Welcome to a bumper edition of the Shippers Council newsletter – it’s a busy time with many developments that will be of interest to members and affiliates. Our recent OGM was very timely, providing an opportunity for discussion on current concerns around infrastructure charges, and to receive presentations from the Commerce Commission, MPI and KiwiRail. Note that copies of these presentations are included within the articles in this newsletter.
Key dates for the 2018 calendar
Global Shippers Forum (GSF) and International Cargo Handling Coordination Association (ICHCA) Annual Conference and Exhibition – GSF2018, Melbourne, 8 – 11 May 2018
NZ Shippers Council are encouraged to attend this event to be hosted in Australasia for the first time. More information on the conference is
available HERE.
Send us an email executiveofficer@nzsc.co.nz If you are interested in attending as we are pursuing a discounted group rate for our members.
Hold the date: NZSC AGM – Wednesday 22 August, Venue to be confirmed
Continued concern about Port Napier’s Insurance levy
Council members continue to express concern about the precedent that has been set with Port Napier’s insurance levy charge on transport operators.
Last October the Council issued a media statement expressing its alarm that the levy lands on those (shippers) who have no contractual relationship with the Port and therefore no ability to influence the outcome.
It remains the Council’s view that the port should either be absorbing increased costs as part of its normal business activity, or negotiating them with its commercial clients – the shipping lines; not imposing them on parties who have no ability to review and negotiate rates.
Fundamentally, cost recovery for infrastructure should not occur via the VBS. Such surcharges are a cost distortion in the supply chain, weakening NZ exporters’ international competitiveness.
The Council is closely watching the situation in Australia where port infrastructure fees hikes have prompted calls for government agencies to take action.
Victoria International Container Terminal is the latest container stevedore to announce it would implement an infrastructure surcharge to be applied to all standard import and export containers through road transport operators. The VICT surcharge mirrors similar surcharges imposed by DPWA and Patrick in a move described by the Container Transport Alliance Australia (CTAA) as a cash grab.
CTAA argues that it is incumbent on the port operators to show what has changed and what additional services are being provided that justify the surcharge. We agree.
New Biosecurity Rules come into force in May 2018
In the lead-up to the introduction of new biofouling requirements in May 2018, MPI addressed our recent OGM with a presentation detailing the new Craft Risk Management Standard that will be introduced. The new rules will require all international vessels to arrive in New Zealand with a clean hull.
Tracey Bates (Lead advisor Biofouling Requirements, Bio Security Environment group), led the meeting through the craft risk management flowchart, risk profiling of vessels and enforcement principles setting the maximum allowable levels of biofouling on vessels arriving in NZ when the rules come into into effect in May 2018.
Copy of the MPI presentation can be downloaded here. MPI presentation OGM Feb 2018
Meanwhile, underlining the critical nature of biosecurity measures to NZ, MPI has directed a fourth vehicle carrier to leave New Zealand waters (27 February) after brown marmorated stink bugs were discovered aboard the vessel. The vessel Glovis Caravel was ordered to leave New Zealand after the crew reported finding 600 stink bugs, 12 of them alive, while the vessel was anchored near Auckland.
MPI border clearance services has said that said even though the vessel was sealed, the risk was assessed to be too high for it to remain in New Zealand waters and it must be treated offshore before it can return. MPI has increased its border inspection and verification of such vessels arriving from Japan following a recent jump in detections of stink bugs. An MPI spokesperson said some of the carriers arriving New Zealand require no further action, but where there is contamination entry may be denied.
“We firmly believe our actions to date have prevented stink bugs from getting past the New Zealand border and welcome the support we have been getting from a range of industries,” he said. “Everyone appreciates a brown marmorated stink bug incursion could have a devastating impact on New Zealand agriculture.”
We note that to deal with this issue Australian authorities have stipulated that from now until April every container from Italy must undergo fumigation with Methyl Bromide upon arrival in Australia. The importer is charged accordingly.
Customs and Excise Bill expected to take effect later this year
In February NZSC was represented at the NZ Customs stakeholder function where new Customs Minister Hon Meka Whaitiri outlined priorities for Customs and foreshadowed the new legislation that is being introduced this year.
The Customs and Excise Bill, currently before Parliament is set to modernise the whole business of Customs. The first major overhaul in more than 20 years of the legislation governing Customs, the Bill aims to account for changed circumstances such as raised standards for trade security, new free trade arrangements, and the use of new forms of information and technology for passenger facilitation and risk targeting, to make the law easier to understand and apply and in some areas, reduce unnecessary compliance costs. It is expected to take effect later this year.
