National Significance of the Ruakura Intermodal Terminal June 2013

Transcription

1 National Significance of the Ruakura Intermodal Terminal June 2013 Copyright Castalia Limited. All rights reserved. Castalia is not liable for any loss caused by reliance on this document. Castalia is a part of the worldwide Castalia Advisory Group.

2 Acronyms and Abbreviations BCR ECMT EPA GDP GRP Ha NPV NZD PPC PUD RMA RONS TEU TGH UNI UNIFS UNISA Benefit Cost Ratio East Coast Main Trunk Rail Line Environmental Protection Agency Gross Domestic Product Gross Regional Product Hectares Net Present Value New Zealand Dollar Private Plan Change Pick Up and Delivery Resource Management Act Roads of National Significance Twenty Foot Equivalent Unit Tainui Group Holdings Upper North Island Upper North Island Freight Study Upper North Island Strategic Alliance

3 Table of Contents 1 Introduction Relevant Factors for a Call-in Decision Contents of this Report 1 2 The Scale of the Ruakura Development Unique Features of the Ruakura Development Freight Demand in the Upper North Island Constraints at Existing Intermodal Terminals Estimated Freight Demand for the Terminal 8 3 Impacts on Areas Outside of Hamilton and Waikato Impacts on the Waikato Regional Economy Economic Benefits Outside the Waikato region 10 Possible direct employment impacts for Waikato 12 Aggregate employment impacts Other Social and Environmental Impacts 14 4 Impacts on Transport Networks in the UNI 18 5 Estimating the Costs of Delay 21 6 Conclusion 22 Appendices Appendix A : Summary of Work Completed by Castalia to Date 23 Appendix B : Success Factors for Ruakura (October 2010) 24 Appendix C : Implications for the Waikato Expressway (October 2011) 30 Appendix D : Economic Impacts in the Waikato Region (October 2012) 36 Appendix E : BERL Peer Review of Castalia Report on Economic Impacts in the Waikato Region 42 Tables Table 2.1: Forecast Growth in Total Freight Movements in the UNIFS Area ( ) 4 Table 2.2: Growth Projections for UNI Ports (excl. transhipments) 5 Table 2.3: Ruakura Estimated Market Share of Waikato Contestable Freight Task 8

4 Table 3.1: Waikato Gross Regional Economic Impact Analysis 10 Table 3.2: Employment Densities of Business Land 12 Table B.1: Indicative Average Transport Price Comparisons 25 Table B.2: Estimated Container Volumes in the Golden Triangle: Table B.3: Estimated Market Share for the Proposed Intermodal Service 28 Table D.1: Waikato Gross Regional Economic Impact Analysis (NPV Billions NZD) 38 Figures Figure 2.1: Location of the Ruakura Development 3 Figure 2.2: Forecast Growth in Freight Movements by Region (million tonnes) 6 Figure 3.1: Links between Efficient Transport Investment and Economic Growth 11 Figure 3.2: Historical Relationship between Employment and GDP 13 Figure 3.3: Employment Effects of GDP Growth 14 Figure 3.4: Reduced Freight Cost Analysis Ports of Auckland South Auckland 15 Figure 3.5: Reduced Freight Cost Analysis South Auckland Ports of Auckland 16 Figure 3.6: Estimated Annual Change in Carbon Emissions (tonnes) 17 Figure B.1: Rail versus Road Indicative Pricing: Freight Volumes Auckland 26 Figure B.2: Rail versus Road Indicative Pricing: Freight Volumes Tauranga 26 Figure B.3: Ports of Auckland: Projected Container Freight Volumes Figure C.1: Overview of Freight Transport Routes with Expressway and Ruakura 31 Figure D.1: Waikato Regional Economic Impact Assessment 39

5 Executive Summary This report assesses whether the proposed development of an intermodal terminal and logistics hub at Ruakura ( the Ruakura development ) is nationally significant. The purpose of this assessment is to inform a Ministerial decision on a direct referral application under the Resource Management Act 1991 ( the RMA ). The Minister can consider any relevant factor when deciding whether the matter is part of a proposal of national significance (section 142 of the RMA).Examples of factors that might indicate national significance are listed in section 142(3) of the RMA. The factors that are directly relevant in this case are that the impacts of the Ruakura development will span more than one region or district, and that the development will have significant impacts on network utilities. We conclude that the proposed Ruakura development is a project of national significance because it: Will be the largest integrated master-plan transport and logistics hub ever developed in New Zealand, and will change freight market dynamics by providing an intermodal facility that is not owned by a port or logistics firm Will have economic effects that span the Upper North Island (UNI) area (with particular impacts in Auckland), and contribute to economic growth through the improved competitiveness of New Zealand firms (especially exporting firms) Will have significant effects on transport networks in the UNI area by altering freight flows across road and rail infrastructure and redirecting patterns of logistics-oriented development. The significance of this particular site to an efficient UNI transport network means the decision to call-in the plan change request takes on particular importance. The scale of the Ruakura development is nationally significant (Section 2) The Ruakura Estate is a 500 hectare estate located approximately three kilometres east of Hamilton. The proposal is to develop the site to include an inland port (intermodal terminal) that will integrate the multiple rail connections, to the Port of Tauranga and the Port of Auckland, while also being situated on the planned Waikato Expressway connecting the high capacity road networks of the UNI. An extensive logistics and distribution centre hub will also be developed on land adjoining the intermodal terminal. Freight demand in the UNI is growing rapidly. The expectation is that growth between 42 and 100 percent (depending on the type) will occur over the next thirty years. The only two other similar facilities in the UNI regions are in South Auckland at Wiri and at Onehunga (MetroPort). Both of these facilities face constraints to growth that include congested road and rail links, increasing land prices and limited capacity to achieve growth due to stack height and planning restrictions. Both of these existing facilities are owned by ports, which limits the flexibility to respond to opportunities to lower overall costs by redirecting freight between ports. The Waikato region is expected to become the largest source of exports in the country over the next 30 years. Over the same period, the proportion of freight destined for Auckland will also double from around 30 percent to 60 percent of freight transported. The combination of these freight push and pull factors further underscores the value of the Ruakura development, which is located to satisfy the demands arising from both sources of market activity.

6 Economic impacts in more than one district or region (Section 3) The Ruakura development will have major impacts outside the Hamilton district. Our economic modelling of impacts at the Waikato regional level (peer reviewed by BERL) estimates growth impacts over the next 30 years that have a present value of more than $4 billion. Some proportion of these benefits will fall within the Hamilton district, but we also expect a significant amount of spill-over into other districts within the Waikato region. In our view, many of the economic benefits of Ruakura will fall outside of the Waikato region due to the links between transport infrastructure and economic growth. Ruakura will have direct economic impacts in the entire region known as the golden triangle the area between Auckland, Hamilton and Tauranga. This area has more than ten territorial authorities, and the need for better coordination among decision makers in the area has been recognised by the Productivity Commission, New Zealand Transport Agency, and others. Ruakura offers growth potential throughout the golden triangle by reducing transport costs, improving transport services and reliability, and enabling business growth. The development can reduce transport costs by optimising rail line haul and road transport for distribution (depending on the origin and destination of the goods). Ruakura may also drive down other supply chain costs and save time by using its port neutral position to take advantage of available capacity at either Ports of Auckland or Port of Tauranga. Ruakura will make a significant contribution to growth by offering businesses (particularly logistics firms) the opportunity to expand within an area that can accommodate long term growth. The Ruakura development means greater use of the existing infrastructure in Hamilton City and the Waikato region, as well as less future demand on Auckland s already capacity constrained infrastructure. The development will alleviate the growing pressures on Auckland s water, energy and transport infrastructure and will either reduce or defer the need to invest in additional infrastructure in the Auckland region. Our analysis shows that despite the longer distances involved, freighting via Ruakura to avoid congestion in Auckland is $75.5 million per year cheaper for the same volumes moved. Using an 8 percent discount rate, this totals $850 million over 30 years. As a result, future financial commitments on both the Crown and Regional Councils will be reduced and provide increased opportunities to initiate demand management measures. Impacts on road and rail network utilities (Section 4) The location of the Ruakura development is determined by the need for integration with existing and planned UNI road and rail networks. As a result, Ruakura is best viewed as a UNI facility serving the transport needs across all regions. The business case is driven in large part by more efficient utilisation of rail networks to avoid congestion on road networks, while being located close enough to fulfil the distribution tasks by road when necessary. The Waikato Expressway has not been planned or funded on the expectation of the Ruakura project occurring. However, our analysis shows that the impact of Ruakura on the benefit cost ratio (BCR) of the Waikato Expressway is significant. The BCR ratio increases from 1.4 to 2.9 representing an additional $1.6 billion in value. Part of this uplift in value arises from the increased utilisation that the new road will achieve if the Ruakura development proceeds.

7 Conclusions Our conclusion is that large transport infrastructure developments in the UNI are significant for New Zealand. They are significant because of the importance of this area to the New Zealand economy, and the increasingly severe constraints facing existing network assets and freight handling facilities. The Ruakura development is a significant element of the transport infrastructure intended to meet growing freight demand, and reducing the cost of doing business in the UNI. Proceeding, or not proceeding, with the Ruakura development will have impacts that reach across the entire UNI and beyond. Delays are costly and integrated long term planning is needed for an efficient network to emerge that serves the national interest in achieving targeted levels of economic growth.

8 1 Introduction This report evaluates a request for the decision on a Private Plan Change (PPC) by Tainui Group Holdings and Chedworth Development to be directly referred to a board of inquiry by the Minister for the Environment. We have been asked to assess whether the proposed intermodal terminal at Ruakura (near Hamilton) has nationally significant economic impacts, with reference to the criteria for referring a PPC request to a board of inquiry under the Resource Management Act The PPC request would alter provisions in the operative Hamilton District Plan to allow the Ruakura intermodal terminal and associated developments to proceed to resource consenting stage in a timely fashion. The Minister has a wide discretion to refer PPC requests to a board of inquiry, with the national significance of the issues being a central consideration. 1.1 Relevant Factors for a Call-in Decision The Minister for the Environment can direct any matter that is part of a proposal of national significance to be referred to a board of inquiry (or the Environment Court) for consideration. The Minister can consider any relevant factor when deciding whether the matter is part of a proposal of national significance (section 142 of the RMA). Examples of factors that might indicate national significance are listed in section 142(3) of the RMA, and include that the proposed development: Affects or is likely to affect more than one region or district (section 142(3)(a)(ix)) Relates to a network utility operation that extends or is proposed to extend to more than one district or region (section 142(3)(a)(x)). This report examines whether the proposed development at Ruakura fits these criteria for a nationally significant project. We also consider the broader question of whether the scale of the development itself makes Ruakura nationally significant. The Environmental Protection Agency (EPA) will make a recommendation to the Minister on whether a matter is of national significance and should therefore be referred to a board of inquiry. If the project is not found to be of national significance then the matter will be referred back to the local authority (the Hamilton City Council). A major benefit of the direct referral process is that it helps to ensure a timely decision from the planning process. In the case of Ruakura, we understand that the impact of appeals from a PPC decision could be very significant, which would place the development at risk. 1.2 Contents of this Report In Section 2 of this report we describe the economic and commercial rationale for a large-scale intermodal terminal and logistics hub at Ruakura. Section 3 considers whether the wider impacts that Ruakura will have outside Hamilton and the Waikato make this a nationally significant development. Section 4then assesses whether the development is nationally significant due to its impacts on the development and utilisation of transport network infrastructure in the UNI. We assess the costs of delay in making a decision on the PPC request in Section 5. Section 6 presents our conclusions on the national significance of the proposed development at Ruakura. 1

9 2 The Scale of the Ruakura Development An intermodal transport solution combines the use of rail and road modes to efficiently transport containerised freight with rail typically carrying out the longer distance linehaul leg of the journey, and road undertaking the shorter pick-up and delivery (PUD) leg at each end. Intermodal solutions deliberately segment freight journeys into a higher capacity, more efficient line-haul leg between the port (or other major freight generator or consumer) and a designated freight terminal, and a shorter PUD leg using conventional trucks between the terminal and the customer. 1 The proposed intermodal terminal at Ruakura achieves this efficiency through its unique location at the intersection of rail and road infrastructure that directly connects to New Zealand s two largest international ports (Auckland and Tauranga). The scale of the proposed development also contributes to efficiency. In essence, Ruakura seeks to minimise the total cost of freight transport by optimising rail and road movements relative to the cost of handling through the freight hub. 2 The potential of this particular site to achieve efficiencies in freight handling is significant for the entire UNI. 2.1 Unique Features of the Ruakura Development The 500 hectare Ruakura Estate is situated approximately three kilometres to the east of Hamilton City s central business district. The Ruakura Estate is well served by existing and planned transport links. The East Coast Main Trunk rail line (ECMT) which runs from Hamilton to Tauranga passes through the site, providing for relatively easy access by spur line to enable a direct rail connection to both the Ports of Auckland and the Port of Tauranga. The site will also be served by the proposed Hamilton Bypass, which is a key section of the Waikato Expressway connecting Auckland to Hamilton City, and is also served by a number of existing arterial and local roads. The location of Ruakura is shown Figure Shaping Melbourne s Freight Future, Victorian Department of Transport, Melbourne Intermodal System Study Report for the Department of Transport, Victoria, June 2008 Sd+D 2

10 Figure 2.1: Location of the Ruakura Development The proposed development of an intermodal terminal at Ruakura is one part of an integrated plan to create a sustainable commercial and industrial hub. In addition to developing an intermodal terminal facility to process freight between road and rail, the proposed development at Ruakura includes: Developing an extensive logistics and distribution centre hub on land adjoining the intermodal terminal. When completed this hub will serve as a key component of New Zealand s freight transport network to efficiently move goods between ports and origins/destinations in the upper North Island Developing areas for general employment and light industry (no heavy industry is proposed at Ruakura) Providing for a full range of activities to service the local area Developing a commercial and retail precinct Establishing a range of residential accommodation. No other site combines transport infrastructure with available land While other vacant land is available in Hamilton and the Waikato Region for commercial and industrial development, Ruakura is uniquely placed to be developed as an industrial and commercial hub to support freight logistics. We have identified four key characteristics at Ruakura that make the site unique for this purpose. First, unlike almost all of the available industrial land in Auckland, the size of Ruakura Estate will allow for the development of a commercial and industrial hub of significant scale. A larger scale development is more likely to give rise to local agglomeration benefits. Second, the Ruakura site has direct access to existing road and rail links that connect to the Ports of Auckland, the Port of Tauranga, the Golden Triangle s main industrial and 3

11 commercial centres and other North Island commercial centres. The proposed Ruakura development will require only a relatively modest additional investment to provide rail spur connection directly off the ECMT. In contrast, other available industrial sites in the Golden Triangle would require substantial investment to provide rail links and/or access to State highway networks. In addition to being close to road and rail links, the Ruakura Estate is also located in close proximity to Hamilton Airport. Third, the close proximity of the Ruakura Estate to Hamilton City means that it: Has access to a pool of skilled workers and established education and training facilities Close proximity to an established professional community and financial hub Is well served by an existing network of arterial and local roads Accordingly, businesses that establish themselves in Ruakura will be able to access skilled workers cost effectively relative to Auckland where the existing transport links to employment centres are congested at peak times. Fourth, despite its close proximity to Hamilton City, the location of the Ruakura Estate on the east side of the city means that it is on the fringe of Hamilton s residential suburbs. Direct access to the Waikato Expressway and Hamilton Bypass means that the potential impacts of the Ruakura development on residential communities from the expected increase in road freight volumes will be relatively minimal. In combination, these factors mean that the Ruakura development will: Provide opportunities for integrated growth from within Hamilton City Satisfy excess demand for economic investment and activity in Auckland where land supply constraints and the effects of traffic congestion on the movements of goods and freight are becoming increasingly severe House distribution and warehouse facilities, light industry and manufacturing Support economic activity and supply chain activities throughout the Golden Triangle (encompassing the area between Auckland, Hamilton and Tauranga) including trade flows through the Ports of Auckland and the Port of Tauranga. For these reasons, Hamilton City has identified the Ruakura site as the most significant land situated in eastern Hamilton for future growth and development. 2.2 Freight Demand in the Upper North Island Freight demand in the UNI accounts for around half of total demand in New Zealand. Freight demand growth in the UNI was estimated in 2010 in the Upper North Island Freight Study (UNIFS). The forecasts presented in this study are shown in Table 2.1: 3 Table 2.1: Forecast Growth in Total Freight Movements in the UNIFS Area ( ) Movement type Growth from to 2031 m tonnes m tonnes m tonnes Internal % 3 Upper North Island Freight Study 2010 Richard Paling Consulting 4

12 Inter-regional % External % Total % Source: Upper North Island Freight Study 2010 Richard Paling Consulting (Table E2) A more recent study was commissioned in 2012 by the ports in the Upper North Island area. This study assessed the growth in demand for port infrastructure, and provides similar levels of forecast freight growth to the UNIFS. Table 2.2: Growth Projections for UNI Ports (excl. transhipments) Port Demand m tonnes m to 38m tonnes m to 46m tonnes m to 54m tonnes Absolute increase m to 22m tonnes % increase % to 67% over period CAGR Source: Upper North Island Ports Study, PWC % to 1.8% pa The overall picture is consistent and it presents a significant growth trajectory. The transport infrastructure of the UNI will need to grow and develop commensurately to handle the expected freight task. The importance of the golden triangle within the UNI area The area between Auckland, Hamilton and Tauranga is known as the golden triangle. This area is particularly important for freight transport due to the origination of export freight in the Waikato, and the location of New Zealand s largest international ports in Auckland and Tauranga. Figure 2.2 highlights Waikato s growing importance as a generator of exports. Waikato is expected to overtake Auckland as the largest region generating freight by Figure 2.2 also shows that Auckland will remain the largest attractor of freight, with demand expected to double over the forecast period. 5

