The Great Rail Revival: Why it's time to get rail back on track

by Rebecca Macfie / 10 December, 2017
Wayne Butson, union leader and former train driver. Photo/Hagen Hopkins

Wayne Butson, union leader and former train driver. Photo/Hagen Hopkins

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At a time when we need to be cutting carbon emissions and road congestion, rail’s relevance has never been greater. 

Wayne Butson – railwayman, union boss, road-user – says it’s a constant refrain: “Those bloody trucks! Why can’t we get more of that freight onto trains?”

There’s a standard set of complaints: the over-bearing presence of huge trucks, difficulty overtaking, close calls.

He’s had a couple of near-misses himself. Once, near Rotorua, a logging truck was coming downhill towards the car he and his wife were travelling in when a log broke loose, flew across the road and took out a ­retaining wall. “If that had been us, we’d have been goners.” Another time, a truck carrying a shipping container rolled in front of him. “They told me later that the load had shifted inside the container.

“You just think, ‘Why is that stuff even on the roads?’”

Butson, a former locomotive driver who has been general secretary of the Rail and Maritime Transport Union since 1999, would say that. His adult life has been spent either working for New Zealand’s national rail network or negotiating on behalf of its employees. During his four-decade career, the railway has been slashed from 22,800 workers to 3400, has bounced from government ownership to private and back again, its infrastructure has been run down, and its very existence has been regularly called into question.

At the same time, the trucks plying our roads have got bigger and been permitted to carry heavier loads, the road transport industry’s share of the freight market has steadily grown and vast sums of money have been spent on bigger, better highways. Some $12 billion has been ploughed into the former National-led Government’s flagship Roads of National Significance – seven massive multi-lane projects around Auckland, Tauranga, Hamilton, Wellington and Christchurch that received priority funding because they were deemed positive for “economic growth and enhanced productivity”.

The North Island’s Northern Explorer passenger service. Photo/KiwiRail

The number of vehicles – including cars and trucks – on the roads has increased 44% in the past 15 years. As a nation, we have one of the highest rates of car ownership in the world, and most of the time the driver is the sole vehicle occupant.

Little wonder, then, that New Zealand’s greenhouse gas emissions from transport have soared 78% since 1990, and – despite all that highway building – congestion on the roads is getting worse (up 43% between 2008 and 2016, almost twice the global rate of increase). And, after years of improvement, the number of deaths on the roads has been rising over the past four years.

And yet our national railway – part of New Zealand’s economic infrastructure since the first tracks were laid in the 1860s – has, until very recently, had few friends in high places. In a 2014 review of KiwiRail, the Treasury told the then Government that it would be cheaper to shut the whole rail freight ­network down rather than keep tipping taxpayer money into it. Even after taking into account the social and environmental impacts, the Treasury reckoned that closure would create an economic benefit of $150-232 million.

Having injected tranches of short-term funding totalling about $2.1 billion into KiwiRail’s national network since it was bought back from private ownership by the former Labour Government in 2008 – on top of $1.4 billion to upgrade commuter rail in Auck­land and Wellington – the National-led Government was keen to “materially reduce” the flow of taxpayer subsidies into the company, which can’t generate enough revenue to maintain and upgrade its infrastructure of tracks, tunnels, bridges and control systems.

As it turned out, the subsidies continued. In the 2017 Budget, the then Transport Minister Simon Bridges endorsed the “important role” of rail in New Zealand’s transport system – noting that KiwiRail’s freight network takes a million trucks off the roads every year and that there are more than 27 million commuter trips in Auckland and Wellington each year. He committed a further $450 million over two years to support KiwiRail’s efforts to upgrade the freight network. But there was a proviso: there would be yet another wide-ranging Treasury-led review to figure out the “purpose of rail”, possible funding mechanisms, and how to minimise the amount of Government money it needed in future.

Photo/KiwiRail

Rational and neutral

But in October, the keys to the Beehive changed hands, and the narrative about the place of rail in New ­Zealand’s economic landscape has also changed. “Rail is a strong theme, and will be a strong theme of this Government,” said Prime Minister Jacinda Ardern shortly after the coalition deal with New Zealand First was sealed.

Transport Minister Phil Twyford told the Listener: “The goal is a more rational and mode-neutral approach to funding our freight transport system so we can get the best out of road, coastal shipping, rail, inland hubs and all the bits that connect the system together. Because if you just throw all the resources into one mode – that is, roads and trucking – you are missing out on all sorts of efficiencies.

