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Tuesday, 4 February 2014

KiwiRail and ports

A MetroPort Tauranga-Auckland container service.
Photo by John Andrew Russell
One of my major areas of interest is transport policy. This is mainly because , as some people know, I'm a bit of a railfan. Unlike many in the railfan community though, I take a fairly commercial view of our rail services - they need to be viable and stand on their own feet. They need to be integrated with the road freight network. Generally, trucks are better at handling less-than-capacity, short haul and time sensitive freight, while rail is better at long distance, heavy and bulk freight (think coal, logs, wood products, fertiliser, milk, etc). There's pretty limited potential in New Zealand for long-distance passenger trains, and I've often thought too much effort and resources have been put into them.

That said, we don't really have a free market for freight transport in New Zealand, and freight being the major revenue stream for rail transport in New Zealand, that puts KiwiRail at a major disadvantage to its competitors.The Government's policy towards KiwiRail reflects this - they've made a major injection of $750m ($250m per annum) into KiwiRail over the past three years. Most of this money has been spent on new locomotives, rolling stock and upgrading infrastructure. This is paying dividends not just in revenue growth, but also in terms of net tonne kilometers (NTKs) of freight carried by KiwiRail.

Looking ahead, this paper on Vote Transport 2013/14 makes for interesting reading. The focus of KiwiRail is to be on "enhancing New Zealand's export competitiveness" by reducing the costs of getting our products to market. This also enables greater flexibility in supply chains. As an example, the Ports of Auckland strike in 2011 resulted in a major shift of volumes from Auckland to Tauranga, helped greatly by the "MetroPort" services (pictured above):
The dramatic shift in volumes exported and imported over Tauranga is a result of the late 2011 strike at Ports of Auckland in which rail played an instrumental role in diverting import and export cargo via Tauranga and other ports. In response to the initial strike notice and subsequent lock out, KiwiRail implemented eight extra trains to bring containers to Auckland from ships diverted to other ports. Mark Cairns, Port of Tauranga Chief Executive, reported “At short notice, it (KiwiRail) stepped up increasing services from MetroPort in Auckland to Sulphur Point from four to six trains per day giving us capacity of up to 636 TEUs per day each way. It continues to offer this service.” As a consequence of this event, Maersk have altered their NZ port rotations with greater emphasis on Tauranga. This would not have been possible without the ability to utilise rail and Port of Tauranga’s Metroport facility to transfer import and export cargo to and from metropolitan Auckland.
Combined with larger ships coming to New Zealand, KiwiRail is well placed for growth because of port consolidation (i.e. major shipping lines not stopping at smaller ports such as Timaru and New Plymouth) meaning that more freight is being carried over longer distances to ports. The paper makes an interesting prediction:
New Zealand will only benefit from the trend to bigger ships with an efficient national rail network enabling aggregation on one or two major ports
One or two major ports would be a major aggregation of our ports. It would mean many of the current smaller ports would be reduced in size and scale, and specialise. Others, such as Timaru's PrimePort, may grow: Port of Tauranga recently bought 50% of PrimePort and are going to establish another rail-served "inland port" in Rolleston, south of Christchurch, which is similar to the MetroPort service. Their aim is clearly to compete with Lyttellton. Ports of Auckland are also more and more constrained in how much they can grow, largely thanks to their owners (Auckland Council) blocking their expansion plans.

This is good news for KiwiRail - although perhaps not so much for the shareholders in the regional ports.