In her address to stakeholders Minister Whaitiri noted Customs is constantly striving to make improvements; to provide greater transparency, guidance and certainty for all the people who interact with it, and that open and honest dialogue between Customs, traders and travellers is the key to keeping the country’s borders secure without interfering unnecessarily with travel and trade.
Please download PDF file for more details. NZ Customs INS RIS draft 1.0 release for consultation
The New Cartels Regime – What protection does it offer shippers?
As has previously been reported, the Commerce (Cartels and Other Matters) Amendment Act 2017 finally passed in August 2017. The Act amends the Commerce Act 1986 to better provide for pro-competitive collaboration between entities while also deterring anticompetitive cartel conduct.
Significant changes introduced by the Act included:
- Replacing the “per se” prohibition on price fixing with a prohibition on “cartel provisions”, defined as a provision with the purpose or effect of “fixing prices”, “restricting output”, or “allocating markets”. As defined, these terms frequently appear in joint venture, distribution and franchise agreements;
- Improved exceptions for certain pro-competitive conduct – namely, collaborative activities, vertical supply contracts and joint buying agreements;
- The introduction of a clearance regime (similar to that already available for mergers) for companies wishing to enter arrangements that might include a cartel provision, but might also be regarded as a collaborative activity; and
- A new regime for the international shipping industry, previously excused from the Commerce Act sections, introducing a targeted exception for specified activities such as vessel sharing, that improve the services supplied to importers and
After a nine-month transition period, the new “cartel provision” sections will come into force in mid-May this year, however there is a two year transitional period for agreements relating to international shipping (August 2019). Compliance with the new regime is particularly important given that earlier this year the Government introduced a new Bill to criminalise cartel conduct.
Competitor Collaboration Guidelines
The Commerce Commission has published its Competitor Collaboration Guidelines to shed light on how it will enforce the cartel prohibition, their approach to the new rules on collaboration, and how clearance applications will be processed. The Guidelines can be found here. Competitor-Collaboration-guidelines-January-2018
The Commission Commission’s Katie Rusbatch (Head of Competition) and Harriet Young (Policy analyst) presented on these guidelines at our recent OGM. A copy of their presentation can found here.
It was noted that no guidance has yet been issued on the clearance process for international shipping exceptions. It is a complex field and a new and untested regime – the Commerce Commission is open to assistance from the NZSC in this matter, and we hope to work closely with them in this area.
NZSC also took the opportunity to underline the rapid change occurring in the international shipping sector and the need for a close watch on potential anti- competitive activities.
Market studies powers
In this regard we note that in December last year, newly appointed Minister of Commerce and Consumer Affairs, Kris Faafoi indicated he would like to “take the politics out” of decision making on market studies by granting the Commission the ability to launch inquiries on its own initiative. The stated aim was to introduce these changes before the end of 2018, to be ready for action in 2019. The comments mark a shift from the previous Government’s position, which was that such inquiries should require the Minister’s approval.
Reform of s 36 – taking advantage of market power
The prospect of reform to s 36, relating to taking advantage of market power, is also on the horizon. The Labour Party’s 2017 election manifesto stated that the current approach to that section (ie the counterfactual test), was inadequate and merited a broader review than the “narrow review” commissioned by National earlier last year. If the Government does look to change the law, they could look to the recent changes introduced in Australia. Those changes included:
- Removal of the “taking advantage” element, which does away with the need for the counterfactual test altogether; and
- Amending the section so that it applies not only where there is one of the prescribed anti-competitive purposes, but also where the conduct has an anti-competitive
Tech, not consolidation, will drive container shipping change
As container shipping has consolidated from 18 east-west carriers down to 11 during the past two years, it is easy to say the industry is experiencing an inflection point and will look very different in the future. However Journal of Commerce suggests that it is technology, reports such as block chain, that will drive behaviour change.
Although it is yet to happen and may take years to implement, for the first time it is possible to envision a path to significant reductions in the staggering costs associated with global trade. That is because the concept of distributed ledgers (block chain) can create the necessary level of trust among the dozens of individual parties that must interact as trade flows from origin to destination. It allows that interaction to occur with a collaborative Cloud-based environment not owned or controlled by any central party.
A decentralized environment, where all parties involved in the movement of a container could interact, has been both the perfect solution and completely unachievable until now. None of the technology developed and deployed over decades has created the collaborative environment the industry requires above all other solutions. The potential elimination of cost is so great (it has been estimated that documentation costs alone amount to 20 percent of the costs of actual shipping) that despite the lack of progress there remains “an insatiable hunger to see such a system implemented if it can be done right, to get to the point where we’re all using the same platform.”
