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Industry insightNew Zealand ports and freight yearbook2017

New Zealand ports and freight yearbook 2017 | Contents

Introduction 01

Glossary 02

Global outlook 04

Global trade 07

Global shipping 10

Global ports 16

Operational challenges and opportunities 17

Industry focus 23

New Zealand Freight Task 28

Port resilience 32

Port performance 38

Port summaries 50

Deloitte financial advisory services 63

Deloitte Infrastructure team 64

Contents

New Zealand ports and freight yearbook 2017 | Introduction

01

Introduction

The Deloitte ports & freight yearbook is a concise snapshot of selected macroeconomic and domestic drivers of New Zealand port and freight activity. It is intended that this publication will serve as a reference point for stakeholders and be updated on an annual basis. As a recent initiative, we welcome your feedback in relation to the content and presentation format, and look forward to future discussion and engagement.

Globalisation has led to an explosion of world trade over the last few decades. As people continue to enter middle income status, consumption patterns increasingly drive demand for traded goods. The political landscape, however, is changing. Global public concern appears to be rising, with the emergence of conservative views driving an increasingly protectionist agenda. New Zealand, as a small open economy reliant on trade, is particularly vulnerable to any major policy shifts towards protectionism.

The shipping industry plays a pivotal enabling role within the global economy and for New Zealand. However, with increases in ship capacity exceeding trade growth, and combined with improved vessel productivity, material excess ship capacity has arisen, sharply driving down shipping rates. This has put severe financial strain on shipping lines and resulted in a significant failure in the form of Hanjin.

According to key shipping observers, 2017 is expected to be characterised by themes of industry consolidation, vessel scrapping, excess capacity, bunker prices and shipping rates.

The global container port and terminal industry is also facing a number of challenges reflecting larger shipping alliance counterparties and vessels. Growth in scale of container vessels is requiring greater investment in capacity and new technology. Larger vessels are also segmenting container terminals based on an ability to cater for larger vessels. Ports in general are facing a range of operating environment driven challenges and opportunities, which are further explored throughout this publication. These include:

• Greenification – the continuous push for greener and more sustainable solutions forcing ports and port companies to consider new approaches.

• Smart ports – data-driven technologies, automation, robotics, analytics and additive manufacturing will redefine the future of ports.

• Integration of supply chains – further integration of traffic flows on both the seaside and the landside requires strategic co-ordination.

• Organisational efficiency – the internal organisation of port authorities needs to be flexible to adapt to the increasingly dynamic environment.

• Safety & security – The digitalisation of transport and logistics combined with the strategic importance of ports emphasises the importance of cyber security.

• Port / city duality – with urbanisation and growing cities, new strategies are required to optimise the port / city ecosystem.

In the aftermath of recent Canterbury and Kaikoura earthquakes, we also consider the concept of port resilience and the balance infrastructure providers such as ports must strike between risk, probability of shocks, the cost associated with these shocks and utility behind decisions.

New Zealand ports and freight yearbook 2017 | Glossary

02

GlossaryCAGR Compound Annual Growth Rate

CNCo The China Navigation Co. Pte Ltd.

EBIT Earnings Before Income and Tax

EIA Energy Information Administration

EU European Union

FIGS Freight Information Gathering System

FTA Free trade agreement

GDP Gross Domestic Product

GFC Global Financial Crisis

IMF International Monetary Fund

ISPS International Ship & Port Security

ITS International Trade Statistics

LNG Liquefied natural gas

LPG Liquefied petroleum gas

MoT Ministry of Transport

NATO The North Atlantic Treaty Organization

NFDS National Freight Demands Study

NIP National Infrastructure Plan

NPAT Net Profit after Tax

NZIER NZ Institute of Economic Research Inc

NZTA NZ Transport Agency

OCR Official Cash Rate

OECD Organisation for Economic Co-operation and Development

RBNZ Reserve Bank of New Zealand

RMA Resource Management Act

ROA Return on Asset

ROE Return on Equity

SCFI Shanghai Containerised Freight Index

SOLAs The International Convention for the Safety of Life at Sea

SSE Shanghai Shipping exchange

STEO Short Term Energy Outlook

TEU Twenty-Foot Equivalent Unit

TPP Trans Pacific Partnership

VGM Verified Gross Mass

VLCC Very Large Crude Carrier

WEO World Economic Outlook

WTI West Texas Intermediate

WTO World Trade Organisation

New Zealand ports and freight yearbook 2017 | Global perspectives

03

Global perspectives


04

Global outlook

The era since the Global Financial Crisis (GFC) has been characterised as one of conservative recovery, with central bankers intervening to stimulate and redirect economic activity.

