Shareholders would solve Ports of Auckland’s problems

New cranes at Ports of Auckland. Photo / Jason Oxenham
New cranes at Ports of Auckland. Photo / Jason Oxenham

NZ Herald Editorial

COMMENT:

Of all the policies the NZ First Party brought into this coalition Government, the wildest and wackiest was to move the entire port of Auckland to Marsden Pt. The Labour Party agreed only to commission a feasibility study the idea of moving the port and left open the choice of alternative sites. Winston Peters, hoping to hold the Northland seat, promised to move the whole operation to Northport, but the coalition agreement merely directed Northport be given “serious consideration”.

The feasibility study led by former Far North District mayor Wayne Brown is reported to have produced an interim report for the Government and its tentative suggestions ought to be interesting. The fact that ministers will receive at the same time a report on upgrading the railway from Auckland the Marsden Pt suggests Northport is the preferred alternative for at least some of Auckland’s imports.

Doubtless there are countless ways that goods shipped to or from New Zealand could be better shared between various ports, not only for more efficient handling and distribution but also to stop the Auckland port encroaching ever further on the Waitematā harbour.

Doubtless too, the companies running ports would quickly find a more efficient use of them — within the constraints on Auckland — if Ports of Auckland Ltd had commercial shareholders.

Its nearest rivals, Port of Tauranga and Northport, are majority owned by their local bodies but also have tradeable shares which has resulted in a degree of cross-ownership. Tauranga has a stake in Northport, as does Ports of Auckland Ltd. But PoAL is entirely owned by the Auckland Council which has been averse to any of its business going to other ports.

Total public ownership has been a mixed blessing for Auckland citizens. While the council collects all the port’s dividends it suffers a conflict of interest when Aucklanders oppose the port’s further expansion. Despite a long campaign to stop the port company extending wharves for the latest cruise ships, the council is allowing moored “dolphins” and walkways to extend Queens Wharf.

Mayor Phil Goff did not exactly welcome news this week that an interim report of the feasibility study has arrived on ministers’ desks. “Any decisions on the future of Ports of Auckland should have the agreement of the council,” he said. “We accept that at some point the growth of freight into Auckland will outgrow the land available…..” Citizens opposed to further harbour reclamation would say that point was reached some time ago. Goff said the same when he stood for election.

“However, the port is also a critical lifeline of freight into our city,” he says now. No it is not. Freight from any other port could reach Auckland, making room for cruise ships within Auckland port’s existing harbour footprint.

Most of Auckland’s port is unlikely to be going anywhere. The feasibility study should be looking at rationalising the use of all New Zealand Ports but it should not suppose politicians can best decide where freight goes. The Hawke’s Bay Regional Council is planning to partially float its port at Napier. If the Auckland Council did likewise it would see the city’s interests more clearly.

KiwiRail struggles to meet upgrade funding goals

KiwiRail’s plans to upgrade its network are running into funding obstacles.

The first passenger train on the newly reopened Coastal Pacific Rail Line arrives in Christchurch from Picton.

A passenger train on passenger train on Coastal Pacific Rail Line arrives in Christchurch from Picton. Photo: RNZ / Simon Rogers

Newly released documents show its attempts to get money from the Provincial Growth Fund have not all been successful, with officials warning the fund may not be able to support the level of funding the rail company wants.

These include plans to run a daily service between Auckland and Wellington and a request to fund “core capital requirements” in the regions.

In last year’s budget KiwiRail sought $300 million to fund two years projects to upgrade its ageing network and rolling stock.

The government approved $185m, saying the remaining amount would be provided from the Provincial Growth Fund.

In subsequent discussions with the Ministry for Business, Innovation and Employment, officials warned KiwiRail “the fund may not be able to support this level of funding”.

KiwiRail subsequently received $50m, leaving it $65m short of the $115m it had hoped to get.

However, it would not discuss the shortfall, saying the money it asked for was over two years and any future funding was budget-sensitive.

KiwiRail said using the fund to pay for working capital met the fund’s criteria because an efficient rail network is essential for regional economic development and productivity.

