Rail, Ferries and National Pride - Public, Private and Foreign Interests

One of the things that we as New Zealanders generally love to do is support our own enterprises and also the underdog. So it is in this context that this article examines Rail, Interisland Ferries, National Pride and Ownership. ?

?First a little history. For the vast majority of New Zealand’s history its Railways and connecting Interisland ferries (rail capable ferries from 1962) have been owned by, and for the benefit of, the people of New Zealand. Yes, there was a brief period from about 1993 to 2001 and a bit later when this was not the case when Tranz Rail (the private and then publicly listed NZ Rail operator) was controlled by foreign interests. But the sell down by Canadian National, who had previously taken over Wisconsin Centrals Rail shareholdings and other founding shareholders in Tranz Rail, in early 2002, saw ownership for the next two years largely revert back to mostly New Zealanders. This was through New Zealand based fund managers (the company had delisted from the USA NASDAQ exchange) and being solely listed on the NZX with the controlling interests largely made up of what is often colloquially called “Mum and Dad” shareholders through largely New Zealand based fund managers. In late 2003 Toll, an Australian company, acquired Tranz Rail on market and subsequently divested itself of the National rail network infrastructure in 2004 to the New Zealand Government which formed the state owned Ontrack to own and manage that – all of which I helped to set up. Once again, the railway track network was owned and controlled by New Zealanders. In 2008 Toll divested itself of above rail operations and the Interisland ferry operation and KiwiRail was formed to create the national integrated railway (Combining what was Ontrack and Toll NZ into one KiwiRail) and ferry operator. It has been that way ever since.? So, since 2008 it has been 100% owned by the New Zealand Government, as it was prior to 1993, and thereby ordinary New Zealanders as taxpayers.

?Therefore, I have a question - Is it not logical for New Zealanders to support their locally owned and operated enterprise running the interisland ferries in its quest to build a better stronger connected New Zealand?

This in fact is what the Interisland iReX project is all about. The connection between North and South Islands is simply too strategic and important to us as one joined up nation for us to leave it to potentially foreign controlled interests.

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In much the same way as the state wholly owns Television New Zealand (TVNZ) or Radio New Zealand (RNZ) in the desire to have national strategic resilience for its media – it is a national strategic imperative. This is true around the World in broadcasting – for example the ABC in Australia, the BBC in Great Britain, and PBS in the USA. The Government also allows and encourages competition from competing broadcasters on a commercial basis and that’s why TV3 and Newshub, owned by Warner Bros. Discovery compete with TVNZ. They are 100% foreign owned and controlled however so they are fully commercial so are not saddled with the national interest as a fundamental imperative as it is with their state-owned equivalents. The private controlled broadcasters can of course have access to state funding for limited locally produced production through NZ On Air, but this isn’t seem to obviate the need for State owned and controlled media in the national strategic interest.

So what about Transport? An analogy here is Air New Zealand. The New Zealand state retains a controlling interest in the publicly NZX listed Air New Zealand as it is seen as a strategic imperative to have a national airline. Financially, much like Rail, it has been bailed out of financial difficulties a number of times (eg. October 2001) and it could have been left to the market to sort it out and see Air New Zealand fail. However, in much the same way as broadcasting some prefer to use Jetstar over Air New Zealand domestically or internationally. In this case it is an Australian controlled airline versus a nationally owned and controlled New Zealand airline. But this doesn’t mean we should have left the market to Jetstar or some other airline to step in if Air New Zealand was left to fail.

So what of the Interisland ferries and our national railway system? Well, some prefer Bluebridge (the other private operator of Interisland ferries between North and South Island) over KiwiRail’s Interisland just like some prefer Jetstar over Air New Zealand. That is a fact. The Interisland ferries though through KiwiRail are 100% owned by the New Zealand taxpayer and for most of its history, as I noted earlier, it has been that way. It supports the development of New Zealand owned business in a good resilient way through providing an extension of our national rail and road networks between the Islands. But isn’t it also good to have competition? Yes - on both counts and by all means let us have both – for example I may choose to use both Air New Zealand and / or Jetstar to travel choosing what airfare, service level and schedule suits me best on the day.

So what about competition? Competition is good – it produces what is known as greater “animal spirits” – the idea is to do better than the next person, or entity, so you strive through the profit motive to do the best for yourself through greater efficiency with less economic wastage, and in so doing through what is known as the Adam Smith “invisible hand” of collective economics for all, provide greater betterment for humanity. As some have argued – perfect competition is a perfect blueprint for a socialist optimised economy with the least economic wastage and inefficiency with no supernormal profits - for anyone. If only it were that simple. Newsflash - It is not!

