Tranz Rail, formally Tranz Rail Holdings Limited (New Zealand Rail Limited until October 1995), was the main rail operator in New Zealand from 1991 until it was purchased by Toll Holdings in June 2003.
History
The New Zealand railway network was initially built by provincial governments, starting with the Ferrymead Railway in 1863. From 1880, a central Government department, the New Zealand Railways Department, was responsible for operating most of the growing railway network. A few private lines were built, but only one, the Wellington and Manawatu Railway Company (W&MR) achieved any measure of success. The W&MR was nationalised in 1908. In 1931, due to increasing competition from road carriers, the Transport Licensing Act 1931 was passed, restricting road cartage and giving the railways department a monopoly on long-distance freight. In 1982, the same year the land transport sector was deregulated, the Railways Department was reconstituted as the New Zealand Railways Corporation, a statutory corporation (later a state-owned enterprise from 1986). The Railways Corporation restructured the operations of the railway network substantially during the 1980s, reducing staffing levels, closing workshops, and introducing a number of measures to increase productivity, such as removing guard's vans, increasing train lengths and introducing new, heavier bulk bogie wagons.
Formation
The Fourth Labour Government passed the New Zealand Railways Corporation Restructuring Act 1990 on 28 August of that year. Two months later, on 28 October 1990, the New Zealand government removed core rail transport and shipping operations from the New Zealand Railways Corporation, creating a separate entity called New Zealand Rail Limited, a Crown Transferee company created under the Act. At the same time, the Rail Heritage Trust of New Zealand was formed to protect heritage assets that New Zealand Rail planned to dispose of, especially heritage rolling stock, stations and other equipment.
The government wrote off NZ$1.08 billion in debt acquired by the company from the Railways Corporation (mainly for the electrification of the North Island Main Trunk, a Think Big project), and injected a further $300 million in capital. Fay, Richwhite and Company, financial advisers to New Zealand Rail, argued the company had a better future with minimal debt.
Despite this capital injection, the company remained only marginally profitable, reporting after-tax profits of $36.2 million in 1992 and $18 million in 1993. The Railways Corporation retained ownership of the land beneath the railway tracks and yards, which New Zealand Rail paid $1 per year to lease.
New Zealand Rail re-branded, introducing a new logo similar to the Railways Corporation but with blue and yellow as colours instead of red and black, and a blue livery on locomotives, rolling stock and buildings.
Privatisation The Bolger National government, elected following the defeat of the fourth Labour government in elections held in October 1990, privatised New Zealand Rail Limited in 1993. The New Zealand Treasury supported privatisation of the company, even though it stated Fay Richwhite had an unfair advantage over other bidders. Business journalist Brian Gaynor noted that New Zealand Rail was an attractive investment because of its strong balance sheet.
Six consortiums made bids to buy New Zealand Rail Limited: Freightways and the Noel Group: Freightways is a major New Zealand freight operator, Noel Group was a US-based investment company with investments in railways in the United States. Fay Richwhite and Wisconsin Central: consortium made up of Fay Richwhite (31.8% via the investment company Pacific Rail, later renamed Midavia Rail), the American railroad Wisconsin Central (27.3%), Berkshire Partners (27.3%), Alex van Heeren, the owner of Huka Lodge, 9.1% and Richwhite family interests, 4.5%. Sea Containers, Anschutz Corporation: Sea Containers was particularly interested in the ferry business, and the rail operations as well. Anschutz owned Southern Pacific and the Denver & Rio Grande railways in the US (both later acquired by Union Pacific). Mainfreight, Brierley Investments and Railroad Development Corporation: Mainfreight is a major NZ Rail customer, but Brierleys was seen as having an interest as it was a part shareholder of the Union Shipping Group. RDC was a minor owner of railroads in the US and Argentina. Port of Tauranga and Port of Lyttelton, Pacifica Shipping, National Mutual and AMP Limited: At the time Port of Tauranga took 25% of rail freight, and Lyttelton was important for coal traffic. Pacifica saw the acquisition complementing its coastal shipping operation, and the insurance and investment firms were there for the later stock float. Ports of Auckland and Ports of Wellington, Sofrana-Unilines and Stagecoach: Mirroring Port of Tauranga for competition, Auckland saw the investment as strategic. Wellington saw NZ Rail as its biggest customer with the Interislander. Stagecoach was seen as wanting to complement its bus business in Wellington. Sofrana was a French shipping line.
The company was sold to the Fay Richwhite-Wisconsin Central consortium for $328.3 million through an entity named Pylorus Investments Limited, shortly afterwards renamed Tranz Rail Limited. The sale was completed on 30 September 1993. Tranz Rail Limited raised funds to buy New Zealand Rail by borrowing $223.3 million, and its shareholders contributed $105 million to the acquisition price through the purchase of 105 million Tranz Rail shares at $1 each.
Commentators welcomed the presence of an "experienced American short-line operator" (Wisconsin Central) but were critical of Fay Richwhite, arguing that as a private equity firm the company was only interested in "short-term capital profit maximisation."
