NZSC AGM 2018, August 15th, Wellington Club
AGM will commence at 9.30am (Full Members only). Affiliate members are invited to join for lunch and the afternoon programme of presentations.
The afternoon session is expected to close at 4.30pm. The draft programme will be circulated later this month.
Concern over Global Emergency Bunker Surcharge
Members have raised concerns about the announcements from Maersk, CMA CGM and MSC (so far) that they will be introducing a Global Emergency Bunker Surcharge (EBS) in response to the rising cost of fuel.
We note that the Global Shippers Forum (GSF) has issued a statement slamming the surcharge and describing the tactic as amounting to collusion. “Few transport operators in other transport sectors would risk imposing such short- term emergency surcharges because of the likely strong reaction from customers. Container ship operators need to fess up by taking responsibility and greater control of their costs rather than announcing vaguely explained short- notice unrecoverable surcharge costs on customers” said Chris Welsh, retiring GSF Secretary General, in a widely reported statement last week.
The GSF statement goes on to say that it is incumbent on container carriers to provide their customers with full transparency regarding bunker surcharge costs, and to explain why an emergency surcharge is warranted on top of existing bunker surcharge mechanisms. “Shippers will also want to know what steps have been taken to mitigate the impacts of rising fuel prices, including the impacts of fuel hedging arrangements which are designed to manage the risks associated with the single largest cost component of operating container ships. The imposition of emergency surcharges has no place in a modern liner shipping market where costs and prices should be mutually agreed between customers and suppliers, preferably in mutually agreed service contracts. Such arrangements enable the parties to build long term business partnerships, as well as providing clarity on the terms and conditions for the services provided and for appropriate remuneration.”
There is no doubt that higher fuel costs are hurting carriers. Bunker costs have increased by 20 – 30% since the start of the year. In our view there should be a more sustainable mechanism in place to respond to fuel price fluctuations in collaboration with shippers interests. The industry can start to manage this better if shippers/exporters under term contracts seek to have better clarity as to base freight rates and the underlying fuel component, and then build in BAF formulas that are fair and equitable to both parties. Shipping lines need to be prepared to take the risk on the timing and speed of fuel price increases if shippers are prepared to take the risk on paying extra through an agreed mechanism, if fuel prices increase (or decrease as the case may be). There will always be the ‘non- contract’ business that the carriers can levy their EBAF’s etc, however contract business should be treated differently – it’s a relationship issue at the end of the day.
Plans for Criminalisation of Cartels Revived
The Shippers Council has presented to Select Committee in support of the new government’s bill to criminalise cartels. Commerce and Consumer Affairs Minister Kris Faafoi has revived plans to make it a criminal offence to engage in a cartel. The Council submitted that adding the threat of up to seven years’ imprisonment places the necessary strong deterrent on anticompetitive behaviour, particularly in the current environment of increased liner consolidation and alliances. We note that many of our trading partners, including Australia, have made cartel conduct a criminal offence and the ACCC has recently laid
Changes to the Commerce Act in 2017 introduced a new regime for international shipping (which was previously excused from the Commerce Act sections dealing with anti-competitive arrangements between competitors) but did not change the civil prohibition regime.
2018 Member Survey
Thank you to all NZSC members who participated in our recent survey. Your responses have provided clear direction for the issues and concerns that are of priority to shippers and will be of great assistance in framing engagement with Ministers, officials and regulatory bodies.
We asked members to list their current priority issue and also emerging issues of concern. The most commonly voiced concern was congested freight corridors, especially in and out of ports, and the associated impacts on productivity.
Members are also concerned about the uncertainty and lack of strategy around supply chain infrastructure, including ports, rail, and connections between rail and ports. There were multiple comments about the difficulty designing and planning an optimal supply chain in the current climate of uncertainty and the apparent lack of integrated planning to meet future shipping requirements.
