Subscribe to RSSUnion On KiwiRail Losses
KiwiRail job losses in Dunedin could have been avoided if the government and KiwiRail had made sure major rail manufacturing projects were carried out by New Zealand rail workers, their union said.
KiwiRail has announced to workers a proposal to cut 41 jobs at its Hillside workshop in South Dunedin. Workers have until 1 July to comment on the proposal.
“The Transport Minister needs to front up and take responsibility for these proposed job losses. Inaction from Steven Joyce and KiwiRail has lead to this situation,” Rail and Maritime Transport Union General Secretary Wayne Butson said.
“Today’s proposal is the direct consequence of KiwiRail not bidding for the $500 million rail construction job for the electrification of the Auckland rail network, despite a comprehensive BERL economic case backing a local build supported by the Otago Chamber of Commerce, Dunedin City Council, unions and MPs.”
“KiwiRail sending the job for 300 new container flat top wagons to an overseas firm last December hasn’t helped matters either.”
“Steven Joyce’s assurances last May that “there will be lots of work for these guys, there’s no doubt about that” have amounted to nothing, and now the local rail workforce and the wider Dunedin engineering sector is paying the price.”
“The government was faced with a choice. As KiwiRail’s shareholder they had options available to them to enforce strong local procurement rules.”
“Instead, the Transport Minister has sat by and let this work go overseas.”
Wayne Butson said it was silly for KiwiRail to tender a job from one part of the business, which could easily be carried out by another part of the KiwiRail business.
“What needs to change is KiwiRail’s tendering rules, and this change needs to come from Parliament, to make it clear for crown entities like KiwiRail that buying local must always be the first option where possible.”
“If government procurement settings do not support local industry, then we simply won’t keep good manufacturing jobs in New Zealand.”
27 Comments
Yeah, these people don’t WANT skilled manufacturing jobs in New Zealand. That leads to all kinds of bad things like unions and high wages. They want this country to be all about farming, tourism, and the service industries.
…and highways
The highways are so that farmers, tourists and consumer goods for the service workers to sell can get around the place.
thats what happens when a wannabe List MP is put in charge of such a crucial ministery portfolio.
Sooty
This is exactly what I’ve been stressing the government isn’t looking after its own people, what ever happened with the Kiwi First policy that National introduced. In a way you can’t blame Kiwi Rail for doing this they need to find ways to make their business profitable the people you blame are the government for not trying to encourage Kiwi Rail to keep the manufacturing jobs in NZ.
Our governments has allowed foreign companies to buy up large chunks of NZ land for dairy-farming, rather than encouraging NZ companies to buy the land. National out now!!!!!
I’m not happy with this outcome, but there is really know need to take a swipe at other industries.
A lot of farmers products are actually moved around on trains.
and if we didn’t have any roads, new zealand wouldn’t even exist because we don’t produce everything we consume.
the idiot that decided to send the work overseas will never be named, because they’ll say it was a “group choice”.
all in all, this is a major fail.
stuff gets built in aussie here, and its dam good stuff, someone really needed to cop one on the chin, pay a bit more and spend so money on some home grown products.
Australian’s like Poms do whinge but I dear say when it comes to home grown stuff, boy do they kick up a fuss.
Australia = moving forward
New Zealand = digging a bigger hole for itself.
this and the no the go with the CDB link, two massive kicks in the face to the NZ public if you ask me.
the price differential for the container wagons was something in the order of 12% (unions) to 20%(Jim Quinn).
If the Chinese price was half that then there would be no problem, but in the case of such a small differential then the work should stay here.There is no question of competence, Hillside built the first 35, meanwhile the Chinese shipment is overdue yet again.
Would have been a great boost to skills training, trade balance, the whole Dunedin economy and so on.
Especially as the contract would have been for 5 years Hillside could have made big investments in capability, maybe leading to export orders of specialist wagons to Australia.
Agree that this is sad but all New Zealanders that buy cheap goods from China and other countries are to blame for these changes.
Hands up who wants to pay more for a shirt, a shoe, a computer, a iPod, a refrigerator , a TV, a car, steel etc. Back in the 1960′s and 70′s lots of things were manufactured in NZ and they cost a fortune to buy and most would say we were the poorer for it (in terms of consumable and fiscal living standards). For example in 1975 a NZ manufactured 23 inch Pye of Philips Colour TV cost $13,000 in todays dollars. Today you can buy a 50 inch TV ex China for a $1000. More than twice the TV for less than 8% of the price - sure innovation/ technology advancement has a lot to do with lower costs in such items but that is only one part of the story - much of it is much cheaper manufacturing in China. Goodness knows how much it would cost to build such things in NZ. People need to be honest about what keeping manufacturing jobs in NZ means. Apply NZ labour rates in place of Chinese rates and then see how far your pay / money goes in buying stuff - it would be an eye opener for most. So let’s be careful about what we wish for.