After a lacklustre performance in 2016, the outlook for the global economy is for a modest pickup – according to the International Monetary Fund’s (IMF) January 2017 World Economic Outlook (WEO).

Global economic growth (measured as GDP) is forecast to rise from 3.2% in 2016 to 3.5% in 2017 and 3.6% in 2018 – close to the 3.5% average over the last 35 years. Post-war until 1980, the United States of America (US) and Europe drove global economic expansion. Since 1980 Asia took on that batten, with China averaging 9% growth and India 6.5%, while Australia and New Zealand have achieved 6.9% and 5.0% respectively.

The outlook for advanced economies has been improving, reflecting somewhat stronger activity and projected fiscal stimulus in the US, although growth is expected to remain weak. The emerging markets and developing economies are expected to continue to outperform the advanced economies, although their outlook has worsened due to tightening financial conditions, notably in India, Brazil, and Mexico. Expected policy stimulus has improved China’s outlook.

Since the November election in the US, we have observed a steepening US yield curve, a rise in equity prices, and an appreciation of the US dollar, with some firming of oil prices – indications of improving economic activity. Global interest rates are rising, particularly in the United Kingdom (UK) and US, up 1% since August 2016, partly reflecting the US Federal Reserve’s long-signalled tightening (normalising) bias, whereas the rise in European Union (EU) rates reflect elevated political and banking sector uncertainties.

IMF’s forecasts reflect their most likely scenario. Of note in the IMF WEO Report is the wide dispersion of possible outcomes, with the balance of risks being to the downside.

GeopoliticsThe global economy largely side-stepped the worst-case scenarios following the GFC, due to central banks assuming a supportive fiscal stance, and has since established reassuring if modest growth. The political landscape, however, is changing, with global

mood appearing beset by uncertainty. While comfortably remote from this turmoil, as an open trading nation, these events carry consequences for New Zealand.

Global public concern appears to be rising, with the emergence of conservative views driving an increasingly protectionist agenda. The build-up has been long, characterised by the enduring fight against terrorism, wider Mid-East tensions and austerity-exhaustion. Civil unrest in North Africa and the Eastern Mediterranean has given rise to economic and political refugees, with early EU sympathy and generosity being increasingly replaced with resistance and the closing of borders. More recently Russia has become polarised against the West with its support for Assad in Syria (since 2011), the annexation of Crimea (2014), and China is adopting a more muscular international stance, notably in the South China Sea.

These events have impacted “normal” political patterns, with a new nationalism emerging in many developed, democratic countries (notably within the EU and US) and rising stridency of, and popular support for, right-wing parties. Following a public referendum supporting Brexit, the UK is now struggling with the process of withdrawing from the EU. The belief in cross-border economic integration, which has driven global trade and politics since the 1950’s, is fraying – the geopolitical compass has moved.

GDP growth

18%

12%

6%

0%

-6%1980 20101985 20151990 20201995 2000 2005

World AsiaEurope ChinaUSA India NZ Aust

Asian financial crisis

Global financial crisis

IMF/NZIER forecasts

Source: World Bank


05

The Economist article – “League of Nationalists” (November 2016) showed a new and growing public scepticism regarding globalisation and immigration across many developed countries. Polling and elections suggest this shift is now diverting politics and policy. Notably, the US, which has for half a century championed open-market policies and played global referee, appears to be changing its stance, adopting more protectionist policies on immigration and trade.

The change in public attitudes appears strongest in wealthier countries, previously proponents and beneficiaries of globalisation, which post-GFC have endured tighter economic conditions (falling per capita GDP growth), often giving rise to some anti-immigration sentiment. Yet, while protectionism appears popular, economic theory and an IMF study (see next chapter, Global trade) suggests such policies may exacerbate the economic problems.

October–November 2016

Globalisation* is a force for:

goodbaddon’t know

On trade, my country should:

import things it needs from other countriesbe able to meet itsown needs

What effect do immigrants have on your country?

positiveneither positive nor negativenegative

% agreeing by age group:

“My country is the best in the world”

18–3435+

FranceUnited StatesBritainSaudi ArabiaAustraliaNorwayFinlandGermanySwedenHong KongDenmarkSaudi ArabiaSingaporeIndoneisaMalaysiaThailandIndiaPhilippinesVietnam

Source: YouGov / The Economist*The increasing movement of products, ideas, money, jobs, culture and people around the world

25 500 25 500 25 500 0 25 50

Attitudes towards globalisation (% responding)


06

60

70

80

100

40

50

90

0–10 10–20 20–40 40–80 80+

-5 0 5 10 15 20 25 30 35

Attitudes towards globalisation (against change in GDP per person)

Glo

balis

atio

n is

a fo

rce

for g

ood.

