transport

A fully-fuelled company car is worth $4000 more than a year ago - and businesses are trimming salaries to claw cash back, writes Esther Harward. If you've got a company car, don't expect a pay rise.

Bosses are cutting salaries to compensate for higher vehicle running costs and cancelling perks such as allowing staff to take vehicles away for long weekend trips.

Remuneration consultant Helene Higbee said higher petrol prices and interest rates had pushed up the value of a company car to an employee. A medium- sized 2.4 litre company car for personal use was now worth $17,306 a year - up from $13,199 last year.

Higbee said employers were now less willing to give staff unlimited use of company vehicles and most set a spending limit on personal travel. One employer asked last week if she could do anything about an employee running up an $800 monthly fuel bill.

Cars were the most emotive part of remuneration negotiations and most companies tried to keep them out of contracts so they weren't forced to meet rising costs, she said.

Employers and Manufacturers Association (Northern) chief executive Alasdair Thompson said employers were starting to factor in the increasing value of a company car when considering a pay rise. It was now very common for employers to reduce salaries to make up for higher vehicle running costs, he said. Companies tended to revise the value of car and fuel packages every year, and the price of petrol had risen by more than a third over the past 12 months.

At the same time bosses were increasingly wanting to cash up vehicles and paying employees the equivalent in cash because they were sick of the hassle of insurance claims, administration and staff abuse of vehicles.

HR consultant Kevin McBride said most employees preferred the cash equivalent of a company car, despite paying more for fuel. "Whereas in the past a company car was a bit of a status symbol, increasingly employees prefer to make their own decisions about what sort of vehicle they buy."

Staff who use their own car for work and claim costs back from their employers could find they are not getting properly reimbursed.

Many companies use the IRD's mileage rate of 62 cents a kilometre to claim back tax. The rate was set in 2005 when petrol was $1.53 a litre, and is under review. The AA says it costs 79c a kilometre to run a medium-sized car.

Meanwhile, the AA says motorists are getting stranded in increasing numbers as they try to stretch out the last few drops of fuel in their tanks. Its staff delivered 2061 emergency fuel drops in May - a 20% increase on the February total.

National road service manager John Healy said more city dwellers than rural people got stranded, and in many cases they ran out of fuel on motorways and bridges. "People are taking a risk, thinking 'I'll just let it get down a bit further and wait till I see a petrol station where fuel's a bit cheaper, or they have fuel vouchers for a particular type of station."

Superintendent John Kelly, of Waitemata's road policing unit, said drivers who got stuck on high- volume roads such as the Auckland Harbour Bridge caused chaos and made it dangerous for police and AA staff to rescue them. "They don't save anything . . . It defies any sort of common sense really."

The Government wants to double the percentage of domestic freight moved by sea - but has given itself till 2040 to achieve its aim.  Transport Minister Annette King last night unveiled Sea Change, a draft strategy aimed at revitalising coastal shipping, which she called the poor cousin of the transport sector.

The amount of domestic freight was forecast to double during the next decade, driving the need for reorganisation, she said.  The roading network had a limited capacity to handle that.  About 15 per cent of domestic freight is transported by sea. Sea Change wants to double that to 30 per cent by 2040.

To help achieve this, the Government will set up a maritime liaison unit in the Transport Ministry.  It will promote awareness of coastal shipping and help domestic coastal shippers and ports apply for government financial assistance.

Ms King said that financial aid could involve grants to establish new shipping services. She already had a Budget bid in, to provide this type of funding for 2008-09.  Shippers or ports applying for grants would have to demonstrate the economic viability of their proposal at some point in the future.

The strategy will take effect against a backdrop of large international shipping lines moving to larger container ships, calling at fewer New Zealand ports.  "We've got to realise that when the hub-and-spoke strategy of international shippers takes even greater effect then we've got to move freight from the Timarus and the Greymouths and Napier and Gisborne and so on.  "We've got to make sure we're utilising those ports to the best of their ability and seeing how they can be integrated into our rail work and our road work.  "We're trying to get ahead of decisions that might be made to New Zealand by planning for the future and expanding our coastal shipping capacity."

