All eyes on long term trajectory for rail
Following the 2019 Budget announcement of a $1 billion funding boost for rail, (Detailed breakdown of the boost to rail from Budget 2019) Transport Minster Phil Twyford (now also Minister of Economic Development) has announced more details on the government’s commitment to rail. It’s clear that there is shared political will across the Coalition partners to invest in rail with the Minister positioning Government’s vision for rail as “the backbone of a sustainable 21st century transport network.”
Most recently, in a speech about the future of rail in New Zealand to the Australasian Rail Association Conference, Minister Twyford underlined the importance of rail to the Coalition government and the desire to ensure rail is fully incorporated into national and regional transport planning. He said the Government is “bringing in rail in from the cold – fully integrating it alongside roads, motorways and all the transport investments so that for any transport task, decision makers can consider rail alongside all modes and invest in the most efficient and sustainable option – that is mode neutrality.”
He also pointed to the almost $200 million investment – on top of the Budget’s $300 million for regional rail, through the Provincial Growth Fund for rail projects that create growth in the regions. Included within this is the re-opening of the Napier to Wairoa line, which is expected to replace 15,000 truck journeys each year on the region’s roads.
Minister Twyford has said that the Government’s long-awaited Rail Plan is due to be released later this year and will outline a ten-year programme of indicative investments and benefits. On current timetabling the Rail Plan will be preceded by the next report from the Upper North Island Chain Study group. NZSC is currently pursuing a meeting with the study group to ensure our members interests and concerns continue to be heard as this project proceeds
Stratford to Okahukura rail line:
Rail announcements have been coming thick and fast since the Budget. Earlier this month
KiwiRail announced that a $40 million project to reopen the mothballed Stratford to Okahukura rail line is a priority. The line, shut since a derailment in 2009, is the only alternative north-south rail link should the main trunk line through National Park ever be shut by a natural disaster and is a commercial opportunity for businesses looking for a faster flow of Taranaki exports north to Auckland or Tauranga. Discussions on reopening the 144-kilometre rail line that emerges north of Taumarunui are already underway. If approved, it is potentially a 12-month project.
Log train from the Waingawa log yard:
KiwiRail and CentrePort have recently marked the first extended log train from the Waingawa log yard south of Masterton. The new service will increase daily log loads from 30 to 45 wagons and will boost annual log tonnage by about 100,000 tonnes to 370,000 tonnes. By March, the firms and local foresters are hoping to lift that to 60 wagons a day, taking another 100,000 tonnes of logs off the Remutaka Hill Road into Wellington annually. KiwiRail boss Greg Miller said that KiwiRail is moving only about 5 million of the 35 million tonnes of logs being harvested annually. “That number has to increase, not just because of the shortage of truck drivers, but also to contain emissions, road congestion and the under-appreciated extent of road damage from 50 tonne-plus trucks.”
KiwiRail is establishing a log yard at Wairoa and is planning a $4 million yard at Dannevirke to help speed forestry volumes through the North Island. Miller has said the company hopes to complete a study for a log service from Gisborne by the end of the year and is also looking at options to rail more logs from Murupara and Kawerau.
Coastal Shipping investment on the horizon:
Recent comments from Transport Minister Phil Twyford signal that Government’s attention has also turned to developing the country’s coastal shipping facilities alongside rail. Although, there are few details at this stage Minister Twyford has said that a funding announcement would be made before next year’s election.
“There is a lot of freight that can actually be shifted on the blue highway and so we want to get roads, rail and coastal shipping working together in an integrated way. All three modes of transport – they have always had a place in New Zealand, and they’ve got a place in our future.”
We watch this space with interest.
BER Extension debate heats up
The debate regarding extension to the European Block Exemption regulation (BER) as backgrounded in our previous newsletter, has become increasingly heated. Those that are arguing for the end of the exemption claim that alliances between container lines have become anti-competitive – however, as Loadstar recently reported, efforts to curtail container lines from operating in alliances could result in freight rates “skyrocketing”.
The BER is set to expire on 25 April 2020 and regulators are currently assessing whether to extend it for five years. If the exemption isn’t extended it won’t necessarily mean that lines can’t operate alliances and vessel sharing agreements – however it will likely require more costs passed on to shippers through higher rates. But if regulators ban shipping alliances altogether then the situation could be very grim for NZ because of the potential for less direct port to port coverage and more transhipment, which in turn would raise both costs and transit times for shippers.