13 Figure 2.2: Forecast Growth in Freight Movements by Region (million tonnes) Source: Ministry of Transport 2010, Forecasts for the future - National Freight Demands Study, New Zealand Analysis of freight planning issues in the region has been completed by the Upper North Island Strategic Alliance (UNISA), which comprises seven Councils in the UNI and also includes Kiwirail, NZTA and Auckland Transport. In the Upper North Island Freight Story the Alliance identified key themes to reducing the cost of doing business in New Zealand from the point of view of UNI freight. The key themes are summarised in Box 2.1. Box 2.1: The Upper North Island Freight Story: Key Themes Collaboration across public and private sectors: Increase collaboration between public and private sector players, to enable better informed decisions, leading to increased freight efficiency and productivity Connect and protect routes and nodes: Identify and protect key routes and strategic nodes to 6

14 establish a connected multi-modal freight network now and into the future Efficient freight supply chains: Increase understanding of each link in the supply chain and implement interventions to improve efficiency, thereby reducing the cost to do business in New Zealand Certainty in planning and investment: Provide increased certainty in the planning for, and investment in, freight transport (road and rail) and land use infrastructure and supply to enable decision makers to respond to the changing nature of the freight task in a more informed manner Smart investment: Increase understanding as to the tools, mechanisms and options available to decision makers to ensure we invest in the right place, at the right time for the best return on investment. Source: Upper North Island Freight Story Summary of Critical Issues (April 2013) North Island Strategic Alliance The Ruakura development is a prime example of these themes. It is a private sector development integrated with public sector transport networks. It is situated in a critical node at the confluence of rail and road networks in an area of high growth. It represents one of the most significant areas of land available for industrial development in the UNI. A successful Ruakura development will bring down the cost of doing business in the UNI and ensure smart investment decisions are made to increase efficiency of the transport networks. 2.3 Constraints at Existing Intermodal Terminals There are currently only a small number of examples of intermodal type terminals in New Zealand. Two of these are located in South Auckland: Port of Tauranga s Metroport facility at Onehunga, and Ports of Auckland s inland terminal at Wiri. While these facilities provide for the exchange of intermodal cargo between rail and road, they are not intermodal terminals in the strictest sense of the term but, rather, are inland container terminals that only serve their respective port owners. We have assessed current capacity utilisation at Wiri and Metroport against the freight demand growth forecasts presented above. This analysis suggests that although Ruakura may compete with Wiri and Metroport in the near term, over the medium term the Ruakura development is likely to complement both Wiri and Metroport in meeting freight demand: Capacity constraints at Wiri. In the year ended 2010, Wiri inland port handled 30,000 TEU, or 20 percent of its capacity. 4 This reflects the relatively low proportion of Ports of Auckland freight that is currently handled at Wiri. If the proportion of overall Port of Auckland container throughput routed through Wiri increases from its modest level of 3 percent to 17 percent (lower than the current proportion of Port of Tauranga s freight through Metroport), then Wiri will reach full capacity by Capacity constraints at Metroport. In 2011, Metroport handled 138,000 TEUs or 55 percent of its overall capacity. 5 If the growth in Metroport throughput is in line with the growth in freight generated within the Bay of Plenty (which is expected to double by 2031), then Metroport will reach full capacity by If the proportion of overall container throughput at Port of 4 Port of Auckland, Interconnect The Magazine For Our Customers, December Port of Tauranga, 2011 Annual Report 7

15 Tauranga that is routed through Metroport increases from the current rate of 23 percent, then Metroport will reach full capacity much earlier than We understand that expanding the capacity of Wiri and Metroport would be difficult. Both existing intermodal terminals face constraints on growth because: The sites are both within the congested metropolitan rail network restricting the frequency and timings of rail services to the sites While the sites are in relatively close proximity to the motorway networks, the feeder road networks accessing the sites are congested The sites are in a highly built up area constraining expansion of both the sites and the development or attraction of adjacent activities The cost of land in South Auckland has been steadily increasing. The cost of establishing any new facilities in the region is likely to be prohibitive The current siding configuration and access on/off the main line at Wiri is sub-optimal, and without substantial investment is likely to constrain the efficiency of the site. These conditions constrain the ability of Wiri and Metroport to meet future freight demand growth in the UNI area. 2.4 Estimated Freight Demand for the Terminal Table 2.3 below shows a market share scenario of the contestable freight task into, and out of, Hamilton that Ruakura could capture. This market share equates to annual freight volumes of 5000 twenty foot equivalent units (TEUs) in year one of operation and 30,000 TEUs in year four of operation. Table 2.3: Ruakura Estimated Market Share of Waikato Contestable Freight Task Year of Operation Year 1 Year 2 Year 3 Year 4 TEUs per annum 5,000 12,000 21,000 30,000 Proportion of Contestable Freight Task 4% 10% 17% 23% The strategy of the terminal is to capture freight from the wider UNI and attract distribution centres for the rest of New Zealand. This would lead to freight volume orders larger than the estimates of the contestable freight task in Waikato. To place these volumes in context, Metroport handled approximately 30,000 TEU in its first year of operation, while Ports of Auckland s inland port at Wiri is currently handling approximately 30,000 TEU in what has, until recently, been a road only inland terminal. The expectation is that Ruakura, if it progresses, will contribute a significant component of the golden triangle freight task on a scale at least as significant as existing facilities. On this basis Ruakura will handle a significant amount, and a high share of the expected growth, of the UNI freight task. 8

16 3 Impacts on Areas Outside of Hamilton and Waikato This section assesses the proposed Ruakura development against the factor indicating national significance in section 142(3)(a)(ix) of the RMA: that the development will have impacts that will be felt in areas outside of the Hamilton district. We find that the Ruakura development will have a number of important economic impacts outside of Hamilton, including: Increased Gross Domestic Product (GDP) and employment across the wider Waikato economy and New Zealand Alleviating pressures on Auckland s infrastructure through providing options and alternatives that reduce the likelihood of infrastructure bottlenecks Social and environmental benefits through reduced accidents and lower carbon emissions. The decision to call-in the plan change request has particular significance for the ability of this site to contribute to economic benefits outside of Hamilton. Through allowing a timely decision on whether this development is in a position to handle a portion of the expected economic growth planning at all other sites is facilitated. This is especially so in South Auckland. 3.1 Impacts on the Waikato Regional Economy The scale and size of the development is of major significance to the Waikato economy. We have estimated the facility s likely economic impact on the Waikato region. We used an expenditure approach to estimate Gross Regional Product (GRP) in the Waikato (using the 2009 estimate of Waikato s GRP of $16.9 billion) and then considered how the Ruakura development would likely change each of the components of GRP. We modelled the following significant economic drivers: Employment and consumption we estimated that Ruakura will directly and indirectly create 11,100 jobs by 2061 to operate the inland port facility and work at the co-located businesses. 6 The creation of new jobs will increase regional consumption. Investment the direct investment at a full-scale Ruakura development will be around $3 billion, including investment to establish the inland port and logistics hub. This investment takes place in two major stages before a planned commissioning date in 2020 and before an expansion in Exports Ruakura will attract freight from the UNI and will capture growth in the freight sector. We expect Waikato industries will rely on the inland port to be able to increase output by 2 percent as a result of the Ruakura development. 6 Future Proof Implementation Committee Submission to the Proposed Waikato Regional Policy Statement (November 2010) ( High Scenario ). This estimate is consistent with recent investments in South Carolina s logistics sector, where a USD$1 billion of investment (approximately the same as the NZD$1.3 billion expected at Ruakura) translated into 11,000 jobs created. See This is also consistent with experience in Germany where the Duisburg cargo transportation centre; distribution centre; logistics service centre; manufacturing logistics centre; and transportation industrial park with a 200 million investment created 5,000 jobs. See 9

17 Imports a large proportion of the increased consumption in the area will need to be supplied by increased imports. In terms of regional economic growth, this nets-off some of the increase in consumption. The results of our analysis are presented in Table 3.1. We estimated a total output of $335.5 billion dollars (using an 8 percent discount rate) indicating that the economic growth enabled by the Ruakura inland port is equivalent to $4.4 billion, or around 25 percent of the current GRP. Table 3.1: Waikato Gross Regional Economic Impact Analysis Component of GRP Ruakura Impact ( ) (NPV Billions NZD) Consumption Investment 64.6 Government Spending 14.5 Exports 54.1 Imports NPV GRP Absolute GRP in Note: GRP of the Waikato region in 2009 is estimated at $16.9 billion The modelling to estimate economic impacts was peer reviewed by BERL Ltd and their review of the impacts is appended in Appendix E. It is not possible to determine from this economic modelling what proportion of these economic benefits will fall within the territorial boundaries of the Hamilton City Council. However, we expect that a significant proportion of the benefits will arise in other parts of the Waikato region, such as Cambridge, as spending and property values in those areas increase with the new employment opportunities in Hamilton. 3.2 Economic Benefits Outside the Waikato region The proposed development of the Ruakura Estate will also provide increased economic growth opportunities beyond the Waikato region, and throughout the UNI. Although the Ruakura development will immediately attract businesses to the Waikato region, the efficient use of rail and transport infrastructure can also be expected to increase business activity and employment opportunities throughout the UNI. The proposed development will contribute to New Zealand s future economic growth by avoiding infrastructure bottlenecks and relieving other possible constraints to growth. This is because transport efficiency reduces the cost of doing business, meaning that New Zealand s future economic growth will be higher with a more efficient transport network. The relationship between efficient transport infrastructure and economic growth Transport investment is important because of its effects on productivity. Improvements in freight transport reduce the costs of moving goods (and services) to and from markets, which enables economic expansion. This is because the movement of goods is a factor 10

18 input in the production of goods. Much like labour and capital, transport costs directly affect the price of goods and services in competitive markets. This was recognised by the New Zealand Productivity Commission in its report into international freight transport. 7 The Commission states (at page 21) that if international freight costs can be reduced, and quality and reliability improved, then trade will be enhanced, the economy can be more productive, and New Zealanders wellbeing enhanced. This means that investments that reduce the cost of moving goods to and from markets (by improving reliability, reducing transit times, or increasing service levels) will help to increase and sustain economic growth. The primary links between efficient transport investment and economic growth are shown in Figure 3.1. The Ruakura development offers the potential for improvement via all three of these channels. The development can reduce transport costs by optimising rail line haul and road transport for distribution (depending on the origin and destination of the goods). Ruakura may also drive down port costs and save time by using its port neutral position to take advantage of available capacity at either Ports of Auckland or Port of Tauranga. Ruakura will also make a significant contribution to growth by offering businesses (particularly logistics firms) the opportunity to expand within an area that can accommodate long term growth. Figure 3.1: Links between Efficient Transport Investment and Economic Growth Source: Modified from Economic Effects of Transportation: The Freight Story Final Report by ICF Consulting and HLB Decision Economics ltd Prepared for the US Dept of Transportation Federal Highway Administration. Employment effects and impacts on GDP We can gain an appreciation of the direct employment impacts of the development by considering the employment densities that are characteristic of similar industrial and commercial developments. The extent to which the proposed Ruakura development will impact overall New Zealand employment can be examined with reference to established relationships between aggregate employment and New Zealand s GDP growth. 7 Productivity Commission International Freight Transport Services Inquiry: Final Report, April

19 Possible direct employment impacts for Waikato Table 3.2 sets out indicative employment density ratios for a range of commercial and industrial land uses. These ratios were calculated with reference to several business land developments in Australia, Canada the United Kingdom and the United States by Phil McDermott Consultants on behalf of SmartGrowth. Table 3.2: Employment Densities of Business Land Industrial and Warehouse Office Retail High Low Mid High Low Mid High Low Mid Employee/Ha (gross) Employee/Ha (Useable area) Source: Phil McDermott Consultants 2006, Review of Business Land Requirements Western Bay of Plenty P.18 The proposed development of Ruakura will be dominated by industrial and warehousing activities, which suggests that it will have a gross employment density of between 20 and 40 employees per hectare. Given that the total industrial and commercial land area of the Ruakura Estate is approximately 310 hectares, when it is fully developed it will be have a capacity to generate between 6,000 and 12,000 jobs. Accordingly, the proposed development will establish Ruakura as a significant employment hub for the Waikato Region and the New Zealand economy. Aggregate employment impacts While the level of aggregate employment is influenced by several factors, the most important is changes in the level of economic activity, which in New Zealand is generally measured by GDP growth. The strong relationship between changes in New Zealand s GDP and aggregate employment over the period March 2003 to March 2010 is illustrated in Figure 3.2. This relationship implies that a one per cent change in New Zealand s GDP on average resulted in a 0.7 per cent change in aggregate employment. 12

20 Figure 3.2: Historical Relationship between Employment and GDP Per cent change GDP Employment Source: Statistics New Zealand, Quarterly Employment Survey: various issues and Gross Domestic Product, various issues. see As described above, the proposed Ruakura development will contribute to New Zealand s future economic growth by avoiding infrastructure bottlenecks and other possible constraints to growth in constrained areas of the Golden Triangle. Hence, New Zealand s future economic growth is likely to be higher than it otherwise would be in the absence of the proposed Ruakura development. There is no reliable way to estimate how much the additional efficiencies created by the Ruakura hub would contribute to GDP growth. However, it is easy to see that even very small improvements can have significant national employment effects. For example, if the overall cumulative GDP over, say, a 20 year period is only 0.1 percent higher than it would have been otherwise, Ruakura would contribute to the creation of about 900 additional jobs. Figure 3.3 below shows the average employment impacts of changes in GDP. Since the Golden Triangle accounts for more than a third of New Zealand s output, and since a significant proportion of freight within the Golden Triangle may move through Ruakura once it is fully developed, an impact of such magnitude is not implausible. 13

21 Figure 3.3: Employment Effects of GDP Growth 10,000 8,000 FTE Jobs 6,000 4,000 2, % 0.25% 0.50% 1% Per cent increase in GDP 3.3 Other Social and Environmental Impacts In addition to economic impacts, the Ruakura development will have some social and environmental benefits. Alleviating pressures on Auckland s infrastructure The Ruakura development means greater use of the existing infrastructure in Hamilton City and the Waikato region, as well as less future demand on Auckland s already capacity constrained infrastructure. The development will alleviate the growing pressures on Auckland s water, energy and transport infrastructure and will either reduce or defer the need to invest in additional infrastructure in the Auckland region. As a result, future financial commitments on both the Crown and Regional Councils will be reduced and provide increased opportunities to initiate demand management measures. Greater use of transport infrastructure in Waikato will also reduce the freight task in Auckland. This will go some way to alleviate growth in road congestion in, and around, Auckland City. It will also provide Auckland City with much needed breathing space. This will have several important economic, social and environmental consequences: Less congestion means reduced travel times and lower distribution costs for businesses Reduced travel times for business often translate to higher productivity. Improving New Zealand s productivity is an important policy objective of the current Government A reduction in the growth of Auckland s transport task may reduce the immediate requirement for investment in road capacity and road infrastructure A reduction in the growth of the transport task and lower levels of congestion will reduce growth in transport related CO 2 emissions. The development of Ruakura will also promote more sustainable land use and urban development. Importantly, it will reduce the demand for already scarce commercial and industrial lands in Auckland. This will relieve upward pressure on commercial rents and property values in South Auckland. 14

22 These impacts in Auckland are difficult to quantify. However, as part of our earlier analysis of the effect of Ruakura on the Waikato Expressway, we estimated the effects of reduced congestion on transport costs. The results of this analysis are shown in Figure 3.4 (Ports of Auckland-South Auckland) and Figure 3.5 (South Auckland-Ports of Auckland). The costs of congestion without the Ruakura Hub result in a significant increase in freight costs. The Ruakura Hub helps by diverting traffic onto less congested roads and rail. Despite the longer distances involved, freighting via Ruakura is $75.5 million per year cheaper for the same volumes moved. Using an 8 percent discount rate, this totals $850 million over 30 years. Figure 3.4: Reduced Freight Cost Analysis Ports of Auckland South Auckland 15

23 Figure 3.5: Reduced Freight Cost Analysis South Auckland Ports of Auckland Social and environmental effects across the UNI Because road/rail intermodal terminals reduce the growth in total kilometres travelled by road, they often bring about a number of positive social and environmental impacts. These impacts include a reduction in road accidents involving trucks and heavy vehicles and fewer carbon emissions from the burning of transport fuels (i.e. diesel). We would expect a reduction in the number of heavy vehicles on the road to result in fewer road accidents involving trucks and heavy vehicles. Using the ACC estimate that the per kilometre cost of road accidents is about 10.7 cents implies that over a 30 year period the use of the proposed Ruakura intermodal terminal will result in accident cost savings of approximately $6.7 million. This estimate assumes a 5 percent social discount rate and that the intermodal terminal achieves the annual container volumes presented in Table 2.3. We found that carbon emission savings from fewer road trips would more than offset any increase in carbon emissions from the greater use of New Zealand s rail network. In fact assuming that the Ruakura intermodal service achieves an annual throughput of 12,000 TEUs in its first year of operating as a road/rail service, this would mean a reduction of around 630 tonnes of CO 2 emissions. This would more than offset the increase in carbon emissions that would arise in the first year of operation when the service operates as a road-road service see Figure 3.6 below. 16

24 Figure 3.6: Estimated Annual Change in Carbon Emissions (tonnes) Year 1, , , , ,294-1,849-2,359-4, , ,843-6, , ,259 17

