Chinese company beats Dunedin workshops to 300-wagon KiwiRail tender

State-owned rail operator KiwiRail has chosen Chinese company China CNR Corporation as the preferred bidder to build 300 wagons, ahead of a bid from its own Dunedin workshops.

The 300 wagons, the first stage in a process to replace more than 3000 wagons, would cost about $29 million and be delivered by mid-2011, KiwiRail chief executive Jim Quinn said.

"The average age of container flat wagons in our fleet is almost 30 years," Mr Quinn said.

"Their age and condition is compromising our ability to meet the growing needs of our customers."

A bid from KiwiRail's Hillside Workshops was about 25 percent more expensive than CNR's bid, and was the third-best of the nine bids but too expensive to justify a local build, Mr Quinn said.

Hillside was also not considered able to create the capability needed to deliver the wagons on time.

The bids were evaluated on a range of financial and non-financial considerations, he said.

"The decision reflects our need to get the best possible value for the limited money we have to rebuild our business and to apply that money to the projects that will improve our relevance to our customers."

KiwiRail would begin early next year looking at options for local assembly of wagons in future, and it was possible Hillside could import components and undertake assembly.

However, the workshops would need to significantly lower costs if they were to be an option.

KiwiRail would also continue to use an overseas supplier for new locomotives, as engines from Hillside would cost 70 percent more than current supplier CNR.

"We will not be pursuing local build or assembly for future locomotive orders as this shows that the gap is simply too great to close."

CNR built 100 wagons which went into service in late 2008, and was building KiwiRail's 20 new diesel electric locomotives.

The union representing rail workers said KiwiRail's decision risked sending skilled trades people overseas.

"Of course New Zealand workers will never be able to compete on cost with China but our quality of work is second to none," Rail and Maritime Transport Union general secretary Wayne Butson said.

"Rail workers who negotiate in good faith for their terms and conditions at KiwiRail are now effectively being told that their wages are the main barrier to New Zealand getting its own rail manufacturing work."

In May, KiwiRail decided it would not bid to build $500m worth of new electric trains for Auckland, a project that was estimated would have created up 1270 jobs and added up to $250m to gross domestic product.

"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," Mr Butson said.


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well done to the EPMU - the idoelogy of teh union left will ensure that NZ workers will be uncomptetitive in the global market place.....Andrew Little take a bow, plonker !

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This is not value for the dollar spent! There will be significant overruns, there will be significant rework and quality issues, the carbon footprint and safety issues to Chinese workers will be phenominal. The cost to new Zealand to pay out the dole to unemployed workers or reeducate them to other work or lose them overseas has not been factored in and neither is the inherent social cost of people and families without work. The amount of goods we have to export or tourists we have to allow in to earn the dollars that will flow out to China is phenominal. New Zealand has to stand back and look at the full cost of outsourcing and realise that we can not afford to be subsidising a protected economy like China who keep their currency controlled and use basically slave labour.

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Let this be a lesson to Kiwi workshops to be competitive, or be left behind.......a learning one?

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Where government are involved, you can bet the decision wasnt commercially driven.

As above, one needs to look at the economic analysis of using overseas contractors; rather than just limiting it to the one transaction. This Telecom revisited.

We are talking the costs of retraining, unemployment benefit and the effects of local money circulating locally. Its called the multiplier effect.

Kiwirail has forgotten about:
1. The balance of payments deficit,
2. Variations to the contract, where most of the profit is made,
3. The (in)ability to sue an overseas company, in the event they dont perform. They'll just close shop, were a local firm doesnt have that ability. They cant afford to s--- in their own nest.
4. The current high level of unemployment.

You always look after yourself before others. Maybe thats the problem. It may be worth keeping an eye on the key decision makers here. Overseas travel always looks suspicious.

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Choosing CNR as the preferred bidder to build 300 wagons was only a "Political" decision and NOT a commercial one. This was evident by the statement of Jim Quinn when he said: "The bids were evaluated on a range of financial and non-financial considerations". The "non-financial considerations" simply means "political consideration" as we have to scratch and kiss Chinese back side for financial consideration in return. We have to buy their products and be the first and only so-called developed country to buy their junk and let them advertise globally with some testimonials that their products are used by the rail way company of developed nations! In the same way that New Zealand is the only so-called developed country that has accepted China as a “market economy” which is not (as socialism and capitalism like water and oil cannot be mixed), now New Zealand is the first developed country that for political reasons buys Chinese made trains. Voila!

This is of course of no prejudice at all, but out of first hand accounts with Chinese made products and technologies. Foreign brands made in China are good as they have to follow the foreign technologies and standards. But the real made in China products of Chinese brands are mostly cheap and nasty as they do not have their own reliable home grown technologies and have to follow copycat technologies. To be fair, there are of course some very good Chinese brand products too. However, they are almost as expensive as known foreign brands which in this case it is unwise to buy them while there are known and proven brands and technologies.