The NZ Shippers’ Council finds itself on the opposite side of the argument from the Global Shippers Forum, which is a strong proponent for the end to the BER. GSF’s concern is based on the fact that the combined market share of the 10 largest global container carriers has jumped from 12 percent in 2000 to 82 percent today, with consequent concern about concentration of market power.
While NZSC shares GSF’s concern about the potential for alliances to create market dominance, the continuation of VSA’s is critical to the supply of reliable and efficient shipping services for NZ shippers. At this point we consider that any curtailment of the BER would be a negative outcome for NZ INC.
Customs arrangements with Singapore and Canada to benefit New Zealand traders
New Minister of Customs, Jenny Salesa, has announced new customs arrangements between New Zealand, Singapore and Canada that will streamline trade.
The Mutual Recognition Arrangements (MRAs) to recognise supply chain security standards of respective trade programmes were signed at the World Customs Organization headquarters in Brussels in late June.
New Zealand exporters who are part of the New Zealand Customs’ Secure Exports Scheme will benefit from streamlined customs clearance processes and priority treatment at these borders. The MRAs take effect from 1 August 2019. Accredited exporters will be recognised as trusted traders, and can expect clearance at the Canada and Singapore borders to be more streamlined with less chance of inspection, giving them a competitive edge
Accredited exporters from the two countries will also receive similar treatment for their goods in New Zealand, which is good news for our importers.
Minister Salesa said that both countries are important trading partners for New Zealand – Singapore is currently ranked sixth with two-way trade valued at an estimated NZD$5.2 billion, and Canada ranks fourteenth with an estimated NZD$2.1 billion of two- way trade per year.
New Zealand has similar customs arrangements with the USA, Australia, China, Hong Kong, Japan, and the Republic of Korea.
For more information about the New Zealand Secure Exports Scheme, visit: https://www.customs.govt.nz/business/export/secure-exports-scheme
Biosecurity NZ steps up war on Brown Marmorated Stink Bug
Biosecurity has provisionally released new rules that will apply to this year’s stink bug season, which starts Sept 1 and will run until April 30.
The brown marmorated stink bug has spread to the United States and Europe from Asia. It’s not yet established in New Zealand, but should it settle here it would potentially decimate grapes, kiwifruit, apples, citrus and stone fruit, corn and other valuable crops.
NZIER has estimated that within 10 years of its arrival, total horticulture export values – considering both volume and price impacts – could fall by between $1.4 billion and $3 billion, depending on the steps that are taken after it settles.
“The new rules are intended to reduce the biosecurity risk to New Zealand, by ensuring potentially contaminated cargo arrives as clean as possible.” Said Biosecurity New Zealand spokesperson Paul Hallett.
Under the rules, the list of countries that have requirements to treat imported vehicles, machinery and parts before they arrive in New Zealand will rise from 17 to 33. These countries have all been identified as having stink bug populations.
Imported cargo relating to vehicles will need to be treated offshore, including sea containers. Only non-containerised vehicle cargo has required offshore treatment in the past.
Biosecurity New Zealand is planning to have officers based in Europe this season to educate manufacturers, treatment providers, and exporter about the new requirements and to audit facilities. If their checks find any issues, New Zealand will not accept any cargo from that facility until the problem has been fixed.
Building the road transport workforce pipeline
Great to see Otago Polytechnic is launching a heavy transport driver training and automotive engineering programme as a result of consultation with local industry to meet the skills shortage in the heavy transport industry. Industry sources report that there is currently a national shortage of approximately 2800 new class 5 drivers each year and a critical need to build the workforce pipeline.
Other developments in this area include MITO
ShiftUp offers students in years 11, 12 and 13 a mix of e-learning theory and practical experience in the workplace, towards a number of career opportunities – including transporting goods, warehousing, distribution, logistics and administration services.
Key to the success of ShiftUp is support from industry to provide the workplace practical assessment and work experience.
*If you’re interested in becoming a ShiftUp employer, contact MITO’s vocational careers advisor Maree Thomas, by emailing email@example.com or phone 0800 88 21 21.