It is clear that there are many emerging concerns for shippers. Chief amongst these are: the impact of liner consolidation and alliances, the emergence of port and port services surcharges, workforce shortages (especially truck drivers), and the potential implications (i.e. increased costs, chaotic implementation) of the 2020 sulphur fuels cap (more of which later in this newsletter).
We will endeavour to address all these concerns in our advocacy and member meetings programme this year, with continuing emphasis on the need for government and other stakeholders to consult and work with cargo owners.
Global Shippers Forum Annual Meeting & ICHCA International Conference hosted by Freight & Trade Alliance (FTA) and Australian Peak Shippers Association (APSA) AND ICHCA Australia (Melbourne 8-11 May)
In May NZSC’s Chair and Executive Officer attended the Global Shippers Forum AGM held in Melbourne and the following two-day ICHCA international conference.
The conference was a significant gathering of the world trade community and this rare opportunity to hear their presentations and engage with the international shipping and logistics community was highly worthwhile. Amongst the presenters were representatives from the United Nations, the World Bank and the US Maritime Commission – all of whom spoke about global issues that are impacting shipping and shippers at a regional, national, and local level.
A selection of the conference presentations are available for viewing, please click HERE
Jan Hoffman, Chief of the Trade Logistics Branch, United Nations Conference on Trade and Development spoke of the three big challenges facing the sector right now. For carriers – it is over supply, for ports – vertical integration and associated rising logistics costs, and for shippers – market concentration and the resultant changing dynamics of the freight supply chain. Jan spoke of the need to find common ground to improve the efficiency of the supply chain, to reduce CO2 emissions, and to make trade procedures more transparent and efficient.
This message was echoed throughout the two-day conference, along with a recurring theme of the tension between trade facilitation and security (including biosecurity) concerns – highlighted in presentations from the World Customs Organisation and the Australian Border Force. The strong message was that customs administrators do not want to be seen as an unnecessary barrier to trade. At the same time, you only can have economically successful trade if that trade is secure. Through ensuring safety, you create a framework where trade can grow the economy.
A thought provoking message was delivered on cyber security and the threat to logistics. We encourage members to read Confronting the Demands of Security and Data privacy in a networked supply chain – a white paper released at the conference that addresses the real threat of business disruption and loss through cyber crime.
“Technological progress will never be as slow as today”
Automation, Roboticisation and the new industrial revolution were also centre stage – check out the presentations by Peter McLean (Head of Kalmar Asia- Pacific) and Richard White (CEO, Wisetech Global) for a look at the future of supply chains including automated ports.
It is clear that global trade and logistics are in a state of rapid change. Conferences such as this are an extremely valuable means of managing the impact of that change on your business.
Global Shippers Forum AGM
The Melbourne conference was proceeded by the GSF annual meeting where the retiring Secretary General underlined to delegates the impacts of global decisions currently on the table. Three key areas of discussion were:
Global Alliances / industry consolidation impact on the competition framework:
GSF is calling for the review of VSA’s and the EU consortia block exemption (market share threshold set at 30%, above that must self-assess) given that three global alliances, comprising 13 lines, now control most of the world’s trade routes.
IMO’s CO2 emissions targets
In April this year the IMO adopted an agreement (supported by NZ) on a comprehensive strategy to phase out international shipping’s CO2 emissions completely. This includes targets to improve the sectors CO2 efficiency by at least 40% by 2030 and 70% by 2050 and a very ambitious goal to cut the sectors total GHG emissions by at least 50% by 2050 regardless of growth in demand of maritime transport. It was agreed that ICS should come forward with detailed proposals before the next round of IMO discussions in October.
Of real concern to shippers is one of the proposed short-term measures to achieve this target relating to speed reduction – i.e. slow steaming. GSF is opposed to this measure because shippers would ultimately bear the costs, resulting from the need for more ships in scheduled liner service loops, higher inventory and extended lead times which would undermine JIT deliveries. There is potential distortion to shipping markets /trade/distance travelled and disproportionate impacts on geographically remote shippers i.e. NZ. We note that the Chile has submitted a paper expressing concern on speed reduction and Argentina, Brazil and India have also raised strong concerns. GSF will attend the next IMO Working Group which has been tasked with recommending the most suitable short-term measures.