In 1994 the company sold its 15% stake in Clear Communications for $72.6 million, $20.1 million above book value. The company had gained its shareholding by selling its fibre optic network along the North Island Main Trunk to Clear.
Tranz Rail won the Roger Award for The Worst Transnational Corporation operating in New Zealand on three occasions: 2000, 2001 and 2002, and was the first corporation inducted into the "hall of shame".
Rebranded Tranz Rail
New Zealand Rail carried its corporate brand until 18 October 1995, when Tranz Rail Limited was renamed Tranz Rail Holdings Limited and New Zealand Rail Limited was renamed Tranz Rail. On the same day Tranz Rail Holdings Limited made a $100 million capital repayment to the Fay Richwhite consortium, largely financed by the sale of shares in Clear Communications. The Tranz Rail brand was created by Wellington-based Cato Partners, who also designed brands for the divisions of Tranz Rail:
CityRail, urban rail commuter services in Auckland and Wellington, were renamed Tranz Metro InterCity Rail, long-distance rail passenger services were renamed Tranz Scenic RailFreight, rail freight services were renamed Tranz Link
The livery that resulted was nicknamed Cato blue by rail fans.
Initial Public Offering Tranz Rail listed on 14 June 1996 on the New Zealand Sharemarket and NASDAQ. 31 million new shares, equivalent to 25% of the company, were issued to the public at $6.19. At the time of the Initial Public Offering (IPO), Tranz Rail had term loans debt of $300 million.
The share price reached $9.00 in the middle of 1997. Some of the original Tranz Rail shareholders took advantage of the high share price to sell down their shares in the company. Berkshire Fund sold most of its shares at more than $8 each between November 1996 and March 1997. In 1998, Alex van Heeren sold his holding for a profit of more than $42 million, and the next year Fay Richwhite sold 6.2 million shares at an average $3.67 a share. On 8 February 2002, Fay Richwhite sold 17.6 million shares at $3.60 a share and Berkshire Fund sold 4.3 million shares on 12 February that year at the same price. The original investors made a $360 million profit from their investment.
New services
Tranz Rail introduced bulk milk trains in August 1997, from Oringi and Longburn to Whareroa dairy factory near Hawera. Initial trains consisted of 16 bulk milk wagons, carrying a total of 800,000 litres of milk.
In 1999, Port of Tauranga and Tranz Rail launched MetroPort, a new service using fixed-consist container trains between the Tauranga container terminal and Southdown freight terminal in Auckland. The success of this service prompted Ports of Auckland to initiate a similar service, initially proposed to run from Auckland's container terminal as far south as Palmerston North, with a new "South Auckland Freight Hub" at Wiri. The freight hub has become the ultimate terminal of the Ports of Auckland service.
In 2000, Tranz Rail introduced "Shuttle Train Service", speeding up services to smooth out peaks in traffic. At the same time, four-wheel wagons were banned from mainline services, on account of speed restrictions the wagons created.
Maritime deregulation and Asian financial crisis New Zealand's maritime sector was further deregulated in 1994 by the Maritime Transport Act 1994, which abolished of cabotage, allowing international vessels operated by overseas shipping companies to carry New Zealand freight between ports in New Zealand. This further increased competition for Tranz Rail's services, especially for bulk containers.
The 1997 Asian financial crisis further undermined Tranz Rail's profitability, as the New Zealand economy stagnated and unemployment rose sharply. A decline in Tranz Rail's performance, as well as other investments by Wisconsin Central, led to a change in leadership at the company.
Tasrail investment In partnership with Wisconsin Central as the Australian Transport Network, Tranz Rail invested in Tasmanian rail operator Tasrail in 1997. From August 1998, Tranz Rail sold twelve members of its DQ class and three QR class locomotives to Tasrail. The locomotives were rebuilt at the Hutt Workshops. The DQ locomotives were originally imported by New Zealand Rail in September 1995 from Queensland Rail as an alternative to buying new locomotives. In service, they proved unpopular with locomotive crews due to excessive vibration and noise in their cabs.
The investment provided only marginal returns, and Toll later sold the TasRail shareholding to Pacific National, a Toll Holdings partnership with Patrick Corporation, in 2003.
Interisland ferries and competition From the 1990s to 2000s, New Zealand Rail's (and later Tranz Rail) Interislander ferry services between the North and South Islands faced increasing competition.
In 1992, Strait Shipping launched its own freight-only ferry service between Wellington and Picton. For the first time since the withdrawal of the Union Steam Ship Co. TEV Rangatira in 1976, an alternative to the rail ferry passenger service was launched by Sea Shuttle in late 1994.
In response, New Zealand Rail leased a high-speed catamaran from Incat, Condor 10, for its "Lynx" service, along with a short-lived connecting rail passenger service the Lynx Express. Initially, the Lynx high-speed ferry service was summer-only, but from 1999 this service became year-round, when another competitor TopCat introduced its own high-speed service. The catamarans substantially reduced travel time between islands from 3 hours by conventional ferry to 1 hour 45 minutes. Environmental concerns, as well as damage to small boats in Picton harbour, led the Marlborough District Council to impose a speed restriction on all high-speed catamarans from May 1999, which added an additional 30 minutes to the schedule.