25 4 Impacts on Transport Networks in the UNI This section assesses the proposed Ruakura development against the factor indicating national significance in section 142(3)(a)(ix) of the RMA: that the development relates to network utility operations. We find that the success of Ruakura will depend on its ability to integrate with transport networks and serve the users of those networks across the UNI. Ruakura is viable partly because it addresses a growing freight task in the UNI and a need to efficiently link the road and rail networks. Central to this is the location of the site and its integration with the Waikato Expressway and the main rail links to the major ports of Tauranga and Auckland. The existence of Ruakura will impact the development path of the other areas served by road and rail networks in the UNI and the efficiency of the transport system overall. Efficiency of the transport networks requires that undue constraints and bottlenecks are not allowed to develop. The decision to call-in the plan change request has particular significance for the transport networks in the UNI. Through allowing a timely decision on whether this development is in a position to handle a portion of the expected growth in freight, planning at all other sites and networks is facilitated. This is immediately apparent as the Waikato Expressway is planning interchange locations which have critical import to the site efficiency. Network integration and location As an inland port and logistics hub, Ruakura would have direct rail connections to the Ports of Auckland (North Island Main Trunk Line) and Port of Tauranga (East Coast Main Trunk Line) New Zealand s two largest sea ports, as well as to South Auckland s industrial base. 8 A planned interchange onto the Waikato Expressway would provide connection to the rest of the North Island via the State Highway network. The unique location of the site means that it creates an opportunity to re-define business location choices throughout the UNI. At present, most of the North Island distribution centres for national retail chains are located in Auckland. Imported goods arrive by container into these distribution centres, and then are re-packed for delivery to the stores throughout the North Island by van and truck. Unlike any other location in the Upper North Island, Ruakura offers sufficient space for growth located within a transport hub. For a national retail chain, the total distance to all North Island stores from Ruakura will be competitive to the total distance from an Auckland-based distribution facility. Finally, Hamilton provides a pool of labour located close to the facility. By contrast, as Auckland grows further south, workers have to commute longer distances in greater congestion. The viability of the Ruakura development depends on its location and how it connects with transport networks. For this reason it is best viewed as a facility that serves the entire UNI region. Enabling a more efficient use of transport infrastructure Greater use of the existing transport infrastructure that directly services Ruakura and the Ports of Auckland, the Port of Tauranga, South Auckland and other industrial centres 8 Hamilton City Council see 18

26 will deliver significant benefits. These benefits arise primarily from the greater use of the existing rail facilities, which will: Network the industrial and commercial centres throughout the Auckland, Bay of Plenty and Waikato regions, enabling Ruakura to interconnect with other centres in the UNI Reduce travel times and travel costs for businesses by avoiding the road congestion that would otherwise be experienced in the Auckland region (particularly through south Auckland). The development of Ruakura allows for these benefits to be gained with relatively modest investments in rail infrastructure, compared with alternative development sites that are not adjacent to rail. After its second year of operation, the terminal is fully operational as a road/rail configuration and its annual throughput is expected to grow to 12,000 TEUs then there is likely to be more than 6,000 fewer road trips; 6,000 fewer road trips equate to 1.1 million fewer kilometres travelled. Assuming that the North Island s total containerised freight task grows at an annual average rate of five percent over the next 30 years, the Ruakura Intermodal service could cumulatively avoid the need for up to 740,000 heavy vehicle road trips over that period. Impacts on the planned Waikato Expressway The inland port and logistics hub at Ruakura will directly impact on the economic costs and benefits of the Waikato Expressway a four-lane highway between Cambridge and the Bombay Hills. Ruakura will change the pattern of traffic flows in the upper North Island, which will have effects on travel times and volumes. The benefits from a reduction in congestion in Auckland are twofold: Freight volumes. We found that the Ruakura Hub is likely to attract 15 percent of the 5.19 million tonnes travelling from Ports of Auckland to South Auckland, and 15 percent of the 3.25 million tonnes travelling from South Auckland to Ports of Auckland. Freight travelling on congested and severely congested roads. We found that the Terminal is likely to result in less large trucks on the route between Ports of Auckland and South Auckland, reducing the severity of congestion that remaining vehicles will encounter. In a report to the New Zealand Transport Agency, we investigated the impact that Ruakura would have on the costs and benefits of the Expressway. We found that at an 8 percent discount rate, the Benefit Cost Ratio for the Waikato Expressway more than doubles from the earlier estimate of around 1.4 to This is equivalent to an increase in the benefits of the Expressway of $1.644 billion in present value terms. Details of the analysis we conducted are included in Appendix D. Container recycling Container recycling benefits accrue due to switching empty container movements off road and onto rail. Our analysis found that 90 percent of containers sourced from outside Waikato are currently transported by rail. We found it likely that this increases to 100 percent after the Ruakura Hub is commissioned. 9 Meister, Mike. Waikato Expressway Economic Evaluation: Update. Hamilton: OPUS, October

27 In addition, the Ruakura hub will reduce the distance travelled by empty containers. We found that a much greater proportion of containers will be sourced from within the Waikato region (90 percent) after the Ruakura Hub is commissioned. This is because Ruakura will be a place where empty containers accumulate; instead of being shipped back to port, they can be sent to demand hotspots within the Waikato. 20

28 5 Estimating the Costs of Delay Uncertainty and delays created by a lack of timely planning decisions carry a cost for developments. Delays can impact the economics of a development significantly. Foregone benefits The cost of uncertainty and delay includes the possibility that the project is abandoned. In this case the benefits are foregone entirely. The major benefits that would be lost include the benefits to the Waikato economy and surrounds and the benefits of reduced congestion in Auckland. A 10 year delay to the project would result in a deferment of the benefits for a 10 year period. The development may not proceed for several years before planning approval is obtained. In this situation there will be direct costs of keeping the project going until the decision. These costs include project management and capital holding costs. It will usually not be known whether final approval will be obtained until the decision is made. All holding costs therefore have to factor in a likelihood that they will be written off in the future. If the decision is highly uncertain and the horizon potentially long, these costs can often stop a development making it to decision stage. Inefficiency in transport networks As the freight task continues to grow, the absence of Ruakura could change the investment returns of other less optimal solutions. This could mean that investment occurs in a second (or third) best fashion which subsequently impacts the investment returns of Ruakura meaning it may never happen at all or is delayed even further. There is a potential permanent efficiency loss from this path dependence. Constraints in other facilities, including planning constraints, may prevent other facilities from dealing with the increasing freight task. The costs may then be felt in reduced efficiency of the transport networks. This will in turn be felt in the costs that exporters and importers face in moving goods around the golden triangle and beyond. 21

29 6 Conclusion We find that the proposed development at Ruakura fulfils the criteria for a development of national significance. A timely decision on whether this site can contribute to the growth in freight and contribute to the economic growth of the UNI is itself nationally significant. The key findings are that: 1. The impact of the development extends across many regions and districts The economic impact of the development will be felt across the UNI and the rest of New Zealand through reducing the costs of doing business for our biggest exporters and importers. The need for alternatives to a congested Auckland infrastructure is essential to enable the efficient management of the growing UNI freight task. The impact of this proposal is wider than transport network efficiency. The effects will be felt across many districts and regions. The employment effects are concentrated in the districts of Hamilton and surrounds but extend across the golden triangle and the UNI. In addition the social and environmental costs and benefits stretch across the entire area served by the terminal. 2. The development is an integral part of the UNI transport system The development is a component of the transport networks that serve the UNI including in particular ports, railroads and roads. It is itself made possible because of the development of the Waikato expressway. The value that it can offer customers is due to the location of the facility on a critical node of the transport network. While not being a builder of network utility operations directly the development is best viewed as a part of an integrated multi network transport system that serves the entire UNI. The Proposal is intertwined with utility network operations. The decision to proceed or not with the development has ramifications for the choices that all other operators make in the wider regional transport system. The direct impact on rail and port utilisation and the impacts on the Waikato Expressway and congestion in Auckland are direct consequences of the network utility nature of the development. Ruakura is a nationally significant development The significance of the Ruakura development should not be understated. The size of the investment and the impact in terms of employment and GDP effects is of significant scale not only to Hamilton but to the entire Waikato and UNI area. New Zealand s largest exporters and importers depend on the transport infrastructure of the UNI. The likelihood that the extent and magnitude of these costs and benefits will be appropriately weighed by a single council is low. Many of the councils have themselves acknowledged this as a critical issue. The need to plan strategically and in an integrated fashion is widely recognised as a critical issue in achieving an efficient network and reducing the costs of doing business. 22

30 Appendix A: Summary of Work Completed by Castalia to Date The assessment provided in this report draws on three reports that we completed in on the Ruakura development: Ruakura Intermodal Terminal (October 2010). The purpose of this report was to test the commercial rationale for an intermodal terminal at Ruakura. We analysed demand drivers for the terminal, as well as the effect of competing infrastructure available to meet future freight demand. Further information from this report is provided in Appendix B. Cost Benefit Analysis of the Waikato Expressway: Incorporating the Impact of the Ruakura Inland Port and Logistics Hub (October 2011). This report evaluated the positive impacts that the Ruakura intermodal terminal would have on the cost benefit analysis for the Waikato Expressway. This work underscored the value of proceeding with the development of the Expressway, and helped to inform decisions on design features such as the location of the nearest interchange. Further information from this report is provided in Appendix C. Industrial Land Release in the Waikato Regional Policy Statement: An Evaluation of the Impacts at Ruakura (February 2012). This report was prepared to support an increase in the allocation of industrial land at Ruakura under the Waikato Regional Planning Statement. The report presented our analysis of the likely economic impacts of the terminal within the Waikato region. Further information from this report is provided in Appendix D. This report was peer reviewed by another economic consulting firm (BERL), and this peer review is provided as Appendix E. 23

31 Appendix B: Success Factors for Ruakura (October 2010) Intermodal terminals, of the type proposed by TGH allow for the efficient transfer of non-bulk freight from rail to road (and vice versa). While intermodal terminals usually mean double handling of freight, they improve efficiency by improving the flow of freight by relieving existing bottlenecks and allowing users to benefit from a combination of transport modes. 10 International evidence suggests that the development and use of intermodal terminals enable freight operators to lower operating costs by reducing dwell times and bypassing metropolitan road networks which are becoming increasingly congested. Additional benefits of intermodal terminals include a reduction in the growth of road freight movements, reduced road congestion, increased public amenity and a more efficient use of existing rail infrastructure. 11 As detailed in section 4 the commercial success of an intermodal terminal requires the offer of clear and significant value to shippers usually a function of three critical success factors: A location which services an industrial/commercial traffic base and also has ready access to road and rail links providing the ability to provide a compelling price and/or service offer over alternative transport options Capturing sufficient volumes to allow for an efficient scale of operation both for the intermodal terminal and to secure the support of the rail operator Provision of value added services that enhance the overall value proposition to shippers. The following subsections examine the extent to which each of these three critical success factors are features of the proposed Ruakura intermodal terminal. B.1.1 Location The Ruakura site is thought to be uniquely placed to be developed as an intermodal terminal to service New Zealand s North Island. In particular, the proposed site has direct access to both rail and road links which will provide the terminal with an established traffic base comprising both importers/exporters and domestic freight users. The site borders an existing rail line which provides direct connection to both the Ports of Auckland and the Port of Tauranga. The site will also be served by the proposed Waikato Expressway which will provide a direct connection to industrial and commercial hubs in South Auckland, Waikato and Bay of Plenty regions B.1.2 Ability to capture sufficient freight volumes to ensure commercial viability To be commercially viable, the intermodal terminal will have to provide a cost competitive alternative for the movement of containerised freight between Ruakura and key origins/destinations, which are likely to be the major seaports of Auckland and Tauranga, and potentially also the Auckland urban market. 10 See Bureau of Infrastructure, Transport and Regional Economics 2009, Road and Rail Freight:, Competitors or Compliments, Australia. 11 Victorian Department of Transport 2008, Freight Futures: Victorian Freight Network Strategy for a more prosperous and liveable Victoria, Australia, p

32 Initial analysis suggests that the proposed terminal will be able to capture sufficient freight volumes to ensure that it is commercially viable. This conclusion is based on two sets of separate analysis which suggest that: The proposed intermodal terminal will be cost competitive with direct road only services That the total contestable freight task in the Golden Triangle is significantly larger than the minimum freight volumes required to ensure that the proposed intermodal terminal is cost competitive with direct road only services Based on these conclusions, it has been assumed that the proposed intermodal terminal and the associated service will capture four per cent of the total contestable freight task in the first year of operation and that this will increase to around 23 per cent by the fourth year of operation. After the fourth year of operation it has been assumed the freight volumes through the terminal will grow in line with growth in the North Island s total freight task. Cost Competitiveness One of the key drivers of the ability of the Ruakura intermodal terminal to capture freight volume will be the cost savings that it will provide freight users in the movement of containers between origin and destination using rail via the intermodal terminal versus an alternative direct road only service. To assess this comparison, alternative intermodal pricing scenarios have been assessed against the road service as a full supply chain cost on a per TEU basis. This has been tested under different volume scenarios, with the outcomes driven in part by the different pricing outcomes under the two principal operating models of scheduled services and unit trains, with the latter model coming into play at a specific (assumed) volume threshold. This modelling assumes that the majority of cargo volume would be destined for, or would originate from, Ruakura thereby avoiding a road cost at one or both ends of the journey. As set out in Table B.1, the modelling shows that rail costs are more sensitive to freight volumes relative to the cost of road services. The modelling also suggests that as freight volumes increase the economies of scale of moving to unit trains become more apparent. Table B.1: Indicative Average Transport Price Comparisons Volume (Ruakura-Auckland) 5,000 12,000 20,000 25,000 35,000 Rail Average $/TEU AKL $335 $180 $130 $115 $103 Road Average $/TEU AKL 12 $231 $231 $231 $231 $231 Volume (Ruakura-Tauranga) 5,000 12,000 20,000 25,000 35,000 Rail Average $/TEU TGA $335 $180 $130 $115 $103 Road Average $/TEU TGA $135 $135 $135 $135 $135 Source: SAHA 2010 The modelling indicates that a relatively small volume of throughput between Ruakura and Auckland (approximately 12,000 TEUs per annum), provides the intermodal 12 Includes an indicative congestion cost value of $3.20 per km assumed to apply for 15km of journey to/from Ports of Auckland, no additional congestion charge has been applied to traffic travelling to/from Tauranga 25

33 terminal service with a cost advantage over the road only service. This is illustrated in Figure B.1. Figure B.1: Rail versus Road Indicative Pricing: Freight Volumes Auckland $400 $350 $300 $250 $/TEU $200 $150 $100 $50 $- Cost per TEU (RAIL) Cost per TEU (ROAD) TEU volume to/from Auckland Source: SAHA 2010 Due to the shorter distance to Tauranga and assuming no road congestion effect, the required volume throughput between Ruakura and Tauranga will need to be approximately 20,000 TEUs per annum to be cost competitive with the road only option. This is shown in Figure B.2 below. Figure B.2: Rail versus Road Indicative Pricing: Freight Volumes Tauranga $400 $350 $300 $250 $/TEU $200 $150 $100 $50 $- Cost per TEU (RAIL) Cost per TEU (ROAD) TEU volume to/from Tauranga Source: SAHA 2010 The size of the contestable freight market in the Golden Triangle Based on the volume and cost assumptions detailed in Table B.2, it is likely that in 2009 the addressable market for the intermodal services would have been approximately 113,000 TEUs. This equates to around 15 per cent of the total freight task in the Golden Triangle. Table B.2: Estimated Container Volumes in the Golden Triangle: 2009 Key Routes Estimated TEUs Captured by IMT 26

34 Estimated TEUs Key Routes Captured by IMT From Auckland Auckland to Waikato 63,200 Auckland to Gisborne 9,250 Auckland to Hawke's Bay 13,900 Auckland to Taranaki 12,700 Total From Auckland 99,050 To Auckland Hawke's Bay to Auckland 1,150 Taranaki to Auckland 3,450 Total From Auckland 4,600 To Bay of Plenty Northland to Bay of Plenty 5,700 Taranaki to Bay of Plenty 3,650 Total From Bay of Plenty 9,350 Total 113,000 Table B.2 also highlights that intermodal services are likely to be most competitive where the total distance from the origin to the destination by road is more than 108 kilometres. While it is not surprising that intermodal services are most competitive over longer distances, it means that the proposed Ruakura intermodal service is unlikely to be cost competitive on those routes where the freight task is the greatest routes from the Ports of Auckland to destinations within the Auckland region. Estimated freight demand for the terminal New Zealand s transport industry is highly competitive and freight users are highly cost conscious. Hence, the extent to which the proposed intermodal service will be able to attract businesses to Ruakura and to capture a share of the wider contestable freight task, and to grow this share over time, will depend on the extent to which it is price competitive with alternative services, such as other intermodal services and all-road services, as assessed above. In addition to price, several non-price factors will influence the extent to which the proposed intermodal service will be able to capture and grow market share over time. These factors include: The reliability of the service Door-to-door delivery travel times The booking and documentation process The ability of customers to track the goods in transit Long term contract arrangements 27

35 Given these many factors, it is difficult to estimate the extent to which the proposed intermodal service will be able to capture a share of the contestable freight market and increase this over time. That said, however, for the purposes of examining the commercial viability of the service and the extent to which it will deliver wider economic, social and environmental benefits, it has been assumed that the proposed intermodal service will capture four per cent of the total contestable freight task in the first year of operation and that this will increase to around 23 per cent by the fourth year of operation. These market shares equate to annual freight volumes of 5000 TEUs in year one of operation and 30,000 TEUs in year four of operation see Table B.3. To place these volumes in context, Metroport handled approximately 30,000 TEU in its first year of operation, while Ports of Auckland s inland port at Wiri is currently handling approximately 30,000 TEU in what has, until recently, been a road only inland terminal. Table B.3: Estimated Market Share for the Proposed Intermodal Service Year of Operation Year 1 Year 2 Year 3 Year 4 TEUs per annum 5,000 12,000 21,000 30,000 Proportion of Contestable Freight Task 4% 10% 17% 23% These assumptions reflect the following observations: The location of the proposed terminal will make it attractive to freight users based in and around Hamilton City. Freight to and from Hamilton represents approximately 24 per cent of the total contestable freight task in the Golden Triangle Because the intermodal service will rail freight out of the Ports of Auckland it will avoid the traffic congestion in and around the Auckland region making it more reliable than direct road only services The efficient use of the existing rail infrastructure will enable the intermodal service to be cost competitive with other alternative services The intermodal service will increase its volumes over time as businesses relocate their operations to the industrial and commercial centre that will be developed adjacent to the terminal Growth in the total freight task over time Over time the proposed intermodal terminal will experience growth in freight volumes due to: Increases in market share as measured by its share of the total contestable freight task in the Golden Triangle Growth in the total freight task over time. According to Transport Engineering Research New Zealand (TERNZ), New Zealand s total freight task is expected to almost double over the period 2005 to Despite 13 Hamish Mackie, Peter Bass, Hansjorg Manz 2006, The Contestability of New Zealand s Road Freight Task by Rail, New Zealand, p.6. 28

