonterra’s busiest year and the Auckland Port strike, and
without these locomotives in our fleet, we simply wouldn’t
have coped. We didn’t cope the year before, so, you
know, the illusion that these things are somehow slowing us
down is wrong. Are there issues? Yes, there are. Do
you expect to have some? Yes, you do when you do a bespoke
build. And what we’re working through is a very
structured programme to put them right and to ensure that
we’ve got a product from here on in.
CORIN Everyone
would accept that there was going to be problems with big
engines like this, but is there more of a problem? Is it
something that’s actually— I mean, have you bought for a
price rather than quality, as is the argument from the
critics?
JIM
Yeah, I don’t
think that’s fair at all. We buy based on a set of
criteria, and we then settle the price, assuming that that
criteria is met. There are certainly more issues here than
we would have liked. We would have liked none, so that’s
obvious. And anybody sensible would have wanted that. But
they’re running every day, they’re hauling the freight
we need to haul every day, and they’re getting the job
done. Our customers are not seeing service failure.
They’re seeing us improving every day. We measure faults
very carefully so that we get these things right, but
they’re not translating into the marketplace.
CORIN That’s
interesting you mention the customers because isn’t there
a danger here that the last thing you need is any
public-relations disaster around the quality of your rolling
stock? Because you need to improve that to make sure
customers stay with rail.
JIM
Absolutely, so
we’ve grown the freight revenue in the two years we’ve
been implementing the plan – 25%. We’re growing at
about $30 million to $40 million a year. Any company would
be happy with that growth rate. Our customers are
committing. If I talk to my customers about how we’re
going overall, they would say we’re better to deal with,
they would say we’re servicing on time more often, we’re
more reliable, we’re more predictable, and we’re a more
important part of what they’re trying to do. They would
quickly add, ‘We’re frustrated, though, because this
takes a long time to turn this thing around.’ And
that’s true. This is a long job. This is going to be a
10, 15-year job before we’ve got this all right, and
we’re trying to do it while we’re running in real life,
so— But the customers are saying to us we’re working
well, and they’re committing with their own funds.
CORIN All right,
the turnaround plan’s been in place for two years now.
You started out with, I think, an 18% market share in terms
of freight. Have you lifted that yet?
JIM
Well, we’re growing, and we’re growing well.
CORIN Is it
bigger than 18?
JIM
Well, the measure
of the market share is really really hard to be precise
about.
CORIN
Because that’s the key, though, isn’t it? I
mean, you need to get that— You used to have 60%. You
need to get that back.
JIM
I’m not sure we
ever had 60%, unless it was when it was totally regulated
and nobody else was allowed to move freight. But, look, we
are very clear at what we’re good at, and we are growing
in the markets we’re in. We’re a line-haul provider to
industry. We’re no longer in the road space at all, so
we’re able to get alongside our customers well, work with
them and provide the services they want. The market are
committing really well. Do we want this noise out there?
No, we don’t. And that’s— But our view would be that
our customers weren’t seeing the impact of the
commissioning of these locomotives at all. We’d managed
this extremely well.
CORIN But I’ll
just come back to the point of the market share, though,
because you’ve clearly— in your turnaround plan,
you’ve identified freight as the key area where you can
make this business profitable.
JIM
Yeah.
CORIN Surely, two
years into a 10-year plan, you would be making progress.
Have you increased that market share?
JIM
We’ve grown the
business 25%. We know that’s way outstripping the
market, so our market share has grown. My comment only was
the exact measure of market share is quite hard to get
right, because we’re a line-haul operator and the markets
are quite ill-defined. But at the growth rate we’re at,
there is no way in the world we’re not growing our share.
CORIN Okay,
if I could come to the issue of infrastructure, jobs,
investment? There seems to be a contradiction here. On
the one hand you’re investing $750 million over three
years into this company, but yet you’re also cutting
staff. Why?
JIM
Well, firstly the
750 million is the equity our shareholders have given us
over those three years. We’ve invested far more than
that, and we’re going to continue to invest. Over the 10
years, we’ll invest a little over 4 billion into the
railroad and another three into the metro railway. So
we’re spending a lot of money out there. What this is
about is getting the network up to the standards to enable
us to be able to be sustainable for the very long term.