I am afraid we are a consumer based society that demands low prices and wants more goods. I wonder how many people complain about this (including the workers themselves – harsh??) buy cheap Chinese stuff at the Warehouse and other places and then complain about manufacturing being shifted to China. It is a natural consequence (or karma result) of our actions and desires and we will see more and more of this. F&P went to Mexico for the same reason - shut their Dunedin plant down as it cost too much to be competitive with NZ based manufacturing. I am afraid you can’t have both ways. Don’t blame Joyce or KiwiRail but blame each and everyone one of us (all the consumers that want cheap goods - and a resulting better material life!)
The big question strategically is how long will China be cheap? Then India may take over but sooner or later their prices will rise and then we will all be in the proverbial with little to fall back on as all our IP is destroyed but what the heck why not live for today. Heads up -we are all complicit in this as are other developed countries living of the cheap labour in China /India etc and this is but one consequence of that. Expect more consequences over time. I mean people go on about “Peak Oil” – what about “Peak Labour” costs in a few decades when China / India are no longer a cheap source of labour – hopefully technology advancement will save us!
Because of a 12 or 20% (depending upon who you believe), which in the total cost is perhaps a couple of million dollars, Steven Joyce is causing 40 immediate staff to lose their jobs. The knock on effect is that 200 people will be effected, not to mention the loss in potential investment in plant and labour.
So Steven Joyce, just like your holiday highway, another very foolish decision from AN UNELECTED MP.
If we want rail and public transport DON´T VOTE NATIONAL / ACT this year.
Such a shame these people lost their jobs. Total madness really. Look after those at home first. If we don’t have the technical no how (which I’m sure we do) Buy one overseas built bit of kit and copy it making it better.
Article on China and world peak labour if anyone interested
http://www.kpmg.de/WhatWeDo/23630.htm
Jon R KiwiRail has a nearly $1 billion rolling stock procurement plan over next few years for new wagons and locos (excluding EMU’s) and so 20 percent on that is quite a big saving for KR
@Giel
But is it 20% or is it 12%?
How much is it going to cost for the redundancy packages at Hillside, Hutt and the Wellington Design office?
How much is it going to cost all the supplier companies who also have to lay off staff?
How much is it going to cost NZ Inc when the families of those skilled workers leave New Zealand - and we lose the income generating potential of their children?
How much will it cost to re-establish these engineering design and manufacturing resources if they are needed again in future?
This is sounding a lot like Northland rail where decisions resulting in a huge loss of long term resilience are being taken for the sake of what is loose change comparative to the government RoNS budget.
And - while we are talking about a $1 billion procurement programme, only a fraction of that needs to be given to NZ workshops to provide a sustainable workflow into the future. Let the majority go to China, if need be.
Tuktuk I would go with 20 percent as at now but as I have stated China might not always be cheap so that may change over time so to give it away completely is a bit “living in the now” short sighted. I agree strategically it would make sense to preserve the IP. What disturbs me even more is that the Mechanical Design office is also part of the downsizing!
KiwiRail is not a very dynamic entity and still quite traditional in its business model but does have quite severe fiscal constraints so the decision didn’t surprise me as dissapoiting as it is. It is a commercial decision which usually means a deal for the now financially not really a strong entrepreneural future focused decision for the industry long term in what is an increasingly uncertain world especially when it comes to China!
Wasn’t it Bill English who let slip that low wages is an asset for New Zealand, in the global economy?
Jon R - The Hillside decision was made by Jim Quinn and top KR management, not SJ.
We need to face the reality that Asia (China, Vietnam, Cambodia, Indonesia, Thailand, Korea & Japan) over the next 20-30 years will be the world’s manufacturing zone for mass produce goods.
Japan lead the way after the world war 2, followed by Korea and now China & these countries will be the major manufacturers of 70% in what we consume. Thailand is will be the next biggest for consumer items. There are new comers to the Asian manufacturing zone like Cambodia & Vietnam, who can produce consumer goods cheaper than China. At this stage Indonesia hasn’t shown it manufacturing potential but some analysts think is be equal to Thailand in the future.