36 predictions such as these, there appears to be little information available regarding expected future growth of New Zealand s container freight task. That said, howeve,r the expected growth in containerised trade through the Ports of Auckland provides a reasonable indicator of the future growth of New Zealand s container freight task over the medium term. Figure B.3: Ports of Auckland: Projected Container Freight Volumes Year TEU Throughput , , ,246, ,590, ,030, ,591, ,307, ,221,000 TEU throughput per annum (,000 TEUs) 4,500 3,600 2,700 1, Source: Ports of Auckland 2008, Port Development Plan p.9 Figure B.3 presents the Ports of Auckland s forecast container throughput for the period 2008 to This forecast suggests an annual average growth rate of about 5 percent. This is consistent with: New Zealand s historical long term growth in GDP which averaged around 5.6 percent per year over the period to 1995 to 2008 The long term growth in the value of New Zealand s merchandise trade volumes which has averaged around 6 percent per year over the period 1995 to The 5 percent growth rate which is often used by the New Zealand s Port industry for forecasting future container growth. 14 Applying this growth rate to the volumes that are assumed to be captured by the proposed intermodal service in its first four years of operation suggests that over a 30 year period the total number of container freight movements through the Ruakura Intermodal terminal could be more 100,000 TEUs per annum.. B.1.3 Ability to generate additional revenues The proposed intermodal terminal will be part of an integrated logistics and distribution centre hub that will generate revenues from complementary services, such as warehousing, customs clearance and quarantine inspections, truck parking and maintenance, container cleaning and container repairs. This will make the facility attractive to potential users and generate additional revenues for the terminal operator. 14 Auckland Regional Holdings 2009, Long Term Optimisation of the New Zealand Port Sector, p

37 Appendix C: Implications for the Waikato Expressway (October 2011) The previous studies that evaluate the economic impacts of the Expressway assume that the overall pattern of traffic movements will remain the same after the Expressway is commissioned. For the reasons described above, this assumption is unlikely to hold. As a result of the Ruakura Hub, traffic flows will be reconfigured once the Expressway and the Ruakura Hub are both in place, reducing the costs for road users and fundamentally changing freight logistics in the upper North Island. In this section we describe how changing traffic flows resulting from the combination of the Expressway and the Ruakura Hub change the economic benefits that we expect to be delivered by NZTA s investment in the Expressway. We start by discussing the additional conventional benefits that would be estimated if the Ruakura Hub is successful in attracting freight traffic, and if the analysis is not limited to the Waikato Region. We then discuss wider economic benefits (WEBs) from productivity enhancing investments that do not directly use the Expressway, but would not be achieved without the Expressway being in place. C.1 Additional Conventional Benefits The previous analysis of the Waikato Expressway did not account for any changes in the overall flow of freight traffic in the Upper North Island due to the location of new inland terminals and logistics hubs like Ruakura. The analysis completed to date is also geographically confined in its scope in that it does not consider benefits generated outside the Waikato and Bay of Plenty. This runs contrary to evidence from overseas, which shows that intermodal terminals can have significant impacts on the volume and direction of freight movements. Under the subheadings below, we describe how in the case of the Ruakura Hub these changes will help to reduce congestion costs in Auckland and will also lead to efficient traffic increases on the Expressway. We also directly answer possible concerns about the other impacts of changing freight flows due to traffic using the Ruakura Hub. Reducing the costs of congestion in Auckland Traffic congestion in Auckland has been described as New Zealand s single greatest transport challenge. The best estimates of the costs of congestion to Auckland now range from $700 million to $1 billion. 15 An important benefit of the Ruakura Hub is that it will provide road users with an opportunity to avoid the costs imposed by this congestion. At present, a large proportion of national distribution facilities and intermodal terminals are currently located in South Auckland. The spatial arrangement of these facilities and terminals is fragmented. Their location contributes to congestion by adding trucks on the road between the Ports of Auckland and these facilities. The Ruakura Hub will provide a congestion reduction benefit by: Providing a way to reach the distribution facilities located in South Auckland by road from the south, thus avoiding the most congested parts of the Auckland road system, and 15 The New Zealand Business Council for Sustainable Development report a cost estimate of $1 billion for congestion in Auckland. See We understand that more recent research commissioned by NZTA (not yet published) estimates these congestion costs at around $700 million. 30

38 Enabling the relocation of the distribution facilities (or the location of future distribution facilities) away from the congestion areas of South Auckland. The alternative routes opened up by the combination of the Expressway and the Ruakura Hub are identified in Figure C.1 below. The distance travelled on the direct road route between the Ports of Auckland and South Auckland (Wiri) is much shorter (34 kilometres) than travelling via Ruakura (96 kilometres). The rail movement to and from Ruakura may impose an additional cost. This means that the alternative route offered by Ruakura will not be attractive to all shippers at all times. However, as congestion costs on the Southern Motorway increase, the relative costs associated with the additional distance decline compared to the costs of congestion. Figure C.1: Overview of Freight Transport Routes with Expressway and Ruakura The real benefit provided by an alternative, longer route through Ruakura is to effectively cap the costs of congestion through Auckland. Travelling an extra 60 kilometres on road will become viable for transport companies when the costs of congestion exceed the costs of additional distance travelled. These costs arise through increased labour costs, increased vehicle operating costs, and reduced trip reliability. The ability to cap congestion costs for freight movements through Auckland is particularly appealing given that there are few other immediate ways to relieve this congestion. The most common way to reduce congestion is to invest in better or wider roads. This does not usually change the flow of traffic or routes, but helps to accommodate more traffic for a period of time. While some important road investments will help to ease congestion over the Auckland area in coming years (such as the Grafton Gully/Strand link to the motorway network and completion of the Western Ring Route), these projects will inevitably face funding challenges. Another option is to introduce congestion charging in Auckland, which has been proposed but seems unlikely to be adopted in the near future. 31

39 What impacts will High Productivity Motor Vehicles have on this analysis? In 2010 the land transport rules were amended to change some of the lengths for heavy vehicles, and create a new permit class for high productivity motor vehicles (HPMVs) at increased weights. The introduction of HPMVs may reduce the numbers of heavy commercial vehicles (HCVs) needed to shift the same freight task, potentially reducing the congestion between the Ports of Auckland and South Auckland, and reducing the benefits provided by an alternative freight route via Ruakura. The effect of HPMVs is difficult to estimate at this time because these movements will require local Council permits to use local links that provide access to the State highway network. Although State Highway 1 has been proposed by NZTA as a primary HPMV route, the ability for freight companies to take full advantage of heavier weight permits will depend on any restrictions on secondary roads. Are the benefits of reduced congestion in Auckland transfers between regions? NZTA conducts its cost benefit analysis from the perspective of New Zealand as a whole. This means that transfers of economic activity from one region to another should not be counted as benefits when analysing the economic impacts of new or improved roads. The analysis presented in this report is careful to only count benefits from a national perspective. While the combination of the Expressway and the Ruakura Hub will tend to encourage economic activity to locate south of Auckland (in regions such as Waikato and the Bay of Plenty), this will provide a net benefit to New Zealand where relocating to areas south of Auckland lead businesses and households to face lower costs. In such cases, the costs of production in New Zealand will be lower, increasing national productivity and the competitiveness of New Zealand firms in international markets. By expanding the geographic scope of the analysis, this report captures national effects that appear to have been ignored in the previous cost benefit analysis of the Expressway. By helping to alleviate congestion in Auckland, the Expressway will provide benefits in the Auckland region that have not been transferred elsewhere, in that the traffic that remains on Auckland s roads will also face lower costs. Will the new traffic flows cause congestion on other parts of the road network? The business case for the Ruakura Hub relies on providing an opportunity for logistics chain users to bypass congested Auckland roads. However, this business case will be undermined if the Ruakura Hub simply substitutes congestion in Auckland for congestion on other parts of the road network such as north of the Bombay Hills (where the Expressway terminates). The reason that the Ruakura Hub does not simply move the location of congestion is because the roads between South Auckland and the Ports of Auckland currently experience longer periods of congestion than other roads. This means that by scheduling freight movements appropriately, logistics companies can avoid congestion by using Ruakura, without causing congestion elsewhere. The traffic generated by the Ruakura development and placed onto the Waikato Expressway will result in increased traffic on the stretch of State Highway 1 between the Bombay Hills and South Auckland. However, the times during the day when this road is most congested is northbound during the morning (as people living in South Auckland travel to the city for work), and southbound during the evening (as city workers return home). Figure D.2 highlights that freight through the Ruakura Hub would be using that road at different times to this commuter traffic. The left hand figure illustrates that traffic movements originating from the Ports of Auckland would use Ruakura during the 7am to 7pm, and are therefore likely head northbound on the Expressway during inter-peak 32

40 periods. Freight movements originating from South Auckland will head southbound on the Expressway traveling against the traffic in the morning. This freight will be transported from Ruakura to the Ports by rail (see right hand figure). Figure D.2: Avoiding Congestion Depends on Timing of Freight Movements Additional traffic on the Expressway The Ruakura Hub also offers a valuable opportunity for shippers to save time and money by bringing containers into and out of the region by rail and becoming port neutral. As with inland ports in other countries, companies will locate distribution centres and warehouses near the Ruakura Hub. In combination with the Expressway, the Ruakura Hub will allow these warehouses and distribution centres to utilise more efficient logistics networks. The Ruakura Hub will therefore make the Waikato Expressway a more utilised road, reducing the risk that the demand for the Expressway will not justify the cost. This is particularly important in the years following project commissioning, where the level of traffic demand is relatively low compared to the large investment needed to complete the Waikato Expressway (of around $1.5 billion in nominal terms). Timing is important for major infrastructure investments due to the need to commit large amounts of capital. If the benefits of a project do not materialise until many years into the future, then society suffers a large opportunity cost in having capital tied up that could be used for productive purposes. Conversely, if a beneficial investment is delayed unnecessarily, then society is denied the use of infrastructure to achieve desirable outcomes (for road investments these benefits include lower congestion and increased productivity). In this case, the Ruakura Hub will help to ensure that improvements in productivity are delivered by the Expressway when the project is commissioned. 33

41 Won t more traffic on the Expressway actually impose costs? NZTA does not generally consider more traffic to be beneficial rather its cost benefit analysis focuses on opportunities to reduce travel time and costs for the same number of journeys being made between particular origins and destinations. So the fact that traffic is attracted onto the Expressway over and above the intended transfer of traffic from alternative routes through the Waikato (such as SH39, SH1B, SH2/27), we need to carefully consider whether such changes are good for the New Zealand economy. We believe that the change in traffic flows (including having more traffic on the Expressway) is beneficial. This is because the Expressway will provide business and households with an opportunity to bypass congestion and higher land prices in Auckland, without incurring substantially higher transport costs. Therefore, the economic activity that is relocated to areas south of Auckland will add to the usage of the Expressway, but will face lower productions costs. Current traffic modelling for the Expressway indicates that the road has excess capacity over the 30 year evaluation period. Given the relative volumes of passenger and transport freight, and the time of day that freight will move on the Expressway from Ruakura, it is unlikely that the traffic generated by Ruakura will result in congestion. What about relocation costs? As distribution warehouses and logistics companies are attracted to Ruakura, they will inevitably incur extra costs, such as the costs of moving from their current location to Ruakura, investing in any required infrastructure, and recruiting new staff and setting up their business in a new location. These costs have not been explicitly estimated in this cost benefit analysis. Incorporating such costs would also require us to estimate the corresponding benefits of relocating to Ruakura cheaper labour, cheaper land, lower rates, agglomeration benefits, and supply chain efficiencies. Although we acknowledge that changing the way freight moves in the upper North Island will have transition costs, we expect these costs to be outweighed by the benefits of locating at Ruakura (otherwise relocation will not take place). Rather than estimating the net benefits of relocation (which will be captured by private parties), our analysis focuses on traffic impacts, which are of greatest interest to NZTA and the general public. C.2 Effects on Wider Economic Benefits The Ruakura Hub is a private investment, and has therefore not been subject to the same economic cost benefit testing that is commonly used for publicly-funded infrastructure. Analysis of private investments such as the Ruakura Hub generally weighs the private costs of the investment against the private benefits (return on capital) in order to make a decision. However, the Ruakura Hub does produce benefits that are not captured by the investor. These benefits accrue to parties that use the Ruakura Hub (producers and consumers who ship through the Ruakura Hub), and in some cases are positive externalities for other parties that are not road users. Although it would be unconventional to simply add the benefits of a specific private project to the BCR of an enabling public investment, this is in fact how the wider economic effects of a project such as the Waikato Expressway are assessed. Both the bottom-up and CGE analyses of wider economic benefits estimate the second-order, widespread benefits that are related to use of the road in general. 16 For example, the bottom-up analysis of wider economic benefits assumes that jobs will be created because 16 Roads of National Significance; Economic Assessments Review; Summary Report. Wellington: SAHA, Page 17 of

42 of the Expressway and that labour will become more productive. The high case CGE analysis considers that the Expressway will enable greater capital investment (in new assets such as the Ruakura Hub), and that existing capital assets will become more productive. These are both general estimates of the particular benefit that will be provided by the Ruakura Hub. Given that the Ruakura Hub investment is a game changer for the logistics network, we believe that the particular benefits provided by combining the Ruakura Hub and the Expressway should be taken into account in the cost benefit analysis for the Expressway. We see three particular opportunities to generate wider benefits: Mode switching from higher cost to lower cost transportation methods. The Ruakura Hub will provide opportunities to shift some inter-regional traffic from road freight to rail, and some longer-distance domestic shipping switching from surface transport to coastal shipping. Including the impacts of switching to rail as a benefit of a road investment at first seems counterintuitive. The logic is as follows. The Ruakura Hub unlocks opportunities to efficiently switch between road and rail transport depending on the relative costs and distances to different destinations. Without the Waikato Expressway, the ability for the Ruakura Hub to provide an efficient switching point is reduced (particularly due to the higher cost associated with moving freight northbound by road). Therefore, without the Waikato Expressway it will not be possible to use rail when it has the lower cost. Enabling improvements in container movements. Moving empty containers has similar costs to moving full containers, without the benefits. Having Ruakura Hub located in the centre of New Zealand s freight movements will increase the utilisation of containers by reducing the circulation of empty containers. For example, a number of containers filled at Fonterra s facility at Crawford Street in Hamilton arrive empty from the Ports of Auckland and Port of Tauranga. These containers then leave full of product destined for export markets through the Ports of Auckland. The proximity of Ruakura to Crawford Street enables containers to arrive into the region full and be processed at the inland port and logistics hub. After processing at the logistics hub empty containers can then be sent by rail across Hamilton to Fonterra s facility for reloading. This reduces the distance that empty containers travel from more than 120 kilometres to less than 10 kilometres. Enabling improvements in port efficiency. The Ruakura Hub helps to open up the Port of Tauranga to South Auckland. The Upper North Island Freight Study foresees the relative share of freight traffic shifting from the Ports of Auckland to the Port of Tauranga, in part because of improvements in public infrastructure and private logistics investments such as Port of Tauranga s Metroport. 17 The Ruakura Hub will also enable more shippers to use the Port of Tauranga where this is the lowest cost option. These benefits are difficult to quantify, but are important for understanding the full value unlocked by the combination of the Expressway and the Ruakura Hub. 17 Richard Paling, National Freight Demands Study, September

43 Appendix D: Economic Impacts in the Waikato Region (October 2012) The development of the Ruakura site into an inland port and logistics hub will provide net economic benefits for the Waikato region by attracting employment and increasing the value added by logistic services. These benefits accrue: Directly from the operation of the proposed intermodal terminal by attracting jobs to the Waikato region that would otherwise be based at a similar scale logistics hub elsewhere in the Upper North Island, and Indirectly through integration of surrounding commercial and industrial businesses associated with distribution, warehousing and logistics businesses with the inland port and transport infrastructure. These indirect impacts reduce the costs of doing business and exporting from the Waikato, increasing the profitability of local businesses that need to get their products to market. Together, these benefits can potentially add $4.4 billion to Waikato s Gross Regional Product (GRP) between 2019 and To fully realise the full benefits of integration (or agglomeration), the development site needs to be developed to its full scale and master-planned. Master-planning the site will enable TGH to credibly describe and map the overall development concept, including present and future land use, urban design and landscaping, built form, infrastructure, and service provision. This provides business owners with confidence to commit to Ruakura, and reduces the perceived risks associated with such a large scale development. In contrast, a small scale development that is not master-planned will not be able to realise the substantial benefits from integration. Logistics-related businesses will not be attracted to the Ruakura site if they are not confident the inland port and the associated infrastructure will achieve full efficiency. The Future Proof Partners have requested for more industrial land to be released at Ruakura to enable a full scale, master-planned development. The size of industrial land currently allocated in the Waikato Regional Council s Proposed Regional Policy Statement will result in a small scale development that is not master-planned. This section examines the economic impact of a full scale, master-planned development at Ruakura ( full scale Ruakura ). We then compare this to a small scale development at Ruakura ( small scale Ruakura ) to illustrate the substantial benefits achieved through the co-location of complementary distribution, warehousing and logistics businesses to the site. D.1 Gross Regional Economic Impact Analysis Using an expenditure approach measuring GRP in the Waikato region, we have estimated the development s likely economic impact on the Waikato region from the completion of the intermodal terminal in 2019 through to We modelled the following significant economic drivers: Employment and consumption A full scale Ruakura development will consist of 405 hectares with an integrated intermodal logistics hub and associated commercial space. We have assumed that employment at Ruakura will increase at a steady rate from the terminal s commissioning in 2019, and will continue to grow as other inland ports at Wiri and Metroport reach capacity constraints around We estimate that Ruakura will directly and 36

