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Ministry of Transport

"There may be some circumstances where the benefits to road users or society in general may justify public funding.
Where this occurs it is important that both the level of subsidy and services being bought are transparent."

The following report was commissioned by the Ministry of Transport but subsequently
Information witheld under Section 9 (2)(b)(ii) of the Official Information Act
It was released under the Official Information Act and is available @  : http://logjam.files.wordpress.com/2007/10/bolland-report-april-2010.pdf

Ministry of Transport
April 2010
Independant advice on the Economic Benefits of Rail  Freight
Stage 3
Final report

( see the above link to read the full report )

5 Conclusions

Over the period 2011-2020, using Kiwirail’s forecasts of volume growth, rail gives a saving in resource cost when compared to road of the order of $350 to $500 million p.a.

In the event of lower growth the modal advantage of rail only grows slightly but this could possibly be offset by reducing rail expenditure.

With high growth the saving due to reail increases by 80% over the period 2011-2020
With no investment in rail there could be a move away from rail which would have adverse resource cost implications.

Overall there is a case for investment in rail because of the resulting savings in resource costs.

However our analysis does not indicate whether the proposed expenditure is optimal.

In the present economic climate it can be expecte that oil prices will rise in real terms;
If an increase of 25% is assumed by 2020 the resource cost of road exceed rail by around $620 million in that year ( assuming base volume growth )

The true costs of climate change are not yet fully understood but work such as the Stern report in the UK indicas that they are very likely to to rise; this would further
Increase the resource cost advantage of rail over road.

Increasing freight traffic on rail can give benefits to existing users, e.g.  because the service becomes more reliable or frequent.

There is value in having the option of the rail network, for example it would be needed in the event  of a raionalisation of ports by international shippers or other changes in the patten of international shipping.

In a country such as NZ which is depenent on exports, the ability of rail to rapidly deliver a shipload of goods is a clear advantage.

The use of rail contributes to NZ’s “clean green” image and reduces the energy consumed for exported food.

Other countries e.g. the U.K. and Australia ) have found that in times of economic growth it is difficult to recruit the required number of truck drivers;
this represents a shortage of resource costs which is not in the evaluation.

There are some minor aspects of the analysis where strict comparability
between modes has not been possible; overall the impact of this is that the case
for rail as given in this report is probably conservative.

Finally, as pointed out in Dr King’s peer review, one reason the gap between the modes is so large is that the current traffic mix is by and large rail’s natural market.

It will have a large advantage over road for bulk commodities, containers , and the like.

It is misleading to ask the question : if there is such a gap, why can’t rail do better with its prices ?
 For a large number of  those commodities the pressure on rates can come from the strong market power of the buyers, or the low margins available to cover transport in the commodity is to move at all, or from shipping alternatives, and not from a hypothetical road transfer.

When the commodity value is low, this is also part of the option value arguement, since many shippers would not have a realistic choice of going to road if there was no railway.

Appendix A
Conclusions from Stage 1 & 2
Our findings on the relativities of road and rail costs are consistant with those from similar studies around the world.

The short-run marginal cost of rail is about half that of road on average and for only a few minor lines is road cheaper than rail ; even so the results for those few lines may reflect network effects or be due to the averaging of road costs

Looking at the rail network as a whole the resource costs required to shift a similar amount of freight by road would be about $200 million more; this is a benefit of the existing rail network

The $200 million figure does not include the costs of road strengthening or passing lanes which would be needed in all rail freight transferred to road.

The safety benefits of rail freight are of $40 million p.a. equivalent to twelve fatal accidents

If all rail traffic shifted to road the number of trucks on state highways would increase in different parts of the network by factors ranging from a few % to over 300%

The options for traffic to shift from rail to coastal shipping are limited and may increase consignor costs ; they would also require investment in tonnage

On the basis of the analysis there is an inherent benefit in rail improvements which attract freight from road to rail and this would be part of the justification for such measures

Some growth in rail freight traffic could be accommodated at minimal extra cost

Increasing freight traffic on rail can give benefits to existing users , e.g. because the service becomes more reliable or frequent

There is value in having the option of the rail network, for example it would be needed in the event of the rationalisation of ports by international shippers

Rail fuel consumption and Green-house gas emissions are appreciably lower than road which is important in an era of rising fuel prices and emissions trading.

Information witheld under Section 9 (2)(b)(ii) of the Official Information Act