In addition, the competition for 300 wagons was not fair and square. Actually our price was good for a good, reliable and proven Kiwi workmanship where the trains after a short while do not require unexpected repairs and down times. Besides, how can you compare their skilled workers’ average $400 monthly salary for 10-12 hours work a day with our average $20 per hour wages of skilled workers? It seems that this denial is a prelude to closing down Kiwi Rail’s workshop and outsourcing their works.

Anyways, this decision to “Sacrifice” our own better products and workmanship for political reason is another example of how this inept government is shamelessly selling this country piece by piece like the liquidation and closing down sales! Shame on the Nats! Shame!

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Choosing CNR as the preferred bidder to build 300 wagons was only a "Political" decision and NOT a commercial one. This was evident by the statement of Jim Quinn when he said: "The bids were evaluated on a range of financial and non-financial considerations". The "non-financial considerations" simply means "political consideration" as we have to scratch and kiss Chinese back side for financial consideration in return. We have to buy their products and be the first and only so-called developed country to buy their junk and let them advertise globally with some testimonials that their products are used by the rail way company of developed nations! In the same way that New Zealand is the only so-called developed country that has accepted China as a “market economy” which is not (as socialism and capitalism like water and oil cannot be mixed), now New Zealand is the first developed country that for political reasons buys Chinese made trains. Voila!

This is of course of no prejudice at all, but out of first hand accounts with Chinese made products and technologies. Foreign brands made in China are good as they have to follow the foreign technologies and standards. But the real made in China products of Chinese brands are mostly cheap and nasty as they do not have their own reliable home grown technologies and have to follow copycat technologies. To be fair, there are of course some very good Chinese brand products too. However, they are almost as expensive as known foreign brands which in this case it is unwise to buy them while there are known and proven brands and technologies.

In addition, the competition for 300 wagons was not fair and square. Actually our price was good for a good, reliable and proven Kiwi workmanship where the trains after a short while do not require unexpected repairs and down times. Besides, how can you compare their skilled workers’ average $400 monthly salary for 10-12 hours work a day with our average $20 per hour wages of skilled workers? It seems that this denial is a prelude to closing down Kiwi Rail’s workshop and outsourcing their works.

Anyways, this decision to “Sacrifice” our own better products and workmanship for political reason is another example of how this inept government is shamelessly selling this country piece by piece like the liquidation and closing down sales! Shame on the Nats! Shame!

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Having done business with the Chinese for some time, I wonder at the thinking behind this. Issues we experience are;
1/ quality - using the incorrect grade materials - changes from production run to production run
2/ pretty poor after sales service
3/ warranty is meaningless - They supply replacement parts, no labour and no freight.
4/ 50/50 chance of getting it right - if it is not right then the problems really sheet home.

We sell a product that is not made in NZ and never has been.

Kiwi Rail is taking a big risk. Worse still every dollar they spend is a borrowed dollar, most likely from China.
Would it not be prudent to trim down our internal cost structure a little and build here. We are a high living standard country with low low wages.

The Labour boffins Clarke and Cullen created the mess by purchasing a dog, National is compunding the problem, at least if we borrow to spend internally, the money goes around, rather than borrowing to spend externally.

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since everyone is supporting local made solution, maybe we should create a donation fund where everyone donate money to cover the additional cost the kiwi companies are charging to win the deal?

If everyone donate $1, we have $5M. How about that?

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Kiwirail is thinking like any other commercial outfit should - in order to survive, it needs to deliver. It cannot be the wheel for social charity. Well done!

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If the govt can give to Warner Bros then the govt can give a few tax incentives for local build of products.

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Chinese crap Nothing more nothing less.
The people who made this call should be shoot - unlike normal companies the cost of the wagons is over the whole of life - not just the capital costs - mark my words this junk just brought will be dead in 2 years max and the costs to NZ will be huge - local maybe dearer but if it doesn’t come back for 30 years then please tell me which is the better buy!

Chinese have proven time and time again – the sample is excellent – the first shipment meets specs but all the rest is low grade rejects.
very very small thinking and no doubt done to keep the Chinese happy..

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KiwiRail needs to trim the fat right across the entire organisation, including

extremely generous salaries of its CEO and executives,
lack of performance based incentives, discouraging hard work and entrepreneurial activity
poor procurement policies
poorly qualified staff and managers
poor performing staff
lack of vision and commitment to the "Kiwi" brand

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A major UK freight operator chose a cheap(er) option of Polish built 102 tonne coal hoppers to expand its fleet. This cheaper option has turned out costly in the longer term with bogies (trucks) suffering rapid wheel set wear, numerous hot bearings and generally inferior performance. A smaller rival operator chose UK assembled wagons and specified superior proven TF25 bogies. Although a slightly more expensive option, this HYA/IIA fleet has proved itself a hands down winner, being shorter in length for the same payload and an infinitely superior performer. The smaller operator can now haul 75 tonnes more payload for a similar length train and enjoys lower running costs. Moral? Beware the procurement manager who knows the price of everything - and the value of nothing.

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