44 indirectly create 11,100 jobs by 2061 to operate the inland port facility and work at the co-located businesses. 18 However, not all of these jobs will be new to the Waikato region businesses that would otherwise have operated in the region will form part of the activity that takes place at Ruakura. To account for the effect of transferring economic activity to Ruakura, we have subtracted the employment growth that is expected in the transport, postal and warehousing sector without a full scale development at Ruakura. This amounts to approximately 3,000 jobs, or 25 percent of the total jobs located at Ruakura by Our estimate that 75 percent of the jobs at Ruakura will be new to the Waikato region reflects the fact that if a large scale inland port and logistics hub is not built at Ruakura, then other facilities outside of the Waikato region will likely host these jobs. 20 The creation of new jobs will increase regional consumption. Our estimates of regional consumption are based on average wages 21 and projected population growth, 21 and we assume that 90 percent of wages are spent in the region. 22 Consumption by private industry is based on published profit levels for major Waikato sectors 23 and an assumed dividend pay-out of 70 percent. We also assume that four specific sectors that rely heavily on logistics (transport and warehousing, manufacturing, wholesale trade and retail trade) will be able to improve their overall earnings by 5-10 percent as a result of the Ruakura development. Investment The direct investment at a full-scale Ruakura development will be around $3 billion, including investment to establish the inland port and logistics hub. We assume that this investment takes place in two major stages before a planned commissioning date in 2020 and before an expansion in In contrast, we have assumed that a smaller scale Ruakura development consisting only of the inland port requires direct investment of $350 million. Investment will also increase due to the higher levels of domestic savings from regional employment and the earnings retained by local businesses. Business investment estimates are based on profit levels for major Waikato sectors Future Proof Implementation Committee Submission to the Proposed Waikato Regional Policy Statement (November 2010) ( High Scenario ). This estimate is consistent with recent investments in South Carolina s logistics sector, where a USD$1 billion of investment (approximately the same as the NZD$1.3 billion expected at Ruakura) translated into 11,000 jobs created. See This is also consistent with experience in Germany where the Duisburg cargo transportation centre; distribution centre; logistics service centre; manufacturing logistics centre; and transportation industrial park with a 200 million investment created 5,000 jobs. See 19 The estimate of employment growth in the transport, postal, and warehousing sector (without a full scale Ruakura development) comes from Table 10: Employment Projections by Sector in Property Economics (2010) Future Proof Business Land Data Assessment. 20 For example, Auckland Council has received a private plan change request from the Stevenson Group to rezone 360 hectares around Drury in South Auckland to industrial and light industrial. The purpose of the request is known to be the development of an inland port. See anklindistrictplanchangeindex/pages/drurysouthstructureplanplanchange.aspx 21 Statistics New Zealand 2006 Census, Quick Stats about the Waikato Region ID=&tab=Income&id= This is simply the inverse of a 10 percent savings rate. 23 The Waikato regional economy report for Katolyst Group Dr. Warren R. Hughes, Department of Economics. The University of Waikato 37

45 Exports Ruakura will attract freight from the Upper North Island and will capture growth in the freight sector. Goods that would otherwise not pass through the Waikato region will be processed and distributed from the inland port, increasing regional exports where value is added. We particularly expect increases in containerised traffic. Exports have been modelled using growth rates of up to five percent for the Waikato region s top 10 exporters (by value). 24 This means that we expect Waikato industries that will rely on the inland port (such as forestry) to be able to increase output by two percent as a result of the Ruakura development. Imports A large proportion of the increased consumption in the area will need to be supplied by increased imports. In terms of regional economic growth, this nets-off some of the increase in consumption. We assume that imports remain at around 54 percent of consumption either with or without a full scale development at Ruakura. The results of our analysis are presented in Table D.1. Under the small scale Ruakura scenario, the estimated future economic output in the Waikato Region has a present value in 2019 of $331.1 billion (using an 8 percent discount rate to translate future output into today s terms). 25 Under the full scale Ruakura scenario, total output is estimated to be $335.5 billion (using an 8 percent discount rate) meaning that the economic growth enabled by the Ruakura inland port is equivalent to $4.4 billion, or around 25 percent of the current annual Gross Regional Product. This indicates that in absolute terms, Waikato s regional economic output in 2061 would be 1.0 percent higher with the full scale Ruakura inland hub than if the investment was limited to the small scale option. Table D.1: Waikato Gross Regional Economic Impact Analysis (NPV Billions NZD) Component of GRP Small scale Ruakura Full scale Ruakura Difference Consumption Investment Government Spending No change Exports Imports NPV Gross Regional Product Absolute Gross Regional Product in Note: Gross Regional Product of the Waikato region in 2009 is estimated at $16.9 billion 26 Figure D.1 provides an overview of our regional economic impact assessment. 24 The Waikato regional economy report for Katolyst Group Dr. Warren R. Hughes, Department of Economics. The University of Waikato 25 Public Sector Discount Rate as per guidance from the Treasury when conducting Cost Benefit analysis for Infrastructure and special purpose (single-use) buildings. Including, Road and other transport projects Market Economics Limited. 2009: Waikato Region Economy-Environment Futures Model. 38

46 Figure D.1: Waikato Regional Economic Impact Assessment 39

47 D.2 Negative Externalities in the Waikato Region The activities of an inland port and logistics hub at Ruakura will clearly generate some negative externalities such as localised traffic congestion near entry and exit points, additional noise during the hours of operation, and inconvenience during the construction phase. However, these externalities are unlikely to be significant given the degree of separation between the inland port and logistics hub, and land zoned for residential uses. These externalities could also be properly managed through the use of economic instruments (such as developer contributions). One decision that will affect the level of externalities generated by Ruakura is the location of the nearest interchange to the Waikato Expressway. If a northbound interchange is located close to the Ruakura inland port (as has been proposed) then negative traffic, local emissions, and noise impacts are likely to be moderate. However, these externalities grow as the distance to the interchange from Ruakura increases. We understand that TGH has actively engaged with the New Zealand Transport Agency (NZTA) to ensure an efficient location for the nearest Waikato Expressway interchange. The Ruakura inland port and logistics hub will also have some minor impacts on amenity. The development involves the conversion of existing farmland into an industrial use. Some stakeholders may view farm conversion as involving a loss in amenity. In any case, any negative visual and environmental impacts will be relatively small because the Ruakura development is contiguous to the Hamilton urban area. Accordingly, the development will not impact on views from the city. The development of the proposed Ruakura inland port and logistics hub is contained within an industrial node. Hence, expanding the size of the node (away from the Hamilton City) will not have additional impacts on amenity values. D.3 Positive Externalities in the Waikato Region Allowing the Ruakura inland port and logistics hub to develop at its proposed full scale will generate positive externalities, most notably through agglomeration benefits. In turn, enabling the development to be master-planned by releasing the entire site is essential to achieving those agglomeration benefits. Agglomeration benefits arise from the fact that production costs fall as businesses in related industries cluster together. In the case of Ruakura, as logistics firms locate in the areas in and around the inland port and logistics hub, agglomeration effects will provide local economies of scale and reduce the costs of doing business. Having a cluster of logistics firms will increase productivity through the ability to share resources, improve human networks, and build a level of trust among companies in the hub. The area may also provide a ready pool of specialised labour, and enable businesses to cooperate on educational and training needs. 27 These benefits have been captured by our economic impact analysis. However, businesses located within a logistics hub may also achieve higher rates of growth than similar organisations located outside of a hub if the cluster encourages new and advanced logistics services to be tested and developed. For example, UPS has developed software that manages its considerable logistics networks and centres, which is marketed by its subsidiary UPS Supply Chain Solutions. This subsidiary offers shippers consulting, planning, supply chain management and IT services including visibility, tracking and tracing, trade compliance, and network design, and has over $1 billion in 27 Sheffi, Yossi, Logistics Intensive Clusters: Global Competitiveness and Regional Growth. Massachusetts Institute of Technology 40

48 sales. 27 This subsidiary is collocated with a range of other different UPS logistics functions, providing the demand for the logistics optimisation software, and the ability to develop the product from inception through to commercialisation. Such improvements to logistic services can enable further efficiency gains for the proposed inland port and logistic hub, attracting more business and generating additional economic benefits. Although the negative externalities of the Ruakura development do not increase in proportion with scale, positive externalities are closely related to operating at an efficient scale. The ability to master-plan the full Ruakura site unlocks agglomeration benefits by allowing like-minded and complementary businesses to co-locate at the site. Agglomeration and colocation benefits arise from the geographical proximity of businesses to each other, which in this case rely on a sufficient area being zoned for industrial use. D.4 Conclusions on Regional Economic Impacts A full scale, master-planned development at Ruakura can enable an additional $4.4 billion of gross regional product between 2019 and 2061 by attracting employment and investment to the region, and improving net exports from the region. These benefits not only reflect scale efficiencies, but also demonstrate the substantial agglomeration benefits unique to a master planned development site. 41

49 Appendix E: BERL Peer Review of Castalia Report on Economic Impacts in the Waikato Region See attached 42

50 Report to: Waikato Regional Council REVIEW OF CASTALIA REPORTS ON RUAKURA AND IMPLICATIONS Prepared by Kel Sanderson Jason Leung-Wai April 2012 Copyright BERL BERL ref #5198 JEL Classification: R, Urban Rural and Regional economics; R14 Land Use patterns; R12 Size and Spatial Distribution of Economic Activity Level 5, 108 The Terrace, PO Box , Wellington 6143, New Zealand Telephone: , fax: , info@berl.co.nz web site:

51 Review of Castalia Reports on Ruakura and Implications 1 Summary BERL s review process and foundation Review process Experience of the BERL team The Issues Approach Outcomes of the review Castalia Reports methodology Castalia analysis framework Proposition 1: Need for 405 ha release now in RPS Proposition 2: The Land release should be evaluated against three RPS objectives Regional economic impact of the Ruakura development Assessment of Castalia methodology BERL high level assessment of Ruakura BERL professionals qualification to review Ruakura High level assessment BERL assessment of review issues The quantum impacts of the Ruakura inland port and logistics hub The logic of the Ruakura hub from a freight and logistics perspective Ruakura and net demand for industrial land Will the initial allocation of industrial land irrevocably affect the eventual scale of the development? Certainty or uncertainty of need for infrastructure investment Other observations on potential costs, benefits and externalities Appendix: Waikato Land Use reports Review Ruakura Industrial Land Release Waikato Regional Council April 2012

52 1 Summary This report has been prepared by BERL for Waikato Regional Council. BERL has been engaged to complete a review of reports and other materials in order provide a sound professional assessment of the main issues and factors around industrial land release in the Waikato Regional Policy Statement. The report which is to be the specific subject of this review is by Castalia Ltd, titled Industrial Land Release in the Waikato Regional Policy Statement: An Evaluation of the Impacts at Ruakura. We also show the range of experience of the BERL team, Kel Sanderson and Jason Leung-Wai, as being sufficient to provide a professional assessment of these issues. In our interaction with the Council during the course of completing this review, we have been encouraged in the view that the big picture assessment by the BERL team is more important than particular comments we may have as economists on aspects of the Castalia economic analysis. Overall, we find our economists concerns with some aspects of the Castalia analyses of the benefits do not threaten our assessment of the probable technical and economic value of the Ruakura development as an addition to the Waikato Region s economy. We provide a high level assessment of these impacts. The specific issues assessed are as follows. 1. The quantum impacts of the Ruakura inland port and logistics hub. This impact is estimated in Castalia 2012 at 11,000 jobs to 2061, and net economic benefits of $5.4 billion. We assess that the indication of 11,000 additional jobs created by 2061 is in the order-of-magnitude of what would be expected in a development of this scale. We find the measurement of the present value of the stream of benefits to 2061 and comparison of that with a snapshot GRP at present is not comparing like with like. However we investigate the snapshot impact in 2061, and show that this difference does not destroy the value of the development. 2. The logic of the Ruakura hub from a freight and logistics perspective. We note that the functions of import and distribution logistics are at least as important as export flows. We note evidence that Waikato is at the focus of imports and export flows, and that Ruakura has most of the characteristics found necessary for successful inland ports and logistics hubs internationally. We also note evidence that there are pressures of congestion and land values that are expected to, in time, force the warehousing, transport and logistics functions out of South Auckland. A state-of-the-art logistics hub at Ruakura could bring such re-location about. 3. Ruakura and net demand for industrial land. We review the Future Proof projections of industrial land demand in the nodes around the sub-region. We assess that as the Ruakura hub will be bringing a new activity and function to the region, it will be largely 2 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

53 creating an additional demand for land. Some of the expansion of demand for industrial land that would otherwise have moved to other nodes in the sub-region may be attracted to locate at Ruakura. However there are a number of factors which indicate that much of the expansion of demand for industrial land will continue to be in these nodes. We also note that the expansion in economic activity at Ruakura will increase demand for business services. We note that sound planning and development of the Hamilton CBD, and its effective transport links with the Ruakura Hub should ensure that these increased business services are provided by businesses located in the Hamilton CBD. 4. Will the initial allocation of industrial land irrevocably affect the eventual scale of the development? Our assessment is that, because of the strong master-planning of the development by the two dominant owners of Ruakura land, that the development is likely to be attractive to businesses as a logistics location. The substantial investment in infrastructure by the owners needed to launch the development signals their long-term commitment to ongoing expansion. From a Regional Policy Statement (RPS) land allocation viewpoint, the 10-yearly review of the RPS indicates that the land could be progressively released. Having said that, we note that there is little risk to early land release. Again, because of the high investment in infrastructure that will be made by the Ruakura developers, there is little risk of abandoned ad hoc developments, or of public sector investment in infrastructure which then becomes under-utilised. 5. Certainty or uncertainty of need for infrastructure investment. We note that the decision to proceed with the overall Ruakura Estate development could be expected to have a positive impact on the funding decisions around the Hamilton Bypass section of the Waikato Expressway. The Ruakura intermodal terminal is expected to increase road freight flows which would improve the economics of the Expressway. The Expressway is a Road of National Significance (RoNS) and a decision by NZTA and the Minister to fund a RoNS takes account of broader benefits. Ruakura provides some of those benefits, including higher density land use and thus a positive impact on urban transport mode use, protection of the corridor within the Ruakura masterplan, and potential to increase productivity and exports. Investment in industrial infrastructure in other nodes is expected to require monitoring as would be the case without Ruakura. 6. Other observations on potential costs, benefits and externalities. The main potential externalities the BERL team see from a professional viewpoint are two. Firstly around the optimum land use and urban form in the Region, especially in relation to Hamilton City, its CBD and the potential for the Ruakura Estate development to increase, and bring forward demand for a more comprehensive Public Transport system. Secondly, at a national level that potentially the Ruakura logistics hub, in close proximity to the Innovation Park and with other factors, provides a new and/or unique opportunity to add value to a range of exports, especially food exports. 3 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

54 2 BERL s review process and foundation The Waikato Regional Council has engaged BERL to complete a review of reports and other materials in order provide a sound professional assessment of the main issues and factors around industrial land release in the Waikato Regional Policy Statement (RPS, specifically on Policy 6.13 of the proposed RPS) which implements the Future Proof land use pattern. The main question to be addressed is the way the RPS affects and is affected by the impacts of the proposed Ruakura intermodal terminal and logistics hub. The report which is to be the specific subject of this review is by Castalia Ltd, and titled Industrial Land Release in the Waikato Regional Policy Statement: An Evaluation of the Impacts at Ruakura. There are two versions of this report which have been provided, namely one dated December 2011, and one dated February We shall work mainly from, the most recent, and refer to it as Castalia (2012). A further report was tendered following completion of our main work on the review. This is titled Commercial and Economic Rationale for the Ruakura Inland Port and Logistic Hub - Consolidated report to Tainui Group Holdings Limited, March The economic section of this does not appear to differ from the earlier versions. 2.1 Review process The methodology is limited by the function required, namely a peer review, and by the resource available. The major part of the work has therefore been focused on the Castalia report(s) and the range of reports and material supporting the analyses carried out in those reports. Because of the importance of the assumptions made, and recommendations brought forward on industrial land use, the BERL team have obtained the main reports of the Future Proof group. These include the Property Economics report Future Proof Business Land Data Assessment, and Latitude Planning Services Ltd Future Proof Business Land Review. Reference was also made to the population projections and economic reports underlying these and the Castalia reports. BERL carried out analyses on these projections and economic parameters to test their levels, consistency and robustness compared with other information and BERL analyses. Hamilton City planning documents were reviewed including Hamilton Urban Growth Strategy: A Compact and Sustainable City. BERL s existing knowledge was refreshed on the NZTA intentions in Waikato, particularly with regard to the Waikato Expressway RoNS, and its network plan. BERL is aware of New Zealand s overall transport strategy being pursued by NZTA as a result of a range of work in the area. Other aspects requiring review research was present-day international findings on the progressive sophistication of intermodal terminals. This shows a progressive level of service 4 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

