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Q+A: Transcript of Jim Quinn interview

Published: 1:16PM Sunday August 12, 2012

CORIN DANN INTERVIEWS JIM QUINN FOR Q+A

GREG New Zealand Railways, Tranz Rail, Toll, now KiwiRail.  Whatever the name, our rail network has a long and proud history.  But is KiwiRail going off the rails?  Does rail even have a future in this country? 
This past week Labour released a leaked report confirming major problems with the cheaper Chinese trains that arrived here in 2009.  So many problems, in fact, that KiwiRail isnt taking the second batch of locomotives due at the end of the year until they are sorted out. 
Labour MP Clare Curran says the report vindicates her concerns that New Zealand bought cheap and got cheap and signed the death warrant for Dunedins Hillside Workshops in the process.  Its the latest in a string of bad news stories for KiwiRail, so its chief executive, Jim Quinn, is with political editor Corin Dann in Wellington.

CORIN Thank you, Greg.  Good morning, Jim.

JIM QUINN Good morning, Corin.

CORIN Could we start with these Chinese locomotives?  Do you regret now having gone with the Chinese?

JIM  No, I dont at all.  Look, weve- were in the middle of our plan.  One of the things were trying to do is to renew our rolling assets.  Weve been buying diesel locomotives offshore for years and years and years, so, you know, the 60s since weve been buying them.  One of the challenges KiwiRail has is that every locomotive weve bought because of the big gaps between times that weve bought them have effectively been a bespoke build, so we have to design them from the wheels up.  And we design them into a very tight envelope, so both the weight we can afford to have them be on our tracks and the size of them means that were compressing a lot of technology.

CORIN How much does it cost you, though, the repairs here?  Because Clare Curran argues, for example, that the alternators are stuffed in some of them and youre going to have to spend $5 million, you know, getting right into the engine to fix them.

JIM  Oh, thats just not true.  The manufacturer has stood behind these all the way through.  Theyre continuing to, so well work with them to finalise any of the issues weve got and to put them straight.  So this isnt costing us at all.  Im not sure where Clare got that.
 
CORIN But is it costing you time?  Is it slowing down what youre trying to achieve with this whole turnaround plan?  Because youre having to wait now to fix these things up.

JIM  Sure, wed like to be moving faster if we could, but lets be clear.  These locomotives have done 2 million kilometres on the track.  Theyve done 15,000 services.  Weve just got through a busy summer peak, Fonterras busiest year and the Auckland Port strike, and without these locomotives in our fleet, we simply wouldnt have coped.  We didnt cope the year before, so, you know, the illusion that these things are somehow slowing us down is wrong.  Are there issues?  Yes, there are.  Do you expect to have some?  Yes, you do when you do a bespoke build.  And what were working through is a very structured programme to put them right and to ensure that weve got a product from here on in.

CORIN Everyone would accept that there was going to be problems with big engines like this, but is there more of a problem?  Is it something thats actually- I mean, have you bought for a price rather than quality, as is the argument from the critics?

JIM  Yeah, I dont think thats fair at all.  We buy based on a set of criteria, and we then settle the price, assuming that that criteria is met.  There are certainly more issues here than we would have liked.  We would have liked none, so thats obvious, and anybody sensible would have wanted that.  But theyre running every day, theyre hauling the freight we need to haul every day, and theyre getting the job done.  Our customers are not seeing service failure.  Theyre seeing us improving every day.  We measure faults very carefully so that we get these things right, but theyre not translating into the marketplace.
 
CORIN Thats interesting you mention the customers because isnt there a danger here that the last thing you need is any public-relations disaster around the quality of your rolling stock?  Because you need to improve that to make sure customers stay with rail.

JIM  Absolutely, so weve grown the freight revenue in the two years weve been implementing the plan - 25%.  Were growing at about $30 million to $40 million a year.  Any company would be happy with that growth rate.  Our customers are committing.  If I talk to my customers about how were going overall, they would say were better to deal with, they would say were servicing on time more often, were more reliable, were more predictable, and were a more important part of what theyre trying to do.  They would quickly add, Were frustrated, though, because this takes a long time to turn this thing around.  And thats true.  This is a long job.  This is going to be a 10, 15-year job before weve got this all right, and were trying to do it while were running in real life, so- But the customers are saying to us were working well, and theyre committing with their own funds.

CORIN All right, the turnaround plans been in place for two years now.  You started out with, I think, an 18% market share in terms of freight.  Have you lifted that yet?

JIM  Well, were growing, and were growing well.

CORIN Is it bigger than 18?

JIM  Well, the measure of the market share is really really hard to be precise about.

