KiwiRail has announced its Aratere Interislander ferry will retire by the end of August and is warning of job cuts and that passenger and freight capacity will take a hit.

The ship is the only vessel in the Interislander's fleet where rail freight can roll on and off it.

That means it can't use another wharf in Picton while port upgrades there and in Wellington are underway for two new ferries, set to arrive in 2029.

Kaiārahi would go to dry dock in Singapore in late June and when it arrived back in mid to late August, Aratere would retire from service.

Interislander executive general manager Duncan Roy said it will come out of service no later than 30 August.

Roy said that the Cook Strait service's change from a three to two-ship fleet had a number of implications for the company and its customers.

"The first impact is on our dedicated team, and a formal consultation will begin with them."

He said in the last few weeks the company had talked to its customers and others to confirm its new ship timetable and co-ordinating rail timetable.

That included a plan for road bridging rail freight while it had no rail enabled ships, which included new equipment and additional staffing.

Roy said that more than 2200 passenger bookings have now been transferred from Aratere to Kaitaki and Kaiārahi.

"If the replacement bookings do not suit customers, they can change the sailing without incurring any change fee or receive a full refund.

"Holders of more than 2500 passenger bookings affected by a change in departure time with the move to the new two-ship timetable have also been notified of their new departure time."

From August to when the new ferries arrive in 2029 passengers may have to sail at less popular times or be more flexible about the dates they travel, he said.

"We recommend booking early for travel during the summer peak season.

The Aratere can hold 650 passengers, 230 cars and 28 rail wagons.

It made headlines last year when it ran aground near Picton which began with an autopilot mistake.

Rail Minister Winston Peters said it would have cost $120 million to keep the Aratere in service.