55 delivery and value-adding from simple intermodal terminals, through to inland ports, logistic hubs, and Export-Free Zones, referred to as Foreign Trade Zones (FTZs) in some countries. With this review information in hand, the BERL team carried out high-level assessment of the Castalia reports and then explored and tested these with the main stakeholders, namely Tainui Group Holdings Limited (TGHL), Waikato Regional Council (WRC) and Hamilton City Council (HCC). The briefing at TGHL provided us with the comprehensive report Ruakura Estate: Strategic Directions and Master Planning Report, September The work for this report was completed for Ruakura majority land owners TGHL and Chedworth Park Limited by Boffa Miskell Limited in association with the team of Cardno TCB, Traffic Design Group, Holmes Group, and Tonkin and Taylor. BERL has knowledge of and/or worked with all of these professional groups over the years, and consequently has confidence in the quality of the content in this report. As a peer review, there was insufficient resource to carry out further basic research with a range of stakeholders. However we do not believe that such research was necessary in order to answer the review questions. Given our pre-existing knowledge in the areas of transport, freight flows and value chains, economic development and urban form, taken together with our review of other sources, the information from key stakeholders and a field briefing, our assessment was that we had sufficient knowledge to provide authoritative answers to the questions. This BERL review has tested the assumptions and findings of the Castalia reports, and related matters, and the findings will allow WRC to effectively challenge and/or support the submissions to the RPS Hearing. 2.2 Experience of the BERL team The BERL team of Kel Sanderson (team leader) and Jason Leung-Wai have the professional expertise and experience to complete this review. Kel has been actively involved in economic development supported by his research evidence in a number of developing countries and New Zealand for over forty years, and Jason has been involved in economic policy work and applied development research for sixteen years. In recent years they, working with other BERL economists, have carried out a large body of related research in the Regions of Auckland, Bay of Plenty, Waikato, Wellington and Taranaki as well as all urban areas across the country. In this work they have pioneered effective analyses of integrated urban developments, particularly those stimulated by transformational transport investments. Various projects which now comprise a considerable body of work have been funded by Cities, Regions, Economic Development Agencies, Local Government NZ, the NZTA research fund and FoRST/MSI. 5 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

56 2.3 The Issues The specific questions to be researched are: 1. The quantum impacts of the Ruakura inland port and logistics hub. This impact is estimated in Castalia 2012 at 11,000 jobs to 2061, and net economic benefits of $5.4 billion. 2. The logic of the Ruakura hub from a freight and logistics perspective. This needs exploring in the context of freight needs in the northern North Island, especially as determined in the National Freight Demand Study Ruakura and net demand for industrial land. The related questions are: will the hub generate new demand for industrial land? Or will it purely be demand that is diverted from: a) the rest of New Zealand? or b) other Strategic Industrial Nodes in the Future Proof area? 4. Will the initial allocation of industrial land irrevocably affect the eventual scale of the development? 5. Certainty or uncertainty of need for infrastructure investment. The anticipation of future industrial development is necessary for Waikato Regional Council to provide for infrastructure investment integrated with land use change. The main consideration here is whether the future scale of the Ruakura hub will make the need more certain, or less. 6. Other observations on potential costs, benefits and externalities. BERL is invited to explore other aspects and opportunities related to the core questions on land use. 2.4 Approach In our interaction with the Council during the course of completing this, we have been encouraged in the view that the big picture assessment by the BERL team is more important than particular comments we may have as economists on aspects of the Castalia economic analysis. We therefore in Section 3 briefly describe and critique the Castalia methodology. In Section 4 we then provide a high level assessment of the impacts of the Ruakura intermodal terminal and logistics hub, with some awareness of the impacts of the overall Ruakura Estate development. In Section 5 we address the specific questions contained in our review scope. 6 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

57 2.5 Outcomes of the review The Council will have a high level assessment of the main impacts of the Ruakura development. For each of the six areas detailed above, we shall: present the information assembled on each point and where relevant compare that with material presented in the subject Castalia Report; come to an assessment on each point, and draw overall conclusions where possible. Where our investigations and exploration uncover new aspects that are worthy of investigation, we shall outline those and a suggested approach to further investigation. The outcome is that Waikato Regional Council staff will have defensible information to support them at the RPS Hearing. We shall be available to attend Hearings or make presentations to explain and defend our analyses 7 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

58 3 Castalia Reports methodology We have been asked for a professional assessment of the Castalia reports on the impacts at Ruakura relevant to the industrial land release proposed in the Waikato Regional Policy Statement. In providing this professional assessment, we have been encouraged in the view that the big picture assessment by the BERL team is more important than particular comments we may have as economists on aspects of the Castalia economic analysis. With this approach in mind we now provide a brief review of the Castalia methodology. 3.1 Castalia analysis framework The economic case in the Castalia reports is based on two main propositions, and an impact estimate. We state these components and then briefly review each in turn. 1. Proposition 1: That it is necessary for the whole area of the 405 hectares to be released from the beginning so that the full benefits can be obtained; and 2. Proposition 2: That the full release of Ruakura land should be evaluated against three of the Objectives of the RPS, namely a. Managing the built environment b. Efficient use of resources, and c. Promoting amenity values. 3. Estimates of the impact of the Ruakura development on the Regional economy can be measured by a. Assessing a number of other inland ports as a natural experiment to throw up an estimate of the total jobs expected to be created; b. By estimating the size of the economy in 2061 without Ruakura, and with Ruakura, and ascribing the difference to the increase generated by Ruakura; c. Discounting back to a present value today the future stream of increases generated by Ruakura, and showing the share of the present economy of the Region which is represented by that net present value 3.2 Proposition 1: Need for 405 ha release now in RPS The first proposition develops a logic chain as follows: Full release now of 405ha in the RPS is necessary To enable Master Planning, which is necessary to Establish an inland port, which is necessary to Attract the logistics activities to create a 8 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

59 Logistics Hub, that will Encourage light industrial manufacturing We do not have a problem with the logic chain. However, we do not believe that it is essential that the full 405 hectares of industrial land be released at this time. The development has characteristics that indicate that the Masterplan of the Ruakura development will be staged and can be successful as well as being accommodated by the intended review every 10 years of the RPS. We provide further justification for this view in section 5.4, but also indicate that there is little risk in full allocation at the present. We agree that the ability to Masterplan is essential to achieve success in attracting the logistics activities. The tight ownership of the land, and the fact that the development is consistent with Hamilton City and Future Proof intentions, implies that the necessary increased areas of industrial land would be released by future 10-yearly reviews of the RPS in any event. 3.3 Proposition 2: The Land release should be evaluated against three RPS objectives The objectives are a. Managing the built environment b. Efficient use of resources, and c. Promoting amenity values. These three objectives of the RPS are not the only parameters by which the Ruakura development should be evaluated. The Growth and Development Issues that Waikato Regional Council take into account when evaluating options for the Hamilton Sub-regional Growth Strategy number at least thirteen, and these do not specifically include the above. The main areas of interest to Waikato Regional Council are to identify constraints, and opportunities for environmental improvement. In regard to land release, this relates particularly to the location of different activities, and being aware of unintended consequences. Some of these are considered by Castalia in terms of externalities. A key area where the Ruakura project will have an impact impinges on the Waikato Regional Council concern to preserve infrastructure corridors, and efficient use of transport and energy. These interests revolve around achieving compact urban form, and include aiming to achieve transport behaviours similar to those in inner Wellington and Auckland, namely encouraging 9 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

60 use of Public Transport and Active Modes. 1 This is an important aspect of the potential Ruakura impact on Waikato and Hamilton which Castalia has omitted. The analyses produced in the Castalia reports do not seem to show conclusively that the land release will further the objectives of managing the built environment, and promoting amenity values. However BERL s discussions with the relevant stakeholders indicate that the Ruakura development is broadly consistent with the above three objectives. 3.4 Regional economic impact of the Ruakura development The Castalia reports take the approach that the impact of the Ruakura development on the Regional economy can be measured by a. Assessing a number of other inland ports as a natural experiment to throw up an estimate of the total jobs expected to be created; b. By estimating the size of the economy in 2061 without Ruakura, and with Ruakura, and ascribing the difference to the increase generated by Ruakura; c. Discounting back to a present value today the future stream of increases generated by Ruakura. The present value of this future stream is then expressed in comparison with the size of the present economy of the Region. We have some concern about this comparison not being of an apples with apples type of comparison and outline that concern in section Assessment of Castalia methodology Overall, we find our economists concerns with some aspects of the Castalia analyses of the benefits do not threaten our assessment of the probable technical and economic value of the Ruakura development as an addition to the Waikato Region s economy. 1 Sanderson, Kel, Jason Leung-Wai, Dr Ganesh Nana, Mat Arcus, Wellington Transport package: Social and Economic Impacts, BERL and Wellington Transport Project Group (GWRC), October Review Ruakura Industrial Land Release Waikato Regional Council April 2012

61 4 BERL high level assessment of Ruakura 4.1 BERL professionals qualification to review Ruakura The BERL professionals completing this review are familiar with the Waikato Region, with Hamilton City and the place of Hamilton in a link with Auckland and Tauranga in what has been called the Golden Triangle. BERL is also aware of the Upper North Island Strategic Alliance (UNISA) which is a mix of urban and rural economies. The UNISA s overall objective is to work together to maximise sustainable development opportunities for all of UNI and its contribution to New Zealand. BERL, with Ascari and Richard Paling completed the MED Economic Linkages (Auckland-Hamilton-Tauranga) report 2 which indicated some strategic opportunities for UNISA. The same group of researchers has also completed a study on transport and economic development in Bay of Plenty (2011). The BERL professional staff have completed a field visit, reviewed a range of reports and had discussions with the key stakeholders relating to the development of Waikato Region, Hamilton City, and especially the potential impacts of the Ruakura Intermodal Terminal, logistics and industrial development. BERL has also done and is doing a considerable range of research in the related topics of urban form and density; transformational transport investments; determinants of demand and supply of Public Transport (PT); energy costs and transport modal use; urban industrial, commercial and residential land values; and the interaction of the above on land use and the industry profile of workplace employment in urban areas. 3 It is from this position of professional knowledge and information that BERL has been able to arrive at an overall, high level assessment of the Ruakura Intermodal Terminal, industrial and mixed-use node, and thus the implication for release of industrial land in Waikato Region under the RPS. 2 Paling, Richard, Kel sanderson, John Williamson, Economic Linkages between New Zealand Cities, Min. Economic Develo0pment, December Kel Sanderson et al (BERL) and Vince Dravitzki et al (Opus) Transport, Energy and Urban Form The future. A programme measuring relationships between land value, land use, urban form, size and density, and modal transport use across urban New Zealand. FoRST/MSI research programme, Review Ruakura Industrial Land Release Waikato Regional Council April 2012

62 4.2 High level assessment The Future Proof plan is sound and will continue BERL has reviewed the Future Proof set of research and analyses of future demand for industrial and commercial land in the Future Proof sub-region of Waikato. We have subjected the Property Economics and Latitude Planning Services Ltd reports and their background data on population and economy to scrutiny and cross-checking analyses. We are consequently in agreement with the analyses of the future demand given the present available information. We are also of the view that the move towards higher density and mixed-use urban form is consistent with mitigating the expected future increase in energy prices, and the move to greater use of active modes of transportation and PT. We are aware that these underlying strategies are a part of longer-term intentions of Hamilton City and others in the sub-region as well as being consistent with New Zealand s transport strategies being pursued by NZTA The Ruakura development is additional and has Economic and Urban benefits In our view, the Ruakura Intermodal Terminal and associated logistics hub is a fundamental addition to the economic activities in the Region. The Ruakura project will act as an enabler of activity, and will be of such significance that it should be decoupled from the Future Proof estimates of demand. That is the activity generated from this project would be new activity, generated as a result of the infrastructure development and marketing (apart from some development around the Waikato Innovation Park and university). The situation is unique, in that the vast majority of the Ruakura area available for development is controlled by two owners. This allows the current opportunity, where the development of the area can be planned and staged. From an economic development perspective, this project ticks all the right boxes, particularly in relation to funding, but also in relation to fit. The key therefore is how to support the project while ensuring that the negative outcomes are minimised. From a regional council perspective, the potential negatives are limited to efficient use of resources, environmental and congestion effects. The regional council sets the high level parameters in terms of the RPS. In this instance, the volume of land in the Ruakura area that is available for industrial development. Hamilton City have indicated that the creation of additional employment in the urban area, especially on the east side of the River is fully consistent with their intentions. This includes the Live-Work-Play agenda. 12 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

63 4.2.3 Ruakura ability to attract new activities The main development at Ruakura will be around new activities, in particular state-of-the art logistics nodes targeted in the first instance at some major importing chains presently located in South Auckland. This activity would not otherwise locate in the Waikato. There are a number of aspects of the Ruakura development that indicate that it will that lead to increases in efficiency in major industries, greater economic activity in Waikato Region, and stronger urban form in Hamilton City, and its CBD. These aspects are that: 1. Ruakura is looking to attract some major distribution and retail chains that established their logistics bases in South Auckland some years or decades ago. The access to these sites has been degraded with Auckland s subsequent sprawl. 2. Some respite was gained by offering an alternative import route through Port of Tauranga and their inland Metroport in South Auckland. Two key players behind Port of Tauranga Metroport, Mike Pohio and Tony Boyle, are also key players in the planning and operation of the Ruakura intermodal terminal. They can be expected to take the sophisticated technology introduced at Metroport to another level in the Ruakura terminal. 3. The Ruakura development will give existing importers the opportunity to shift from older, outdated technology into a new level of innovation, increasing productivity. These increases in logistics productivity can in time also then benefit export industries. 4. The Ruakura development, through re-location and development of infrastructure, is a substantial investment that will be carried out by the two dominant landowners of the development area. These landowners will only invest if successful development is assured, and public investment funds are not shouldering the full burden. 5. The Ruakura area is recognised as an important extension to Hamilton City by its absorption into the City. The need for increased employment on the east side of the River has been recognised in Hamilton City s plans, and the stimulus of the mixed use developments on Ruakura land will create an urban centre that strengthens the settlement hierarchy to support the university and Innovation Park. 6. The last point provides for a complementary strengthening of Hamilton s CBD as the commercial office centre to service the growing Regional economy It could also lead to a justification for a higher-frequency PT spine along the Ruakura-CBD-The Base route. 13 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

64 7. The Ruakura development provides a range of broader benefits and thus strengthened justification for early funding and construction of the Hamilton Bypass section of the Waikato Expressway as a RoNS, to the benefit of the Region. These broader benefits include higher density land use and thus positive impact on urban transport mode use, protection of the corridor, and productivity and export benefits BERL s review of Castalia estimates do not threaten the Ruakura value BERL has been requested to review the Castalia estimates of the benefits of the Ruakura development. We have investigated these in some detail, and make comment accordingly in our review. To fully reconcile the Castalia numbers would require some considerable work and additional resource. We find that the creation of 11,000 jobs by 2061, as found by Castalia, is of a credible orderof-magnitude from the development of this terminal, logistics hub, industrial development and integrated urban area and settlement. In relation to this 11,000 jobs in 2061 the increase in the Gross Regional Product (GRP) by $1 billion in 2061, (from $84.5 billion without full-scale Ruakura, to $85.5 billion with full-scale Ruakura) we find to be somewhat smaller than we would expect. This is because, as we show below, the $1billion additional GRP from an additional 11,000 jobs implies that the average GRP per employee is only about the same level ($90,000 plus per year) as the average of all New Zealanders today. This high level view of the Castalia projection implies that there is little if any real (inflation-adjusted) increase in productivity per employee assumed between now and This is a very harsh assumption. These GRP numbers are projected from rather gross macro-economic variables, rather than estimates of increased direct and indirect employment and the impacts across the regional industries. Nevertheless, reduced to the high-level comparison, an increase by $1 billion GRP, and a (presumably net) increase in employment reflects a GRP per additional employee of under $91,000 per annum. The average GDP per employee for the total workforce in New Zealand at present is about $93,000 per annum. The Castalia figures are for a year 50 years hence, and so the potential scenario at that future stage could be orders-of-magnitude greater increases if industries and the country take advantage of the opportunities created. We have some difficulty with Castalia comparing the Net Present Value of the flow of increases in GRP, ($4.4 billion) with the snapshot annual GRP in 2009 ($16.9 billion). However the fundamental logic of the values of the development mean that querying this particular statement of an increase (which is equal to 25% of current GRP), does not threaten the value of the approval of the Ruakura land use to the Region. 14 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

65 5 BERL assessment of review issues This section reviews the six specific questions in our brief. 5.1 The quantum impacts of the Ruakura inland port and logistics hub. This impact is estimated at 11,000 jobs to 2061, and net economic benefits of $4.4 billion Ruakura hub will generate 11,000 jobs to 2061 In the Castalia reports, this number is referenced to the Future Proof Implementation Committee Submission to the Proposed Waikato Regional Policy Statement (November 2010) ( High Scenario ). They have however said that We estimate that Ruakura will directly and indirectly create 11,000 jobs by 2061 to operate the inland port facility and work in colocated businesses. We therefore presume that the 11,000 figure was estimated by Castalia. The number of 11,000 jobs created directly and indirectly appears the right order-ofmagnitude for the area of industrial land of 405 hectares. The direct employment on that land would in our experience be expected to average at least 20 jobs per hectare in these industries giving a total of 8,000 jobs. The indirect employment in these industries (shown by the relevant multipliers) would be of the order of 1.5 for every directly employed job, which would indicate approximately 12,000 jobs created directly and indirectly from this development. The employment density could be significantly greater in value adding activities, which indicates that a figure of 11,000 jobs is not over-optimistic, and is in the correct order-of-magnitude. This view is arrived at as a result of a range of work on employment generated in transportrelated integrated urban development in New Zealand, especially that on the Eastern Transport Corridor, Auckland (2004) and the Auckland Manukau Eastern Transport Initiative (AMETI), in The next question is whether it is reasonable to expect an additional 11,000 direct and indirect jobs to be created in the Ruakura area in freight, logistics and value adding activities. In the main goods producing and handling areas in Auckland there are 45,000 people employed directly in warehousing, transport, and storage, and a further 50,000 in processing, manufacturing and communication services. The 8,000 we suggest could be assumed in the Castalia analysis to be directly employed in the industrial hub at Ruakura is only about onetwelfth of the number in similar occupations in the main industrial areas of Auckland. 4 Kel Sanderson has led teams at BERL working in the area of Land transport and integrated urban development with wider impacts on a range of projects including : Auckland s Eastern Transport Corridor 2004; SH20 Waterview, and AMETI 2008, Auckland; Wellington Region Transport Package; Transmission Gully, Cross-Valley link, Hutt City Review Ruakura Industrial Land Release Waikato Regional Council April 2012

