November 2024 Newsletter

Greetings HVTT family from the Antipodes,

While many of you will know I like trucks and what they do, I thought I would focus this newsletter on money, and more particularly money for investment in roads.

But firstly, some comment on heavy transport activity. With some softness in some of the global markets, such as meat and wood, and a quiet domestic market that has teetered around technically meeting the definition of an economy in recession, unsurprisingly the NZ heavy transport activity is quiet and a number of companies under considerable financial strain.  There are some positives though, comparing values to 2024 and July 2023, exports rose by 14 percent in value to $6.1 billion, however imports rose by 8.5 percent to $7.1b. And the challenge of finding drivers is less front of mind however, I suspect that is a situation that will be temporary.

In some ways NZ has an unusual framework for how investment in roading is collected and then spent. There is a lot of activity on the policy front in regard to generating revenue for investment in roading.  For nearly 50 years now, New Zealand’s finance model has been based philosophically on a “User Pays” model. In simple terms, petrol car users pay Petrol Excise Duty (PED) on a a per litre basis collected in the price of fuel purchased at the pump, and diesel users pre-pay a Road User Charge (RUC) to travel a distance based on the road wear associated with their vehicle’s respective axle combination of their vehicle.

Initially, the revenue was largely ring-fenced for investment in new roads, improvements and maintenance roads however, over time the scope of spend has increased to funding public transport, road safety, walking and cycling and rail and coastal shipping.

NZ has about 4.4m vehicles, of which about 76 percent are light passenger cars, 15 percent light commercial and about 3.5 percent (about 150,000) are trucks. Together, PED and RUC raise about $4b per annum, historically with more coming from petrol than diesel and the vast proportion of RUC coming from trucks. Another $2b per annum or so comes from the public as home owners and ratepayers to the 70 or so local road controlling authorities that are responsible for maintaining their respective local road network.

Government invests in roading in 3 years cycles and earlier this year announced a 3 year package of $33b which is about 35 percent greater than ever before. The vast majority of the gap between the investment programme’s per annum spend of about $11b per year and the total income from road users and rate payers of about $6b per annum is currently being filled by the Crown however, the government has indicated that is not sustainable.

The other trend has been that the revenue collected from petrol has been declining due to increasing fuel efficiency and electrification of the light fleet. It appears last year was the first time that RUC income was greater than PED.

As a result, the government intends transitioning all vehicles to “Universal RUC”, In essence that means changing the tax collection of some 3.5m petrol cars from paying at the pump to pre-purchasing RUC like diesel vehicles, which is also what electric and plug in hybrids more recently have done. This raises an interesting quandary for our Ministry. The risks to revenue collection and to the government are considerable and they are working with industry stakeholders on a plan.

There is also much more substantive consideration of other funding means, The opening in 2022 of a 27 km stretch of highway north of Wellington, NZ’s capital city, was the first example of a road being built here involving a public private partnership (PPP). A PPP involves a consortium being engaged for a period of time to design, construct, finance, operate and maintain the road. In this case the consortium involves a sponsor and equity investor), a company undertaking design and construction, and another company being responsible for operations and maintenance.

There is also increased activity in the consideration of tolling roads. While the tolling of new roads, which are a new and better alternative, appears to be reasonably well accepted, there is much less appetite for the tolling of replacement roads. Our government has consulted on three such cases recently and we anticipate an announcement soon which will be very interesting.

Explicit cases of congestion pricing are less advanced but these are clearly another revenue stream being considered, and perhaps what you may find interesting is that recently one of our major Ports, that suffers congestion on the local streets at the Port entrance also suggested introducing a congestion charge however, the Port appears to have since changed its thinking.

In my opinion one thing that is common to all this is that the cost of road transport will increase and as the revenue generating channels increase, providers of heavy transport services will play an increasing role as tax collectors. Hopefully the administrative costs associated with this will be manageable and customers will accept these charges being passed on, but in reality this is nothing new, it will be more about a shift in the respective proportionality of how the costs components of transport services are made up.

In other policy areas, as Gavin Hill mentioned in his newsletter several months ago Australian road agencies have already begun accommodating the emergence of zero-emission heavy vehicles with increased tare weights by granting exemptions for these vehicles to exceed regulatory mass limits. New Zealand officials are still considering a response to the transport industry’s request for similar. Whilst the vast majority of heavy trailers are designed and built here New Zealand is heavily reliant on the major international truck manufacturers from Europe, the US and Japan as manufacturers from those jurisdictions develop their low carbon emission product strategies, creating increasing concern and risk to our future supply market. We may be much better at rugby than Australia, but to be honest I’d give that away if it meant we could be better than them at making all our transport policy decisions faster!

Finally on the policy front, with our new government’s focus on its agencies and departments on efficiency and cost cutting, we have seen a recommendation that one of the truck safety programmes be axed. New Zealand has what is in effect a public insurance regime managed by ACC. Employers and workers pay a levy and that money is used to prevent injuries and to rehabilitate people that have  suffered injury from an accident. Large heavy transport companies can benefit from discounted levies if they are accredited in the FleetSaver programme.

It is usually very difficult to find programmes like this where businesses can directly attribute success to them but this programme has, and the transport sector has raised concerns about the change.

The agency has claimed that the transport industry could build a similar system. However, stopping something on the basis that there is potential to build and replace it with something similar seems to be an unnecessary waste of time and money, not to mention the risks with the loss of independence related to that scheme.

I write this while on leave having a holiday with family in Melbourne, Australia. It has great public transport and an amazing eclectic mix of architecture, I haven’t seen a single raised speed platform or.  any indications it’s closing down streets preventing private and commercial vehicle access which is a big focus in NZ cities. However, it does have right hand hook turns which seem to be unique. I’ve been reflecting on why it seems so much more vibrant and much better developed than my home town. Melbourne has a population of 5.3m, slightly less than New Zealand’s entire population, I suspect that has a lot to do with it.

Dom Kalasih

Treasurer