Giant container ship visits on horizon

Shares in Port of Tauranga have risen sharply after the company announced a major freight deal which will see modern big ships berthing at the port.

The port, which is midway through a $250 million dredging project to allow the much larger ships to berth, has unveiled a 10-year deal with New Zealand freight business Kotahi, underpinning its expansion.

Kotahi, a joint venture between Fonterra and Silver Fern Farms, will put up to 1.8 million TEU (20-foot equivalent unit) export cargo containers through the port in return for 2 million Port of Tauranga shares.

Kotahi will also receive a 49.9 per cent stake in Port of Tauranga subsidiary Timaru Container Terminal, subject to freight commitments.

In a separate deal, Kotahi will provide 2.5 million TEU containers over the next 10 years to global shipping line Maersk.

The net effect will bring 6500 TEU-sized ships to Tauranga once the port's upgrade is complete by the end of 2016.

In early afternoon trade PoT shares soared 4.45 per cent, or 64c, to $15.01 before closing at $15 - their highest close since May 2013.

Former president of the New Zealand Shippers Council Greg Steed said the move was significant.

"Our output keeps going up and up, and we obviously need the most efficient ships to move it, so I'm glad people have put themselves on the line to commit the volumes."

The council has previously warned that New Zealand risked losing business to Australian hubs if it did not find a way of accommodating bigger ships.

Port of Tauranga's chief executive Mark Cairns said the agreement with Kotahi would increase profits immediately.

"I think this is a bit of a watershed," he said about the unusually long 10 year contract. 

Mark Lister, Craigs Investment Partners' head of private wealth research, said the move was "another good strategic move" by Port of Tauranga over its rivals.

Kotahi's commitment "gives Port of Tauranga a firm financial commitment for them to justify doing the dredging".

"It's quite a significant step. They've always had an ambition to be a hub port, for bigger ships to come into New Zealand and have the smaller ports around the country as the feeder ones."

More detail would emerge over the next couple of months.

"In terms of Port of Tauranga's profitability, the immediate impact is relatively modest but it really is something that will see a structural increase in volumes from about 2017."

Kotari's chief executive Chris Greenough said bringing in bigger ships would be a boost for New Zealand Inc in terms of transit times.

Being part of an Australian hub would add seven to 10 days to export transit times, he said.

"We do need to secure direct options to New Zealand, not just now but in the long-term to remain competitive as a country overseas."

Maersk Line New Zealand managing director Gerard Morrison said his company would be starting a new additional service between New Zealand and Malaysia in October.

It would initially use a 4500 TEU (4500 20-foot container) sized ship and was the first step towards bringing larger ships into the New Zealand market.

However, both Kotahi and Maersk indicated the Port of Tauranga deal did not preclude it talking to other ports including Port of Tauranga's key rival, Ports of Auckland.  

Maersk said it was a relatively low user of Auckland but was still planning to be a big user of the Port of Lyttelton, which has just announced a 30-year plan.

Greenough also expressed interest in Lyttelton's announcement.

"We welcome investment in the port. We haven't had a chance to talk to port management so far today.

"As they develop that, certainly the growth of cargo in the South Island will certainly make it viable probably over the next few years for that to be a possible big ship-capable port. Right now, there isn't one there."

Asked about the Timaru connection, Mark Cairns said the agreement would essentially put PrimePort back to 2008 levels. Port of Tauranga bought a 50 per cent stake in PrimePort last year. 

Ports of Auckland lost most of Fonterra's business to Tauranga during industrial action a few years ago, making PoT the biggest port in the country by volume.

However, the Auckland rival has largely recovered with new business since and is still the biggest port by trade values and container numbers.

Port of Auckland's chief executive Tony Gibson said the port was also capable of taking big ships of up to 8000 TEU size, depending on their depth.