66 Again, the assumption of 8,000 people to carry out these functions in the core hub at Ruakura appears to be of a credible scale. As to the specifics of whether 11,000 would be employed directly and indirectly in the activities at the intermodal terminal and associated logistics and other functions at the Ruakura Hub, by 2061, that requires a level of specific project investigation beyond the information and/or resource we have available Ruakura hub will generate net economic benefits of $5.4 billion to 2061 Comparing like with like to 2061 The method of analysis confuses the issue somewhat. The Gross Regional Impact Analysis reported in Table 5.1, Page 20 of the Castalia February 2012 report quotes the Absolute Gross Regional Product in 2061 at $NZ 84.5 billion, with a small scale Ruakura development. This estimate is arrived at starting from the 2009 GRP of $16.89 billion, and Using employment, economic, and population growth assumptions they projected the components of GRP to We assume that these estimates are all adjusted for inflation, i.e. at present day, or 2009 prices. Castalia have used population and economic projections to show an increase in GRP from $16.89 billion to $ 84.5 billion in 52 years. This is a scale increase of exactly five times over the 52 years. This appears a high multiple, as it is a compound growth rate of about 3.15% per annum throughout the 51 years. The projections of employment and households in the Property Economics report indicate approximate doubling of population over this period. Taking account of the population increase by 100%, the GRP per capita, or per employee is about 300% increase. This implies a compound growth rate of productivity increases by 1.85% per annum which is a high achievement. In the long term, New Zealand does well to achieve productivity increases of 1% per annum. In general the actual projections of GRP would appear to be somewhat high, but this does not necessarily destroy the comparison with and without the full-scale Ruakura. The increase estimated is that the full-scale Ruakura will increase the absolute GRP in 2061 by $1.0 billion in that year. This is an increase by 1.2% in that year. The Castalia analysis then shows the discounted present value of the time-series of GRP generated annually from 2019 to These discounted cash flow figures are in effect the capital value of that future flow of GRPs. These are shown for the small-scale Ruakura at $331.1 billion, and the full-scale Ruakura, $335.5 billion. The difference due to going to Full scale Ruakura is thus shown to be $4.4 billion. Note this is an increase in the Present Value of the future income stream by 1.3%. That is all fine, but Castalia then moves on to compare this capitalised sum of $4.4 billion with the present single-year income flow of $16.89 billion. This indicates that the difference due to 16 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

67 the full-scale Ruakura is about 25% of present GDP. The Net Present Value (or capital sum) of a future income stream can be compared with the Net Present Value of the costs e.g. investment to achieve that income stream. They cannot be compared with a single year flow of income. The amount of the increase We have shown that the snapshot GRP in 2061 includes the effect of 100% increase in population and employment and productivity increase of 1.85% per annum compound. The latter is optimistic but not outrageous. The next question that arises is whether the $1.0 billion increase in GRP in 2061 is consistent with an increase in employment by 11,000 jobs by This figure implies a figure of GRP per employee by 2061 of about $91,000. The assumption of 1.85% productivity increase per annum implies that productivity per employee in 2061 will be equivalent to a present day GDP per employee of about $35,000 per annum. However the present GDP per employed person in New Zealand is over $90,000. Looked at the other way around, an increase by $1 billion GRP, and a (presumably net) increase in employment by 11,000 people reflects a GRP per additional employee of under $91,000 per annum. Given that the average GDP per employee for the total workforce in New Zealand at present is about $93,000 per annum. this high level view of the Castalia projection implies that there is little if any real (inflation-adjusted) increase in productivity per employee assumed between now and This is a very harsh assumption. We conclude that the estimate of the increase in GRP due to the Full scale Ruakura does not appear to be consistent with the Full scale Ruakura generating an additional 11,000 jobs. Taking each analysis separately they appear to be conceivably in a reasonable order of magnitude, however doing a cross-check on a reality basis shows they are not completely consistent. Our impression is that the increase in GRP in the year 2061 by just 1.2% is lower than we would expect from a substantial change in the function of the Waikato economy consequent on the location of the intermodal hub at Ruakura, and the creation of an additional 11,000 jobs. This hub, and the consequent expansion of value adding and industrial development, as well as the commercial expansion in the Hamilton CBD to support it would be expected to increase the size of the Waikato regional economy by significantly more than 1.2% after 51 years. 5.2 The logic of the Ruakura hub from a freight and logistics perspective. The logic for Ruakura to operate as a freight and logistics hub is sound, and illustrates a relatively high level of development of the intermodal terminal concept, into that of a state- 17 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

68 of-the art servicing of an inland port with high connectivity to a sophisticated well-planned logistics hub. In considering the freight and logistics logic of the hub it is most important to consider both the import and the export freight flows, as well as the interaction between them, especially in terms of container flows, ship calls to ports and the like. The initial target of the Ruakura facility is improvements to import flows and logistics of distribution around New Zealand. This aspect was recognised as important in a recent Bay of Plenty strategy study by the Bay of Connections group. The other aspect is the container flows for exporters, and the efficiencies of intermodal terminals as distinct from trucking containers direct to port. Fonterra has established an intermodal terminal at Crawford Street Hamilton, which presumably indicates that this is a more efficient option than direct trucking to port International types of intermodal terminals The BERL team s appreciation of the international developments over recent times is that there has been an evolution of the progressive level of service delivery and value-adding in different types of intermodal terminals. These can be thought of as a simple site for intermodal transfer road:rail; road/rail:ship (ports); and more specifically, inland ports. Some of these have expanded their function to facilitate increased services as logistic hubs, and specific value-adding as Export-Free Zones, referred to as Foreign Trade Zones (FTZ) in some countries. The Export Fee Zones were an innovation mainly in developing countries to provide infrastructure, factory shells and semi-skilled labour to simple value-adding international manufacturing activities. An extension of the concept can be incorporated in inland ports. An important development of the inland port concept has been to integrate into its operation state-of-the-art logistics hubs to increase the efficiency of distribution of imports and locally produced goods around the country. The characteristics which enable an intermodal terminal to function as an important inland port include: Major population centres within relatively close proximity; Rail corridor(s) to major seaport(s); Quantities of reasonably priced labour and industrial land for warehousing and distribution; Clear governance/ management planning, and/or tight ownership; Customs controlled or free status, e.g. FTZ; Regional/ local government climate positive to inland port development. Such inland ports can develop the connectivity, especially with advent of Ultra Fast Broadband (UFB) such that connectivity and logistics advantages alone can attract major 18 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

69 retail chains to inland ports. An example is the incorporation into the CenterPoint Intermodal Center near Chicago, of a Walmart 34 hectare import distribution facility and logistics hub. 5 Providing a range of employment opportunities, such integrated, mixed use urban developments have been shown overseas to be able to include a range of quality residential opportunities Ruakura s services as an inland port and logistics hub The existing inland ports in the northern half of the North Island are Wiri Inland Port, operated by CONLINXX for Ports of Auckland Limited (POAL), and MetroPort Auckland, an operation of Port of Tauranga (PoT). Wiri operates largely as a simple intermodal terminal, while MetroPort Auckland provides a higher range of communication with vessels, transport and port services. MetroPort is Customs bonded and MAF approved, with on-site fresh produce quarantine inspection facilities etc. Both of these inland ports are located in the heart of Auckland s industrial belt. While this has been an advantage in the past, the level of increasing transport congestion and increasing real estate values in this area are tending to encourage re-location of the transport and logistics functions out of this area to improve access and connectivity. The area has been recommended for increased capacity for logistics and transport for decades, beginning with the De Leuw Cather report (1965), but the key element required, the East-West corridor is only now re-emerging as a possible Auckland investment. The core area here comprises nearly half of the capacity of Auckland region s goods producing and handling industries. 6 The advent of UFB, and therefore a much higher level of connectivity along the logistics and value chain is presenting importers and exporters alike with the opportunity to improve their logistics by retiring their obsolete systems and facilities and moving into a better-located, more modern hub. Ruakura has the opportunity and the knowledge, given that two of the executives were involved in establishing Metroport Auckland, to establish a state-of-the art inland port and logistics hub facility. Ruakura s challenge is to encourage some key players to make the move Geography and infrastructure: The geographic position of the Waikato Region, and Ruakura s position within the Waikato Region, which with rail access to POAL and PoT, provides a balanced option for imports. The 5 The Port moves Inland, Journal of Commerce, September 13, Sanderson, Kel Strategic benefits of an integrated East-West Corridor in Auckland s economic development- A proposal. BERL to Auckland Business Forum, November Review Ruakura Industrial Land Release Waikato Regional Council April 2012

70 Waikato is also at the locus of the main export flows in the country. 7 In terms of infrastructure Ruakura is well-placed in relationship to the two major export/import ports; the rail system and ability to utilise spare capacity at TranzRail during the weekends in particular; and the Waikato expressway. Given the accepted need for labour for the operation, the integration of some higher-density elements in the existing settlements is sound geographically and for infrastructure. There is opportunity in the longer term for New Zealand to generate a more efficient overall pattern of import and export. Key factors which could be improved are the present system where full import containers are delivered around the country and emptied. Then numbers of these empty containers are re-located around the country for filling with exports. Another matter is the ports used for export to east coast Australia. We understand that Port Taranaki is at least 24 hours less steaming to eastern Australia than POAL or PoT. There would seem to be an opportunity for improvement with some east-west flows across the North Island, especially of time-sensitive produce being re-routed through Waikato to Taranaki. Other basic factors around logistics are: Volume and shipping New Zealand will continue to import and export more. Auckland and Tauranga are the main ports in the North Island. Much of the export activity is generated in the Central North Island. Much of the imports go north of the Bombay hills (and further). Trends in shipping are for larger ship sizes and less port calls. There are constraints: Auckland is congested (Tauranga becoming more congested also). Ports of Auckland cannot increase its footprint. Existing inland ports (Wiri, and MetroPort Auckland) have been successful but are constrained by land availability and the footprint required for logistics. Demand for increased logistics service: The Just-In-Time approach is being extended into end-to-end value chains; Fully integrated communication systems allow firms global control of value chains, and importantly, visual access to flows, and to collaboration; 8 Logistics hubs increasingly have to provide UFB facilitated services. 7 Richard Paling Consulting et al National Freight Demands Study, Min of Transport, NZTA, Min Economic Development, September Sanderson, Kel, Ganesh Nana, Kelly Dustow, Transport futures economic evidence, Report to Local Government New Zealand, November Frost & Sullivan, Meetings around the world II: Charting the course of advanced collaboration. Verizon and Cisco. Silicon Valley, Review Ruakura Industrial Land Release Waikato Regional Council April 2012

71 5.2.4 Business From a national business perspective, Ruakura hub could result in freight efficiencies, through allowing them to move or receive their goods to/from markets at a lower cost, or in a more time efficient manner. Further, being similar distances from both Port of Tauranga and Ports of Auckland, it can provide more certainty around delivery (such as if there were strikes), but also provide leveraging for firms who are currently captured by one port or the other (in terms of shipping lines). Having a location with a number of geographic and infrastructure fundamental advantages, Ruakura can, at the least, generate productivity efficiencies for businesses that have a high logistics component. Re-location of empty containers and other aspects refer. The Ruakura Hub developers have the opportunity to create a logistics hub with state-of-the art UFB technology. If it can capitalise on this advantage to attract some key players to locate their import and local distribution logistics hub at Ruakura, then it could be considered to have achieved a step-change in the way logistics occurs in the North Island. These changes are made possible by improvements in technology 9, but they could also drive changes in shipping patterns. We have come to the conclusion that the Castalia reports are correct to state that with the current ownership of the dominant part of the area by two owners, they have been able to formulate a credible, integrated masterplan with business benefits including location for quality residential settlements close at hand. The Ruakura Estate project can therefore, unlock the benefits collectively, as opposed to the benefits of a fragmented development, and thus it runs a stronger chance of being able to attract import, export and logistics businesses to locate in the Waikato region Regional traffic efficiency and infrastructure From a traffic movement perspective, a major issue for Hamilton is that people live on the East of the Waikato River, and work on the West. This creates significant travel issues and therefore infrastructure investment to accommodate this pattern. By creating business activity on the eastern side of the river, this development goes some way toward balancing travel patterns, which we understand has been an objective of Hamilton City. In any case it does not add to the issue. The related matter is that the projected increased population in the Hamilton City area will increase the viability of a higher frequency Public Transport system, and thus work towards achieving a more compact and sustainable City. We elaborate on this observation in section below. 9 This includes logistics systems associated with an inland port, but also the logistics systems applied by the companies themselves. A new greenfield project such as the Ruakura Hub allows these systems to be applied. 21 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

72 As well, current freight patterns in the Waikato area are largely export focussed. For example, Fonterra exports from their Crawford Street site, requires a significant number of empty containers. An initial focus of the Ruakura Hub is on imports. This provides an opportunity for full containers to come into the area where goods are offloaded for redistribution. These empty containers can then be moved to Fonterra, a distance of a few kilometres, where they can be filled for export. This could result in large productivity improvements and reduce traffic. Waikato is at the centre for the northern North Island regions with primary industries that exert the greatest transport task in the New Zealand land transport system, namely forest and wood, dairy and livestock and meat. The task is from producers along local and regional roads, and from processing plants eventually to port. 10 The Waikato and the Ruakura Hub are well-placed to achieve efficiencies in this major transport task. 5.3 Ruakura and net demand for industrial land Future demand for industrial land The Property Economics reports have derived assessments and projections of future demand for industrial land in the existing nodes in the Future Proof area. These projections are undoubtedly sound based upon: 1. The future populations in the area being those which have been used as the basis for the projections; and 2. The future quantum of industrial land required by a given quantum of population being similar to the amount required in the past. By these assessments, the trend projections of industrial land demand are derived. This is ceteris paribus as good as we can get for projecting the demand for industrial land. However if in future any of the above assumptions change, the demand for land will deviate from the projections Population uncertainty The official Statistics New Zealand projections of population in New Zealand, and particularly in specific regions of New Zealand can be substantially different from the actual populations achieved. At a national level, these deviations are illustrated by taking the projections made in 1991 for the population in 2006, in comparison with the actual population through to Kel Sanderson, Ganesh Nana, Kelly Dustow, Transport futures economic evidence, Report to Local Government New Zealand, November Review Ruakura Industrial Land Release Waikato Regional Council April 2012

73 Projecting this into the future, the current Low, Medium, and High projections for the population in New Zealand in 2061 are respectively: 4.9 million; 5.4 million; and 6.7 million. However if the actual rate of population increase from now to 2061 were to be similar to that we achieved from 1991 to 2006, the population in 2061 would be approximately 8 million people. Where the actual population tracks from now on, according to any of the three options mentioned, will undoubtedly have an impact on the demand for industrial land in Waikato Region Patterns of industrial land use uncertainty The Future Proof analysis is likely to give good approximations of the demand for industrial land in the nodes in the Future Proof area providing the pattern of industrial land use within Waikato Region, and in the broader geographic area of the Upper North Island. If however the pattern of spatial location of industries and industrial functions in the upper North Island changes, the projection of demand for industrial land in the Future Proof area could change significantly. Our assessment upon investigating the planned Ruakura development is that the Ruakura development is designed very specifically to change the pattern of freight flows, of logistics functions, and to increase the quantum of value adding function in the upper North Island. Therefore a part of the industrial land created at Ruakura will be created specifically to supply the land needed for the land use and functions that are different from the trend projections of industrial land uses in the Future Proof area Ruakura industrial land use a creation or diversion? The main questions of concern to the Waikato Regional Council and to Future Proof are: will the hub generate new demand for industrial land? Or will it purely be demand that is diverted from: a) the rest of New Zealand? or b) other Strategic Industrial Nodes in the Future Proof area? It is not possible to be completely certain on this issue. Even with quite detailed investigation of the current nature of industrial land use in each of the Strategic Industrial Nodes, and the nature of the projected increases in industrial land use, the matter would still be open to conjecture. There are two or three considerations that inform a view on this: 1. The Ruakura Hub is aimed at developing transport and logistics, and probably valueadding activity which is new to the Waikato region. To some extent it is intended to re-locate some activity from South Auckland, however congestion and real estate prices are likely to force this re-location somewhere else anyway; 23 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

74 2. In the Strategic Industrial Nodes in the Future Proof area, a considerable amount of the increased land use is presumably by expansion of existing firms located in those nodes, and they are not likely to re-locate to Ruakura. By the nature of industry location, there are a number of industries which are composed of a number of firms (or branches) which require to be located in any industrial node. These activities cannot be centralised in one location, e.g. Ruakura. 3. The nature of the intermodal transport and logistics hub at Ruakura will not necessarily be attractive to all types of industries as an industrial environment. Such industries and businesses can be expected to be distributed around the range of nodes in the region. Our assessment therefore is that there will be a considerable creation of demand for the specific industrial land in the Ruakura Hub, and there may be some diversion of industry from other nodes. However there will also be demand for servicing industries, some of which can be expected to locate in other nodes. The balance could well be some small reduction in net demand for industrial land in other nodes. The key to testing and verifying this is whether or not the Ruakura hub is designed such that it will generate new types of economic activity because of the scale and type of freight and logistics activities at the hub. If there is sufficient scale and density of industry employment at the hub, it may be shown to generate agglomeration benefits. Looking beyond the demand for industrial land and considering also the demand for commercial land, the industrial businesses located in the Ruakura Hub will significantly increase the demand for the range of business services. Sound planning and development of the Hamilton CBD, and its effective transport links with the Ruakura Hub should ensure that these increased business services are provided by businesses located in the Hamilton CBD. Of more direct relevance is the possibility that the hub could also create endogenous development of new functions and businesses within the Hub that would not otherwise occur elsewhere. This would prove the point, or not. 5.4 Will the initial allocation of industrial land irrevocably affect the eventual scale of the development? The Castalia analysis puts forward the proposition that the whole 405 hectares of land must be released from the start or the eventual scale of the development will be prejudiced. The Castalia proposition depends on the logic chain as follows: Full release now of 405ha in the RPS is necessary To enable Master Planning, which is necessary to Establish an inland port, which is necessary to 24 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