When we came in what was clear was the business couldn’t
trade its way out of the difficulty it was in. It needed
to be able to invest to get on top of the hump and then to
be able to sustain—
CORIN Did it also
need to be able, though, to make a workplace conditions—?
Do you need more flexibility? Do you need to reduce
wages? Is there something going on here as well?
JIM
Oh, look, we’re looking at every part of what we
do and every part of the business. It’s important when
we come out of this plan we’ve dealt with everything. We
need to be competitive. We need to be sustainable. What
the cutting of the roles is about is because we’ve
reviewed our plan. We reviewed it based on what we’ve
achieved so far. We’ve reviewed it on the fact that the
market has changed around us, and we know a lot of things
that changed in the market over the last 12 to 18 months.
So we’ve sat down and we’ve said, ‘Well, we’re going
to need to prioritise and spread this out a bit longer,’
so we’ve cut our investment into the track by about 200
million over the next three years. That means we’re
going to do a little less over that time. Those jobs will
still be—
CORIN
Can you give some specifics? What sort of
investment will you be—?
JIM
I don’t have a
list of those, but we’ve looked at all the priorities
we’ve got, and we’re just reprioritised those based
around the demand we’re seeing, what we really need to do,
which bridges we need to do, which parts of the track we
need to refurbish. It’s those sorts of things. It’s
lots and lots—
CORIN Isn’t that
exactly the problem that we had under the last private
owners – that they weren’t investing in that
infrastructure, and then it got you guys into trouble having
to fix it all up?
JIM
Oh, no, that’s
not fair. We’re cutting our investment over three years
by 200 million. We’re still going to spend 750 million
over those three years on the track alone, so we’re still
spending capital at a rate far more than was being spent in
’04, ’05. Far more than was being spent in ’98 and
’99. So this is not about going back to ‘let’s not
spend any dough’. This is about making sure we
prioritise well, making sure we cut the cloth to suit the
circumstances we’re in. We can’t live in some vacuum
when the world descending around us and our government has
only a limited amount of funds and pretend that there’s
just some unlimited amount of money available. We have to
get this right, and we need to craft the plan around what
the market needs.
CORIN That’s
interesting, because you’re effectively going to become a
SOE, aren’t you, I mean, with this—?
JIM We
are—
CORIN
With the change in structure, you’ve become an
SOE. Do you have some social responsibilities with that
role? Does it make your job actually much more difficult
to turn this company around? Because you have to give
some, I guess, account to the communities, to workers, all
those things that perhaps a private company wouldn’t.
JIM
Oh, well, I don’t think any company that’s an
infrastructural part of the country can say it has no social
responsibility regardless of who owns it, so we have to take
into account what we do in communities. We cut communities
in half with our tracks, we’re associated with all the
communities. So we have community responsibility in our DNA
regardless of our ownership, and of course our ownership
gives us some. We also, though, have a very clear
mandate. Our job is to sit down and make the right
commercial calls, prioritise this right so that we deliver a
business that stands on its own feet.
CORIN So let’s
just talk through a couple of examples of those. So,
Hillside Engineering – unions and Labour would argue that
you weren’t thinking of the community at all there. You
could have actually kept that place afloat with building
some engines there.
JIM
We could do that,
but that would require us to spend a huge amount more money
than we’re spending now. So we’ve got to balance the
commercial priorities and what is the right way to get this
done with what we’ve got and make the right call. So
we’re— You know, nobody said these calls were going to
be easy. Nobody said getting this right was going to be a
simple task, but we’ve got to make the right calls and
we’ve got to get it right. Nobody’s going to thank us
for turning round in 10 years and going, ‘Well, it still
needs truckloads of dough. It’s never going to stand on
its feet because we just simply didn’t deal with what’s
in front of us.’
CORIN What about
Gisborne – the Gisborne line? Have you made a decision
on whether you’re mothballing that line?
JIM
We’re working through the process on that
We’re working with the agencies around us, and we expect
to be able to announce what the answer will be on that.