“Part of KiwiRail’s network which do not have commercial volumes sufficient to cover capital costs have been in a state of managed decline for some time,” the company said in a statement.

“The PGF investment will allow capital works and maintenance costs for lines south of Christchurch, Hawke’s Bay, Taranaki, the West Coast and eastern Bay of Plenty, with additional work across other parts of regional New Zealand.”

Regional Economic Development Minister Shane Jones, who oversees the fund, said an important proportion of the fund was dedicated to KiwiRail but the state-owned enterprise was not going to be able to fund all of its aspirations through it.

Instead KiwiRail was going to have to work with Treasury in order to secure long-term capital.

Mr Jones said there was only so much the fund could spend on KiwiRail in the provinces, and he had made that clear to KiwiRail.

“We’ve got a limited number of dollars for provincial rail growth and I’ve said to KiwiRail staff and in particular the new chair of KiwiRail, Mr Greg Miller, that we’re going to have to ration in terms of access to the Provincial Growth Fund,” he said.

New Zealand First MP Shane Jones answering media questions

Regional Economic Development Minister Shane Jones. Photo: VNP / Phil Smith

Getting money from the fund was a competitive process – something Mr Jones said he was constantly reminded of.

“It’s fair to say that the officials on a regular basis are warning the first citizen of the provinces that there are a host of other infrastructure projects, not the least of which is the $130m allocated to upgrade the roads around Tairāwhiti, Northland and part of the Bay of Plenty,” he said.

“KiwiRail, whilst important, is not the exclusive recipient,” he said.

However, he stressed that KiwiRail was not out of favour with the government.

“I wouldn’t say that KiwiRail is raiding the fund but, put it this way, they’ve been starved of capital for so long and they know that my leader [Winston Peters] and I … are very much pro-KiwiRail people. As far as we’re concerned, KiwiRail are in favour with this government.”

Tourism

In July last year KiwiRail sought $185m from the Provincial Growth Fund to upgrade services on its tourist routes including the Northern Explorer (Auckland to Wellington), Coastal Pacific (Picton to Christchurch) and TranzAlpine (Christchurch to Greymouth).

Northern Explorer crossing the Hapuwhenua Viaduct

Northern Explorer crossing the Hapuwhenua Viaduct Photo: Kiwirail

The state-owned enterprise argued the extra services would double the spend by rail passengers from $100m currently to $220m by 2027 across the Waikato, Ruapehu, Manawatū-Whanganui, Marlborough, Kaikōura regions and the West Coast. It would also double the number of tourism jobs rail supports, from 863 to 1906 over the same period.

Although the government announced $80m to upgrade services on the Coastal Pacific and TranzAlpine, there was no such announcement about the Northern Explorer.

In a statement KiwiRail said its original proposal was for a package of tourism investments of up to $185m, including a bi-directional daily Northern Explorer service – up from three days a week it currently operates.

The view from KiwiRail's Coastal Pacific train, just south of Kaikōura.

The view from KiwiRail’s Coastal Pacific train, just south of Kaikōura. Photo: Great Journeys of New Zealand / Facebook

“Following consultation with officials, a second lower-cost package focusing on key investment regions was submitted, which provided for additional capacity, premium services, platform upgrades and international marketing for the TranzAlpine and Coastal Pacific Great Journeys of New Zealand,” KiwiRail said in a statement.

Mr Jones said the government was looking for more information before it would sign off on plans to extend the Northern Explorer service.

“Investing in the Northern Explorer requires investment in a different type of trains and locomotives than the South Island trains and would involve a significant additional investment. The key rail investment in the North Island in 2018 is a logistics hub near Palmerston North,” he said.

Maersk: Massive Innovative Solutions Must Happen in Next 5-10 Years

At the end of last year, the world’s largest shipping company Maersk revealed plans on becoming a carbon neutral company by 2050.

The efforts are in line with the shipping industry’s push to halve its carbon footprint by 2050 compared to 2008.

“We do not by net-zero refer to off-setting CO2 emissions from fossil fuels. By committing to this target, we believe we will drive the transformation of the shipping industry towards use of carbon-neutral fuels,” the company said in its sustainability report for 2018.