The New Shipping Emissions Rules – What’s Ahead
As detailed in previous newsletters new environmental rules are set to change the shipping industry starting from January 1 next year.
On that date, less than six months away, the new IMO 2020 low sulphur regulations, which aim to improve health by reducing air pollution, will come into effect globally, with a consequent transformative impact on how the world’s fleet is fuelled.
Summary recap of IMO 2020:
- January 1 2020 will mark the full implementation of the IMO 2020 regulations reducing sulphur oxide emission from 3.5 percent to 0.5 percent.
- Carriers have several ways to comply with these new rules: use of low sulphur compliant fuel oil use of low sulphur alternative fuel (such as LNG) or use of exhaust gas cleaning systems i.e. scrubbers. Each method brings its own advantages, disadvantages, and cost implications. Several factors – including fuel availability, fleet age and makeup, charter versus ownership, capital cost, shipyard capacity and implementation time – must be considered. For shippers, an understanding of the carriers planned strategy will provide further insight into how these costs will manifest in fuel surcharges.
- Failure to comply with the global regs will result in fines or vessels being detained. The actual enforcement will be policed by flag and port states rather than the IMO.
- NZ is one of very few nations that has not yet ratified the MARPOL Annex VI treaty that sets the sulphur oxide limits – which at this point means NZ flagged vessels will not be captured by the regulation. However, as all international lines serving the NZ market are MARPOL Annex VI treaty signatories and required to comply, NZ shippers will be directly impacted by the LS 2020 regulations.
- Carriers are well down the path of planning for the implementation of the new rules. As part of monitoring and enforcement, flag states issue vessels an International Air Pollution Prevention certificate. The IAPP obligates carriers to use fuel oil with a sulphur content that does not exceed the MARPOL limits, documented by a bunker delivery note. Authorities will validate carriers’ use of LS fuel through audits of bunker delivery notes, vessel documentation and bunker sampling where infractions are suspected – although many question the standardisation of enforcement across different flag and port states and suspect that levels of enforcement reliability will vary.
- Clearly the Marine fuel market is going to see a major disruption. Up until now marine fuel bunkers have been dominated by residual/heavy fuel oil (HFO) and to some extent distillate marine gas oil (MGO). After January 1, the only vessels that will be permitted to continue burning HFO will be those fitted with exhaust scrubbers – all other ships will need to shift to MGO or other compliant fuels. Globally oil companies and refiners are moving to create LS fuel blends to meet the stricter sulphur limit. These will be cheaper than MGO and have physical properties closer to those of HFO but currently most of these new blends are experiencing compatibility and stability issues.
- Approximately 2,000 ships are expected to be fitted with scrubbers by 2020 – and will continue to use HFO. This will translate, initially, into the vast majority of ships shifting to MGO – but as more ships have scrubbers installed, the demand for HFO will again increase. The sudden shift and drop in demand for HFO post 2020 is expected to drive the price down significantly but the price differential between HFO and MGO and new low sulphur blends is still uncertain.
- What is more certain is that IMO 2020 poses an increase in compliance costs (whether increased fuel costs or CAPEX costs associated with installation of scrubber technology) that will be too significant for carriers to absorb and stay operational. Compliance will therefore lead to an increase in operational costs, which carriers will seek to pass on to shippers through new bunker adjustment factors. This calculation typically follows the basic formula of Trade Factor (e.g. voyage length, ship size, sea days, port days, speed) x Fuel price = Fuel surcharge
- Note that in order to properly comply with the emissions requirements on January 1, a vessel’s fuel tanks will need to be fully cleaned and flushed away of any HFO. This process needs to start a few months prior to the regulation implementation date.
So, what does this all mean for shippers?
It’s vital that shippers integrate IMO regulations and BAF into their thinking. While the underlying price of LS fuel will not be known until next year, there are other aspects that shippers can seek clarification of in the interests of complete transparency. These include how your carriers’ trade factors are calculated, timing of implementation of their new fuel formula, understanding of impacts of future changes in fuel price (both up and down), and impacts of hedging of forward fuel costs and any advantages gained by new fuel-efficient ships.