Shipping Federation president Rod Grout welcomed the draft strategy, saying the 30 per cent target was the biggest boost to New Zealand coastal shipping that he could recall.  One of the things the federation had sought was modal neutrality between road, rail and coastal shipping. Increased funding for coastal shipping would help achieve that, he said.  Mr Grout, also chief executive of New Zealand's biggest domestic shipping company Pacifica, said as international shipping companies called at fewer ports they would have a choice of using road, rail or coastal shipping to move containers to the larger ports.  "If coastal shipping is competitive with road and rail then we'll get a look in," he said.  "If we're not, we won't."

The amount of freight carried on rail between Auckland and Palmerston North rose 39 per cent last year, according to rail freight operator Toll NZ Ltd.  Joe Garbellini, Toll NZ's rail boss, was today talking up the role rail can play in reducing the number of trucks on the road.  He did so as long-term access fees to the state-owned rail network remain subject to negotiation, and as the safety of roads in the Waikato is in the news.

"We are dispelling the myth that rail is only good for the transport of bulk materials, like logs or coal," Mr Garbellini said.  He said the railfreight market grew by 4 per cent last year – equal to 1000 truck loads a week.

The 667km Auckland to Palmerston North route, on which five trains run daily, saw an increase in tonnage of more than 39 per cent last year. This reduced the number of trucks travelling between Auckland and Palmerston North by 120 each day.  "Palmerston North has become a strategic hub for many businesses in the lower North Island." Mr Garbellini said trucks were faster for short hauls and complemented rail by transporting goods to their final destination.

Some of New Zealand's major transport operators were working with Toll to move more freight to rail.  More freight was also being carried by rail between Hastings and Christchurch and Auckland and Christchurch. Toll's auto express service used rail to move vehicles around New Zealand and had recently introduced a service to Invercargill.

"There's 4000km of track in New Zealand and a lot of it could carry more traffic.  "Truck drivers are in short supply and the $500,000 investment needed for a big road transporter means that rail is well placed to offer a competitive service on many main transport routes," he said.

Port of Tauranga will make a statement early next week on its proposed merger with Ports of Auckland, with one analyst suggesting it is likely to call the whole thing off.

Goldman Sachs JBWere said in a research note that it believed the port, buoyed by winning extra shipping services from Hamburg Sud, would not be prepared to wait any longer for the support of Ports of Auckland owner Auckland Regional Holdings.

In October the ports announced they were in merger discussions. But in February ARH said it needed a more detailed analysis of the business case and had hired investment bank Cameron Partners to help. On the same day Tauranga said it would make a "final decision" on the merger by the end of March.

Tauranga port chief executive Mark Cairns said the board would meet today and make a public statement on the merger early next week. As of yesterday the port still had not received a final decision from ARH. "We are still in discussions with ARH."

The Goldman Sachs JBWere note said: "Buoyed by solid operational outlook, including additional services from Hamburg Sud and potential higher export duties on Russian logs, we believe PoT is not prepared to wait any longer for ARH support."

Goldman Sachs JBWere ports analyst Marcus Curley said Hamburg Sud's announcement this week that it would shift its North Island southbound port call from Auckland to Tauranga made a merger less likely.

Hamburg Sud had suggested reasons for its shift were cost savings, better service and more efficient logistics, he said.

"You could read cost savings as being lower pricing of port services. It seems a little odd if you were sure a merger was going ahead that you would be aggressively looking to attract new lines into your port using price."

ARH chief operating officer Peter Casey would not say when ARH would make its decision but implied it was not imminent.

"We have never talked about time frames," he said. "The PoT's statements about deadlines may be giving people the impression that the merger is an easy thing to do. We did a lot of homework when we took the port private in 2005 and this thing is five or 10 times bigger than that."