So what about Interisland’s Bluebridge ferry competition? Well, some say it is a New Zealand owned success story. Whilst it may well be true that it is a success story, it is most definitely not owned or controlled locally. It has been completely foreign owned and controlled since 2016.

Since March 2022, Bluebridge has been a 100% foreign owned entity by no less than one of the larger United States Equity Infrastructure Funds – Morgan Stanley Infrastructure Partners.

https://www.morganstanley.com/im/en-us/individual-investor/portfolio/infrastructure.html

Prior to this ownership change in 2022, the Bluebridge ferries (operated by Strait Shipping) were owned by an Australian equity company, Champ Private Equity who had acquired the business Strait Shipping, owner of Bluebridge, and Freight Lines from the Barker family (the original founders) in 2016. So the company has been 100% controlled by foreign interests since 2016 – hardly a New Zealand owned enterprise like KiwiRail’s Interisland operation is.

To be clear I don’t have a problem with this any more than I have a problem with Jetstar competing with Air New Zealand (I can choose to use either or both) or watch TV1 (TVNZ) news or TV3 news. But let’s be clear it is not owned or controlled by New Zealand interests and hasn’t been for many years.

So the competitive dynamic is not a case of "under-dog local entrepreneurs" taking on the big state owned KiwiRail monopoly. Strait NZ (operator of Bluebridge) has, between the ferry operation it owns and connecting trucking and freight forwarding operations it also owns (reported at the time of purchase by Morgan Stanley in 2022), 56% of the market for vehicle freight and 31% of the market for passenger services across Cook Strait.

As a former Investor Relations professional manager who has helped raised equity and debt on international financial markets for transport companies, I have some idea about owners priorities and responsibilities to the shareholders. I most certainly am not opposed to Foreign Investment in New Zealand. In fact, quite the reverse – I encourage it and think we should promote it more but there are other bigger things at play here. We can use foreign sources of capital to help deliver more resilient, better fit for purpose infrastructure at maybe the optimum lowest cost of ownership but that doesn’t mean we should cede our sovereignty or leave our important strategic infrastructure, or services thereon, solely to foreign control.

Further as patriotic concerned New Zealanders - isn’t support for our nationally owned businesses a good thing – after all many have a preference for and support Air New Zealand because it is the “National Airline” rather than the other one.

This is not an argument against Bluebridge – I believe it is a slick generally competent operator, whom I have much respect for what it is, ?but rather it is an argument that in the national interest it is not necessarily best placed, or in anyway, sufficient for New Zealand’s national interest to be taken into account in the increasingly uncertain geo-political World we are in – not by any stretch of the imagination. Our New Zealand owned and operated KiwiRail has other things to take into consideration that Bluebridge simply never will and quite frankly neither should they, as a company that runs primarily for the benefits and interest of its shareholders and investors – be they foreign controlled or otherwise.

Further those that deal with ferry operators, the Port Companies and their owners are also not always best placed to see the national interest, as they are sometimes conflicted to the heart of their generally locally focused interests.

I am supportive of New Zealand owned businesses, especially ones where I am a shareholder – which we all are, as New Zealanders, in the case of KiwiRail and its Interisland operation.

In a time of increasing geo-political instability in an uncertain world - it is most certainly in the national interest for the Government to preserve and improve the connection between the North and South Island of New Zealand. This means that the terminals in both Picton and Wellington should be resilient and built to the best standards within a fiscally responsible envelope which is what the purpose of the IReX project was and is. By all means it should be built in a way that enables potential competition, such as Bluebridge, with cost effectiveness so as not to break our bank, to operate to promote efficiency, best customer service and encourage least costs to users but frankly they are not the only considerations in the national interest.

I’ll say it again – this is what Governments are for. To take into account broader national strategic interests. My earlier articles refer to such matters. See here:

https://www.dhirubhai.net/posts/michael-van-drogenbroek-45026527_newzealand-kiwirail-internationaltrade-activity-7146560523998814208-9dTj?utm_source=share&utm_medium=member_desktop

This means resilient rail and road connections being preserved and enhanced between our Islands. No less will do. It is in fact, perhaps the most strategic Rail/Road link Of National Significance (RONS) we could have, and should be viewed as such.

This topic of why it should be perhaps treated as a RONS, rather than just relying on the conventional Benefit Cost Ratio (BCR) approach that a SOE such as KiwiRail might ordinarily take (by the way, nearly all RONS are abject failures on BCR alone but not necessarily when other factors are taken into account such as political nation building strategic ones) maybe the subject of another later article by me.

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#newzealand #rail #iReX #kiwirail #geopolitics #transport