75 Attract the logistics company to create a Logistics Hub, that will Encourage light industrial manufacturing Full allocation or progressive allocation We do not have a problem with the logic chain. However, we do not believe that it is essential that the full 405 hectares of industrial land be released at this time. The development has characteristics that indicate that the Masterplan of the Ruakura development will be staged and can be accommodated by the intended review every 10 years of the RPS. The land area at Ruakura is largely in the hands of two owners; a sound masterplan has been developed; and the developments are consistent with Hamilton City strategies and plans. We therefore believe that there is a high level of certainty that the development will be completed, and this certainty should be sufficient to attract participants into the development Given that the RPS will be reviewed every 10 years, it is therefore rather extreme to take a position that if the whole area is not allocated now, the whole development will be at risk. Our assessment is that the success of the integrated urban development at Ruakura will be considerably enhanced by the node being able to attract substantial importing and distributing/retailing businesses to re-locate from Auckland (primarily South Auckland) to the Waikato at Ruakura. In order for these firms to be attracted to re-locate they must have comfort that their needs in terms of serviced land and access to transport options is available now, and will be able to expand and change as their needs change over time. To that end, the developers (TGH) need to be able to convince these businesses: 1. That there will be sufficient land and services there now; and 2. That there will be industrial land available there in future for their expansion. We suggest that these two conditions will be met if: 1. There is sufficient land designated industrial at Ruakura for TGH to complete their first stage development; and 2. TGH owns and gives a commitment to retain sufficient additional land at Ruakura that can in future be zoned industrial to meet the businesses expansion needs. The second point could be covered by the RPS indicating that as the Ruakura integrated urban development node was capable of generating its own demand for industrial land additional to the historical trend increase in demand, the release of industrial land at Ruakura in future should not be unreasonably withheld. We are fairly certain that the investment proposition improves with a higher level of release, particularly as success depends upon their ability to recover their costs through rentals. The 25 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

76 business case, and levels of profitability, will therefore be based upon their ability to realise a return on the entire 405 hectares. The benefits of master-planning the entire area, around the logistics hub, an innovation hub, and supporting industry and residential/settlement structure means that the project can develop and progress in a more orderly and controlled fashion. The outcomes will be higher than if the area was allowed to develop in an ad-hoc fashion Risks of allocating 405 hectares now The main potential risks of allocating the full 405 hectares of industrial land now is that it could result in ad hoc and partial development across the area. It could also require a greater amount of infrastructure investment than is justified by the amount of development achieved in the early stages. In the case of Ruakura we believe that because the development is by only two land-owners, and because they will be required to undertake considerable infrastructure investment themselves, there is little risk of ad hoc or pepper-pot development taking place. The Ruakura developers will have to re-align some roads, to under-ground some high-voltage power lines and other very expensive infrastructure investments. It is unlikely that they will make these investments until they are very confident of achieving completion of each stage of the development. If it became apparent at a later stage that the full 405 hectares was not required, there would be little loss in re-allocating some scheduled for later development as mixed use, or another designation 5.5 Certainty or uncertainty of need for infrastructure investment. There are two levels for considering this question. These are: 1. Will the development of the Ruakura hub increase or decrease the certainty of the overall network of infrastructure investment in the Waikato region? 2. Will the development of the Ruakura hub increase or decrease the certainty of the need for investment in industrial infrastructure (by Local Government) in Waikato region Ruakura and the Regional infrastructure network A key element in the future Regional infrastructure network is the Waikato Expressway, and important corollaries are the Expressway link with rail infrastructure, with the Hamilton CBD, and with Regional elements of public transport (PT). 26 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

77 As at present a number of sections are underway, but the timing of the funding and completion of the Hamilton Bypass section is uncertain. We understand from information from the key stakeholders, including Hamilton City (and NZTA) that discussions on the main design elements of the Hamilton Bypass, including the location of the interchanges are well-advanced. As with most projects put forward for NZTA funding, the actual decision to proceed requires a Cost-Benefit Analysis which indicates a strong Benefit Cost Ratio (BCR). The Ruakura intermodal terminal and logistics hub can be expected to increase the freight traffic coming into the hub, and thus increase transport cost savings. However, the Waikato Expressway is a Road of National Significance (RoNS) and so NZTA and the Minister take broader benefits into account. The Ruakura development provides a range of these broader benefits and thus strengthened justification for early funding and construction of the Hamilton Bypass section of the Waikato Expressway. These broader benefits increased by the Ruakura Estate development include higher density land use and thus a positive impact on urban transport mode use, protection of the corridor within the Ruakura masterplan, and productivity and export benefits. A confirmed decision to proceed with the Ruakura hub development can be expected to give a boost to the early funding and implementation of the Hamilton Bypass on the Waikato Expressway. In other words the Ruakura development will reduce the uncertainty attached to the timing and/or eventual implementation of the Hamilton Bypass, and thus the completion of the Waikato Expressway. A number of other infrastructure decisions will be consequent upon the completion of the Expressway, and certainty around those will also be increased Ruakura and investment in industrial infrastructure The anticipation of future industrial development is necessary for Waikato Regional Council to provide for infrastructure investment integrated with land use change. The main consideration here is whether the rate of development over time of the 130 hectares of industrial land at Ruakura is more or less difficult to anticipate than the rate of development of the 405 hectare master-planned Ruakura development. This can be assessed by considering the likely profile of development under the two assumptions, within the context of the general track of industrial growth in the sub-region, and the probability of the Ruakura master-plan being achieved on schedule. The Ruakura Hub is a private property development, where the private sector believes that it can realise a real return on their land as well as the required investment to develop that land. That investment includes significant infrastructure and land improvements, such as realigning of roads and power lines, and the provision of all underground assets. 27 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

78 For these elements of infrastructure, local government is required to ensure that trunk services are provided, but not the within-site infrastructure. In this case the decisions will be made by the one or two major landowners developing the hub. These landowners will be able to give a higher level of knowledge and certainty of the progress of development than would be the case if there was this development carried out at a smaller scale or by a number of individual property developers. Through the development period, the developer is best positioned to make the decision as to whether and when the infrastructure investment is required, and is unlikely to create a position where areas of property are only partially developed and utilised. This would be uneconomic for the developer. What is important from a council perspective is to ensure that the investment in infrastructure is appropriate so that the public is not left with undue negative impacts that may occur if the project did not eventuate as planned. A further consideration is that, whereas the Ruakura development is largely an additional set of industrial activities which otherwise would not be located in the Region, the site and facilities themselves may attract to Ruakura, some industrial businesses that otherwise would have located on available industrial land in other nodes in the Region. The TLAs will therefore want to monitor the industrial development taking place over time, and if necessary consider changing designation of some serviced land in the less-successful nodes from industrial to another use. This will ensure that servicing infrastructure is not duplicated and/or lying idle for long periods. 5.6 Other observations on potential costs, benefits and externalities. The main potential externalities we see from a professional viewpoint are around: 1. Optimum land use and urban form in the Region, especially in relation to Hamilton City and its CBD; 2. At a national level whether the Ruakura Hub provides a new and/or unique opportunity to add value to a range of exports, especially food exports Ruakura, urban form and the CBD We have considered in reasonable detail the place of the Ruakura intermodal transport hub in the context of urban development in the Region and relative to the Region, and Hamilton City. There could be an opinion that industrial development at Ruakura could cannibalise the commercial activity in Hamilton s CBD. Our investigations indicate that this is not likely to be the case. The main reasons for us concluding this are that the higher-level business services 28 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

79 functions, presently located in the CBD are likely to receive a boost from additional substantial businesses being located in the Ruakura Hub. However it is most unlikely that high-level business services firms like, banks, accountants, lawyers and other professionals would re-locate to a logistics hub. The logistics hub is likely to have a level of noise, in particular that would not be conducive to these businesses. In fact it could be that the higher-level management of some logistics businesses may find the collaboration with other professionals that goes with location in the CBD means that they will locate there. In fact the industrial development, and the employment to the east side of the River can be expected to strengthen development of Hamilton s commercial CBD, and of the balanced development and expansion of the City. This assessment is supported by a number of aspects in the City and Region s plans and intentions. The first point is that, consistent with long-held plans and strategies, the Ruakura area has been included into the Hamilton City. By definition this implies that the land use at Ruakura is now seen as being for urban land uses. The next aspect is that the creation of a new activity for the region in the Ruakura intermodal transport hub appears to be complementary with and a stimulus for further industrial development associated with the innovation park, and the University campus. The inclusion of some medium-density residential areas and the strengthening of the settlement hierarchy in this area east of the River seems to complement the expansion of the CBD as the office/commercial hub of the City and Region. From a traffic movement perspective, a major issue for Hamilton is that people live on the East of the Waikato River, and work on the West. This creates significant travel issues and therefore infrastructure investment to accommodate this pattern. By creating business activity on the eastern side of the river, this development goes some way toward balancing travel patterns. In any case it does not add to the issue. BERL completes a range of research analyses into urban form, density, Public Transport demand and supply, and urban industry location. This work leads us to understand that the successful development and expansion of PT use is dependent upon having relatively concentrated densities of residents, of workplace-employed and of retail and workplace destinations at nodes in an urban area. The creation of a higher-density, significant workplace employment population to the east of the River at Ruakura is expected to complement the CBD node and the retail destination at The Base, to work towards early justification for a higher-capacity spine or triangle of PT provision. Work done by BERL across the urban areas of New Zealand shows that PT use in 29 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

80 New Zealand is related to the size of urban centres and to the urban densities found within that centre. 11 In the data analysed, relative to its population, the Hamilton Metropolitan area was found to have a lower level of PT use than expected. This in turn was found to reflect population density per hectare which was lower than in other similar urban centres. The implication of these findings is that because the Ruakura Hub is expected to increase employment, it is also expected to increase Hamilton s population. The residential and mixed-use developments associated with development of the Ruakura area will increase the urban density and this can be expected to generate significant increase in PT use in that area, and potentially therefore in Hamilton City. Analysing the specifics of the drivers of demand and supply for PT in the nodes and along the main routes in Hamilton City could strengthen this understanding. This would be a positive contribution to the Hamilton Urban growth Strategy aspiration to be a Compact and Sustainable City. In at least one of the Castalia reports they talk of commercial development within the Ruakura hub. There could be considerable negative externality effects on the Hamilton CBD if commercial development at Ruakura is at the expense of mixed-use development in Hamilton s CBD. The opportunity is there for Hamilton City to ensure that commercial development is focussed in the CBD, and that the consequent agglomeration, sustainability and Life-Work-Play benefits are obtained Ruakura and the national export growth agenda There are two fundamentals that work in favour of the Ruakura development facilitating increasing the value of exports. These are: 1. The regions across the middle of the North Island produce over 50% of New Zealand s commodity freight exports; and 2. Most imports to the country come through Ports of Auckland and Port of Tauranga and are distributed across the nation from there. The Ruakura intermodal transport hub masterplan initially looks to value-adding or cost reduction in the logistics mainly of the import flow. The indirect effect will be some cost reduction and streamlining of export logistics. However, in the manner of export-free zones in other countries, the very existence of the Ruakura intermodal terminal and logistics hub may enable a greater integration of New Zealand goods for export into overseas markets. 11 Norman, David and Kel Sanderson, Relationships between Passenger transport use and urban form in New Zealand, BERL, July (Funded in the FoRST/MSI programme with Opus.) 30 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

81 Goods entering the intermodal hub will be in a Customs-controlled territory which can also be a biosecure area. In such areas in countries such as Singapore, there can be value-adding, sorting and packing functions carried out. In some places, such as the south of England, packhouses were developed to accept in produce and products from around the world, and re-stuff containers, or re-pack product to go to destination supermarkets around the country. It is possible that some combinations of products could be stuffed in containers destined for specific retail outlets in our nearer markets e.g. in eastern Australia. Recently political leaders in New Zealand and Australia have stated that they wish to reduce barriers to people, to goods and to services as between the two countries. Were this to be approached in an innovative way, it could be that the export logistics zone may encompass Australian Biosecurity screening, and Australian Customs documentation at the entrance. In this case, within that zone, as in the English packhouses mentioned above, a range of products could be packed for recipient retailers in Australia, thereby facilitating effective transit through Australian ports to the destination retailer in Australia. This would be a major step in achieving a single Australasian market and increasing transport effectiveness as well as value-adding in New Zealand. 31 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

82 Appendix: Waikato Land Use reports The reports and information available to BERL for this review include the specific Castalia Reports (the main subject of the review), a further Castalia report in the general subject area, and a number of reports commissioned and/or prepared by key stakeholders including the joint Councils organisation Future Proof, the New Zealand Transport Authority (NZTA), and Tainui Group Holdings Limited (TGH). The general timeline of the evolution of work and thinking on industrial land needs seems to be covered by the following main reports Property Economics (PE) October Future Proof Business Land Data Assessment. Report to Future Proof Partnership. 79pp This report used University of Waikato household projections 5-yeraly to 2061, for Hamilton City, Waikato District and Waipa District. The PE projections of land demand are based on the timing, quantity and distribution of growth of households in those projections. A key table is Table 10, the employment actual and projections by sector for 2006, 2008, 2021, 2041 and The main findings are in Tables 16 and 17 on pages 62, 63. They show Industrial land demand (separately for Manufacturing; Transport & Storage; Construction; Wholesale Trade; and Other) for and They have tables for employment (Employee Count); Floorspace (sqm), and land requirements (ha). They also show Commercial land demand (separately for Communication; Business services, property, finance; Health; Accommodation; Government; and Other) for and They have tables for employment (Employee Count); Floorspace (sqm), and land requirements (ha). The numbers are: Industrial +352 ha, Commercial +144 ha, Total +496 ha are: Industrial +184 ha, Commercial +71 ha, Total +255 ha are: Industrial +535 ha, Commercial +215 ha, Total +750 ha. Hamilton City was expected to accommodate 60% of the industrial land growth, and 75% of the commercial land growth. The report also contained employment by nodes by industry from 2000 to 2008, for nodes around the region, and for Silverdale and Dinsdale. Latitude Planning Services (LPS) October Future Proof Business Land Review: Summary report of Findings and Recommendations. Report to Future Proof Partners. 35pp. 32 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

83 This report referred to the Property Economics report as an Appendix. It carried out analyses of three scenarios of land use change, a Business as Usual scenario; the Future Proof Policy (as then in place) and an Economic Efficiency scenario using the Property Economics projections. This showed the gross developable area needed from 2010 to 2061 was 805 hectares. Of this 120 hectares was at Ruakura. This report also contained a table with a column headed Total Allocation currently provided in FP Table 5. This column totalled 1,233 hectares. The distributions are as follows: Nodes LPS Total as per FP Table 5 Rotokauri Frankton 25 0 Ruakura Te Rapa North Te Rapa 46 0 Horotiu North Hamilton Airport Huntly and Rotowaro TOTAL 805 1,233. A key finding from this work, in our view, was that There is a disconnect between the Future Proof policies and principles, particularly those relating to compact urban form, sustainability and live, work, play, and the allocation of land in Table 5 which promotes a dispersed industrial employment land pattern in locations not necessarily connected to existing and future planned urban populations. This finding has resulted in moves which located most future growth within existing centres, particularly the CBD. Future Proof Chair and Implementation Advisor August Bi-Monthly Report. Including amendments to requested Industrial land allocation in the Future Proof area. This stated In its primary submission on the Proposed RPS, Future Proof requested an increase in industrial land allocations in Table 6-2 from 805ha to 1151ha as per: Nodes Table 6.2 Amended per FP Rotokauri Ruakura Te Rapa North Horotiu Hamilton Airport Review Ruakura Industrial Land Release Waikato Regional Council April 2012

84 Huntly and Rotowaro Hautapu TOTAL 805 1,151 Ken Tremaine Future Proof Business Land Reconciliation November Report to Future Proof Partners. 15pp This reported on the LPS Business Land Review, above. It compared this with an industrial land allocation brought forward by the joint Future Proof Implementation Management Group and Chief Executives Advisory Group on 25 August. Castalia October Cost Benefit Analysis of the Waikato Expressway: Incorporating the Impact of the Ruakura Hub. Report to TGH Ltd. 29pp. Similar to the February 2012 report below. Castalia February Industrial Land Release in the Waikato Regional Policy Statement: an Evaluation of the Impacts at Ruakura. Report to TGH Ltd. 35pp. These reports used as their basis for land release analysis the FPIC-Amended Proposed RPS Table 6.2 as follows, Nodes Table 6.2 Amended per FP Rotokauri Ruakura Te Rapa North Horotiu Hamilton Airport Huntly and Rotowaro Hautapu TOTAL 805 1, Review Ruakura Industrial Land Release Waikato Regional Council April 2012

85 All work is done, and services rendered at the request of, and for the purposes of the client only. Neither BERL nor any of its employees accepts any responsibility on any grounds whatsoever, including negligence, to any other person. While every effort is made by BERL to ensure that the information, opinions and forecasts provided to the client are accurate and reliable, BERL shall not be liable for any adverse consequences of the client s decisions made in reliance of any report provided by BERL, nor shall BERL be held to have given or implied any warranty as to whether any report provided by BERL will assist in the performance of the client s functions. 35 Review Ruakura Industrial Land Release Waikato Regional Council April 2012

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