Global storm buffets port
Market forces are at work on Timaru's waterfront.
And those forces are determined a long way from here, yet Timaru is feeling the consequences acutely. No-one seems to know who is making those calls but there have been consequences this year.
Global container lines Maersk and Hamburg Sud pulled the plug in July, leaving PrimePort Timaru set to lose a third of its revenue.
The carriers announced a new service direct to Napier from Otago, the change taking effect in mid-September, slicing $6 million from the port company's annual revenue.
Maersk Line New Zealand said it was a purely commercial decision made with Hamburg Sud. The company said Timaru was a relatively small-volume port and had for quite some time been a question mark.
"The world of container shipping is a very difficult one at the moment," Maersk Line NZ managing director Julian Bevis said.
Then came the inevitable job losses.
Under the initial proposal, 29 people were to go but 10 jobs were saved when the Mediterranean Shipping Co (MSC) announced it would sail through the port from October 10 - five days after Maersk and Hamburg Sud ended their services.
It was a big week with a three-times-a-day rail service between Timaru and Dunedin launched by Port Otago and KiwiRail, then the port's annual report announced a net loss of $7.4m, mostly because of a $10.1m writedown of the container asset.
Not a positive result in light of net profits of $1.6m in 2011, $633,000 in 2010 and $1.5m in 2009. The majority shareholder, Timaru District Council's trading company, Timaru District Holdings Ltd, will not be getting a dividend this year.
Then came news that the port will mothball its 20,000-tonne grain storage facilities, their use having diminished over the past five years, causing SGS (a diverse international company) to withdraw from the operation.
Holcim's proposed cement plant in Weston is one possibility on the horizon because it has signalled the use of Timaru as its port, but plans for that have been put on hold.
The port company remains confident the proposed Holcim cement plant will go ahead despite further delays.
But a decision on the $500m plant, to be built at Weston near Oamaru, is now not expected until late next year. So what does all this mean for the port?
PrimePort had a fulltime staff of 75. With a revised structure, that number will be reduced to about 30. Most administrative and management staff will remain in work until next month.
No-one at the port will say how many or who in management is going.
Chief executive Jeremy Boys says salary brackets are published in the annual report but will not add comment.
"The duties will continue but will be shared across fewer staff; operations roles have been restructured to take a more hands-on role.
"Most of the marine activities will continue as before," he says.
The 2012 annual report shows six staff are earning between $100,000 and $140,000, while a further six are earning between $140,00 and $270,00. The highest-salaried staff member is earning between $280,000 and $290,000.
This is the third restructure the port company has undertaken in the past five years. Some say heads should have rolled a long time ago.
Boys won't comment on that matter.
"I don't think it's appropriate that I make any comment."
He suggests asking Timaru Mayor Janie Annear, who chairs Timaru District Holdings.
Annear believes the board and management have done "an excellent job in very challenging times".
"I believe without any doubt that there is a very bright future for our port and that there are additional opportunities such as Holcim that will further strengthen the business."
She says the port needs to retain the outstanding service culture, continued loyalty from local importers and exporters, an excellent board and continued good economic growth in the region.
The board of directors and management structure has remained during a turbulent five years.
Chairman Roger Gower and director Sid McAuley retired by rotation at the 2012 annual meeting.
Gower has been re-nominated by Timaru District Holdings. Deputy chairman John Rolleston, John Isles, Andrew Turnbull and Nigel Gormack make up the rest of the board.
Gower receives $49,834, Rolleston $31,833 while Isles, Turnbull, Gormack and McAuley are paid $26,000.
McAuley, who joined the board in 1997, is not seeking reappointment.
Boys took a swing at government subsidies for KiwiRail and dairy co-operative Fonterra's decision to bypass Timaru in favour of Lyttelton, after the Maersk and Hamburg Sud announcement.
The decision to stop calling at Timaru stemmed from Fonterra's decision to "overturn the prevailing logic to bring ships to the cargo" and send most of its South Island product to Lyttelton, he said.
Fonterra says changes to its port usage back in 2009 were about improving service to the co-operative's global customers and reducing costs by moving containerised product away from indirect feeder services to direct export services, as well as giving lower end-to-end costs.
"That model is not unique to dairy producers or New Zealand - the airline industry uses larger carriers on its main routes like Auckland and Christchurch," a spokesperson says.
"Competitiveness is dependent on the ability to connect directly with major east-west trade flows to the large markets.
"Throughout our supply chain, we look at the total end-to-end costs which considers more than local transport costs from our sites; it's vital for us to have the most efficient, reliable and flexible links with markets around the world."
Containers handled through the port in 2012 dropped from 49,125 20-foot equivalent units (TEUs) to only 33,010 - levels not seen since 2002. This was before the Maersk and Hamburg Sud withdrawal.
Boys now says there is no reason or explanation why Maersk and Hamburg Sud pulled out. Perhaps an indicator is the billions lost by global shipping companies in the past 12 months.
He remains confident but admits the market is difficult.