Best practice container cleanliness
The UN Food and Agriculture organisation (FAO) has established a sea container taskforce to review potential new procedures under the International Plant Protection Convention (IPPC) to ensure that containers are free from pests and plant contamination. The first meeting was held in China in late 2017 to consider possible new measures. New Zealand is cited as one of the leading proponents of a mandatory initiative – at the meeting in China a representative from MPI outlined proposals under which shippers would have to supply a declaration form declaring that containers are free from pests and wood packaging. Responsibility for the declaration would rest with the exporter via the shipping line. MPI further proposed that a container cleanliness system should include the identification of the place of inspection.
However, in parallel with the IPCC initiative the US and Canadian Food and Agriculture departments have led a container cleanliness initiative, which recommends a self-inspection best practice approach as an alternative to the mandatory approach. GSF has recommended to members that it support the best practice approach. There is more to come on this of which we will keep you informed.
Shippers Encouraged to Provide Feedback to Fact Finding Investigation on Container Detention and Demurrage
Rebecca Dye, Commissioner of the US Federal Maritime Commission spoke at the recent Global Shippers Forum AGM on supply chain visibility and performance, including her current investigation into container detention and demurrage. Detention and demurrage charges, and the proliferation of surcharges generally, are a growing problem for shippers worldwide. Commissioner Dye noted that the causes are various and may be linked to such factors as congestion resulting from bigger ships, shortage of landside haulage at peak periods, and impacts of industry consolidation / alliances. Of significant concern is the levying of charges on parties when the cause of the infractions is beyond the control of the cargo owners or their representatives.
In the first instance the Commissioner’s investigation, called Fact Finding 28, is focusing on understanding the breadth and depth of the problem, with a call for shippers (including NZ shippers) to document their demurrage and detention experiences and participate in this important investigation. The dedicated investigation email address to send information and/or documentation to support specific allegations of unreasonable port detention and demurrage practices and fees is email: FF28@FMC.Gov
Demurrage pertains to the time an import container sits in a container terminal, with carriers generally responsible for collecting penalties on behalf of container terminals. Detention relates to shippers keeping hold of containers for too long outside of a container terminal.
US / China
Threat of a major trade war appeared to have receded but it now appears back on. Watch this space. There are risks for New Zealand.
US Steel and Aluminium Tariffs
New Zealand exporters continue to be subject to higher steel and aluminium tariffs in the US. A number of other countries including Japan and China are also subject to these tariffs. While some countries have been exempted temporarily from these tariffs it is unclear how long this exemption will be in place. The EU, for example, has rejected US calls for a voluntary export restraint agreement in return for removing the new tariffs permanently. The prospect of WTO action is looming. It is unclear whether New Zealand will join such action.
The Government has announced that FTA negotiations between New Zealand and the EU will begin in July. EU Trade Commissioner Cecilia Malmstrom will visit New Zealand in mid-June to meet her New Zealand counterpart Hon David Parker. For those experiencing difficulty accessing the EU market this is your opportunity to explain these problems to MFAT so they can be part of New Zealand’s negotiating objectives.
The latest round of negotiations between New Zealand, Australia, Canada and Singapore about joining the Pacific Alliance FTA took place last week in Canada. This negotiation offers the possibility of CPTPP plus access to the Mexico, Peru and Chile markets and new access to the large Colombian market. This will be the first negotiation where the Labour/ NZ First/ Green coalition progressive trade policy is the subject of negotiations. It will be interesting to see what emerges.
China FTA Update
Following the visit to China by the Deputy PM Winston Peters there has been confirmation that the next round of FTA update negotiations between China and New Zealand will proceed shortly. It remains difficult to see what New Zealand can offer to make significant improvements worthwhile for China. Maybe the current deterioration in relations between China and Australia will be enough to encourage China to be generous to New Zealand.