“The high-level goal is to build a more efficient and resilient and environmentally sustainable transport system. That last bit is important, because reducing carbon emissions is one of our most important goals, and transport is one of the areas we can make the biggest gains.” So are we about to witness the resurrection of rail?

The first dollops of new taxpayer spending on the railways have already been tagged, with the Government agreeing to the NZ First policy of upgrading the line from Auckland to Whangarei and building a spur line to Marsden Pt. The Northland line, which carries just one freight train a day in each direction, is in a state of disrepair and will be refurbished and tunnels enlarged to fit containers (estimated by KiwiRail to cost about $100 million). The new line to Marsden Pt, which was planned decades ago but never built, is expected to cost $200 million. Further upgrades to bring the Northland line up to the standard of, say, the Palmerston North-to-Napier line would cost about $200 million over 15 years, KiwiRail estimates.

Photo/Alamy

Photo/Alamy

And if NZ First leader Winston Peters’ bid to have the Ports of Auckland shifted to Whangarei comes to fruition – subject to a promised feasibility study – another $2-3 billion in investment in the line would be needed.

A new $1 billion regional investment fund will also be set up, with regional rail one of its key targets.

NZ First’s Shane Jones, Associate Transport Minister (responsible for KiwiRail) and Minister for Regional Development in the new Government, says his party has a “passion for the utilisation of rail” and sees it as an enabler of growth in the regions.

“There’s always a philosophical debate. Do you wait until the traffic is so stacked up it’s trying to drive over each other, or do you take the decision this is a one-in-100-year project? This is a matter that has been subject to an election contest, and we are going to invest in the infrastructure and get ahead of the curve.”

Backing up the coalition partners’ fondness for rail is the Green Party. Its confidence-and-supply agreement with the Government includes a promise to “substantially increase” investment in rail, as well as in sea freight, public transport, walking and cycling. This includes a deal to “reprioritise” the National Land Transport Fund (NLTF) to increase the amount of money going into non-roading infrastructure, including regional and city rail.

Source: Ministry of Transport

Measuring the benefits

The top brass at KiwiRail could be forgiven for feeling the effects of policy whiplash. After years of slashing costs, writing Budget bids begging for essential capital and explaining to politicians why it is unable – like most railways around the world – to fully fund the maintenance and modernisation of its infrastructure out of the money it makes from freight and passengers, they are entering a new world of political largesse.

But it will take more than rhapsodic talk from the Beehive and favoured projects in certain regions to get a substantial number of those “bloody trucks” off the road and onto rail, lift KiwiRail’s share of the freight market above the present 16% and make a material contribution to New Zealand’s greenhouse-gas reduction efforts.

At the root of the problem is how to value the services that rail provides to the economy, the environment and community, and figure out a rational way to pay for them that avoids the risk of squandering large sums of public money on projects that make little environmental or economic sense.

The New Zealand Transport Agency collects about $3.5 billion a year from road-user charges, vehicle registration fees and fuel excise taxes. This money goes into the NLTF and is spent on state highway improvement and maintenance, co-funding of local roads, public transport subsidies in the cities, road policing, and walking and cycling projects.

However, KiwiRail can’t tap into the NLTF for rail infrastructure, and the road transport lobby has long been determined to keep it that way, arguing that the taxes and fees paid by motorists and truckies should be ploughed back into roads.

Within this transport funding model, the Roads of National Significance have been a breed apart, attracting big gobs of cash despite the fact that many cost more to build than they are expected to generate in economic benefits. A 2013 analysis by Michael Pickford, a former Commerce Commission chief economist, found that the average benefit-cost ratio for road projects had declined sharply thanks to the introduction of “nebulous” concepts such as “strategic fit” into the funding criteria.

Source: Ministry of Transport

In the past, projects had to meet a benefit-cost ratio of four – in other words, $4 of economic benefits (such as reduced travel times and fewer accidents) for every $1 of cost. But by 2010, the average benefit-cost ratio had fallen sharply to $2.46 for every $1 spent, Pickford found. Some Roads of National Significance went ahead with even lower ratios, including Wellington’s Kapiti Expressway, which had expected benefits of just 95c for every $1 spent – in other words, at an overall cost to the economy.

Even the $1.4 billion Waterview tunnel, which has cut Aucklanders’ commute and airport travel times since it opened this year, went ahead with a benefit-cost ratio of only $1.15 for every $1 invested.