What impact has this on good old NZ?. Alot. China in the last 30 odd years, has looked at the former economic success of Japan and the current economic success of Korea and decide to build its economy by building large factories to mass produce consumer goods at cheap prices. With a population of 1.4 billion, they have a potential of 600-700 million workers to work in factories after taking out China’s very rich, rich and the rapidly growing middle class.
A semi skilled factory worker in China, working in a heavy industry factory may get CNY/RMB 4000-8000 per month (NZ$851-$1702 per month). This is consider to be a good wage especially if you are from the poorer central China. What is the wage equivalent in NZ?
I believe China has 3 factories that specialized in design & building of rail rolling stock & locomotives, etc and build products cheaper than in NZ.
Also, we have to take into account, that NZ is the only country to have a Free Trade Agreement (FTA) with China. This FTA is currently banking rolling most of Bill English $350 million per week spending, as the Chinese Government is buying NZ government bonds.
With the Chinese Yuan - CNY/RMB 4.70 to NZ$1.00, it make economic sense for Kiwirail to purchase capital rolling stock & locomotives in China as oppose to building in NZ.
Giel is correct in his comment that - KiwiRail is not a very dynamic entity and still quite traditional in its business model but does have quite severe fiscal constraints so the decision didn’t surprise me as disappointing as it is. It is a commercial decision which usually means a deal for the now financially not really a strong entrepreneurial future focused decision.
The fact is, Kiwirail is a company 100% owned by the NZ tax payer and under the State Owned Enterprises Act does have an obligation to be a good corporate citizen.
If Kiwirail could look outside the square (or get a new pair of glasses instead of using the rose tinted ones they are currently using), Kiwirail could become entrepreneurial by saving the proposed job losses yet comply with the Government’s unspoken ‘official’ policy to buy Chinese, which is an attempt by the Government to be a proactive partner in the FTA partnership.
Kiwirail 2 workshops are part of of very small group of businesses in NZ that have heavy industry manufacture capability. I believe that that Hillside (Giel will correct me on this) is the largest in the South Island.
Since Chinese factories are geared to large orders, Kiwirail workshops can be promoted to domestic and international markets, for design & heavy industry manufacture using small production runs or refurbishments but at the same time, maintain its own rolling stock.
As Giel knows, Toll NZ built up the 2 workshops with staff in attempt to maintain continuity of experience labour, after it found that the former experience was lost in the
in the staff cuts of the old Tranz Rail. Toll believed that it could build a specialised work force in design & build rolling stock to overseas markets as a potential money earner for them.
Bill English is correct, that low wages is an asset for New Zealand, in the global economy. If the Government takes control of the NZ$ (like China has done) & fixes it for a 5 year period, say US$0.75->NZ$1, A$0.85->NZ$1, Euro 0.55->NZ$1 & so on, it will give NZ economy stability to grow, allowing NZ manufacturers and exporters to build international markets in high quality, low product run consumer goods to international markets, similar to what Germany has been doing in the Euro zone.
By fixing the NZ$ will also help our tourism and agriculture industries in providing quality tourism & agriculture products at competitive prices.
National has to stop being double standing about employment by saying there will be new jobs, yet slashes jobs & take control of the economy.
Also the electorate has to stop moaning & being complacence & elect a party who is forward thinking, prepared to roll up their shirt sleeves, like Labour did in the 80′s, to getting NZ moving or NZ will end up like Greece, Iceland, Ireland & Portugal, debt ridden, high unemployment & a stagnant economy.
Do we, the electorate want that??
Thankyou Kris - interesting comments.
Coming back to the price difference, the example of Rod Oram’s unmasking of the different studies and dramatically different figures achieved for the benefits (or dis-benefits) of Puhoi-Wellsford RoNS makes me want to give at least 50/50 credibility to the union figure of a 12% price difference between Hillside and China.
In other words - there is a difference, but not nearly as much as the 20% that Kiwirail are making out which I notice has crept down from the 25% originally reported……
http://www.aktnz.co.nz/2010/12/14/china-scores-another-rail-contract/
I heard an interesting radio interview with a management consultant from Booz Allan Hamilton - a long established US management firm who have advised Kiwirail’s predecessors in the past. One of his key arguments was that for businesses to focus into their core areas - and eliminate/sell all else, profitable or not.
I wonder if this is the model Kiwirail management are following? Is it actually an appropriate business model for Kiwirail? There are generally sound arguments for business principles but they need to be continually challenged with real figures and analysis……otherwise sound principles becomes clunky and useless economic dogma.
So, in that context some Kiwirail management flexibility might allow for different management and ownership structures to be used for those parts of its business that are not to be part of the future core turnaround plan.