% a

gree

ing,

Oct

–Nov

201

6

GDP per person at purchasing-power parity, % change, 2011–2015

% foreign-born population:

GDP, 2015, $trn

2010

10.2

Norway

Finland

Sweden GermanyHong Kong

Saudi Arabia

United States

Britain

UAE

Malaysia

Philippines

Vietnam

Indonesia

India

SingaporeThailand

Denmark

France

Australia

While New Zealand seems comfortably remote from these unfolding geopolitical and economic events, we are not insulated from them. Any major policy shifts towards protectionism (of trade and migration) will restrict our trade opportunities and widen global imbalances. We have already observed rising borrowing costs, greater volatility in

currency and commodity prices, and the collapse of key global trade deals. New Zealand, as a small open economy reliant on trade, is particularly vulnerable to these swings.

Source: YouGov/ The Economist; World Bank


07

Global trade25 years not out

1992 2017 Multiple

1. World Seaborne Trade (m.tonnes)1

Iron Ore 345 1,478 4.3

Coal 357 1,128 3.2

Grain 224 486 2.2

Minor Bulk 798 1,886 2.4

Crude Oil 1,332 1,937 1.5

Oil Products 381 1,090 2.9

LNG 60 272 4.5

LPG 37 90 2.5

Containers 383 1,798 6.3

Others 783 1,173 1.5

Total Seaborne Trades 4,600 11,339 2.5

2. World Fleet (M Dwt), start year2

Tankers 265.5 554.6 2.1

Bulkcarriers 214.9 794.0 3.7

Combos 32.2 2.6 0.1

Gas Carriers 12.4 59.8 4.8

Containerships 30.7 245.6 8.0

MPP 17.7 29.7 1.7

Ro-Ros 6.7 7.7 1.1

PCC 4.1 12.2 3.0

Reefers 8.1 5.0 0.6

Total Global Fleet 621.0 1,861.9 3.0

25 years not out

1992 2017 +/- = %

3. Vessel Earnings ($/day), start year3

Clark Sea Index 11,700 11,092 -5.2%

VLCC 1 Year T/C Rate 34,000 31,750 -6.6%

Capesize 1 Year T/C Rate 22,000 9,350 -57.5%

4. Asset Values, start year

Newbuilding prices ($m)

VLCC 90.0 84.5 -6.1%

Capesize 56.0 42.0 -25.0%

5 year old price ($m)

VLCC 65.0 60.0 -7.7%

Capesize 42.0 24.0 -42.9%

Scrap price ($ildt)

5. Economic Indicators, start/full year4

Brent Crude ($ibbl) 18.2 54.8 202.1%

Iron One ($/tonne) 33.1 76.3 130.4%

Coal ($/tonne) 39.5 86.7 119.5%

380cst Rotterdam 69.0 312.5 352.9%

US LIBOR (6 mths) 4.2% 1.3%

USD/GBP Exchange Rate 1.83 1.24 -32.1%

Yen/USD Exchange Rate 128.30 115.54 -9.9%

Global Population (bn) 5.5 7.4 35.4%

World GDP Growth 2.3% 3.4%

World GDP ($tn) 25.1 79.5 216.6%

China GDP ($tn) 0.5 12.4 2393.9%

Notes: 1 2017 world seaborne trade basis latest projections. 2. Total global fleet includes vessel types not listed. 3. Vessel earnings as at the first week of the year. 4. Commodity prices basis January average for 1992 and the first week of the year from 2017. Commodity price data from various industry sources: coal spot price basis FOB Australian thermal coat, iron ore spot price CFR China. Interest rates and exchange rates basis start year. Population estimate basis UN population Division data. GDP data basis IMF historical data for 1992 and latest IMF projections for 2017.

IMF report on global trade A recent IMF report (Global Trade: What’s Behind the Slowdown? - October 2016) observes that trade growth has slowed since 2012. The GFC drove a sharp decline and equally sharp recovery in trade. However, the recovery to pre-GFC levels is not yet complete, given trade growth at 3% is just half the preceding three decades, and more notably, now tracks in line with (rather than double) global GDP growth.

