Tranz Rail freight rates soar

By DANIEL RIORDAN transport writer

Tranz Rail is seeking hefty increases in freight charges - in some cases over 50 per cent - adding to the pressures business is facing from other transport modes.

Tranz Rail negotiates individual contracts with each major customer, with charges set for fixed periods, typically six or 12 months.

Fletcher Forests transport manager Doug Robertson said his company, which last year moved about two million tonnes of logs by rail, recently renegotiated its contract. He declined to say what increase Fletcher Forests had agreed to.

Weekend Business has heard of customers being asked to pay 30 per cent to 40 per cent more for their new freight contracts.

Robertson said Tranz Rail had been seeking increases of 50 per cent or more in some cases.

He said Tranz Rail was trying to justify the increases on the basis of returns to its shareholders, and sustaining its business.

Fletcher Forests has the option of moving more of its logs by road (it sends about three million tonnes that way), although Robertson declined to say if the company was likely to do that.

He noted that 10 years ago disputes between Tranz Rail and its forestry customers led to a complete switch to road.

A Tranz Rail spokesman said the company did not discuss contract negotiations or the state of existing contracts, and declined to say what kind of overall increases Tranz Rail was looking for.

But he referred to comments by managing director Michael Beard at December's annual meeting, when he talked of lifting service levels alongside any rate increases.

Businesses seeking to move freight by rail, air and sea are having a rough time lately.

South Island exporters have been hit by Air New Zealand's reduction in freight capacity out of Christchurch, which has also affected capacity out of Auckland.

Maintenance on Auckland Airport's runway, due to be finished next month, has also reduced the fuel and freight capacity of some planes. And transtasman shipping companies on Thursday signalled a new series of price rises, some as much as 85 per cent, for the fuel-charge component of their fees, as well as lifting their emergency bunker surcharges. The rises reflect world oil prices.

Although analysts are bullish on Tranz Rail's prospects as it comes out of its 18-month restructuring, credit rating agency Moody's last month changed its outlook on the company from stable to negative, citing a weaker operating environment and a disappointing interim profit. Moody's said the next 12 to 18 months would be critical for the company as it sought to lift its profitability.

Tranz Rail is also battling with Solid Energy, which is barging coal from the West Coast to Lyttelton and sending the bill to the rail company.

Solid Energy says Tranz Rail cannot provide enough capacity and there is no choice but to barge the rest.

Solid Energy chief executive Don Elder said this week that Tranz Rail would have to pay the "substantial" cost of barging, as required in its contract.

Tranz Rail replied that it had had to cancel 27 trains since January because of washouts and was spending $3 million on improving the lines.