It would take a brave soul to predict when the shipping space and supply chain choke gripping NZ Inc will end, but Port of Tauranga chief executive Leonard Sampson is certain of at least a couple of things.
Neither may bring immediate relief, but they offer some hope.
First, there’s a container vessel building boom on.
Second, with no sign of congestion easing or vessel call frequency becoming reliable, an idea whose time has come is for shippers to plan how to keep their container storage away from a major supply chain “release valve” like the Port of Tauranga, says Sampson.
It doesn’t make sense to use a gateway port as a storage point and create a bottleneck, he says.
Some of the current pressure could be eased by shippers creating offsite hubs for staging container movement to a port.
“There’s no question it comes at a cost but it’s better to have that cost away from the port.”
The Ruakura Superhub, in which the Tauranga port has a stake, is a mega-example of the staging strategy. It is due to open mid next year.
Back to the container vessel building spree.
The world’s ship builders have the second highest number of orders in history and the highest in the past five years, says Sampson.
Sector analysts estimated back in March the order book was already worth at least US$10 billion ($14.6b).
While the response is hardly surprising given pandemic demand is clearly swamping shipping space supply as global consumers spend on goods instead of services like tourism and travel, what is interesting is that a little over 12 months ago, the number of idle, parked up container vessels was also the highest in history.
It’s been a massive situation reversal in a blink of time, the result of the sort of topsy turvy predictions that have been a hallmark of pandemic economic forecasting — like the economic downturn and soaring unemployment New Zealand was forecast to get.
“If you were talking to shipping lines in the first half of last calendar year the predictions were dire.
Container vessels were parked up as a result of China lockdowns and then manufacturing reductions,” says Sampson.
“Roll forward to the end of 2020 and clearly what we got wrong globally was the effect of the stimulus being put into economies which went from purchasing services to products. That led to people buying things and the rise of online shopping.”
With more demand for shipping than supply, and more cargo than capacity, has come port congestion, delays in transit times, missed port calls and cargo handling delays.
And skyrocketing freight costs for shippers. Sampson says in some trade lanes freight costs have risen more than 400 and 500 per cent.
Of course the new container ship crop — many monsters that will carry 20,000-plus containers — won’t come on stream overnight.
And won’t necessarily all call at New Zealand.
Not that New Zealand importers and exporters need reminding, but international shipping lines are making top money in the capacity drought and on the east-west trade lanes they’re “extremely good returns”, says Sampson.
“I had one shipping line explain to me they can get US$40,000 freight rates for a 40 foot container between Asia and Europe.
“Sending a vessel down to New Zealand that could be used (on that route) is a tough proposition.”
Also, another boom and bust shipping cycle carries its own risks.
Yes, lower freight prices would be welcome right now. But low prices traditionally have led to extremely poor returns for shipping lines.
This results in further sector consolidation as large carriers buy up smaller operators in financial difficulty.
“In the long run this further reduces competition, which is not good for New Zealand shippers or service providers like port companies,” says Sampson.
Leonard Sampson’s top three issues
• Ineffectual political leadership resulting in slow or no action.
• Resilient national infrastructure — we need a revised framework for shovel ready and fast track projects.
• Housing affordability.