KiwiRail has signed off on a $551 million contract for two new inter-island ferries.
The new, more environmentally friendly ships will replace its ageing fleet and triple the current rail freight capacity - but the decision is receiving backlash.
The ships will be sailing our seas by 2025.
"It's 23 years since we built our last ship and our vessels are aging, 27 and 29 years, by the time our new ships arrive in 2025," said KiwiRail CEO Greg Miller.
KiwiRail's new contract with Korea's Hyundai Mipo Dockyard will double passenger numbers and boost freight and vehicle capacity.
"The size of these vessels is significantly different. That gives us the ability to move more rail. Our rail deck will grow from 24 wagons to 40 wagons," Miller explains.
But the rail investment doesn't sit well with the Road Transport Forum.
"We've got real concerns about the move to rail," says CEO Nick Leggett.
The project includes two new ferries and terminal upgrades at a cost of $1.4 billion - something taxpayers will foot the bill for $435 million of.
"This is undoubtedly a costly mistake - we're going back to 19th Century rail technology," Leggett says.
The Government is confident it's the right move, saying increasing rail space will encourage more freight onto trains and reduce emissions.
But Leggett says the figures don't add up.
"There's been a 17 percent reduction in freight moved by rail in New Zealand in the past few years," he says.
However KiwiRail argues its customers want more rail capacity to help them meet demand.