I and I’m sure many others were surprised the other day to see such a good opinion piece on why we should invest in rail from Richard Prebble – especially given his history with rail. It was in response to the news last week that Treasury recommended closing the rail network down the freight network. He highlights well a few new points in the debate.
1. There is a significant difference between theory and reality when it comes to the ability to build new roads
The cost is huge. The OECD says the annual cost of traffic congestion in Auckland is $1.25 billion. An incomprehensible figure but most Aucklanders can put the cost into personal terms. The cost to me is that today to be sure of getting to a meeting on time I have to drive up to Auckland the night before.
What will happen to our roads if the freight that now goes by rail has to travel by road? The treasury says that is not a problem. Road freight pays Road User Charges that meets the full cost of roads. If road freight volumes increase then treasury says that will automatically fund new roads.
While the math is correct the answer is wrong.
It is not a question of money. Road funding is allocated on a cost benefit/ratio. But it has proved impossible to get planning approval for new motorways in the cities. Even if we reform the Resource Management Act, something that needs to be done, it will still not enable new motorways. The public is opposed to new inner city motorways.
He’s not quite right when he says that road funding is allocated on a cost benefit ratio as we know the RoNS have sucked a lot of money away from higher value projects. He’s also not quite correct on the cost of congestion and nor was the OECD, the report they pulled the figure from specifically highlighted the issues with the methodology that produced that result and notes a more realistic figure is ~$250 million. However none of this distracts from the point that it’s (rightfully) almost impossible to build new motorways in the city.
2. The rail network has spare capacity (outside of Auckland)
We need new thinking. Let us think of the motorways as corridors. If we cannot get new road corridors into our cities is there any other corridor? Yes, the rail. Is it possible to increase our use of the rail corridor? Yes.
The only transport corridor that has spare capacity is the railway. Warren Buffett has explained his huge investment in railroads, in just these terms. Railroads he says have the only corridors with spare capacity. The railway network goes where the freight needs to travel.
Looked at this way, Kiwi Rail, is not “unsustainable” but a national asset. Kiwi Rail owns corridors to all our ports and connects all our cities and most towns. We set up systems and then they blind us to the obvious.
3. That we need a more holistic approach to transport rather than marginalising rail because of some arbitrary way it’s been set up.
The State Owned Enterprise Act that requires Kiwi Rail to be a profitable enterprise and the Road User Charges that makes our roads user pay has resulted in officials thinking in boxes. As one of the architects of the present system I think I am allowed to say it is not perfect. To solve road congestion we need a more holistic approach.
If there is no other way to reduce traffic congestion why not spend a fraction of the road taxes on rail?
He also adds that spending money on rail doesn’t mean we allow Kiwirail to waste it on things that aren’t needed – something Treasury noted wasn’t happening.
I am sure the Government is right to ask Kiwi Rail to make savings. As owners we are entitled to ask the management and staff to be making continuous productivity improvements. But it is unrealistic to expect Kiwi Rail to make a profit and pay for the full cost of the track.
4. He comes up with one of the same solutions we’ve suggested, allowing the NZTA to fund rail infrastructure. It’s an idea that seems to be gaining growing agreement from a wide cross section of political and economic viewpoints.
Parliament needs to give the NZ Transport Agency the responsibility for also funding the rail network. As we know the cost of congestion the agency can calculate a cost/benefit ratio for funding the rail track to reduce congestion. It has to be at least $100 million a year.
Today rail has the capacity to carry twice as much freight. We motorists would notice the difference. With more investment Kiwi Rail could speed up delivery times and attract even more freight from the road.
5. Lastly and perhaps most interestingly is that he says all of this as a director of the trucking company Mainfreight.
I need to declare my interest. I am a Mainfreight director and shareholder. Mainfreight has reduced the number of trucks we put on the road by making more use of rail.
Right now Auckland needs a third freight track into the city. Mayor Brown’s rapid urban passenger trains run on the same track as Kiwi Rail’s freight trains. Unless a third freight line is built then at peak times freight will be forced off rail onto to trucks. We will have spent billions of dollars to take cars off the road only to have them replaced by more trucks. It makes sense to use Road User Charges to fund the third freight line to keep rail freight off the road.
A single train can easily carry the equivalent of 50+ trucks worth of freight. The amount of capital companies like Mainfreight would need tied up in trucks to handle that plus the operational cost of the fuel and all of the drivers needed must be significant. He also makes good points about the third main between Otahuhu and Papakura which compared to most motorway projects is actually quite cheap.
Overall a very good and useful piece from Prebble.