The requirement for the common platform: neutrality
Getting it done right is the challenge, and the key to that is neutrality.
A key question is whether the holy grail system will be the one to be created by a JV of Maersk and IBM, which in January announced plans to create a “global trade digitization platform built on open standards and designed for use by the entire global shipping ecosystem.”
Without question, achieving neutrality and resulting buy-in will be the difference between the industry being able to seize this unique opportunity or not. The prize is so big that it is imperative that individual carriers see participation in a common platform as non-competitive. If just a narrow slice of the industry joins the environment, they may succeed in reducing some costs, but the overall result will be elimination of only a fraction of the costs that would be possible through universal adoption by carriers, forwarders, shippers, ports, and government agencies.
That is why this moment is so critical. How many times has it been said that nothing has changed since the introduction of the container in the late 1950s? It is time that the industry that revolutionized global trade more than 50 years ago do it all over again.
Minister Champions Regional Rail
Launching his $1 billion provincial growth fund (PGF), on February 23 Regional Economic Development Minister and Associate Transport Minister Shane Jones announced the “first of many regional rail initiatives” the Government is looking to support.
The PGF will provide $8.75 million to reopen the Wairoa-Napier line for logging trains, upgrade the Whanganui line for mainline locomotives carrying exports and fund feasibility studies for three further regional rail projects.
Minister Jones said that “these are just the initial shovel-ready rail projects that are ready to go and have been in the pipeline for some time. The Government has signalled its strong commitment to using rail to drive regional growth and I expect more projects will be funded over time from the PGF.”
The Government is providing a total of $750,000 for three feasibility studies on KiwiRail projects in Kawerau, Southland and New Plymouth –in total. The Kawerau study will look at options for creating an inland hub to connect exports from Murapara and Kawerau to rail. In Southland, KiwiRail will work with local forestry interests and ports to determine the best export flows for forestry and containers and the New Plymouth study will also focus mainly on opportunities for forestry exports.
The PGF will also invest more than $6 million towards revitalisation of the Whanganui Port and upgrade of the town’s rail line. Subject to a business case, the Government will support works to the port planned by Whanganui District Council. The goal of redevelopment of the port precinct is to create a more extensive area for value-added specialist manufacturing and make Whanganui an attractive investment prospect for marine and logistics-related industries.
KiwiRail’s presentation to our recent OGM foreshadowed this announcement. Peter Reidy (CEO) and Alan Piper (Group General Manager Sales and Commercial) gave an overview of the value of rail to NZ, the focus of KiwiRail going forward, challenges (getting MNL back to capacity, high exposure to commodity exports, evolving supply chains and freight flows, excess capacity on Cook Strait, fit for purpose smart assets, future of work challenges, ageing workforce, technological disruption, and long term funding) and key strategies going forward, including significant investment in assets after years of chronic underinvestment. A copy of the KiwiRail presentation can be downloaded here. KiwiRail Presentation to NZ Shippers Council Feb 2018_no video_180220
Government Review of Upper North Island Supply Chain
Cabinet has approved a programme of work to develop a comprehensive Upper North Island Supply Chain Strategy. The work encompasses a logistics and freight review, a plan for the long-term future of ports in the Upper North Island, including the location of Ports of Auckland, and priorities for investment in rail, roads and supporting infrastructure.
Announcing the decision Associate Minister of Transport Shane Jones said that building an effective and sustainable transport system is a priority for the Government, and that understanding the drivers and uncertainties around the future of freight and logistics demand is vital to ensuring our supply chain is fit- for-purpose in the long term.
Government will soon appoint an independent working group who will report to the Minister of Finance, and the Minister and Associate Minister of Transport.
We note that NZSC wrote to Ministers in conjunction with the release of the updated Big Ships report, pointing to one of the report’s key conclusions that it is imperative there is integrated planning of investments right across the country’s freight corridors.
A meeting with Minister Twyford is scheduled in April. In the interim we will be underlining the need for shippers’ representation in the working group to ensure the voice of cargo owners is heard.
Trade Update
CPTPP
The Comprehensive and Progressive Agreement on the Trans Pacific Partnership is due for signature in Santiago, Chile on 8 March 2018.
The text of the agreement has also been released along with a revised National Interest Analysis.
Following signature the Foreign Affairs Defence and Trade Select Committee will be calling for submissions as part of the ratification process for this Agreement. Any six of the 11 parties to this agreement need to ratify the Agreement for it to come into force.