CORIN Because thats the key, though, isnt it?  I mean, you need to get that- You used to have 60%.  You need to get that back.

JIM  Im not sure we ever had 60%, unless it was when it was totally re-regulated and nobody else was allowed to move freight.  But, look, we are very clear at what were good at, and we are growing in the markets were in.  Were a line-haul provider to industry.  Were no longer in the road space at all, so were able to get alongside our customers well, work with them and provide the services they want.  The market are committing really well.  Do we want this noise out there?  No, we dont.  And thats- But our view would be that our customers werent seeing the impact of the commissioning of these locomotives at all.  Wed managed this extremely well.

CORIN But Ill just come back to the point of the market share, though, because youve clearly- in your turnaround plan, youve identified freight as the key area where you can make this business profitable.

JIM  Yeah.
 
CORIN Surely, two years into a 10-year plan, you would be making progress.  Have you increased that market share?

JIM  Weve grown the business 25%.  We know thats way outstripping the market, so our market share has grown.  My comment only was the exact measure of market share is quite hard to get right, because were a line-haul operator and the markets are quite ill-defined.  But at the growth rate were at, there is no way in the world were not growing our share.

CORIN Okay, if I could come to the issue of infrastructure, jobs, investment?  There seems to be a contradiction here.  On the one hand youre investing $750 million over three years into this company, but yet youre also cutting staff.  Why?

JIM  Well, firstly the 750 million is the equity our shareholders have given us over those three years.  Weve invested far more than that, and were going to continue to invest.  Over the 10 years, well invest a little over 4 billion into the railroad and another three into the metro railway.  So were spending a lot of money out there.  What this is about is getting the network up to the standards to enable us to be able to be sustainable for the very long term.  When we came in what was clear was the business couldnt trade its way out of the difficulty it was in.  It needed to be able to invest to get on top of the hump and then to be able to sustain-
 
CORIN Did it also need to be able, though, to make a workplace conditions-? Do you need more flexibility?  Do you need to reduce wages?  Is there something going on here as well?

JIM  Oh, look, were looking at every part of what we do and every part of the business.  Its important when we come out of this plan weve dealt with everything.  We need to be competitive.  We need to be sustainable.  What the cutting of the roles is about is because weve reviewed our plan.  We reviewed it based on what weve achieved so far.  Weve reviewed it on the fact that the market has changed around us, and we know a lot of things that changed in the market over the last 12 to 18 months.  So weve sat down and weve said, Well, were going to need to prioritise and spread this out a bit longer, so weve cut our investment into the track by about 200 million over the next three years.  That means were going to do a little less over that time.  Those jobs will still be-

CORIN Can you give some specifics?  What sort of investment will you be-?

JIM  I dont have a list of those, but weve looked at all the priorities weve got, and were just reprioritised those based around the demand were seeing, what we really need to do, which bridges we need to do, which parts of the track we need to refurbish.  Its those sorts of things.  Its lots and lots-

CORIN Isnt that exactly the problem that we had under the last private owners - that they werent investing in that infrastructure, and then it got you guys into trouble having to fix it all up?

JIM  Oh, no, thats not fair.  Were cutting our investment over three years by 200 million.  Were still going to spend 750 million over those three years on the track alone, so were still spending capital at a rate far more than was being spent in 04, 05.  Far more than was being spent in 98 and 99.  So this is not about going back to lets not spend any dough.  This is about making sure we prioritise well, making sure we cut the cloth to suit the circumstances were in.  We cant live in some vacuum when the world descending around us and our government has only a limited amount of funds and pretend that theres just some unlimited amount of money available.  We have to get this right, and we need to craft the plan around what the market needs.

CORIN Thats interesting, because youre effectively going to become a SOE, arent you, I mean, with this-?

JIM  We are-

CORIN With the change in structure, youve become an SOE.  Do you have some social responsibilities with that role?  Does it make your job actually much more difficult to turn this company around?  Because you have to give some, I guess, account to the communities, to workers, all those things that perhaps a private company wouldnt.

JIM  Oh, well, I dont think any company thats an infrastructural part of the country can say it has no social responsibility regardless of who owns it, so we have to take into account what we do in communities.  We cut communities in half with our tracks, were associated with all the communities, so we have community responsibility in our DNA regardless of our ownership, and of course our ownership gives us some.  We also, though, have a very clear mandate.  Our job is to sit down and make the right commercial calls, prioritise this right so that we deliver a business that stands on its own feet.
 
CORIN So lets just talk through a couple of examples of those.  So, Hillside Engineering - unions and Labour would argue that you werent thinking of the community at all there.  You could have actually kept that place afloat with building some engines there.

