Full speed ahead for port reform

by Guest Posting on 2010-10-13 01:13:33

New Zealand ports need to respond quickly to a hard-hitting and comprehensive review of the country’s international supply chain, says Chris Money, PricewaterhouseCoopers director and transport economist.

“There’s definitely a need for speed, not only for the economic efficiency argument – it’s the environmental issues as well,” Money says, citing the growing importance of zero carbon credentials in New Zealand’s export markets.

“Some exporters are already of the view that there’s a risk, particularly in Europe, of informal trade barriers being put in the way of exporters related to the carbon impact of getting their goods to market.  ” he warns.

“If our export customers such as international supermarket chains only take carbon zero goods, then you’ve got issues.

“Whether we can respond faster than the people we trade with is an important thing,” comments Money.

“The OECD estimate New Zealand’s distance to market adds a 10 percent penalty on gross domestic product (GDP), which is substantial.

“Anything we can do to shorten that logistics chain and get our goods faster and more efficiently to market is a good thing,” he continues.

The report, The Question of Bigger Ships: Securing New Zealand’s International Supply Chain (read the PDF version), was commissioned by the New Zealand Shippers’ Council, a body representing large exporters, such as Fonterra, Solid Energy, Zespri, Carter Holt Harvey and the Meat Industry Association.

The report urges swift action by ports in response to the rapidly developing trend in shipping markets to larger vessels, which New Zealand ports are presently incapable of handling without significant infrastructure investment.

By upgrading some ports (the report recommends just two port upgrades in the first instance) to accommodate ships capable of carrying in excess of 7000 containers, net supply chain benefits worth up to $144 million per year from 2015 could be achieved.

By using larger ships, exporters’ carbon footprint could be reduced by approximately 31 percent, they contend. The assumptions are based on Statistics New Zealand detailed database and have been peer reviewed by industry and academic experts.

“If some of New Zealand’s ports are not 7000 [container]-capable within the next five years, there is a risk shipping companies may increasingly hub through Australian ports such as Melbourne, Sydney or Brisbane,” the report authors warn.

As Money notes, Melbourne “can’t dredge fast enough” to accommodate the new vessels and realise their ambition to become one of the world’s 10 largest ports. Melbourne port bosses may even “up sticks and develop a deep water container port from scratch” to accommodate the new super-size ship reality, he reports.

If New Zealand was relegated to a mere spoke on the bigger Australian port hubs, then the cost to New Zealand exporters in terms of increasing supply chain expenses would be $194 million a year from 2015, according to the report.

The longer transit time to market, which would reduce the shelf life of many perishable commodities, was noted but not monetised by the authors. Even so, the total benefit from large ship-capable ports, they say, could be as much as $391 million per year by 2020.

“These estimates are direct benefits only,” the authors note, “and exclude the significant flow-on benefits to the rest of the economy due to the economic multiplier effect.”

For Money, one of the most encouraging aspects of the report is the finding that New Zealand can generate the freight volumes to actually support bigger ships coming to this country.

“Having the capability to take these ships is one thing but the next question is what do we need to do to attract these big ships – and that’s linked to New Zealand export performance,” he says.

At present growth rates – which are conservative and do not allow for an acceleration of volume that is presently occurring in dairy and forestry – New Zealand could fill 7000-container ships within five years.

If existing services combined capacity through vessel sharing arrangements, the report authors predict, the resulting economies of scale would see bigger ships arriving sooner.

It is the latter point that Money finds compelling. Shipping lines not only want to “drop stuff off but pick stuff up. If they can arrive full of one thing and come out full with other things you’ll attract the ships,” he says.

Money describes the report as substantive and “a good response to a global issue”.

“Shipping companies are developing these larger ships because it makes good economic sense for them,” he explains.

Large ports such as Rotterdam, Singapore and Los Angeles are well placed to benefit from the big traffic. Smaller players will scramble to catch up.

“It’s a global issue [and] New Zealand isn’t alone,” Money reassures.

But port upgrading is only part of the larger infrastructure picture, he insists, citing access to the labour market and the land-side connections as critical to improving New Zealand’s wider supply chain.

For instance, Auckland’s port is “smack in the middle of downtown” and truckies will tell you that congestion plays a big role in movements between the port and the inland port at Wiri, not just in terms of lost time, but also vehicle wear and tear, he says.

It is a point emphasised by the report authors, who say KiwiRail, the recent recipient of $750 million in government funding, must ensure its spending is focused on the parts of the rail network that service the ports and will support “a bigger ships future”.

Road transport, particularly for short-haul routes, and coastal shipping will also play a major role in bringing about the big ship scenario, the report authors reassure.

Two ports – one in the South Island and another in the North – are favoured and the preferred option is for Tauranga and Lyttelton as first cabs off the rank. But, say the authors, “Auckland and Otago would continue to play a vital role in servicing New Zealand exports and imports”.

The cost of upgrading – up to $200 million per port – is the primary reason for a piecemeal approach, rather then getting all four major ports up to scratch immediately.

Given the two-year to three-year lead time to obtain the necessary consents and undertake infrastructure build, the report authors say “it is imperative that work commences as soon as practicable”.

“Undue delays will harm New Zealand’s international supply chains,” they warn, “and the security of its direct services to key international trans-shipment hubs, such as South East Asia.”

Source - New Zealand Trade and Enterprise