Speed reduction / slow steaming remains on the table
Carbon / Greenhouse Gas (GHG) emissions are also being tackled by the IMO. We have previously reported on the IMO’s vision to decarbonise shipping as soon as possible within this century, with the target of reducing GHG emissions from shipping by at least 50% in 2050 and reducing the average carbon intensity (CO2 per tonne-mile) by 40% in 2030.
One of the short-term measures proposed to achieve the 2030 CO2 intensity ambition is slow steaming. Although this proposal did not make any substantial headway at the IMO’s Marine Protection Committee (MEPC) meeting in late May it has definitely not been ruled out. Speed reduction and speed optimization have been included on the agenda for the next GHG working group meeting in November, which is tasked with prioritising the measures that will have the highest impact on shipping emissions.
A number of carriers have questioned the wisdom of enforcing slow steaming pointing out that it will mean more vessels will be needed to meet their service loops. The Global Shippers Forum has argued that it is crucial to select a measure that will incentivise technical and operational measures to reduce CO2 and not simply pass on additional costs and inefficiencies to shippers, and the UK Chamber of Shipping has argued that shipping has been slow steaming for years but its carbon output hasn’t substantially reduced. On that point it is interesting to note that an analysis from Sea Intelligence Consulting found that since 2012 average transit times have gotten progressively longer on the Asia-Europe and trans-Pacific trades. Between 2007 and 2015 container ship speeds dropped 22 percent to an average speed of 16 knots.
The NZSC is supporting GSF in its call for sustainable solutions to the environmental challenges faced by shippers that don’t stifle economic growth. We agree that there must be useful open dialogue between the industry and the government to ensure policy measures remain practical and supportive of growth and jobs while addressing the need to decarbonise transport.
Trade Update – July 2019
At the time of writing it seems that President Trump and President Xi Jinping have had a good phone chat and are due to meet at the G20 in Osaka. Meanwhile the chances of a no deal Brexit are increasing.
Against this backdrop New Zealand has been continuing to progress the trade negotiation agenda. Progress has been slow, but the EU-New Zealand FTA process continues positively and there are signs that the Pacific Alliance process may be about to resume. Ministers and officials remain upbeat about the China FTA upgrade. And negotiations are about to begin on upgrading the AANZFTA agreement with ASEAN.
The tariffs imposed by the US and China in the latest skirmish are beginning to take effect and trade distortion is becoming apparent. There are signs that tensions are playing out into the technology and academic research. The outcome of the G20 meeting was agreement that officials will re-open negotiations. This is good. It also seems that the US is willing to ease sanctions against Huawei. Rather than a national security threat it seems that President trump has seen Huawei as a negotiating opportunity.
While President Trump has delayed further action against the EU for six months his Twitter comments are giving the Europeans plenty of cause for concern. Aside from automobiles, Trump is suggesting a possible $4 billion retaliation because of aircraft manufacture subsidies and action against alleged EU currency value manipulation.
Companies would be wise to resume contingency planning for a hard Brexit. Many will have had plans developed for earlier in the year. Hopefully this will not happen, but the risk must be increasing. The upside, should there be one, is that the chances of an early commencement of negotiations over a UK-NZ FTA are also increasing.
Negotiations have struck the dairy issue. The EU is seeking total exclusion of some parts of this important sector. This is clearly unacceptable. Minister Parker is delivering this message clearly to his EU counterparts.
China FTA Upgrade
NZ-China relations are in a much stronger state than they were at the start of the year. This has helped the FTA upgrade process. Both sides are talking confidently about an outcome this year.
MFAT are seeking views on how the AANZFTA Agreement could usefully be updated. We encourage companies to submit on this.
China put the cat amongst the pigeons recently by suggesting the expulsion of India, Australia and New Zealand from this negotiation to increase the chances of an early conclusion to negotiations. China was clearly very frustrated with Indian delaying tactics. Australia-China relations are at an all-time low. New Zealand seems to have been collateral damage. Malaysia supported the Chinese, but Indonesia and Japan pushed back strongly. India, Australia and New Zealand remained in the room for the most recent negotiating round of this negotiation in Melbourne. That was about the only good news.