JIM  We could do that, but that would require us to spend a huge amount more money than were spending now.  So weve got to balance the commercial priorities and what is the right way to get this done with what weve got and make the right call.  So were- You know, nobody said these calls were going to be easy.  Nobody said getting this right was going to be a simple task, but weve got to make the right calls and weve got to get it right.  Nobodys going to thank us for turning round in 10 years and going, Well, it still needs truckloads of dough.  Its never going to stand on its feet because we just simply didnt deal with whats in front of us.

CORIN What about Gisborne - the Gisborne line?  Have you made a decision on whether youre mothballing that line?

JIM  Were working through the process on that.  Were working with the agencies around us, and we expect to be able to announce what the answer will be on that.  Again, our responsibilities are very clear.  Our responsibility is to look at the commercial aspects of the challenge.  Our job is then to work with our shareholder and the agencies around them for them to cast the political or social lens over that.  And I think keeping those two responsibilities crisply apart means you make the calls for the right reason, rather than some grey sludge where you dont actually really understand the consequence.  So, you know, all parties have the right to do what the right call is from their lens, at the end of the day, well do what were asked to.
 
CORIN The fact is youre prioritising here around freight and the main trunk line.  There isnt much future for passenger-tourist type operations, the smaller trunks, is there?  I mean, you need to concentrate on this if youre going to turn this business around.

JIM  Theres no doubt at all getting the freight business right is what will create the sustainable railroads, so that is our first and foremost task.  There is no other business Ive got that has the potential to put the margins in that we need.  There is an opportunity for the passenger business, but its got to be managed well, its got to be looking at where the real opportunities, and it cant be run from some emotional view that its cool to have a scenic train-

CORIN Is it profitable?  Is the passenger part of the business-? Taking metro out, the passenger - the long-haul passenger?

JIM  Well, I was surprised as probably a lot of folk when I came into this role to find that we only have six passenger trains in the country, and three of those - the other one going back.  So its not like its a very big business. 

CORIN And youre saying you wont tolerate, you wont subsidise that part of the business by a profitable freight business?

JIM  Thats right, so our job is not to subsidise at all.  So, the passenger business was making money prior to the Christchurch earthquakes, given two of the trains emanate from Christchurch.  Those two services have been hit hard.  Weve just relaunched the Northern Explorer, and weve got time to see now whether that will come right.  It certainly wasnt making money before the relaunch.  The feedback weve got from the people who have experienced it is great, so I encourage folk to get on it.

CORIN But youre saying its down to some other operator to come in and run these.  You dont want these passenger parts?

JIM  Its not that we dont want it.  What were trying to do is make sure we focus our energy and our time into the area where we can make the most gains.  And if others can do more around us and continue to grow those as well, then the whole railway works better.

CORIN Do you personally think that there is any future for those passenger lines in New Zealand, given our geography and how difficult they are to run?

JIM  Well, I mean, New Zealand has always been an attractive tourism destination.  So theres no doubt the TranzAlpine particularly is a world-class train.  Its made money repetitively, and it still does.  So that train is good.  The Coastal Pacific has been more challenged, and the Overlander when it was around simply had too much cost around it.  So as I said, we relaunched the Northern Explorer.
 
CORIN Sure.

JIM  There is some opportunity there, but its important we understand it and get it right.

CORIN So you would sell those if you could?

JIM  Oh, wed be happy to work with somebody who could bring more energy to it and put some real focus on growth in that, but that has to be for the deal.  It has to bring more value to the pie rather than just because I dont want to do it.  Thats the wrong reason to invest.  So we havent made a deal.  We will work through what the right answers are, but its about making sure that somebody can come in and add more value than we are at this time.
 
CORIN A couple of quick things.  In terms of the time you need to cut down between Auckland and Christchurch - thats a 13-hour trip - you need to take two hours off that.  Have you done that yet?

JIM  Weve taken an hour out quite comfortably, and were running now.  Our first goal is to really get reliable, and our premium trains, the ones that our customers put the most urgent freight on, are running on time pretty much all the time.

CORIN Do you need Clifford Bay, though?  Is that something you want the Government to do?

JIM  Oh, Clifford Bay is something that takes some sailing time out and takes some road and rail time out, so thats a New Zealand Inc type project that has some productivity benefits.  From KiwiRails perspective, at the end of the day, well sail to where the port is and well put the stuff on trains and trucks after that.  So does it make sense in terms of bringing Christchurch closer to Auckland?  Sure.  Its an obvious thing at that level, but somebody is working through what the business case would be.  And as I say, this is a New Zealand Inc project which rail, like road, would benefit from.

CORIN Jim Quinn, thats a nice place to leave it.  Thank you very much, Jim Quinn from KiwiRail.

JIM  Cheers.

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