Iran used to be a very important market for New Zealand; at one stage it was one of our top 5 export markets. But politics – internal and external – saw the market drop away. Sanctions made it impossible or very difficult to trade. But the Iran Nuclear Agreement negotiations between the EU, US and Iran saw the easing of sanctions. Many New Zealand companies were keen to resume trade links and the previous Trade Minister led a trade delegation to Iran with the explicit goal of supporting this interest. New Zealand banks were proving unhelpful as they were wary of continuing US financial industry sanctions, but some exporters were getting goods into Iran, some directly, others through partners in the Gulf region.
The re-imposition of sanctions by the Trump Administration and the threat of action being taken against companies and nationals of third countries trading with Iran threatens to damage these recently renewed trade links. It is theoretically possible that New Zealand companies trading with Iran could be excluded from the US market and executives of these New Zealand companies could even be arrested if they travel to the US. It is far from clear whether this will actually happen but we recommend that you receive good advice on potential consequences should you be contemplating doing business with Iran at this point in time. In the first instance you should approach MFAT and NZTE.
There have been two public polls post budget. These are largely in line with what we understand the internal party- political polls are saying. National remains the largest party with around 45% support. Labour is not far behind.
While we are a long way from the next election these polls tell us a few things. National has survived the change of leader well and is polling better than most would expect this close to losing power. Labour is gobbling up Green and NZ First supporters from the last election. Almost 66% of the people who voted NZ First at the last election would not vote for them if an election was held soon.
If there was an election in the next few weeks the polls suggest that Labour would still be leading a Government but it might not contain NZ First. National continues to suffer from a lack of political friends at the Centre or to the Right.
Over the next year or so we expect considerable activity behind the scenes. National will be testing its ability to reach out to NZ First and the Greens post next election. Labour will be wanting to shore up these relationships. National is best positioned to throw NZ First a lifeline and gift an electorate seat (e.g. Whangarei) to NZ First. Labour is best placed to gift a seat to the Greens (e.g. Wellington Central). Is it worth National continuing to prop up the increasingly sad looking ACT Party? Can the Maori Party be revived and would it risk supporting National post the next election? Can a new swing Party be established at the Centre? What about a new Party to the Right appealing to former ACT and Conservative Party supporters (maybe some NZ First supporters also)? And what about those baby-boomers? Are they really ready to step back and leave all political decision making to the next generations? Might there be a political force worth exploiting from the 60+ generations?
The formation of a new Government and a Budget would normally see a sizeable shift of support to the governing parties. This has not happened and suggests some disquiet out there in middle New Zealand. What is working for the Labour Party is their Leader who is resonating and who is particularly popular with women of all ages. The visit to Europe was very helpful and the forthcoming childbirth will have even bigger impact. We can’t see Winston Peters misbehaving as acting PM but this period will have to be carefully managed. We expect the Prime Minister’s honeymoon with the New Zealand public to continue for the rest of the year.
Government is not going fantastically well. A ‘big city – provincial’ divide is becoming increasingly apparent. Shane Jones is seeking to address this and benefit from provincial discontent through his $1 billion a year of largess but he is being thwarted by a lack of worthwhile projects to invest in, and by expenditure rules.
There are good projects out there, but they need to be worked up and properly justified. As road and rail projects are already on the planning boards they can expect to benefit most from this money in the near term.
A further problem for the Government and Shane Jones, is the decision taken in the first few days of this Government to allocate responsibility for Land Information NZ (LINZ) to the same Minister responsible for Conservation. LINZ has responsibility for both the Overseas Investment Office and a number of other important functions relating to land use. There is a clear disconnect emerging between the Labour/NZ First view that there should be more ‘green fields’ industrial development and increasing processing capacity in New Zealand and the vision of the current Minister. Watch this space.
Customs and Excise Act 2018
The New Customs and Excise Act comes into effect 1 October 2018.
The new Act replaces the 1996 Customs and Excise Act. The intent of the new Act remains the same but the structure has changed and the language has been updated to make it easier to understand.
