Big forestry and dairy producers are ‘blindsided’, warning a new rail charge jeopardises government ambitions to shift away from road emissions.
Mike Ryan chooses his words carefully. “It seems counter-intuitive,” says Winstone Pulp’s sales and marketing boss, as his forestry and pulp company prepares to enter negotiations with KiwiRail.
From next month, the state-owned rail company will pass on a new Track User Charge to customers like Fonterra and Winstone Pulp. It will contribute to investment in tracks and other infrastructure through the National Land Transport Fund, and is similar to the Road User Charge that truckies and many other motorists pay.
But when the supply chain is already under strain, and on the day the Government published a consultation focused on cutting New Zealand’s transport emissions, Ryan and other freight users question why it would impose a new charge deterring them shifting from road to rail.
“As a major user of rail, any rising cost is a concern,” Ryan says. “Winstone Pulp have yet to sit down for formal discussions with KiwiRail, so we don’t know the quantum but we understand from KiwiRail it’s a straight pass-through.”
“KiwiRail is passing the cost of our Track User Charge onto freight customers. We appreciate that the additional cost impost is not ideal right now, given the impacts of Covid-19 on supply chains.”
– Alan Piper, KiwiRail
The new charge will help pay for $1.2 billion in rail network investment over the next three years. Warwick Wilshier, whose firm’s 65 trucks deliver three million tonnes of logs to the rail depots for export each year, reckons the new charge will cost dairy and forestry companies millions of dollars.
One might think he’d be happy: as chairman of the road transport forum Transporting NZ, he and his trucking company members stand to benefit. But he fears the roads will become congested with big trucks as the cost of rail freight rises.
“It was introduced pretty bluntly to customers as take it or leave it, without any justification,” he said. “Several of our forestry customers are big users of rail, and they were blindsided. No idea it was coming. The high tonnage people like forestry and milk products are going to get it pretty hard.
“We use rail a lot, because otherwise we’d be filling the roads up around the major ports like Tauranga, and getting everyone held up on ports. So if we can put it onto rail and have it transported all hours of the day and night, it suits us fine.”
Alan Piper, KiwiRail’s executive general manager for sales and commercial, said the new charge would average a 3.5 percent increase on freight rates in the first six months, then increase steadily over the next three years.
KiwiRail would be required to pay the Track User Charge to the Government from November 15, following this year’s announcement of a more sustainable approach to planning and funding the national rail network.
Previously, KiwiRail went to the Government each year for funding to maintain and renew the national rail network, with significant legacy issues of underfunding that resulted in the network deteriorating.
The charges were approved by Order in Council on September 27, just two weeks ago. Averaged out, they start at $1.18 for every tonne of freight transported the length of the North or South Island, and will almost double by the third year.
(Wilshier estimates forestry alone transports 10 million tonnes a year by rail).
“This charge is designed to ensure that KiwiRail makes a fair contribution towards wear and tear on the rail network, and goes into the government National Land Transport Fund as transport revenue,” Piper said.
“As trucking companies do with their equivalent Road User Charge, KiwiRail is passing the cost of our Track User Charge onto freight customers. We appreciate that the additional cost impost is not ideal right now, given the impacts of Covid-19 on supply chains.”
The company would not comment on the actual price change, saying each customer would be priced differently based on weights, equipment supply and return trip pricing.
“However, the charge is a statutory requirement and the Government’s substantial investment in rail will see improved reliability of services, which will benefit our customers.
“We believe the cost we are recovering from customers is reasonable, averaging a 3.5 per cent increase on our freight rates in the first six months. In line with the Government regulations, the rates will increase each year over the next three years, before they are reviewed.”
According to Kiwirail’s Network Investment Programme, announced in July, the new approach recognises that like roads, the rail network delivers broader transport benefits and should
be funded accordingly. “It also embodies the principle of mode neutrality – this means future investment decisions can be based on which transport mode delivers the best overall outcomes.”