dave February 22, 2021 No Comments

Nadia Trent05:00, Feb 22 2021

Port of Auckland’s automation issues and worker shortages have not only slowed imports but put our shipping routes at risk.
CHRIS MCKEEN/STUFFPort of Auckland’s automation issues and worker shortages have not only slowed imports but put our shipping routes at risk.

OPINION: The recent snarl-up at the Ports of Auckland (POAL) has rightly received a great deal of media coverage lately.

The congestion at this one port has been felt widely across New Zealand as supply chains, and ultimately consumers, absorb the costs.

And while the current congestion crisis is painful, it does seem to be short-term. The root set of causes have been identified, primarily automation and labour, and these are now receiving ample attention from port management, the unions, the Government, and the media.

The optimistic expectation is that operational issues at POAL will be resolved in a matter of weeks, issues that have been compounded by Covid-related disruptions.

What we are missing in the conversation, however, is the risk all this poses to New Zealand’s maritime connectivity and how decreasing connectivity could diminish the country’s trade competitiveness over the next few years if left unchecked.

Maersk’s decision to skip Auckland temporarily for Tauranga is a worrying trend.
JOHN BISSET/STUFFMaersk’s decision to skip Auckland temporarily for Tauranga is a worrying trend.

Why the Maersk announcement is a warning

As a small country at the bottom of the world, New Zealand is at the whim of international shipping companies, which have recently shown us they can make swift business decisions to bypass our ports.

Maersk announced that it will be temporarily suspending its port call at POAL, instead opting to only stop at its competitor, the Port of Tauranga, until the congestion issues are resolved.

This is a straight-forward business decision by the shipping line to stay competitive.

Not only do the delays at POAL cost Maersk dearly in terms of anchorage costs, underutilised labour, and unutilised shipping capacity, it bears reputational costs as well.

Delays at POAL have knock-on effects for all the subsequent port calls on Maersk’s service, damaging Maersk’s reputation both with port authorities and the freight forwarders who channel bookings to Maersk.

‘’We have to think carefully about how we continue to entice shipping lines to loop into our small corner at the bottom of the world.’’
JOHN BISSET/STUFF‘’We have to think carefully about how we continue to entice shipping lines to loop into our small corner at the bottom of the world.’’

Covid-19 disruptions have also clearly shown that the bargaining power in global trade lies with the shipping lines.

While there has been a squeeze on many industries, and a reduction in trade volumes, other factors have swung the demand-supply seesaw in the shipping lines’ favour.

As more air cargo is sent by sea and certain industries like electronics and pharmaceuticals increase volumes, we have also seen congestion at ports absorb the supply of available containers in a perfect storm.

Shipping companies have rightly shown they have the freedom to adjust their services with very short notice.

And while the supply strain has increased the cost of shipping a container by nearly 270 per cent, the larger shipping lines have profited handsomely, as their stock prices testify.

Dr Nadia Trent says post-Covid demand for freight had left shipping companies in an advantageous position.
SUPPLIEDDr Nadia Trent says post-Covid demand for freight had left shipping companies in an advantageous position.

Maersk’s stock price more than doubled from February 2020 to February 2021. Likewise, many of the other major companies continue to increase their profits.

It is clear these are not decisions being made to merely stay afloat, but instead to become even more profitable. This should raise a red flag for New Zealand’s competitiveness.

We need to think carefully about how we continue to entice shipping lines to loop into our small corner at the bottom of the world, and offer them a compelling business case, that includes working harder at port efficiency and reliability.

If we don’t, the wider and longer term impact will hurt our maritime connectivity, our international trade, and, ultimately, consumers’ pockets.

New Zealand’s maritime connections are strongly linked to the health of our trade.
RICKY WILSON/STUFFNew Zealand’s maritime connections are strongly linked to the health of our trade.

Our maritime connectivity is decreasing

The maritime connectivity of a country is strongly linked to the health of its international trade.

One way it is measured is using the Liner Shipping Connectivity Index (LSCI) maintained and published by the United Nations Conference on Trade and Development (UNCTAD).

The LSCI measures an economy’s integration within the global container shipping network. The larger an economy’s LSCI, the better connected it is.

China dominates the LSCI chart but countries like the United States, the Netherlands and Germany also rank highly.

There are also smaller countries with significantly lower trade volumes like Singapore, Morocco, or Panama, that rank highly because they are important transhipment cogs in the maritime network.

New Zealand is neither on one of the major trade routes, nor does it boast large volumes (comparatively). Therefore, our relatively low LSCI score is not surprising.

However, what is most concerning is New Zealand’s LSCI score has decreased between the first quarter of 2017 and the first quarter of 2020, while most economies’ scores have increased as maritime trade grew.

Key trading partners like China and the US connect New Zealand to a string of other ports around the world.
CHRIS MCKEEN/STUFFKey trading partners like China and the US connect New Zealand to a string of other ports around the world.

Our bilateral connections matter

This shows New Zealand is becoming more isolated from a maritime perspective and reversing this trend should be a strategic imperative.

Improving port efficiency and reliability would strengthen the business case for shipping lines.

Our efforts at increasing our connectivity should focus on our direct trade partners and other high-ranking LSCI hubs.

Currently our strongest maritime connections are with trading partners in Asia and with Australia. This is as it should be.

In addition to direct trade, China indirectly connects New Zealand to the majority of ports in the world. The predominance of China in New Zealand’s maritime network partly explains why we don’t have stronger connections with Singapore, Malaysia, and Japan.

The strong connections with Panama and the west coast of South America are also a result of geographic proximity on the routes from and to the US.

Connections with our EU trading partners and the United Arab Emirates are lagging significantly, however.

All of these connections and how we manage them are questions of equal importance to the ones about crane automation and expansion plans when it comes to New Zealand’s maritime strategy.

Fewer ship visits will make it more costly to import and export goods, which would eventually hurt consumers.
CHRIS MCKEEN/STUFFFewer ship visits will make it more costly to import and export goods, which would eventually hurt consumers.

A problem that must be fixed

The congestion at POAL is a dire and urgent problem that must be resolved and both port management and our government are addressing it.

But this crisis, in particular Maersk’s choice to temporarily bypass POAL, has highlighted the cut-and-dry business rules that govern shipping lines’ service design.

The corporate behemoths are not beholden to any country. If New Zealand’s ports, and POAL first and foremost, does not showcase world-class operational efficiency and reliability, it will be increasingly difficult to convince the shipping lines to loop their trade routes to our small corner of the world.

Decreased connectivity will make it more costly to import and export goods and this cost will eventually make it to the consumer’s pocket.

Dr Nadia Trent is an expert in supply chain management from the Waikato Management School at Waikato University.

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