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Wednesday, 17 December 2014

Megaships and the future of New Zealand's ports

Larger container ships are on their way. As I've written here before, one of the biggest impediments to New Zealand exporters is the cost of shipping our products to their markets -and the government's goal under the Business Growth Agenda of increasing the proportion of Exports to GDP to 40% by 2025 (we're currently sitting at 26%) requires more cost effective transport. According to NZIER  At the moment the median size of container ships visiting New Zealand is 3,000 TEU (Total Equivalent Units). This is set to change rapidly with ships from 2017 to enter international service able to carry up to 8,000 TEU. Because 99.5% of New Zealand's exports are shipped, this is of critical importance.
New Zealand's freight task. Source: Ministry of Transport

This has major implications for our seaports and land transport in New Zealand. On the one hand it means that the cost of transport for New Zealand's exports should decrease as economies of scale are met. But larger ships also have significant costs - particularly resolving bottlenecks in the road, rail and coastal shipping networks.

Recently the Ministry of Transport has released the "Future Freight Scenarios Study". The report, written by consulting firm Deloitte, looks at ten different scenarios for New Zealand's seaports. The scenarios are based on a "hub and spoke" approach to seaports.
  1. Status quo: 10 container ports around New Zealand in Auckland, Tauranga, Napier, Taranaki, Wellington, Nelson, Christchurch, Timaru, Otago and Bluff.
  2. Five hub ports - Auckland, Tauranga, Napier, Lyttelton and Otago. Others cease international trade from 2017, becoming "feeder" ports.
  3. Four hub ports (two per island) - Auckland, Tauranga in the North and Lyttelton and Otago in the south. All others become "feeder" ports.
  4. Three hub ports - Auckland, Tauranga and Lyttelton, all others become "feeder" ports.
  5. Three hub ports - Auckland, Tauranga and Otago, all others become "feeder" ports.
  6. Two hub ports - Auckland and Lyttelton
  7. Two hub ports - Tauranga and Lyttelton
  8. Two hub ports - Auckland and Otago
  9. Two hub ports - Tauranga and Otago
  10. One hub port - Tauranga
The report concludes that the status quo is unlikely to continue with larger ships visiting fewer ports in New Zealand into the future. This creates significant investment requirements in the hub ports. Each scenario is assessed based on the Benefit-Cost Ratio (BCR) methodology. Of the non-status quo scenarios, only scenario 2 has a positive BCR of 0.19 over 30 years with a 6% discount rate. In other words, the other scenarios all have negative economic impacts - the costs outweigh the economic benefits.