Again, our responsibilities are very clear. Our
responsibility is to look at the commercial aspects of the
challenge. Our job is then to work with our shareholder
and the agencies around them for them to cast the political
or social lens over that. And I think keeping those two
responsibilities crisply apart means you make the calls for
the right reason, rather than some grey sludge where you
don’t actually really understand the consequence. So,
you know, all parties have the right to do what the right
call is from their lens, at the end of the day, we’ll do
what we’re asked to.
CORIN The fact is
you’re prioritising here around freight and the main trunk
line. There isn’t much future for passenger-tourist type
operations, the smaller trunks, is there? I mean, you need
to concentrate on this if you’re going to turn this
business around.
JIM
There’s no doubt
at all getting the freight business right is what will
create the sustainable railroads, so that is our first and
foremost task. There is no other business I’ve got that
has the potential to put the margins in that we need.
There is an opportunity for the passenger business, but
it’s got to be managed well, it’s got to be looking at
where the real opportunities, and it can’t be run from
some emotional view that it’s cool to have a scenic
train—
CORIN
Is it profitable? Is the passenger part of the
business—? Taking metro out, the passenger – the
long-haul passenger?
JIM
Well, I was
surprised as probably a lot of folk when I came into this
role to find that we only have six passenger trains in the
country, and three of those – the other one going back.
So it’s not like it’s a very big business.
CORIN And you’re
saying you won’t tolerate, you won’t subsidise that part
of the business by a profitable freight business?
JIM
That’s right, so our job is not to subsidise at
all. So, the passenger business was making money prior to
the Christchurch earthquakes, given two of the trains
emanate from Christchurch. Those two services have been
hit hard. We’ve just relaunched the Northern Explorer,
and we’ve got time to see now whether that will come
right. It certainly wasn’t making money before the
relaunch. The feedback we’ve got from the people who
have experienced it is great, so I encourage folk to get on
it.
CORIN
But you’re saying it’s down to some other
operator to come in and run these. You don’t want these
passenger parts?
JIM
It’s not that we
don’t want it. What we’re trying to do is make sure we
focus our energy and our time into the area where we can
make the most gains. And if others can do more around us
and continue to grow those as well, then the whole railway
works better.
CORIN
Do you personally think that there is any future
for those passenger lines in New Zealand, given our
geography and how difficult they are to run?
JIM
Well, I mean, New Zealand has always been an
attractive tourism destination. So there’s no doubt the
TranzAlpine particularly is a world-class train. It’s
made money repetitively, and it still does. So that train
is good. The Coastal Pacific has been more challenged, and
the Overlander when it was around simply had too much cost
around it. So as I said, we relaunched the Northern
Explorer.
CORIN Sure.
JIM
There is some opportunity there, but it’s
important we understand it and get it right.
CORIN So you would
sell those if you could?
JIM
Oh, we’d be
happy to work with somebody who could bring more energy to
it and put some real focus on growth in that, but that has
to be for the deal. It has to bring more value to the pie
rather than just because I don’t want to do it. That’s
the wrong reason to invest. So we haven’t made a deal.
We will work through what the right answers are, but it’s
about making sure that somebody can come in and add more
value than we are at this time.
CORIN A couple of
quick things. In terms of the time you need to cut down
between Auckland and Christchurch – that’s a 13-hour
trip – you need to take two hours off that. Have you
done that yet?
JIM
We’ve taken an
hour out quite comfortably, and we’re running now. Our
first goal is to really get reliable, and our premium
trains, the ones that our customers put the most urgent
freight on, are running on time pretty much all the time.
CORIN Do you
need Clifford Bay, though? Is that something you want the
Government to do?
JIM
Oh, Clifford Bay
is something that takes some sailing time out and takes some
road and rail time out, so that’s a New Zealand Inc type
project that has some productivity benefits. From
KiwiRail’s perspective, at the end of the day, we’ll
sail to where the port is and we’ll put the stuff on
trains and trucks after that. So does it make sense in
terms of bringing Christchurch closer to Auckland? Sure.
It’s an obvious thing at that level, but somebody is
working through what the business case would be. And as I
say, this is a New Zealand Inc project which rail, like
road, would benefit from.
CORIN Jim Quinn,
that’s a nice place to leave it. Thank you very much,
Jim Quinn from KiwiRail.
JIM
Cheers.
ENDS