The Roads of National Significance are built to the highest safety standards. But Sam Warburton, a research fellow with think tank the New Zealand Initiative and a former Ministry of Transport analyst, says they are “relatively lightly travelled compared to the cost incurred in constructing them”. With the road toll rising steadily since 2013, he says, some of the billions spent on these highways may have been better invested in targeted local improvements and risky black spots. He cites Ministry of Transport advice to this effect, which noted road safety improvements with high benefit-cost ratios were going unfunded.

At the same time as the funding hurdle was lowered for big highway projects, the Land Transport Management Act – the sector’s guiding legislation – was amended in 2013 to remove the explicit requirement for sustainability to be considered.

Rail advocates say these changes have effectively served as a subsidy for the trucking industry and added to the difficulties KiwiRail faces in competing for freight business even in the context of rising concern about climate change and an increasing awareness of the potential role of rail in reducing greenhouse gas emissions.

Whereas the rail network carries 16% of freight (by tonne-kilometres), it generates only 0.2% of national emissions. In a 2016 report, the Royal Society of New Zealand noted that a tonne of freight moved by diesel-powered rail produces a third of the emissions the same tonnage going by truck would yield. It identified shifting more freight from road to rail or coastal shipping as a major opportunity for carbon dioxide reduction.

KiwiRail boss Peter Reidy. Photo/Simon Young

KiwiRail boss Peter Reidy. Photo/Simon Young

Paying their way

But KiwiRail has been quietly amassing more sophisticated evidence to advance the cause of rail over the past year or so. A detailed report by the consulting firm EY has looked at the full suite of benefits generated by rail, including lower emissions, fewer road accidents, reduced congestion and less road damage from heavy vehicles.

Using what the company describes as conservative assumptions to calculate the economic value of these factors, EY concludes the rail network is worth about $1.6 billion more to the country than its business earnings and the government subsidies it receives.

The report was completed more than a year ago but has only now seen the light of day. It was funded by NZTA, and KiwiRail chief executive Peter Reidy says the Treasury has reviewed and signed off on the ­methodology and assumptions used. But the report’s conclusions differ markedly from those reached by Treasury three years ago, when it told the then Government the country would be up to $232 million better off if it shut the whole shebang down.

Most of the assessed benefits of rail are in the form of avoided congestion and time delays on the roads. EY puts that at almost $1.4 billion, of which more than $200 million is attributed to rail freight, and almost $1.2 billion to passenger train services in Wellington and Auckland, where patronage has soared in recent years after the upgrade and electrification of commuter services.

EY says if rail was shut down, road maintenance costs would increase by $64 million a year, and an additional 500,000 tonnes of CO2 would be pumped into the atmosphere. In addition, it calculates there would be 271 more injuries and deaths in road accidents.

The problem for KiwiRail is that none of the virtues identified and costed by EY generate an extra cent in revenue for its business, either from its customers or through Government support. At the same time, unlike trucking companies, it’s responsible for owning, maintaining and upgrading its own “road” – the core infrastructure of tracks, bridges and tunnels. As a state-owned enterprise, it is expected to make a commercial return on assets, which it has proved year after year that it is unable to do.

This conundrum is not unique to New Zealand or to KiwiRail. Very few countries make money out of their railroads and they are typically supported by local, regional and central government money, says Reidy.

“That’s what brings you to this whole ­conversation about the value of rail. We are criti­cal infrastructure, providing resilience, just as roads do. You have to look at it as part of a whole system. So you have to talk about the infrastructure [‘below rail’] and the ‘above rail’ business. On the above-rail business, we make a margin of 15%, and we are improving those ­margins. We’ve dropped staff by 1000 people and made $40 million in productivity savings.”

Adding to the difficulties are accounting quirks that reinforce the impression that the company is a financial cot case. Because it doesn’t earn its cost of capital, it has to write off everything it spends every year on capital expenditure. This year, for instance, Reidy says the $90 million spent reinstating the line destroyed by the Kaikoura earthquake has to be written off in the 2017 annual accounts, even though no trains were able to run on it during the period.

The Christchurch-Greymouth TranzAlpine. Photo/KiwiRail

The Christchurch-Greymouth TranzAlpine. Photo/KiwiRail

On top of that, New Zealand’s long, thin and hilly geography, and its narrow rail gauge (a legacy of rail pioneers who found it easier and cheaper to carve a skinnier track through mountains and bush than wide gauge would have needed), makes it a “very expensive” place to run a railroad, says Reidy. The narrow gauge limits axle weights, which in turn limits the tonnage that can be carried and means containers can’t be double-stacked. Narrow tunnels built up to 140 years ago are a further constraint on freight loads.