Maersk believes that efficiency can only keep shipping emissions stable, not reduce or eliminate them.

“Nevertheless, until decarbonisation is achieved, decoupling business growth from emissions is a necessity, and we have set an efficiency target of 60% relative reduction in CO2 by 2030 from a 2008 baseline. With these targets, we are breaking the mould for climate targets and ambitions in the shipping industry.”

Maersk had set a target of 60% relative reductions by 2020, using a 2007 baseline. By the end of 2018, the company reached 47% reduction since 2007.

These have been achieved through massive investments in optimizing fleet efficiency, with technical retrofittings including capacity boost, new bulbous bows, propellers and engine modifications, as well as by improving planning and optimizing of networks.

However, as explained, this is not enough to reach 60% in two years’ time.

Hence, the company pointed out that massive innovative solutions and fuel transformation must take place in the next 5-10 years.

“Over the last four years alone, we have invested USD 1 billion and engaged 50+ engineers each year in developing and deploying energy efficiency solutions. We expect this investment level to be sustained in pursuit of our new targets. Efficiency gains do not, however, solve the climate change problem. That can only be achieved through decarbonization,” the company said.


Transformation of the 100-Year Old Business Model

Transforming the shipping industry which has run on relatively cheap, heavy fuel for 100 years is not an easy task. In addition to new ship designs and engine types, there is a need for new types of fuel as well as building entire new supply chains for these new solutions, Maersk insists.

“All of this breakthrough innovation will have to take place in the 2020s and is more than any single company can do,” the company adds.

As a result, the shipping major urges all parties involved to collaborate on incentives and development of innovative solutions to usher in  the age of zero-carbon vessels.

“We want to begin a dialogue with cargo owners, regulators, researchers, investors and technology developers, and together set the foundation for a sustainable industry,” Maersk said, pointing out that research and development will be the cornerstone in decarbonizing the shipping industry.

The Pursuit of Solutions Must Begin Now

Zero-emission, commercially-viable vessels must be on the water by 2030, Maersk believes, especially due to the 20-25-year lifetime of a vessel.

“This should be followed by an initial slow ramping up, allowing maturing of technology and supply chain in order to be able to turn around our entire fleet for net-zero carbon emissions in 2050. This leaves us and the industry only eleven years to find the right solutions for a positive business case for decarbonization.

“For the next few years, it is very important not to rule out any solutions. There are several promising technologies at various stages of development. All solutions will come with benefits and challenges to be overcome and only by actively partnering, collaborating and undertaking research and development will we know which ones will win out. There are several technologies and fuels being developed these years within the areas such as advanced biofuels and hydrogen-based fuels.”

Maersk said that it has already engaged in research and test programs in some of these technologies, for example sustainable biofuels.

“Over the coming years, we will expand the range of solutions we are investigating. This will prepare us for selecting a few candidates we will pursue for the first carbon-neutral vessels.

” Our 2030 efficiency target is strong enough to ensure that we continue to decouple CO2 emission levels from growth in trade and volumes shipped. With this target, we will not exacerbate our contribution to climate change while we grow our business, serve global trade and support job creation.”

Container shipping companies cleared in U.S. Investigation

in International Shipping News 27/02/2019

The world’s two biggest container shipping companies on Tuesday said they have been cleared in an investigation of the sector by the U.S. Department of Justice (DoJ).

Denmark’s Maersk and Switzerland’s Mediterranean Shipping Company (MSC) were among several companies ordered to testify in an antitrust investigation that began in 2017 over practices by an industry that is the backbone of world trade.

Other lines included Germany’s Hapag Lloyd.

Container companies, which transport everything from TVs to bananas, have tried reduce costs through alliances to pool sailing schedules and port calls. Critics say this can lead to reduced services and increased prices for customers.

Privately-owned MSC, which is the world’s No.2 line, said it had been informed by the DoJ that the department had closed its investigation into MSC and the global container shipping industry without bringing charges or imposing penalties.

“This is an important decision where the global container shipping industry has, once again, been fully investigated and exonerated,” the company said in its statement on Tuesday.