Mr Casey said even if the ports agreed to the merger it would face significant competition hurdles.

Port of Tauranga shares have been trading as high as $6.45 in recent weeks and closed 15 down at $6.30 last night. Goldman Sachs JBWere values the shares at $6.40 to $6.60 if the merger succeeds but only about $5.30 if it does not go ahead.

The current chaos on Auckland's western rail line is not just a real example of New Zealand's infrastructure headaches. It's also a handy metaphor for the inadequate decision-making for solving them.

The work to double-track the line makes great sense. Expanded capacity and greater reliability are needed to help the trains keep up with fast growth in passengers.

But two problems arise. First, the old, fragile infrastructure can't handle the upgrading demands placed on it. For example, heavy construction equipment is damaging cables controlling points and signals so train services are suffering.

By mid-year, new signalling will be in place as part of the $600 million, three-year project for double-tracking and other investments agreed in 2005 by the region and central government.

But as soon as all that's finished, a second, bigger problem will arise: the regional rail network will once again be pushing its capacity limits thanks to New Zealand's penny-pinching, piecemeal approach to infrastructure projects.

There is a solution: electrification of the rail network so faster, more frequent and reliable trains can run. And with lower operating costs and environmental impact compared with a diesel-powered fleet.

Last September, Auckland Regional Council and its public transport agency, ARTA, made the electrification case to government. Again, it was a rather modest proposal. It called for spending $572m over 10 years to electrify and re-signal the lines and to buy the first 40 two-car trains. The ARC reckoned it could come up with $250m so asked government for the other $322m.

While that is a bigger, bolder project than attempted before, there is still a penalty from the piecemeal approach. Some aspects of the new signalling going into the western line now will need to be adapted to handle faster trains and the electromagnetic interference from their power supply.

And there are much bigger projects to come. Crucially, The solution is to make it a through station via a tunnel around the CBD and up to K Road. It would cost some $1 billion and take a dozen years or so to design and build.

With that and other major improvements at a total cost of about $3.6b Auckland, could have a rail network that could handle some 30 million passengers a year by 2030, up from 5.5 million in the past financial year, a year that saw train patronage grow 32%.

Not only would this network help keep Auckland's rapidly growing population mobile, it would do so in environmentally sound ways. ARTA estimates such a network would save 70 million litres of fuel a year and 233,000 tonnes of greenhouse gases, but also reduce road deaths by 9%.

Investing in small chunks is an inefficient way to meet those long-term goals. Above all, it ignores the reality of Auckland's growth. If the region had happened to be in the US, its rate of expansion over the past 15 years would have ranked it the fifth fastest growing urban area after the likes of Las Vegas and Phoenix.

Growth that brisk requires vision, analysis, decision-making, planning, investment and execution of far greater scale and confidence than regional or central government have ever managed to achieve. And if both are serious about making Auckland a truly great city of the world, or at least the Asia Pacific region, then the demands on them are even greater.

But that's not how the electrification issue is playing out. The regional government prepared an excellent case for the investment, presenting it to Wellington last September. Sound analysis proved the economic and environmental case for electric over diesel power, but the government has been dragging its feet.

The delay is becoming crucial. ARTA is achieving growth of passenger numbers well above the forecasts it produced for its case. As a result, it needs to make decisions soon about new train sets. It will certainly buy some old UK carriages and refurbish them in Dunedin. They will be pulled by diesel locomotives which could be replaced by electric ones.

But the sooner ARTA has the go-ahead on electrification, the better the rolling stock decisions it could make. It could minimise the number of carriages and diesel locomotives it buys and maximise the number of electromotive units, rolling stock with built-in motors. These are the quickest, most efficient form of train, but the waiting list for them is long because they are in strong demand around the world.

While there have been plenty of issues and complexities to work through on electrification, there have been two clear drags on the process. First, Treasury has struggled to develop the analytical skills it needs. It remains stuck in the old narrow cost-benefit models it perfected in the late-1980s and 1990s.