It also lacks the economies of scale of a country like Australia, where rail carts vast volumes of bulk commodities such as coal and iron ore across big distances. In contrast, New Zealand’s freight tends to be lighter, more volatile and travels shorter ­distances. Notable exceptions are coal from the West Coast, and milk powder, with Fonterra a big user of rail.

And then there are the consequences of underinvestment that have to be dealt with if the rail system is to have any hope of grabbing a bigger share of the freight market. The profitability of rail has been in decline since the 1920s, as steel-on-steel technology was overtaken by better roads, trucks and planes. But most observers blame the era of privatisation for KiwiRail’s burden of deferred maintenance and upgrades. As the Treasury has put it, after the network was privatised in 1993 for $400 million, the railroad’s assets were “harvested” to improve cash flow.

In 2002, the then Labour Government bought back the Auckland metro rail network for $81 million, and two years later took over the remainder of the national track network for $1. Five years later, in dispute with then-owner Toll Holdings over track access charges, the Government bought back the “above rail” business for $690 million and renamed it KiwiRail.

Northern Explorer services. Photo/KiwiRail

Northern Explorer services. Photo/KiwiRail

Butson says that in the years since, KiwiRail has committed a number of ­“catastrophic own goals” that continue to stymie its operations. One of these was the 2009 decision to buy new diesel locomotives from Chinese manufacturer CRRC. They were the first new additions to the freight fleet since the 1980s, but Butson says the machines chosen were “old 1970s technology” that use traction motors instead of alternators, and lack electronic braking – standard in modern engines – which allow longer trains to be safely pulled.

Former KiwiRail engineer Randall Prestidge agrees with Butson, saying the Chinese machines rely on technology of the same vintage as the old machines they were replacing, which were built in 1972.

The locomotives were unreliable from the minute they were pressed into service. Then it was discovered they contained asbestos, triggering a disruptive programme of removal.

KiwiRail has continued to buy new locomotives from CRRC, and although Reidy says the later iterations of the machines have proved much more reliable, Butson says their average mean distance between failures (MDBF) – the measure of reliability – is still well short of international standards. KiwiRail has told the Listener the average MDBF for the machines was 42,000km in the six months to July, but Butson claims 80,000km is the international benchmark.

Another “own goal”, according to Butson, was the company’s decision to reduce its fleet of train-carrying inter-island ferries to just one. He says this means hours of additional delay in the time-sensitive freight supply chain because goods have to be lifted off the trains, placed on trailers and driven onto the ferry, and reloaded on the other side of Cook Strait.

Reidy insists the company hasn’t suffered any reduction in freight volumes as a result, and on-time performance on the ferries is better than ever. However, a review of the ferry configuration is under way.

The Christchurch-Greymouth TranzAlpine. Photo/KiwiRail

Deferred maintenance

But Reidy doesn’t dispute that the company is burdened by decades of deferred maintenance and asset renewals. For instance, the average age of South Island locomotives is 45 years. There are wooden bridges more than 100 years old, one of which – on the line between Christchurch and Greymouth, which carries the world-famous TranzAlpine tourist train – was badly damaged in a scrub fire earlier this year, closing the line for six weeks. If that bridge had been made of steel, says Reidy, the line would have been out for only three or four days.

“The fire was an incident that goes to the heart of the lack of resilience as a result of many, many years of underinvestment,” he says.

The company has estimated it needs $300-450 million of capital a year just to make up for the investment deficit and maintain a safe and resilient standard of assets.

Which brings the discussion back to the question of who should fund that, and how?

The Greens’ confidence-and-supply agreement with the Government raises the prospect of tapping the National Land ­Transport Fund for rail infrastructure, prompting a hostile response from the trucking lobby. Ken Shirley, chief executive of the Road Transport Forum, calls the policy a “kick in the teeth” for road users who pay for the fund and says it displays “contempt for the user-pays integrity” of the system. “Using it as a slush fund to pay for other transport modes will breed a high level of resentment.”

The EY “Value of Rail” study may help to counter such blowback by quantifying otherwise-vague claims about the wider environmental and public benefits of ­maintaining a healthy railway, and showing that road-users themselves are the main beneficiaries through reduced congestion and increased safety.

