Shallow water, deep trouble
New Zealand ports have a potential threat to their future: most container ships under construction are so big they would run aground on arrival.
Ageing terminals from Auckland in the North Island to Otago in the south are struggling to keep pace with rivals along Australia's east coast.
Of New Zealand's four busiest export hubs, only Port of Tauranga is in the advanced stages of expanding for larger vessels, while others encounter regulatory delays and public opposition to their development.
New Zealand needs to ensure companies such as Fonterra, the world's biggest dairy exporter, can tap the growing demand for protein-rich diets in China and beyond.
Already handicapped by the three weeks it takes a ship to get to Hong Kong, New Zealand's shippers say a failure to act could cause the country to cede ground to its larger neighbour in the race to supply Asian markets.
"We either keep getting small vessels and get less and less competitive as the fuel price eats away at the profit margins for the New Zealand exporter, or worse, we lose deep-sea vessels coming to New Zealand in favour of the carriers trans-shipping over to Australia," says Chris Greenough, chief executive officer of Kotahi Logistics LP, Fonterra's freight handler.
Fonterra uses about 160,000 containers a year to export 2.2 million tonnes of product. More than 2.4 million containers cross New Zealand's wharves each year.
Kiwi ports are already facing up to the fact they must change. This week PrimePort Timaru was dealt a blow with a decision by two of the large shipping lines, Maersk and Hamburg Sud, to stop calling at the South Canterbury hub.
Timaru District Council's commercial arm, which owns 71.4 per cent of the port, will see a $6 million cut to annual revenue when the changes take place mid-September and many of the company's 55 permanent and 30 casual staff will be affected.
Despite the exit of container operations, PrimePort chief executive Jeremy Boys sees a "robust" future for the port. He says it has a clear direction as a "breakbulk" operation based on commodities such as logs .
While the port's annual revenues will be cut by a third when the two container services disappear in September, what remains will be a profitable business based beside State Highway 1.
Boys attributes the end of the container era for the Timaru port to Fonterra's decision three years ago to direct most of the wider Canterbury region's cargo through Lyttelton Port of Christchurch. Also, the Government's investment in rail without requiring a full return has in effect subsidised larger ports like Lyttelton and Port Chalmers in Otago.
Whether Fonterra's decision is proven correct over time depends on whether the removal of container port infrastructure leads to logistics problems. For example, natural events such as flooding or quakes can obviously affect a port and those accessing it, Boys says.
Also, the remaining ports could drive up handling rates because there will be fewer competitors.
Lyttelton Port chief executive Peter Davie says the evolution of ports to adapt for larger ships and competition from Australian ports will be slow and hard to predict.
Lyttelton recently reactivated a consenting process to allow the port to dredge to allow bigger ships. But when dredging starts will depend on the arrivals of the northern hemisphere super container ships.
That could happen in one year or five depending on the shipping companies, he says. "The view that some people have that you will see monster ships sailing over the horizon tomorrow, that's very unlikely," Davie says.
"The ships have been getting bigger incrementally and that puts pressure on some of the smaller ports to accommodate them."
Nelson port decided not to increase its berth length, he says.
Wellington CentrePort operations general manager Steve Harris says it is not just ports that need to prepare for bigger ships. Roading, rail and inland hubbing systems also need to be developed to cope with extra freight demand.
"We saw the impact of insufficient capacity in the on-land, whether it is road, rail or hubbing infrastructure, during the Ports of Auckland dispute, where essentially the supply chain choked. There has to be a fair bit of investment in that," Harris says.
Tainui Group Holdings is planning a $3 billion inland port for Ruakura near Hamilton which will link the ports of Auckland and Tauranga.
The chief executive of Waikato-Tainui's commercial development arm, Mike Pohio, says the ability to receive and service ships is a matter for ports and their owners to determine, but the infrastructure to deal with the increased freight volumes bigger ships will generate also needs to be considered.
An inland port can provide a quick feeder service into port and on to the vessel rather than having big footprints on expensive land at the port, Pohio says.
Tainui Group is seeking consent for the 30-50 year, 500-hectare project, which will be served by the main railway line between the ports of Auckland and Tauranga and the new Waikato Expressway.
Port of Tauranga has more than $150 million in capital investments planned or started, including a 170-metre wharf extension.
"Those ports that are the most efficient and the most productive are in the best position to take advantage of the opportunities," says Craig Brown, an Auckland-based fund manager at OnePath NZ, a unit of ANZ National Bank that manages $13 billion in stocks, bonds and property.
Tauranga can handle larger full ships than other New Zealand ports, says the Shippers' Council, which represents exporters of more than half of container cargo.
The largest full vessel it can host at all tides has a capacity near 4500 20-foot equivalent units, or TEUs, Port of Tauranga chief financial officer Steve Gray says.
About 77 per cent of all container ships now on order will carry more than 6000 TEUs, according to Clarkson, the world's biggest shipbroker.
