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The Transport / Rail Blog

KiwiRail's 2014 - A Difficult Operating & Trading Year

Well Kiwi Rail have announced their 2014 annual result (see here and here) and what a result. It is not good and to be fair they acknowledge this - it is their "Annus Horribilis" as the beloved Queen Elizabeth of Great Britain once said.
This is totally expected. I have said for some time now that their current strategy will not make them financially sustainable and at last they seem to be coming to the same conclusion.
It is good that the Business is at last doing its "Back to Basics" work and the Strategic Review underway is looking at and realises the following:
  • The bottom line is that they cannot rely on revenue growth alone to get them to a sustainable position.
  • To improve their performance and continue to grow they need a more cost effective and efficient business model.
  • Their focus will be on improving asset and labour productivity, making processes more efficient and delivering consistent on time performance for their customers.
  • This can only be achieved by the company operating as a single business across New Zealand.
  • To kick this off they’ve started an internal "Back to Basics" programme and they are also reviewing all parts of the business including their initial turnaround plan assumptions.
  • They are now working closely with Treasury, the Ministry of Transport and the New Zealand Transport Agency to review their forward plans in light of these trends and the need to create a sustainable rail business.
  • They have therefore commenced a comprehensive review of their operations. It’s their intention to improve the performance of the rail business in a way that realises economic benefits for New Zealand
But this has taken too long for this realisation. I was saying this on this blog back in late 2011 - over two and half years ago. I am frustrated it has taken them so long to see the innevitiable. Even now I don't believe they fully see it. But see it they must. Rail will always be a economic case in New Zealand - not just a financial business case.
Some initial points I make are:
First point - Stop Blaming the Past and Privatisation - this is getting very tiring. The network has been funded by the Government now for over 10 years. Yes that's right - it is over ten years since the Government started pumping money into the network revitilsation started by Ontrack in 2004. That is more time than the time the whole network was in private hands. Anyone still blaming privatisation for Rails woes is woefully misguided and uninformed - yes it contributed to some of the run down but it should be clear to all by now that Rails troubles in New Zealand go much deeper than anything privatisation brought and go much further back. I may have further to say on this at a later date. There is strong evidence that the NZ Government Treasury were actively trying to close the whole railway network down in 1988 and 1989 and deliberately were trying to set the company on a course to do so. It was the strength and the many concessions of the managment team at that time that saved the day!
Second point - Get Your Facts Right - How can they print rubbish in official press releases like saying it is 35 years since new locomotives were last bought in NZ. The EF new locos were of which there were 22 were bought in 1987 - they were commissioned in 1988. The first DL's locos were bought in 2010 - by my count that is 22 years between new locos being delivered not 35. Even if they are talking diesel locos - the last of the new DF locos bought entered service in 1981 - which is a 30 year gap at most. How bad is that - again trying to shft blame onto the past by exagerating the facts!
Third point - Costs go up while revenue goes down - yes I understand the Aratere issue but clearly costs increases are much greater than that cause. Increased maintenance rather than capex on infrastructure - sounds like labour capitalisation policy. If they don't spend the capex they should turn off the labour - period. Anyway with the amount of infrastructure capex spent over the last ten years - infrastructure maintenance costs should be falling by now not increasing!
Fourth point - Rule in Railways - Don't Buy Revenue - there seems to be evidence that increased volumes have not covered / contributed that much to fixed costs or may be not even exceeded the marginal / variable costs particularly when the increased capex to serve that new business for new wagons, containers, Aratere refurbishment etc is taken into account. That is not good and value destructive. It is not about volume at all costs it is about increasing financially performance - unless of course they are paid to shift volume below rails costs for some other reason such as economic wider benefits like getting freight off the road - if this is the case then say so!
Actually I could go on and on but I wont as most of it I have covered before but I will relink my recent blog on this issue as well as things I pointed out back in early 2012 - it needs to be said.
See our Blog posts from 7th June 2014 on NZ's rails future sustainability  here
See our Blog post from 14th Janaury 2012 on NZ's rails future here

1 Comment to KiwiRail's 2014 - A Difficult Operating & Trading Year:

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Stock Tips Provider on Thursday, 21 May 2015 7:53 PM
The network has been funded by the Government now for over 10 years. Yes that's right - it is over ten years since the Government started pumping money into the network revitilsation started by Ontrack in 2004.
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