For example, it argued initially that the electrification project should be judged on the basis of a 10-year life and a 10% discount rate. That flew in the face of experience overseas. Rail investments are long-life ones of typically 25-40 years and their cost-benefit ratio calculated on a discount rate of 3%-7%.

In the end, Treasury grudgingly agreed to 25 years and 7%. That was still a high hurdle to clear, but electrification has succeeded in doing so.

But the bigger problem remains. The government keeps loading up policy with the likes of multi-faceted economic, climate, environmental and social objectives. These are worthy in themselves, but Treasury, as a crucial player in the decision-making processes, has very little idea of how to work those issues into the advice it gives to ministers.

Unless Treasury learns those analytical skills quickly, it will make a mockery of the bold policies the government is promising on the likes of climate change, carbon neutrality and renewable energy.

But the other drag is the government itself. It has, for example, played fast and loose with some of the wider environmental and economic criteria it built into the 2003 Land Transport Act. It has found bureaucratic ways to subvert those criteria to tilt the playing-field back towards roads and away from public transport.

On electrification, Finance Minister Michael Cullen has proved very hard to convince of the wisdom of the investment. Perhaps the prime minister's support for electrification in her speech in February may have helped him make up his mind.

That comment, plus some by Transport Minister Annette King, had suggested a decision on electrification was imminent. But now people close to the discussions say the go-ahead won't come until June.

It had better come then - and preferably sooner - or confidence in the government to live up to its self-proclaimed bold economic and environmental agenda will ebb further away.

Auckland's business community is criticising a decision which will delay completion of a crucial motorway project in the region. The area's Regional Land Transport Committee has dropped construction of the Avondale section of State Highway 20 from its 10 year plan.

It has instead adopted a package that pumps money into upgrading the public transport system. But the move has frustrated and angered members of Auckland's business community. They say the highway, which provides a desperately needed alternative route to the heavily congested southern motorway, will now not be built until 2020.

The Employers and Manufacturers Association says completing State Highway 20 should be a top priority and the authorites are just making excuses for not proceeding with the crucial link. Business leaders say with road congestion estimated to cost the region a billion dollars a year, completing the highway could be worth $800 million in benefits.

The Chief Executive of the Northern Employers' and Manufacturers' Association, Alasdair Thompson says the delay means the 5 year motorway project won't even be started for over a decade. He says it needs to be completed with urgency, but instead is being hindered by local and roading authorities with the same old attitudes.

The managing director of trucking company Carr-Haslam, Chris Carr, says the decision fails to recognise the commercial needs of the region, and the road is needed.

But committee's chair, Auckland Regional Councillor Joel Cayford, says the region's public transport system needs attention if patronage is to grow. Cayford says $6 billion has still been allocated to roading projects and that there is no way the section could be built within the ten year time.

Mainfreight managing director Don Braid says private equity firms are likely to push up acquisition prices in the logistics sector, but sees it as an opportunity rather than a cause for concern.  The New Zealand transport and logistics company has been scouring Australia and the US for suitable acquisitions to add to its rapidly growing overseas business, but Braid said he expected private equity buyers would pay more than Mainfreight.

"We are not intending to pay any inflated prices and we have a natural advantage in acquiring a business in our industry over a private equity business," said Braid as he released another strong earnings result.  Private equity investors would probably pay too much for transport businesses and gear them up using debt, he said.  "With some patience and the likelihood of some of those [deals] failing, there may be opportunities in the future, where there may be fire sales," he said.

Mainfreight's latest results showed continued overseas expansion, but with slower growth in New Zealand.  For the nine months to December 31, Mainfreight posted a net profit after tax and before abnormals of $25.7 million, a 27 per cent increase on the same period last year. Revenue rose to $740 million, an increase of 4 per cent.

Braid said he was comfortable with the result but would have liked it to have been stronger.  A softer result for the domestic freight business in December had been the main cause of a downturn in New Zealand operations during the third quarter, he said.

