future freight scenarios study, 2014 presentation to ... · presentation, rendering professional...

Future Freight Scenarios

Study, 2014

Liesbet Spanjaard and Ros Warburton

10 August 2015

Presentation to Business

NZ

1

How will the freight industry

respond?

Trade is critical to the NZ

economy

The freight task is

growing

Growing pressure on the

transport network

The shipping

industry is changing

Why was the Future Freight Scenarios Study commissioned?

Transport is an important enabler of the

export industry

• What happens in the

transport sector is

critical to New Zealand’s

trade

• There is excess

capacity at Ports

• Legacy ship build

program has led to

oversupply in shipping

industry

• Calls for investment in

both port and landside

infrastructure 2

Deloitte Touche Tohmatsu © 2015 - FFSS BusinessNZ Presentation August 2015

In light of these changes, Government recognised a number of

potential challenges for New Zealand’s trade infrastructure

3

Local government has ownership in ports which compete

for investment funds with other council objectives.

While many NZ ports have local government ownership,

some also have private sector shareholders

Shipping lines are owned by large multinational

companies, focussed on their international shareholders.

Central government owns and invests in the road

and rail networks.

Trade infrastructure is an interconnected network – investment in one

part of the network will impact on other parts

Complex ownership models and objectives complicate investment

decisions


International Freight Transport Services Inquiry (New Zealand Productivity

Commission, April 2012)

Recognised key coordination challenges affecting future infrastructure investments

in the freight industry, including:

− Number, type and location of ports

− Efficient use of container ships

− Coordination of road/rail investments

− Local and central government interactions in freight transport

Within this context the Ministry of Transport commissioned Deloitte to undertake a

study to examine the impact that larger container ships could have on the freight

sector.

These investment challenges were recognised by the NZ Productivity

Commission in 2012 – the Ministry of Transport sought to inform the

discussion

4


The Ministry sought to provide richer information to inform

discussions on future investment – the study seeks to:

5

1

2

3

4

5

Provide an understanding of port configuration alternatives for New

Zealand

Assess implications for exporters and the economy

Plan for the future by identifying capacity and costing restraints

Take a “whole of system” approach – incorporating the linkages

between the steps on the transport chain

Assess and compare possible future configurations of road, rail and coastal

shipping networks; domestic and international transport costs for imports and

exports and the resultant impact on the New Zealand economy


The objective of the study was to provide better information to inform

the discussion…

6

a The Ministry initiated the FFSS to:

r It does not make recommendations

about:

• Identify whether changes to the port

network could provide economic benefit

through:

• Lowering freight costs

• Enhancing opportunities and

productivity for the freight sector

• Help inform debate about possible

future infrastructure requirements

• Help all levels of government and

the companies they own plan for,

and prioritise infrastructure

investment

• Contribute to the information base

that can be used to inform

decisions about future infrastructure

• A preferred port network or a

government policy stance on ports

• Future land transport infrastructure

investment

• The future of coastal shipping

• Funding options or sources

• Where the private sector should invest

in the freight market


A total of 10 scenarios were considered covering a spectrum of port

hub options

7

Port Scenario

Status Quo Emerging

Trend Partial Hub & Spoke Hub & Spoke

Single Hub & Spoke

Scenario 1 2 3 4 5 6 7 8 9 10

Auckland

Tauranga

Napier

Taranaki

CentrePort

Nelson

Lyttelton

PrimePort

Otago

South Port

Single hub Port

Key Trends

• Increasing sizes of

international vessels

• Changing

competitive

landscape for key

export supply chains

• Forecast freight

volume growth

• Changes to domestic

transport mode

shares

• Need for more

focused

infrastructure

investment

• Benefit to the

Economy

Changes in NZ GDP

• Benefit to the

Customer

Changes in economic

contribution of selected

supply chains

• Bottleneck

Identification

Impact on NZ’s freight

network capacity

Scenario Development

Freight Movement

Modelling

Supply chain volumes, NTK &

costs

Economic Modelling

Cost-benefit & CGE

assessments

Impact on NZ

Data Requirements

• Operational costs for road, rail &

shipping

• Capital costs for road, rail &

shipping

• NFDS Freight Task output

• Origin-destination matrices

• Port, road & rail network

capacities

How will markets respond?

What would be the impact on the freight network?

Status Quo Partial Hub & Spoke Full Hub & Spoke

To undertake the assessment we needed to develop metrics to

compare the scenarios

8


Data collected from official statistics was complemented with

information from industry participants

9

Evidence base

Data was gathered from a

number of official sources:

• National Freight Demand

Study (2014)

• Freight Information Gathering

Systems (FIGS)

• Data from shipping, ports,

road and rail sectors

Information from

KiwiRail and NZTA

Government agencies

provided information

about network capacity

and upgrades.

Information from shipping

lines

Local shipping line executives

provided insight on current and

likely future operations.

Information from ports

All container ports provided

information about current

capacity and possible future

capacity upgrades

Deloitte Touche Tohmatsu © 2015 - FFSS BusinessNZ Presentation August 2015 10

01

02

03

04

05 OPTIONS

Capital cost (for upgrades to ports, road

and rail networks) of each option

Operating costs to provide domestic transport

services (road, rail and coastal shipping) and

international shipping services.

Cost benefit ratios for each scenario

(compared to the status quo)

Impact on overall economic activity

(selected scenarios)

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To allow comparison of the impact of each scenario on import and

export supply chains key metrics were generated for each scenario.

4 performance metrics were calculated:

Deloitte Touche Tohmatsu © 2015 – FFSS BusinessNZ Presentation August 2015

Key Finding 1 -

Larger vessels are being introduced to the New Zealand trades

11

Source FIGS data March 2015

0

500

1,000

1,500

2,000

2,500

3,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Quarterly container ship capacity (teu)

Total ship TEU capacity Median ship TEU capacity


Key Finding 2 –

Port, road and rail owners will need to invest to cater for increased

volumes and larger vessels

12

Key Findings

Capital costs ($ billions PV from 2017 to 2046)


Key Finding 3 –

All hubbing scenarios lead to higher operating costs compared to

the status quo

13

Total Costs by Scenario ($billion PV from 2017 to 2046)


Key Finding 4 –

The benefits of larger vessels is outweighed by the higher cost of

domestic freight transport

14

.

Total domestic transport operating costs ($billions PV from 2017 to 2046)

Total Costs by Scenario ($billion PV from 2017 to 2046


Key Finding 5 –

Regions adjacent to “hub ports” will be better off than regions

further away from hub ports

15

Impact by region (average change in operational costs compared to Scenario 1 – Status Quo)*


Key Finding 6 -

Higher domestic transport costs associated with port hubbing have

a negative impact on the NZ economy

16

Projected Cost Benefit Ratio (incremental to Scenario 1)


Where to from here?

17

• Will initiatives such as the Kotahi strategy generate sufficient

leverage to influence shipping line decision making?

• What will be the implications on smaller regions, further from hub

ports be? Will it lead to a structural change in key supply chains?

• If the larger shipping lines offer fewer services on larger vessels,

how will the market react?

• Will hubbing lead to a structural change in the port sector?

• Port hubbing is occurring on a regional basis (Asia/Pacific) – can

NZ buck the trend? Will NZ ports all be feeders to SE Asian Ports?

• Do ports (and local government) have the financial capacity and

political will to invest?

General information only

This presentation contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is, by means of this

presentation, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No

entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this presentation.

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