New Zealand Rail (1)

7/29/2019 New Zealand Rail (1)

1/4

New Zealand

Before 1982 the New Zealand railway was a government operation under The Railways Department that had both

commercial and social objectives, with social objectives often overriding the commercial goals. It was: (1)

unprofitable; (2) very inefficient (3) production focused rather than customer focused; (4) relatively lacking in

commercial management skills; and (5) ill prepared to meet potential competition. At the same time, pressure was

growing to reform the freight transport industry by allowing trucking companies a greater access to the long haulmarket.

In 1982 a process began to reform the railway system and in July 1993 New Zealand Rail Limited was sold to a

consortium of New Zealand and foreign investors. The reform and restructuring of the New Zealand railway system

proceeded in multiple, well-managed steps to final conveyance.

New Zealand Rail has achieved dramatic improvements in productivity, financial performance, and customer

service. Staff levels have fallen by over 75 percent since 1983 alongside improvement in staff productivity of over

200 percent leading to halving of the real cost per gross ton kilometer (GTK) and as a result currently it is one of

the few railways in the world to be making a profit in a deregulated environment. Rate reductions in comparison

with those of New Zealands other SOEs over the same period are also significant.

The lessons learned from the New Zealand experience with railway privatization contain valuable guidelines for therailway privatization process. The main lessons are summarized below:

A clear set of objectives supported by the board and management is essential. Legacies from the past should be removed. In the case of New Zealand Rail, these legacies were: High

debt levels and excess staff numbers.

There should be a focus on commercial goals. To ensure the financial viability of the company and topromote maximum efficiency, the company must be able to focus exclusively on commercial objectives.

A supportive corporate culture is essential. Management needs to operate as a team if the company is tobe reformed successfully. Internal conflicts should be avoided.

Goals should be communicated to staff and unions. In this context, it is essential that all staff be seen tobe treated equally.

Core elements of business should be identified and noncore activities and assets should be disposed of.Canada

Canada has a unique rail industry structure that is dominated by two giant parallel rail systems one privately

owned (Canadian Pacific Railway) (CP) and one publicly owned (Canadian National Railway) (CN) competing with

each other for freight traffic. These two transcontinental carriers account for 89 percent of main and secondary

lines in the country, while 23 other rail carriers operate in one or more of Canadas 10 provinces. Sixteen of the 25

carriers in the country are under federal jurisdiction, while 9 are under provincial jurisdictions.

Canadian railways have been relatively slow to restructure in the face of mounting challenges from both

intermodal and international competitors. A marked contrast exists with the parallel restructuring activities within

the United States, where the pace of rail transformation has been more rapid. While the reasons for this slower

pace are many, they lie primarily in the framework for economic regulation within which Canadian railways

operate. The specific competitive factors that compel railway restructuring are strong. They include cross-borderintermodal competition as well as competition from national motor carriers and increasing international rail

competition.

Throughout the twentieth century, the structure of the Canadian rail industry has for the most part remained

intact, while, at the same time, the transport markets served by Canadian rail carriers have changed radically. The

structural changes that have taken place in Canada have followed rather than led the market.


2/4

Argentina

When President Menem took office in July 1989, FA was losing US$1.3 billion annually and was suffering from a

long-term systemic decline. There was deterioration in the carriers rolling stock (half of the locomotive fleet was

out of service), poor track conditions and pervasive slow orders (55 % of the track was in less than acceptable

condition), and a high rate of fare evasion (30 to 50 %), particularly in the Buenos Aires commuter services. FA had

become primarily a provider of employment benefits to its excess work force, and of low quality, unreliableservices to shippers and passengers that had no transport alternatives. The carrier was increasingly subject to

political pressures and was strongly influenced by unions, suppliers, and local government authorities that

perceived it to be a free good. In addition, FA service had become increasingly unreliable and unsafe. The

working deficit by 1989 was US$2 million per day. Contributing factors to FAs decline included: (1) a production-

oriented culture that paid little attention to satisfying customer needs; (2) increasing competition from other

modes, particularly from a privately owned and effectively operated road transport sector; and (3) weak railway

management and poorly targeted investments. There was a progressive decline in traffic in all three businesses

in which FA participated: freight, intercity passenger, and the Buenos Aires City commuter passenger services.

The restructuring and concessioning of state-owned railways in Argentina took place over a remarkably short

period of time, motivated by the need to curb deficit spending and hyperinflation. The process began in July 1989

with a small group of politically astute decision makers, a dedicated and politically resourceful staff of rail

privatization experts and two ministers committed to reform used this authority effectively to restructure

Ferrocarriles Argentinos (FA), the state-owned railway, into 14 marketable concessions and to offer these

concessions to the private sector.