Air New Zealand for many years now have very effectively operated multiple and separate business units in addition to its core business under one brand. What this multiple business approach does, is to give very specific focus within each unit to the business plan created by that unit. This approach is not the one advocated by Booz Allan and Hamilton which appears to advocate a very centralised core of just a few outputs. But, Air New Zealand by every measure is an effective and successful organisation.
And maybe this approach is the way forward for the Kiwirail workshops, and some of those regional rail lines. The caveat is of course that those individual units stand, or fall according to the business plans they individually develop.
What’s the wider cost to NZ of that 20% saving? KR is not a private employer, so the wider context of its spending decisions must be a consideration - or should be, if the government actually gave a shit about growing the economy.
If we accept 20% as the saving, and $1b as the long-term rolling stock upgrade cost, KR is depriving the NZ economy of at least $800m in order to save $200m.
A competent government would’ve knocked that one right on the head, because the flow-on effects of that money going into the economy would be enormous. Especially as we’re trying to get out of a recession!
Geoff, you always seem to look at cart, not who is pushing it. Take your blinkers off. SJ pushes the cart.
No Jon, SJ does not make decisions for KR. It’s quite unusual how every single decision made by the board of KR, you credit with SJ. The decisions to buy 60 new locos, 3000 new wagons, and speed up the Auckland-Wellington route are all from the KR board. Not SJ, as you claim.
For tuktuk - I agree with your comments.
As Giel has mentioned, Kiwirail has to become more entrepreneurial in its business thinking.
Kiwirail (like Air New Zealand, NZ Post) has shareholders that are the NZ taxpayer. Like any company, has to return a dividend to its shareholders.
If Air New Zealand can dig its self of the near death experience in 2001, by being entrepreneurial, so can Kiwirail. There is no excuse.
As already mentioned, Air New Zealand, NZ Post, Kiwirail do have an obligation to be good corporate citizens under State Owned Enterprises Act.
This means they have to make good business decisions yet to be aware of their social, environmental & business responsibilities in the communities they have dealings with.
We all know, that SJ is not a rail person but at less he is prepared (reluctantly) to give Kiwrail a go.
I am suprise that Jim Quinn, whose background is from the transport industry (which is very competitive) doesn’t seem to have a ‘hungry’ approach to business development. He seems to be some what weak and clings to SJ shirt tails.
What Kiwirail needs to have a CEO like Rob Fyfe and good forward thinking board similar to Air New Zealand & NZ Post, who can look outside the square, look at business opportunities that can make Kiwirail a dollar and stop relying on the Government for hand outs.
I think we have to stop blaming SJ & the Government, as the buck stops with the Kiwirail board and Jim Quinn.
Kris - agree with most of your sentiments but I think some acknowledgement of what Jim Quinn and his board have achieved is called for. After all they have managed to get very sceptical officials and politicians on board to the KiwiRail turnaround plan and unlock significant funding - something that hasn’t been achieved in a long while. The worrying part is that invested sums are adding up now and where is the return? They have been hit by some unfortunate incidents eg the Pike River disaster, Christchurch Earthquake but their earnings should be on the up and up by now - it is after all three years since “nationalisation”. They are concerned I think - it is not going to be easy to turnaround rail in this country and some further tough calls will have to made if their approach is simply to replace old assets with new equipment. If you can’t justify that capital spend shut it down seems to be their only approach. It is a very expensive approach to the rail issue and one I think doesn’t economically work in this country – great if it pays off but I am increasingly concerned about the total reliance on that approach. Clearly relying on the alternative of just refurbishing old assets doesn’t work either as you don’t get a step change which is needed. A mixed approach of new assets and working with existing assets is more affordable and would be better as you allude to. This would support Hillsides future also. No one is saying that significant new capital isn’t required but my point is that there seems total reliance on that now. Rail being priced into irrelevancy, if that approach continues too long, is my worry.
Interesting in the Otago Daily Times that Jim Quinn is reported to have rubbished the views of American Rail entrepreneur B. Allen Brown, founder and chief executive of multinational Michigan-based Railmark Holdings. This organisation and organisations like it could well be the future of boutique NZ Rail operations and take over some minor lines under franchise that State Rail can’t manage under their capital sledgehammer approach. They would have to be entrepreneurial to make it work but at least they have ideas. Give it a go guys is all I can say. They have set up a NZ operation recently and are watching in the wings waiting for the right opportunity – they appear to have just missed out on the Kingston Flyer operation though. Expect to see more of this entrepreneurial innovative solution rather than the huge capital spend sledgehammer approach of State owned KiwiRail to NZ’s rail problem. As in many things in life a mixed approach is often best and innovation is essential – you can’t just keep spending money guys!