A meeting of officials is pending to discuss the possibility of resuming negotiations on the expansion of the Pacific Alliance FTA to include Canada, New Zealand, Australia and Singapore. These negotiations stalled after the changes of Government in Mexico and Colombia. Deputy Prime Minister Winston Peters has visited the region and met with Pacific Alliance counterparts.
Across the Tasman
New Port Infrastructure Charges
Terminal operators in Australia have been accused of “turning on the money tap again,” following new “port infrastructure” surcharges and steep hikes to vehicle booking system (VBS) fees. According to the Container Transport Alliance Australia (CTAA), from 1 July VBS slot fees at DP World terminals increased 88%, to A$12.95 and at Patrick Terminals by 73%, to A$13, with neither fee including Australia’s general sales tax (GST).
These price rises come on top of recent increases in infrastructure charges levied on road and rail transport operators by all of the container stevedores in Australia. Transport operators also face higher fees from empty-container depots across the country, particularly in Sydney and Brisbane. For example, many depots have increased their “notification fees” for after-hours truck arrivals to A$30 or more per transaction. All these rising container interface ‘business costs’ are passed through to the end customer.
In a related development, Hutchison Ports Brisbane has announced an increase to its infrastructure surcharge from A$33.10 to A$50, plus GST, for laden containers from 19 August.
The Freight Trade Alliance (FTA) and the Australian Peak Shippers Association (APSA) has assured members that this cost recovery methodology is neither ‘accepted’ or ‘supported’, nor are they are aware of any level of industry engagement in the lead-up to this announcement. They note that while there is no suggestion of collusion – Hutchison is still significantly cheaper in Brisbane than Patrick and DP World Australia – “stevedores are conveniently sequencing a rapid series of national increases in infrastructure surcharges.”
The chief executive of the Victorian Transport Association said the staggered increases by competing stevedores resulted in transport operators going to their customers at least eight times in two years to explain their rate increases. “There has been little opportunity to apply their own negotiations with customers on their other rate increases. Once again, the ‘bottom feeders’ of the supply chain are being dealt with harshly by being the ‘tax collector’. The burden is being most harshly felt by the smaller operators. Their cashflow is being affected to the point that any margins or hope for investment are being eroded.”
The money collected is being earmarked by the stevedores for “infrastructure development on leasehold properties”, however there are fears it will become the most expensive port in the southern hemisphere, and the least attractive for shipping lines. FTA and APSA are continuing advocacy with relevant state governments, the Australian Competition and Consumer Commission (ACCC) and federal departments in search of regulatory intervention.
Shipping lines urged to provide detention relief
In news just to hand, the FTA, APSA and Container Transport Alliance of Australia (CTAA) have appealed to shipping lines to waive container detention and related charges as a result of the escalation of industrial action at DP World Australia (DPWA) terminals.
The DPWA Enterprise Agreement (EA) expired on 28 February 2019, with no public sign that DPWA is any closer to finalising a new Agreement through negotiations with the maritime union. Protected industrial action is now underway, resulting in escalating stoppages this week at DPWA terminals in Brisbane, Sydney, Fremantle and Melbourne.
The latest increase in protected industrial action will see the cessation of all DPWA terminal operations in Brisbane, Melbourne, Fremantle and Sydney for 48-hour periods. These stoppages will result in containers being stranded in DPWA terminals nationally.
“While DPWA has previously made efforts to reduce the impact on Australian shippers, by extending import availability times, waiving storage and sub- contracting vessels, shipping lines also need to be sympathetic in considering financial relief at the end of the container logistics chain through the waiver of container detention fees.” says Travis Brooks-Garrett, Director of Freight & Trade Alliance.
FTA/CTAA/APSA have called on the shipping lines to extend free time on container detention for all containers effected by the escalating dispute and to waive associated charges.
“Shipping lines need to do more to protect their customers. This is not business as usual. This is a real test of how shipping lines treat their customers locally”.
“If import containers are held up in DPWA terminals and the shipping lines maintain their strict detention free timeframes, there will be little physical chance for the containers to be processed through the landside supply chain and be returned empty to the designated location in the time allocated. Transport operators certainly will not be accepting unrealistic container return timeframes, leaving importers exposed to potentially significant detention penalties, unless shipping lines change their policies in these exceptional circumstances.”