New Zealand domestic revenues went up 1 per cent to $206 million and earnings before interest, tax, depreciation and amortisation increased 6 per cent to $18.7 million. New Zealand international revenues dropped 50 per cent to $114.8 million driven by foreign currency conversions and fluctuating ocean freight rates.  But Mainfreight's strong growth in international operations had offset the New Zealand downturn, said Braid. About half of its earnings before interest, tax, depreciation and amortisation were now derived from overseas, and would continue to grow.

It had short-listed international freight forwarding businesses it was interested to acquire in the US and a couple of opportunities had come to the table in Southeast Asia.  Australian domestic revenues jumped 14 per cent to $97.5 million, with earnings before interest, tax, depreciation and amortisation up 14 per cent to $7.8 million.

In the US, revenue grew 21 per cent to $87.6 million and earnings before interest, tax, depreciation and amortisation jumped 77 per cent to $3.8 million.  "Third-quarter performance was in line with last year's as a result of increased costs in the opening of two new branches in Boston and San Francisco," said Braid.  Mainfreight's shares yesterday closed down 28c to $7.60.

The country's biggest listed transport group, Mainfreight, said today its net profit rose 27 per cent to $25.8 million for the nine months to December 31. A further $17.6 million of abnormal gains was added to the net surplus, as previously disclosed in the half year result, bringing the total net surplus for the period to $43.3m.

Consolidated revenues (sales) increased year on year to $741m. Excluding foreign currency conversions to New Zealand dollars that was an increase of 4 per cent, the company said today. While the year-to-date 27 per cent net profit improvement was satisfactory overall, New Zealand's performance during the third quarter was below expectations, particularly during December.

Earnings from offshore interests continued to gain momentum and perform satisfactorily, providing half of total earnings before interest and tax (ebit).

Overall performance in January and early February was in line with the same period last year. The ongoing strength of the offshore interests continued to fuel Mainfreight's desire for greater offshore growth, further reducing its reliance on New Zealand operations, the company said. It continue to expect its year-end financial performance to be much improved on the previous year.

In the New Zealand domestic division revenue and ebit performance were in line with the same quarter of the previous year, while year-to-date revenues improved by 1 per cent to $206.3m and ebit improved 6 per cent to $18.7 million. For the New Zealand international division revenues year-to-date declined 0.5 per cent to $114.8m with foreign currency conversions and fluctuating ocean freight rates contributing to flat sales, Mainfreight said.

Division ebit improved 21 per cent to $2.6m reflecting the synergies of merging Mainfreight International and Owens International, combined with a focus during the quarter on inbound freight margins. In the Australian domestic division revenues increased 14 per cent to $97.5m, and ebit had also continued to improve, up 141 per cent to $7.9m, excluding abnormals year-to-date. Trading continued to be strong with the new year well ahead of the previous year.

In the Australia international division revenues were maintained at last year's levels and ebit increased 18 per cent to $9.3m, despite a not unexpected declining performance in the projects division of Pan Orient. Trading remained positive and would continue its momentum through 2007, the company said.

In the US international division year-to-date revenues improved 21 per cent, excluding foreign currency exchange, to $87.6m. Ebit for the year to date had improved 77 per cent to $3.9m. Third quarter performance was in line with last year's as a result of increased costs from the opening of branches in Boston and San Francisco.

Group capital expenditure was $28.5m, with $23.1m spent on property development.

The name Fullers is virtually synonymous with the ferries that connect Auckland with the North Shore and the Gulf islands. The company has dominated the city's water transport for so long that complacency is a constant risk. How else to explain its outrageous dereliction of duty last weekend, when it left about 120 customers stranded overnight on Waiheke?

They were left behind when the last ferry on Saturday night departed carrying as many passengers as it could safely take. Those left behind say they were told, by local police at least, that another ferry would be sent for them. They waited, dressed lightly for the evening, and as time went on and no ferry came, they did what they could to keep warm. Some reportedly tried to light fires. Two men allegedly broke into the ferry terminal and have been charged with unlawful entry and burglary. It was a cold, bitter, seven-hour wait for the first ferry of the following day.