If permitted, the consent to dredge the harbour will allow the port to be deepened to as much as 14.5 metres, even though it won't dredge that far initially, and capable of hosting ships as large as 8000 TEUs in the longer term, Gray says.
Asian demand for commodities including cheese, meat, fruit and wine is the critical driver.
To handle the demand, Lyttelton and Otago ports want to expand as they service regions rich in dairy farms and livestock producers. Those facilities, along with those at Tauranga and Auckland are best positioned to take advantage of larger ships calling at fewer ports, says Shippers' Council chairman Greg Steed.
"Probably five years ago the typical vessels would have been calling at nine ports in New Zealand," says chief executive of Port of Tauranga Mark Cairns. "Now they're looking to drop that back to four or five ports and I think that'll continue to reduce."
Auckland's port isn't seeking approvals for expansion, spokeswoman Dee Radhakrishnan says. The port, owned by the city council, is boosting its handling area and providing a third container berth. Officials at Auckland's port disagree with the shipping council's focus on bigger ships because it can already handle the largest vessels likely to visit in the "foreseeable future", Radhakrishnan says.
"The very large ships are unlikely ever to call at New Zealand, as we are such a small market."
A proposal to extend the facility by 250 metres into the harbour was opposed by the public and officials in March. The council is reviewing its options for the port, which is near the central business district and residences.
"Aucklanders understand the huge contribution the port makes as the region's most important economic asset," Auckland Council Investments chief executive Gary Swift says. "Without the port, it's difficult to imagine any kind of economic future."
The biggest barrier to port expansion plans is legislation that lets parties object on multiple grounds, says Port of Otago boss Geoff Plunket. It has spent five years seeking dredging consent. "If we call ourselves an exporting nation, the consenting process is more difficult than it generally needs to be."
WHILE port capacity is a long-term challenge, productivity is a more pressing concern, says Maersk New Zealand managing director Julian Bevis. Maersk, the world's biggest container shipper, permanently moved one of its biggest services to Tauranga from Auckland in December. The service earns about $20m a year.
"New Zealand, which is almost completely dependent on international trade, must be at the leading edge of port productivity and not rather down the bottom where it is at the moment."
Bevis says productivity – the rate a port can move containers – has to improve in Auckland.
But the Productivity Commission in April found "there is scope for a significant lift in workplace productivity at a number of ports" which would require the co-operation of the port companies, their employees and unions.
Fonterra redirected $27m of weekly trade through Tauranga and Napier in January amid strike action at Auckland, prompting the port's chief executive, Tony Gibson, to say it must "significantly improve" customer service.
Reaching buyers in Asia will be a driver of future growth for New Zealand. China's gross domestic product doubled at the end of 2011 from 2007, according to data compiled by Bloomberg.
Across the Tasman, the Victoria government in June gave an extra A$400m (NZ$513m) to redevelop the Port of Melbourne, bringing the total project to A$1.6b.
The nation's biggest container port is New Zealand's main competitor, being the closest that can host bigger ships, Steed says. "They're a threat to New Zealand if we don't become big ship-capable. . Carriers will stop at Australia and say `New Zealand, you get your cargo over here'."
If some of our ports can't host 7000 TEU container ships by 2015 and bigger vessels visit Australia only, about $200m a year could be added to supply chain costs and transit times will increase, the Shippers' Council estimates.
But at CentrePort, Harris says many shipping services already run via Australia. Maersk will add Wellington to its Southern Star service from September, directly linking to South-East Asia.
In April 2008, New Zealand became the first developed country to sign a free-trade pact with China, and in 2010 Prime Minister John Key pledged to double in five years the two-way trade.
"We need all four ports to be capable within 10 years because of the growth situation we expect," Steed says. "We're not getting there fast enough, that's the bottom line."
BIGGER SHIPS POSE PROBLEMS
Wellington's CentrePort will need to "knock the tops of some rocks" and dredge around its berths to welcome large container ships, says operations general manager Steve Harris.
The port has invested extensively in its container infrastructure, including new cranes, straddle carriers and a new more powerful tugboat due to arrive in April next year, making it one of the most productive ports in Australasia.
CentrePort already caters for 4500-container ships, but to service 7500-container ships some more straddle carriers would be needed and the cranes could be upgraded with larger motors to allow faster loading and unloading.
But Harris said "the jury is out" on whether the larger ships would come to New Zealand in the foreeable future. The average container vessel calling at New Zealand ports carried between 2700 and 3000.
All the indications from shipping lines were that the current vessels provided enough capacity for the market. But over the next three to five years, ships with a capacity of about 4500 containers would become a more common sight, Harris said.
Given that time horizon, he questioned how long it would take for the market to grow sufficiently to warrant even bigger ships.
Wellington was blessed with the best natural harbour in the country. It was deep, wide, relatively sheltered and did not require channel dredging. Post-Panamax ships had about a 14.5 metre draft, requiring some dredging around wharves and the caps on some channel high points to be knocked off.
HOW THEY RANK
Containers per port:
New Plymouth 25,000
Bluff about 25,000
Bloomberg, Fairfax NZ