"Obviously with a lot of trade in the world being quite diminished we tend to get affected by that; we tend to bear the consequence of some very high-level international companies."
Boys suggests Timaru is just a small cog in the way things are brought together.
The big decisions are made in Europe.
"Unfortunately there are sometimes changes made that a country the size of New Zealand can't control.
"The logic when you come to local level is hard to rationalise entirely.
"The port represents a small portion of the total freight cost," Boys says. "I think it's more important that we now have a direct link to Asia."
He says things will probably start slowly but there is potential to build them up.
"We still have a solid service; we can still link into the service we had.
"Most exporters can retain that link."
Mediterranean Shipping Co general manager Phil Abraham certainly agrees.
He won't speculate on why Maersk and Hamburg Sud ended Timaru services but sees it as an opportunity.
"There was a massive quantity going over that port; all we see is there is a massive opportunity that exists for us.
"We see it as an opportunity to develop our regional strategy; we believe there's a niche opportunity to catch more business."
That includes a direct link to Brisbane.
"In co-operation we are going to uplift cargo from Timaru on to the Capricorn service which ultimately goes to Singapore; we will be using it to feed into other services including the Americas."
He says the opportunity to load directly at Timaru is superior, in most cases, in terms of price, compared with alternatives.
"Such alternatives incorporate the cost of rail link and additional handling and generally less flexibility to load and deliver containers.
"The potential to secure this service in the long term and grow is now in the hands of exporters and importers."
Mediterranean Shipping has signalled its commitment to the South Island, taking a 12-year lease in Amherst Properties' new $20m office and retail development in Gloucester St, Christchurch.
It is the first major project to receive resource consent since the release of the Christchurch Central Recovery Plan.
South East Resources (Serl) boss Murray Williamson runs a deep-sea fishing fleet which exports about 1200 tonnes of fish a month in 75 refrigerated containers out of Timaru.
He initially expressed concern when Maersk and Hamburg Sud pulled out, stating delays would cause problems with storage and eat into costs.
Williamson is contracted with Maersk and Hamburg Sud until Christmas.
He has met with MSC and Port Otago.
"Both MSC and Port Otago are offering a good deal.
"Containerisation in Timaru is good for us; it means we can load them and take them back to the wharf."
Williamson says the competition is good.
"It's market forces; the thing about shipping in New Zealand is that it is such a small place.
"It is very good to have MSC in Timaru and it's good to have Otago giving us options; Timaru is a great place to do business and we need competition."
It costs more to bring vessels into Timaru than other South Island ports, he says.
"We know nothing about the cost of container vessels entering and leaving Timaru but it's the most expensive port in the South Island for our fishing vessels to enter."
Boys challenges those claims.
"All ports are in close proximity; the port represents a small portion of the total freight cost."
Timaru charges a minimum $2950 per visit for a vessel requiring pilotage. Pilot-exempt vessels are charged a minimum $1200. Port of Christchurch charges a minimum $1922 per visit for a vessel requiring pilotage and $1235 where pilotage is exempt. At Otago, the minimum charge for a small vessel is $460, $825 for vessels less than 3000 tonnes, and $1330 for those over 3000 tonnes. The minimum charges for larger vessels at Port Chalmers is $2800 and $3050 at Dunedin. Pilot-exempt vessels incur a minimum charge of $680. B lakely Pacific exports 150,000 tonnes of logs out of Timaru each year.
That equates to 300,000 pine trees or 300 hectares.
South Island regional manager Andrew Cocking says four seedlings are planted for every tree harvested at age 30. Statistics show a significant increase in the number of logs leaving the port over the past five years.
Cocking says a "marquee" customer is needed in any port.
"In terms of container services, I can't see a marquee customer; the port has a marquee customer in logs."
He says Holcim could provide Timaru with a marquee customer for container services.
"It's crucial to have a supply chain that is supported by an efficient port operation; Timaru's port is efficient in regards to its scale.
"PrimePort provides us a footprint as we require maintenance and extra space from time to time; that comes down to people."
Levels onion grower and South Canterbury Chamber of Commerce president Tony Howey exports an average 200 containers a year.
He says it is absolutely critical that Timaru has a container port.
"The most cost-effective model is for ships to call at ports but it's not the most effective model for shipping companies.
"If you look at the overall structure and take the overall costs of shipping, it's a lot more efficient to bring ships to the cargo than cargo to the ships," Howey says.
The container service will keep South Canterbury competitive, he adds.
"While rail is quite competitive now, it is false because it is heavily subsidised by the taxpayer; over time that will be corrected and rail will get more expensive."
Geraldine importer Warren Blair brings about 20,000 tyres through Timaru's port each year.
He imports between 30 and 40 containers annually as the South Island wholesaler for Kumho tyres.
The containers arrive monthly through Timaru via Swire Shipping.
He says he will also use MSC and has called on business to support PrimePort Timaru's remaining container services.
"It's like anything; it's supply and demand; if demand is not there then they will pull out."
The Timaru Herald