The results of their efforts were profound. The structural organizational changes, the ownership changes, and the

cultural changes realized in Argentina over a four-year period were more far-reaching and complete in their

implementation than those in any other emerging market economy in recent years. Although transformation was

not complete at the time of this writing, and uncertainties remain about the success that new private operators

(particularly the freight concessionaires) may have over the long term, the country has made a remarkable start in

the effective private sector operation of its railway system.

The lessons learned from the precedents set in Argentina, in consessioning its railways to private and

public/private operators are those of expedient, creative, and forceful action in the face of entrenched politicaland economic opposition. First, it is clear from the Argentina experience that a concessionary approach to

railway privatization can work. Other lessons have to do with the pre-selling and bid preparation necessary for

concessioning. Valuable lessons can also be learned about the design of the concessions and also regarding the

contestable and open processes needed to solicit best offers from potential concessionaires.

There are lessons as well that concern the privatization management process through which a state-owned railway

that generates huge annual losses and supports a large excess work force can be rapidly dismantled and sold

(that is, concessioned). Finally, lessons can be drawn from Argentinas post-privatization experience with the

enforcement of concessionary conditions and the design of a minimalist regulatory framework.

Britain:

Since 1948, railway services in Great Britain have been operated by the state as a single, vertically integrated

business, including track maintenance as well as train operations, passenger and freight services, and virtually the

whole range of supporting activities, although in the period since 1980 certain ancillary activities have been sold

to the private sector. These included hotels, ferry services, and a substantial rail vehicle manufacturing business.

The British Railways Board, as it eventually became in 1962 (known also as British Rail), was the successor to the

big four regional private railway companies which had themselves been formed following a merger, in 1923, of

123 private railway companies of varying sizes that originated for the most part before the turn of the twentieth

century. The pressures that led first to amalgamation and subsequently to nationalization of the railways gathered

momentum over several decades.


3/4

After World War 2, British Government began to invest heavily on railway infrastructure. However, the program

was undertaken with insufficient appreciation of the shrinking market role of the railways and without due regard

to the low utilization of railway assets. The 1960s turned out to be the era of rationalization. In 1961, Dr. Richard

Beeching was appointed Chairman of the British Railways Board. He brought forward a plan for reshaping the

railways to reflect the declining use of many lines, stations, and freight facilities.

The passenger railway sectors included Inter-City (operating high speed interurban services), Network South-East

(covering the extensive London commuting and feeder routes), and Regional Railways (operating local feeder and

cross-country services in England, Scotland, and Wales). A new company, European Passenger Services, was

established by the Board to operate high speed rail passenger services through the Channel Tunnel to France and

Belgium. A further wholly owned company, Union Railways Ltd., had been established to build a dedicated, high-

speed passenger rail line between London and the Channel Tunnel.

By 1993-94, British Rail operated a network of services extending over some 10,275 miles of route (23,450 track

miles) including freight only, passenger only, and mixed with over 2,500 passenger stations. Locomotives included

1,400 diesels and 260 electrics of varying types. In 1993-94 the railways carried over 700 million passenger

journeys, with an average distance of 25 miles.

Privatization of the railways was first raised publicly as a policy objective by the then Secretary of State for

Transport, Paul Channon, at the Conservative Party Conference in 1987. The policy was reaffirmed and fleshed out

five years later, in the Conservative Partys 1992 Election Manifesto. The governments detailed proposals as to

how privatization would be effected were published in July 1992, after the General Election. In between the first

public, political reference to privatization and the publication of this policy statement, extensive deliberation took

place within the Department of Transport. This deliberation was driven principally by the search for that elusive

railway commodity, financial viability.

United States

After the restructure in 1970, railway sector has been gaining constantly rapid growth in income. In recent years

the freight railroad system in the United States has moved away from subsidization for most types of service. US

railway provides two types of service mainly, which are - large carriers and small local carriers.

Two organizations are strongly related with US railway. Interstate Commerce Commission (ICC) and Association of

Association of American Railroads (AAR). Moreover, there are parts in small local services, like regional railroads,

local railroads and switching and terminal.

The great majority of small rai lroads had previously been operated as part of larger systems. Small rail roads are

now competing with road trucks. Making a classification to the orientation its obvious to make their operation

successful. New features include: 1. Privately-owned, common carrier railroad operations, 2. Class I subsidiaries, 3.

Shipper-owned railroads, 4. Public supported, or subsidized, companies.

Starting from 1970, US railway finished their restructuring in 1993. Step by step, phase by phase they reached their

destiny. Freight and passenger service, they provide both. This restructure has made their lives easier and

comfortable.


4/4

Documents

New Zealand Rail (1)