New Trade Strategy
The new Government is working on some new policy settings for future FTAs. Future agreements containing investor state dispute settlement are unlikely to be supported. There is also talk of making chapters on SMEs, women and trade, trade and indigenous people, and trade and sustainability (with enforceable standards) part of all future agreements.
CPTPP does have a Chapter on SMEs. The Canada-Chile FTA has a chapter on Trade and Women. The New Zealand – Taiwan FTA has a Chapter on Indigenous People. And we have negotiated FTAs without ISDS before. However, insisting on all these elements would be quite a departure and might complicate our chances of securing future outcomes. We expect the Government to consult on any new strategy.
Pacific Alliance
The third round of negotiations with the Pacific Alliance (Chile, Peru, Colombia and Mexico) begins in Chile next week. We will be getting a briefing when the
EU FTA
We still do not seem to have a mandate to begin negotiations. This was initially expected in November 2017. European Leaders have, however, reaffirmed their intention to finalise a mandate and begin this important negotiation.
Trade War Looming?
No one wins from a trade war. But US President thinks otherwise. Nothing is yet finalised but US intention to impose tariffs on some steel and aluminium imports is raising global tensions. There could be some direct impact on some New Zealand exporters but more worrying are wider global flow on effects – particularly if others retaliate against the US. Watch this space…
International commentary
LNG in 2018 – Infrastructure must evolve to meet accelerating demand
One of the emerging shipping industry stories of 2017 was the evolution of the market for LNG as a marine fuel, with a significant increase in new projects demonstrating a growing embrace of gas-fuelled shipping throughout the industry. International Shipping News predicts that a major global challenge this year will be meeting the urgent demand for infrastructure brought on by a growing and diversifying fleet. As of November 2017, there were 111 LNG-fuelled vessels on order – a figure that will almost double the current number of vessels, which currently stands at around 120. Sixty-two LNG carriers are also expected to be delivered in 2018, which, if achieved, will be a new annual output record.
One of the most significant announcements in this regard was CMA CGM’s decision to order nine LNG-powered ultra-large container ships (ULCSs) – one of the strongest indications yet of confidence in LNG’s potential as a mainstream marine fuel.
For an industry confronted with the upcoming 2020 sulphur cap, the expansion of Emission Control Areas, and growing pressure to decarbonise, LNG look likely to play a key role – however it also comes with significant infrastructure challenges. For example, the new CMA CGM vessels will require a bunkering vessel of more than three times the size of the three LNG fuelling vessels currently in service.
Tech, not consolidation, will drive container shipping change
As container shipping has consolidated from 18 east-west carriers down to 11 during the past two years, it is easy to say the industry is experiencing an inflection point and will look very different in the future. However Journal of Commerce suggests that it is technology, reports such as block chain, that will drive behaviour change.
Although it is yet to happen and may take years to implement, for the first time it is possible to envision a path to significant reductions in the staggering costs associated with global trade. That is because the concept of distributed ledgers (block chain) can create the necessary level of trust among the dozens of individual parties that must interact as trade flows from origin to destination. It allows that interaction to occur with a collaborative Cloud-based environment not owned or controlled by any central party.
A decentralized environment, where all parties involved in the movement of a container could interact, has been both the perfect solution and completely unachievable until now. None of the technology developed and deployed over decades has created the collaborative environment the industry requires above all other solutions. The potential elimination of cost is so great (it has been estimated that documentation costs alone amount to 20 percent of the costs of actual shipping) that despite the lack of progress there remains “an insatiable hunger to see such a system implemented if it can be done right, to get to the point where we’re all using the same platform.”
The requirement for the common platform: neutrality
Getting it done right is the challenge, and the key to that is neutrality.
A key question is whether the holy grail system will be the one to be created by a JV of Maersk and IBM, which in January announced plans to create a “global trade digitization platform built on open standards and designed for use by the entire global shipping ecosystem.”
Without question, achieving neutrality and resulting buy-in will be the difference between the industry being able to seize this unique opportunity or not. The prize is so big that it is imperative that individual carriers see participation in a common platform as non-competitive. If just a narrow slice of the industry joins the environment, they may succeed in reducing some costs, but the overall result will be elimination of only a fraction of the costs that would be possible through universal adoption by carriers, forwarders, shippers, ports, and government agencies.
That is why this moment is so critical. How many times has it been said that nothing has changed since the introduction of the container in the late 1950s? It is time that the industry that revolutionized global trade more than 50 years ago do it all over again.