While a majority of the intent remains the same there are a few new things you will need to learn about. Customs is producing online education material that will help you know what the changes and new services are, what they mean to you and what you need to learn about. The online education modules will be available from mid-July. In the meantime Customs is publishing a comparison guide to help you translate the old legislation references to the new. This is available on the Customs website.
If you have questions about the new Customs and Excise Act, please contact the Customs Implementation Team at CustomsActImplementation@customs.govt.nz.
New Biofouling Rules In Effect
New Biofouling rules – under which operators must prove they’ve taken appropriate steps to ensure international vessels arrive with a clean hull – came into effect on May 15. New Zealand is the first country in the world to roll out nationwide Biofouling rules and the Minister of Primary Industries notes that Biosecurity New Zealand officers will take a hard line on vessels that can’t provide evidence they meet the rules. Divers will carry out inspections of hulls, and officers will have the power to direct vessels for cleaning and order the vessel to leave New Zealand if the fouling is severe.
Announcing the roll out Minister Damien O’Connor said that vessel operators will meet the costs of any compliance order. “The shipping industry has had four years to prepare for the changes and ignorance of the new requirements will not be accepted”. Full details of the mandatory Craft Risk Management System for Biofouling on International Vessels were presented by MPI at the NZSC meeting in February and are available on the MPI webiste here.
Rising Nervousness Ahead of the 2020 Sulphur Cap
While the decision to set 2020 as the start date for the 0.5% global sulphur cap has been widely welcomed for demonstrating that shipping is prepared to make tough choices, it’s becoming clear that the IMO has set the shipping and refining industries a tough technical challenge of producing and sourcing the fuel necessary to meet the 0.5% sulphur maximum.
The International Chamber of Shipping (ICS) has serious concerns that the smooth flow of global maritime trade will be seriously impeded unless the IMO resolves issues concerning the successful implementation of the low sulphur fuel cap scheduled to come into effect on 1 January 2020.
We have covered the global low sulphur fuel cap extensively in newsletters dating back over the past 12 months. International maritime media continue to report uncertainty whether sufficient quantities of compliant fuels will be available in every port worldwide by the implementation date. They also note the absence of global standards for many of the new blended fuels that oil refineries have promised – so there are potentially serious issues due to incompatible bunkers. Importantly, ships will need to start purchasing compliant fuels several months in advance of January 1 2020, but right now, no-one knows what types of fuels will be available, at what price, specification or in what quantity.
And a report out last week suggests LNG is not the panacea for shipping’s fuel concerns now that the IMO has voted in favour of cutting greenhouse gas emissions from ships in half by 2050.
The report, from Vienna-based JBC Energy, states that even if the entire global shipping fleet were to switch to LNG, the industry would still be short of its CO2 reduction targets by 350m tonnes. JBC Energy said the shipping industry would need to seek out extra measures including efficiency gains, carbon capture and storage, hybrids and batteries to meet its newly set green targets
While LNG does help reduce air pollution, it is potentially worse than HFO in the context of GHG emissions. This is because methane is a potent greenhouse gas, and only a very small amount needs to escape to cancel out the combustion CO2 benefits.
LPC to Get Underway with Port Expansion
NZSC welcomed news that Lyttleton Port Company (LPC) is about to get underway with channel deepening, and reclamation in readiness to accommodate larger ships. The port recently announced that its dredging programme will lengthen the navigation channel by approximately 6.5 km and widen it by 20 metres. LPC Chief Executive Peter Davie, says that currently container vessels visiting Lyttleton commonly carry 4,500 to 5,000 TEU’s – it is quite conceivable that with the dredging of the channel vessels carrying 8,000-9,000 TEU will be able to call at Lyttleton. The increased capacity includes a 24-hectare expansion of the port’s reclamation at Te Awaparahi Bay and construction of a new 700 metre container wharf.
The port infrastructure development is consistent with the recommendations of the NZSC 2020 Big Ships report, albeit somewhat delayed by the Canterbury earthquakes.