Entrepreneurial activities in KiwiRail seemed to have died with the renationalisation. Quite frankly KiwiRail seems to be lacking in inspiration - all the inspiration for rail seems to be coming from organisations like Mainfreight, Fonterra, Auckland Transport, GWRC. Both Ontrack and Toll NZ despite being at logger heads some time at least had some inspiration and rail seemed energised even if they battled some times with each other. And yes Kris you are right Toll did see Hillside as an asset and actively went out and pushed it – I suspect if KiwiRail had been around at the time then Hillside may have missed those opportunities such as the SA, SW refurbished / rebuilt cars as well.
……and here is the link to Jim Quinn’s comments about Railmark Holdings Ltd:
http://www.odt.co.nz/news/dunedin/164366/rail-magnates-view-illogical
There certainly seems to be a very “top-down” approach. It may be external - Kiwirail seems to be acting in the manner of a company under receivership. Which it is, as viewed in some quarters with Treasury being the appointed receiver.
Yes, two Jims collectively sought out backing for the Turnaround Plan and were successful. Credit is due to both Jims for that.
Turning back to Air New Zealand, if I recall correctly from colleagues, in the final few years before the Ansett meltdown, there was a high degree of factionalism and infighting, a symptom of a company in financial distress. One has to wonder if some of the actions happening in Kiwirail is the result of one faction gaining the upper hand over another.
Rob Fyfe managed to use the “many houses” approach to put “hot-head” managers to work under their own business plans with their own responsibility to make it work. This structural separation also provided assurance of resources, personnel and funding without day-to-day interference from “perceived rivals”. The buck stopped with those divisions and their management teams, and there have been occasional redundancies at different times.
For those who remember Safe Air flying out of Wellington with Bristol Freighters, you might like to check out this link:
http://www.safeair.co.nz/home.php
Looking at Kiwirail there is no doubt that the fiscal constraints are tight. Structural separation allows for approaches by subsidiaries toward third party investors. Possibilities include private companies with expertise in various specialist areas.
In the case of regional rail links, there is the possibility of some regional council support for “short-lines” on a growth path to profitability. As Air New Zealand discovered, regional links are required at many levels to make a regional servcie work.
On a human scale, it also means that a large number of clever, skilled and talented workers and managers are given positive roles to contribute toward NZ Inc.
Quality jobs on the scrap heap, more skilled workers packing up and leaving and 500 million shipped overseas. Fantastic result but for what in the end?
i can’t blame Kiwirail, they need to get bang for their buck but a government that stands idly by while this happens is a disgrace.
This will continue so long as this country and successive governments follow the 1980′s failed ruinous model of economics. ,I hate to think how we will be in 20 years.
The ultimate right wing mission statement would be to close NZ down completely as we can’t possibly compete with low wage non evolving economies.
It really depends what New Zealanders want, more of the same that is and has been slowly but surely eroding our living standards and reason for being and causing more people to leave or a complete change of direction.
Kris, Giel, both well said. The buck does indeed stop with Jim Quinn and the board. Whatever KR does or doesn’t do, comes back squarely to them.
By and large I agree with what they are doing, but I see it as an incomplete approach. They are building the business, and making it more sustainable, and they are actually very good at getting money out of the government. $750m, and the right to later reinvest more than $3b, is an extraordinary amount of money. We have not previously seen that kind of spending on rail in this country.
What they are not doing well at, is providing a focus on the “poor” parts of rail that should nevertheless be built upon for their potential. Passenger rail and provincial lines do have options available to make them worthwhile. More flexibility is required in the business approach to such operations.
Geoff - Exactly right - I too by and large agree with much of their efforts on the core network. However they are letting the marginal stuff go too easily …. so I think there is a place for other niche operators in the NZ Rail scene to run the marginal bits with more focus and entrepreneural innovation. Sure the main network with KiwiRail but “bottom feeders” with more hands on management have a place to closely manage the non core bits that KiwiRail sees as simply too hard. Privitisation is not always bad for a railway and the option to call back to the state could always be put in place. Better that than loose those bits for ever which seems to be KR’s long term plan.
Yes and no. You are right that Quinn has no remit outside of the business he is running but the government does. And it is a reasonable question to ask if it is not shortsighted or indeed in a worse net position by allowing the workforce and the IP at KR to shrink for that cost difference ( whatever it is). We all pick up the tab either way, and I would rather be paying people to build wagons than paying them to get depressed and unwell….