By Yoke Har Lee

Staff at Tranz Rail will remember managing director Dr Francis Small, who is leaving soon, as being capable of delivering the occasional rude wake-up call. He has just pushed through a shake-up in the management structure that has left staff and clients more alert for further change.

The emerging structure, which separates the marketing and service delivery functions, could be read as pressure to lift profits for a business whose fate is intertwined with that of the slow moving economy.

A worldwide search is on for a new managing director. Dr Small, who will stay on as vice-chairman, has spent 35 years in the organisation, rising from a cadet engineer to the top job. During his tenure, he has seen what was once a bloated, Government-owned rail company prepare for privatisation and having to make that transition to a viable commercial entity.


Dr Small said the paradox for Tranz Rail was that despite record tonnages carried, the international pressure on our export companies has had its impact on freight revenue for the company.

"We tend to look at the local competition as between trucking and coastal shipping, when in actual fact our customers' competitors, whether they be Fletcher Challenge, Solid Energy or the Dairy Board, are our competitors," he said.

For Tranz Rail, building strategic relationships with key customers will be the way forward. Dr Small said despite market perception that Tranz Rail was a rail operator, it was the country's largest transport company. Tranz Rail had raised revenue per employee, for instance, to $122,900 in 1998 from $91,800 in 1993. Wagon turnaround times had improved sharply.

The use of shunting technology (via remote controls) has drastically reduced manpower where trains are run by one or two, down from six before. Rolling stock and track systems have continued to be improved. But analysts are doubtful whether 23 per cent shareholder, Wisconsin Transport Company, is happy with the returns. Net profits peaked at $73.6 million in 1995 and have been on a slide since. This year, analysts polled by The Estimates Directory put the profit range at between $35.7 million and $46.9 million. Last year, profit was $48.2 million.

Some analysts said the recent changes at Tranz Rail could be read as pressure from the board to raise returns.

"The company has been aggressive with capital expenditure, grabbing market share in milk and forestry freight. There is a feeling, possibly, granted the competitive pressures the company is under, that the line-haul business could have done better," said one.

Rodger Fisher, former managing director of transport company Owens Group, said significant changes had transformed Tranz Rail into an efficient organisation.

"Like any other supplier of services, they have been impacted by the economic plateau. But in terms of where the company's going from a philosophical point, they seemed to have stopped short on that."

Detractors said Dr Small was cool, almost distant, at times. But his achievements spoke for themselves. One of the strategic moves had been Tranz Rail's success in partnering Wisconsin in international rail privatisation opportunities. Tranz Rail, Wisconsin and partners succeeded in winning the Tasrail freight lines in Tasmania. It missed out on the Victoria Line bid, but was still keen to take part in National Rail and West Rail in Australia.

Another shrewd Tranz Rail move was the cornering of dairy volumes, pointing increasingly to how transport operators were working with customers to provide the best logistics. At the peak of the dairy season, its milk trains carry 3.2 million litres of milk a day, replacing 150 truck journeys.

Other major initiatives included raising volumes in aggregates carried and waste disposal. This year, it would also use spare capacity on weekends to rail containers to and from Tauranga and Auckland for the Port of Tauranga at its inland port.

Despite all the progress, selling Tranz Rail to the institutional investor remains a tough job in an economy waiting to recover. Investment time frames were often shorter than the time taken for the economy to perform better, Dr Small said.

But there were signs of recovery, he said, indicated by improved forestry volumes and coal.

"They used to say when Muldoon was Prime Minister that there were three or four pieces of information he wanted on his desk every morning: how much diesel has been used, how much beer has been drunk and how many rail wagons have been loaded. That provides a snapshot of where the economy's going. I suspect that is still true. We are seeing a pick-up in the domestic sector."

He said it was crucial to Tranz Rail's success that New Zealand exporters were well-positioned to compete abroad.

"If we are competing with pastoral moves in Chile, we are in fact competing with Chilean and Argentinian railways."

For this reason, Dr Small was eager to see the privatisation of New Zealand ports continue. He said there was still too much port capacity. If ports were run on a commercial basis, shipping calls would change, ultimately changing feeder services.

"Every port has a container facility. Somebody pays for that. We have to be careful in setting the right price signals in the transport chain."

Dr Small said he would also like to see more improvements at Tranz Rail after he gives up the top job: "I would be disappointed if there were not huge improvements."

In the future, services would be matched to customers' needs. Some 50-60 customers make up 60 per cent of the company's revenue and Tranz Rail would be working with them to tailor future services, Dr Small said.

When the company releases its financial results, analysts will be looking to see whether costs continue to remain capped and how the freight business has recovered, specifically in the forestry and coal sectors.

One other factor that could throw analysts' forecasts off target is how much provision the company makes for redundancies, especially after the restructuring.