Future Freight Scenarios Study, 2014 Presentation to Business NZ Liesbet Spanjaard and Ros Warburton 10 August 2015 1
Why was the Future Freight Scenarios Study commissioned? Transport is an important enabler of the export industry Trade is critical to the NZ economy What happens in the transport sector is critical to New Zealand s trade The shipping industry is changing How will the freight industry respond? Growing pressure on the transport network The freight task is growing There is excess capacity at Ports Legacy ship build program has led to oversupply in shipping industry Calls for investment in both port and landside infrastructure 2
In light of these changes, Government recognised a number of potential challenges for New Zealand s trade infrastructure Trade infrastructure is an interconnected network investment in one part of the network will impact on other parts Central government owns and invests in the road and rail networks. Local government has ownership in ports which compete for investment funds with other council objectives. While many NZ ports have local government ownership, some also have private sector shareholders Shipping lines are owned by large multinational companies, focussed on their international shareholders. Complex ownership models and objectives complicate investment decisions 3
These investment challenges were recognised by the NZ Productivity Commission in 2012 the Ministry of Transport sought to inform the discussion International Freight Transport Services Inquiry (New Zealand Productivity Commission, April 2012) Recognised key coordination challenges affecting future infrastructure investments in the freight industry, including: Number, type and location of ports Efficient use of container ships Coordination of road/rail investments Local and central government interactions in freight transport Within this context the Ministry of Transport commissioned Deloitte to undertake a study to examine the impact that larger container ships could have on the freight sector. 4
The Ministry sought to provide richer information to inform discussions on future investment the study seeks to: 1 2 3 4 5 Provide an understanding of port configuration alternatives for New Zealand Assess implications for exporters and the economy Plan for the future by identifying capacity and costing restraints Take a whole of system approach incorporating the linkages between the steps on the transport chain Assess and compare possible future configurations of road, rail and coastal shipping networks; domestic and international transport costs for imports and exports and the resultant impact on the New Zealand economy 5
The objective of the study was to provide better information to inform the discussion a The Ministry initiated the FFSS to: Identify whether changes to the port network could provide economic benefit through: Lowering freight costs Enhancing opportunities and productivity for the freight sector Help inform debate about possible future infrastructure requirements Help all levels of government and the companies they own plan for, and prioritise infrastructure investment Contribute to the information base that can be used to inform decisions about future infrastructure r It does not make recommendations about: A preferred port network or a government policy stance on ports Future land transport infrastructure investment The future of coastal shipping Funding options or sources Where the private sector should invest in the freight market 6
A total of 10 scenarios were considered covering a spectrum of port hub options Port Scenario Status Quo Emerging Trend Partial Hub & Spoke Hub & Spoke Single Hub & Spoke Scenario 1 2 3 4 5 6 7 8 9 10 Auckland Tauranga Napier Taranaki CentrePort Nelson Lyttelton PrimePort Otago South Port Single hub Port 7
To undertake the assessment we needed to develop metrics to compare the scenarios Key Trends Scenario Development Impact on NZ Increasing sizes of international vessels Changing competitive landscape for key export supply chains Forecast freight volume growth Changes to domestic transport mode shares Need for more focused infrastructure investment Freight Movement Modelling Supply chain volumes, NTK & costs Operational costs for road, rail & shipping Capital costs for road, rail & shipping How will markets respond? What would be the impact on the freight network? Status Quo Partial Hub & Spoke Full Hub & Spoke Economic Modelling Cost-benefit & CGE assessments NFDS Freight Task output Origin-destination matrices Port, road & rail network capacities Benefit to the Economy Changes in NZ GDP Benefit to the Customer Changes in economic contribution of selected supply chains Bottleneck Identification Impact on NZ s freight network capacity Data Requirements 8
Data collected from official statistics was complemented with information from industry participants Information from ports All container ports provided information about current capacity and possible future capacity upgrades Information from KiwiRail and NZTA Government agencies provided information about network capacity and upgrades. Evidence base Data was gathered from a number of official sources: National Freight Demand Study (2014) Freight Information Gathering Systems (FIGS) Data from shipping, ports, road and rail sectors Information from shipping lines Local shipping line executives provided insight on current and likely future operations. 9
To allow comparison of the impact of each scenario on import and export supply chains key metrics were generated for each scenario. 4 performance metrics were calculated: 01 02 03 04 05 OPTIONS Capital cost (for upgrades to ports, road and rail networks) of each option Operating costs to provide domestic transport services (road, rail and coastal shipping) and international shipping services. Cost benefit ratios for each scenario (compared to the status quo) Impact on overall economic activity (selected scenarios) This is dummy text it is not here to be read. The is just text to show where you could insert text. This is dummy text. 10
Key Finding 1 - Larger vessels are being introduced to the New Zealand trades Quarterly container ship capacity (teu) 700,000 3,000 600,000 2,500 500,000 2,000 400,000 1,500 300,000 200,000 1,000 100,000 Total ship TEU capacity Median ship TEU capacity 500 0 0 Source FIGS data March 2015 Deloitte Touche Tohmatsu 2015 FFSS BusinessNZ Presentation August 2015 11
Key Finding 2 Port, road and rail owners will need to invest to cater for increased volumes and larger vessels Key Findings Capital costs ($ billions PV from 2017 to 2046) 12
Key Finding 3 All hubbing scenarios lead to higher operating costs compared to the status quo Total Costs by Scenario ($billion PV from 2017 to 2046) 13
Key Finding 4 The benefits of larger vessels is outweighed by the higher cost of domestic freight transport Total domestic transport operating costs ($billions PV from 2017 to 2046). Total Costs by Scenario ($billion PV from 2017 to 2046 14
Key Finding 5 Regions adjacent to hub ports will be better off than regions further away from hub ports Impact by region (average change in operational costs compared to Scenario 1 Status Quo)* 15
Key Finding 6 - Higher domestic transport costs associated with port hubbing have a negative impact on the NZ economy Projected Cost Benefit Ratio (incremental to Scenario 1) 16
Where to from here? Will initiatives such as the Kotahi strategy generate sufficient leverage to influence shipping line decision making? What will be the implications on smaller regions, further from hub ports be? Will it lead to a structural change in key supply chains? If the larger shipping lines offer fewer services on larger vessels, how will the market react? Will hubbing lead to a structural change in the port sector? Port hubbing is occurring on a regional basis (Asia/Pacific) can NZ buck the trend? Will NZ ports all be feeders to SE Asian Ports? Do ports (and local government) have the financial capacity and political will to invest? 17
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