A.P. Moller Maersk confirmed that the DoJ had closed its investigation and had released Maersk from any obligations under the Grand Jury subpoenas issued in March 2017.

Camilla Jain Holtse, A.P. Moller Maersk’s head of competition law and policy, said the company had provided full cooperation throughout the investigation.

A spokesman for Hapag Lloyd declined to comment.

The investigation could have resulted in large fines at a time when the container sector is struggling with slowing global economic growth.

Last week Maersk warned that trade headwinds would slow container demand growth this year, sending its shares down 10 percent. The stock was down 2.3 percent at 1343 GMT on Tuesday and Hapag Lloyd was down 2.8 percent.

The U.S. investigation followed separate cases in other jurisdictions in recent years.

In 2016 European Union antitrust regulators accepted an offer from Maersk and 13 competitors to change their pricing practices to stave off possible fines.

Govt forced KiwiRail to backtrack on locomotives decision, documents show

Newly released documents show the government forced KiwiRail to backtrack on its decision to ditch the electric locomotives on the North Island’s main trunk line.

According to the Treasury, it’s the first time a state-owned enterprise has been directed by a minister to make a decision that didn’t stack up commercially.

The State-Owned Enterprises Act said an entity’s principle objective was to be a successful business.

In 2016, KiwiRail’s board decided to replace its 15 electric locomotives with diesel, arguing it would make the company more efficient and better able to take freight, and with less freight going by road, there’d be a positive environmental impact.

On 30 October last year the government put a stop to the plan instead promising a $35 million cash injection to refurbish the electric locomotives.

In a letter to Transport Minister Phil Twyford two weeks before the decision was announced, acting chief executive Todd Moyle made it clear KiwiRail didn’t have the money to refurbish the locomotives.

“KiwiRail has no funding for these additional costs and is unable to recoup the investment and there is no uplift in revenue associated with this decision,” he wrote.

Labour Party MP Phil Twyford.

Transport Minister Phil Twyford Photo: RNZ / Mei Heron

But a Cabinet minute written the day before the government’s announcement, showed Cabinet agreed to use its powers under the State Owned Enterprises Act to direct the company to provide a non-commercial service.

Mr Twyford said being a successful SOE was more than just about profit and loss for a particular year, and this government wanted to grow rail.

He said previous governments had left KiwiRail on financial life support with no future vision.

“That’s not how our government sees it, we’re committed to bringing rail into the heart of the transport system, instead of treating it as the poor cousin and drip-feeding it a little bit of money year after year and barely keeping it alive,” he said.

KiwiRail uses electric locomotives on the main trunk line between Hamilton and Palmerston North.

When it said it was going to switch to diesel, the Rail and Maritime Transport Union accused it of “environmental terrorism”.

The union’s general secretary Wayne Butson said the decision to go down the diesel track was the best case of reverse engineering he’d ever seen.

“What you started with as your opening premise was the decision that they wanted to have and then they just worked backwards, and they screwed the scrum, massaged the logic and the numbers”, he said.

He said at that time KiwiRail’s board were wedded to a philosophy of simplify and standardise.

“There was this mantra which said ‘we only wanted one type of wagon, we only want one type of loco and that will give us immeasurable gains over time. It will reduce the inventory that we need, in terms of spares that we need for things’. In my view it didn’t have any logic,” he said.

Mr Butson said that decision failed to consider the needs of a modern railway, which must have some level of variation in the types of locomotives and wagons it uses.

Engineer Roger Blakeley said the decision to scrap the electrics was at odds with the Labour government’s target of getting to net zero carbon emissions by 2050 and leader Jacinda Ardern’s claimthat climate change was her generation’s “nuclear free moment”.

“With the diesel locomotives, if KiwiRail went ahead with them, it would burn an extra 8 million litres of diesel fuel per year and add around 12,000 tonnes of carbon dioxide to the atmosphere each year. That’s what would have been the implications of a switch back to diesels,” he said.

The Palmerston North to Hamilton route was electrified in the 1980s and the plan then was to carry on and electrify the whole main trunk line from Wellington to Auckland.

It’s estimated completing the project now would cost around a billion dollars.

Mr Twyford said it’s not part of the government’s immediate work programme.