Fullers later denied giving any assurance that a boat would be sent back for those it left on the pier that night - and, incredibly, issued that denial without the slightest sign of embarrassment.

"When most of the people choose to come back on the last sailing it makes it a little difficult," said Fullers Group operations manager Ian Greenslade. Later the chief executive, Douglas Hudson, expressed regret for the incident but insisted the company was not solely to blame. He said it had dispatched a larger vessel than usual to Waiheke on the last sailing because it expected a large crowd from a dance party at Stonyridge Vineyard. The company did not have staff on call to do another run in the early hours of Sunday, he said.

Doubtless it is "a little difficult" to provide return transport for a crowd, but Fullers has been in this business for a long time. The company admitted it knew an event was bound to put heavy demand on the last sailing of Saturday night and it did nothing to prepare for an overflow. When ferry crew saw what had happened, they evidently felt no obligation to make one more trip for customers who were plainly relying on them.

This is not the normal culture of a business that runs a public service; it is not even the culture of state-owned service providers these days. Fullers' behaviour last Saturday night was a throw-back to the days when so-called public servants would close the counter on a queue of customers if the clock struck closing time.

The best it has offered is to meet police and dance party organisers to try to co-ordinate things better somehow. That is mere flannel; organisers and patrons of events on the Gulf islands should not have dance to the ferry company's convenience. Fullers is contracted by the Auckland Regional Council to provide a service and, thankfully, the council does not sound satisfied with the company's performance. Chairman Mike Lee says a similar incident happened at New Year. "Two stranding incidents are a matter of real concern. The feeling is with ferries, you take people to an island, you should be able to bring them back." Quite.

Mr Lee believes the regional council has the leverage to improve the culture in Fullers. It issues bus and ferry contracts worth millions of dollars. The council has every reason to use that weapon to utmost effect; its urban transport plans hold ferry services to have potential for expansion to many of the residential bays around the region, attracting commuters who might take a bus and ferry to work rather than drive.

But if commuters are going to have confidence in sea transport, ferry operators will need to be inculcated with the principle that, come hell or high water, passengers must not be marooned.

Canterbury Manufacturers’ Association
Media Release

Two Islands, Two Transport Hubs

The Canterbury Manufacturers’ Association says that the price fixing allegations being brought against Air New Zealand is a warning as to the distortions in New Zealand’s logistical and transport sectors.

“Although the court case is being undertaken in Australia, one of the issues that it highlights for New Zealand companies is the mounting cost of freight and firms on this side of the Tasman Sea are already questioning why this is happening”, says CEO John Walley. “The allegations aside, there are distortions in the logistics system as a whole that are pushing freight costs higher and this applies to road and sea freight as well as the airlines in New Zealand. The options available to local companies in terms of carriers are limited and problems and costs increase because we continue to focus on Auckland as our central transport hub”.

The CMA says that New Zealand needs a ‘two island, two hubs’ solution with the building of the necessary terrestrial infrastructure to support this. The Association says that there needs to be an equal distribution between islands because if Auckland continues to be the main focal point for incoming and outbound transport, then firms based elsewhere will suffer and lose profitability.

“What option does a company based in Christchurch, Dunedin or Invercargill have when they want to use roll on roll off transport to Australia other than to use Auckland? High cost of transport and smaller local markets simply encourages firms to relocate all or some of their business into other markets”, says Mr. Walley. “New Zealand has already lost a number of companies to our competitors and more will consider relocating if the problems and cost associated with infrastructure and transport are not met with a coherent strategic solution and Government is best placed to lead this.”

“The scrutiny currently being applied to the airlines is due in part to the fact that a small number of carriers in the market means less competition and higher prices”, says Mr. Walley. “Unfortunately, this is becoming a fact of life for so many companies and unless a solution can be found to ease freight costs and increase access we simply increase the pressure to relocate offshore.”