Twyford has already initiated a change that will alter transport funding priorities, potentially for the benefit of rail. He has asked the Ministry of Transport to look at rewriting the Government Policy Statement on Land Transport – the overarching ­document that gives NZTA its riding instructions – to require carbon reduction to be taken into account in funding decisions.

He acknowledges Shirley’s argument that if rail were eligible for funding from the National Land Transport Fund, that would effectively mean the trucking industry was subsidising its rail freight competitor, and says there are still issues that have to be “worked through”.

“But we’ve had this system where rail funding has been ad hoc and siloed so that the Government, at its discretion, writes a cheque every year. If you believe that rail is the backbone of our 21st-century freight transport system, which is what we believe, alongside a reinvigorated coastal shipping industry, then you have to treat it as part of the nation’s infrastructure network. So we will be looking to increase funding and give KiwiRail the certainty of some multi-year commitment.

“But having those different modes bidding for funding within the same ­framework is the natural consequence of where we want to go.”

Strong ally

With New Zealand’s freight volumes predicted to increase by 50% in the next 30 years, the chief executive of Mainfreight, Don Braid, argues there’s no choice but to maintain a viable, reliable railway – both for economic efficiency and greenhouse-gas reduction. “We need an efficient railway that runs on time and can compete with road.” Mainfreight – a global freight logistics company – has significantly increased its use of rail over recent years, shifting goods ranging from toilet paper and baked beans to aluminium by train.

“To be frank, we would like to move more freight by rail, but there are routes where KiwiRail finds it difficult to provide services to us,” Braid says. The former Government preferred to “build more roads rather than worry about the railway”. And although it also funded KiwiRail, “it was espoused openly and often [by Steven Joyce, former Minister of Finance and Infrastructure] that it was short term. I’ve said many times to the KiwiRail executive and board, ‘How do you motivate a workforce who think they only have funding for two years?’”

Braid says big technological change is coming to the road freight sector in the form of electric trucks – which Mainfreight is looking to buy for short-distance deliveries – but that won’t reduce the need for an ­efficient rail network.

Despite 84% of freight not being carried by rail, Braid says “you shouldn’t underestimate how good this railway is. We work in markets around the world and we don’t get the convenience of rail like we do here in this country. We all perhaps underestimate what we have on our hands and what we should be doing to maintain that infrastructure and to make sure it can cope with the growth we’ve got.

“I see rail as a second corridor. You’ve got to find alternative ways to move freight and passengers. You can’t just keep building bigger and bigger roads.”

Ken Shirley.

‘Bigger is better’

A trucking advocate says productivity and safety have increased with lorry size.

Truck drivers are not at fault in most crashes involving their vehicles. The data shows they have ­primary responsibility for only a third of fatal crashes ­involving heavy vehicles.

However, because of their size and weight, trucks are over-represented in serious road crashes, Ministry of Transport figures show. In the five years to 2015, trucks were involved in 19% of fatal road accidents, despite accounting for just over 6% of total distance travelled.

The proportion of fatal crashes involving trucks in any given year has swung from 12% in 1980 to peaks of 23% in 1999 and 2014.

In fatal crashes ­involving trucks in 2015, 83% of the people who died were not the truck occupants, but the other road users involved. “This reflects the fact that, in a collision between a heavy vehicle and a light vehicle or vulnerable road users, there is a much higher probability of death or serious injury than in a collision involving only light vehicles,” according to the ministry’s latest published analysis of truck crashes.

New Zealand has allowed much bigger trucks on the roads since 2010, when High Productivity Motor Vehicles (HPMV) of more than 44 tonnes were given the green light on routes that were judged capable of carrying them.

In 2013, so-called 50MAX trucks were allowed. This change let fully loaded truck and trailer units weighing up to 50 tonnes on most routes, provided they have nine axles to spread the load to ensure there is no additional wear and tear on the road surface.

Road Transport Forum chief ­executive Ken Shirley says the introduction of these big trucks has brought a 30% increase in productivity to the industry. “Because they are bigger, there are fewer of them on the roads than would otherwise have been needed to perform the expanded freight task.

“They are also far more fuel efficient, mainly because they are newer and have higher technology. And they are safer because they all have ABS braking [anti-lock or anti-skid braking systems] and all the modern-generation safety features,” says Shirley.

This article was first published in the December 2, 2017 issue of the New Zealand Listener.

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