This may well reflect a structural shift in trade patterns – as yet not fully understood. Slower recovery in developed (consuming) countries (EU, US) may be a factor, as might China’s shift from investment-led to consumption-led growth. Private investment remains widely subdued, especially by commodity exporters in response to persistently weak or volatile commodity prices, and given investment relies primarily on trade growth over consumption.

Another factor may be the recent retreat from trade liberalisation and a trend towards nationalism and protectionism. Also, possibly, the trend towards global value chains (with fragmented production processes and multiple border crossings) may also have slowed. Yet another explanation may be a maturing evolution towards non-tradables in response to growing wealth and aging populations. In conclusion, it may be some years before the new patterns of trade reach full expression and are understood.

Key findings from the IMF’s study include:

• The decline in real trade growth has been broad based, with few countries spared the pain. This has affected trade for both goods (especially in capital and intermediate goods) and services.

• The key constraints on trade growth are weaker economic activity, especially the slowdown in investment growth, accounting for up to three-fourths of the slowdown.

• In addition, the slowdown in trade liberalisation and rising protectionist measures are restricting international trade in goods, while the apparent decline in the growth of global value chains has contributed.

Source: IMF ‘Global Trade: What’s Behind the Slowdown?’


08

0

40

50

60

70

1980 1990 2000 2010 2015

7. Free Trade Agreements by Year of Signature (Number)

10

20

30

0

40

50

60

70

1980 1990 2000 2010 2015

Free trade agreements coverage

10

20

30

Average number of trading partners Percent of global GDP (RHS)

0

25

31

6

12

19

Trade liberalisation (‘globalisation”) has been a key feature of global affairs since WWII, with an increase in free trade deals since 1990. This has accompanied a period of strong economic growth. Since 1980, tariffs have fallen from 10% to 4% in advanced countries, and from 30% to 10% in emerging markets. While the number of new Free Trade Agreement’s (FTA’s) had been declining, the coverage has been getting larger.

Currently a record 25% of global GDP is covered by FTAs. Notably in 2016 some major FTAs were scuttled: Trans-Pacific Partnership (TPP) (12 Pacific rim countries), Comprehensive and Economic Trade Agreement (CETA) (Canada-EU) and Transatlantic Trade and Investment Partnership (TTIP) (EU-US).

Source: IMF report (Global Trade: What’s Behind the Slowdown? - October 2016)


09

100

80

60

40

20

90

70

50

30

10

Chin

a

Uni

ted

Stat

es

Japa

n

Sout

h Ko

rea

Indo

nesi

a

Ger

man

y

Thai

land

Taiw

an

Indi

a

Viet

nam

Braz

il

Mal

aysi

a

Saud

i Ara

bia

All O

ther

0

Exports Imports

Full container volumes (million TEU)

Top trade routes (million TEU)25

20

15

10

5

Asia

–N A

m

Asia

–N E

ur

Asia

–Med

Asia

–M E

ast

N E

ur–N

Am

Aus–

Far E

ast

Asia

–EC

S Am

N E

ur/M

ed–E

C S

Am

N A

m–E

C S

Am

0

West bound East bound North bound South bound

Trade trends Global trade volumes continue to grow, impacted only briefly following the GFC.China has dominated the container trade for over a decade, principally as an exporter, while the US at #2 is a net importer.

The importance of Asia (especially China) is exemplified in its participation in the top 4 container trade routes.

We have previously observed that trade, having grown at two times global GDP pre-GFC, has now fallen into line with GDP growth.

Looking ahead, we are seeing a reversal of policies which have underscored global economic expansion for the last half century. Economic theory suggests that protectionism may provoke and compound economic slowdown with associated impacts on trade patterns.

Source: IHS Global Insight, World Trade Service


10

Global shipping

The shipping industry plays a pivotal enabling role within the global economy. Shaped since the 1960’s by the two mega trends of globalisation and containerisation, both these trends now appear mature, moderating forward trade growth prospects. The shipping industry is constantly evolving, striving for increased efficiency, through innovation with new larger ships, specialised for each trade (especially containers), and adopting emerging technologies to boost efficiency and improve environmental outcomes.

Seaborne trade, which stood at an estimated 4.6 billion tonnes in 1992, is projected to reach 11.3 billion tonnes in 2017, an increase of 2.5 times. Container trade has increased by 6.3 times. Shipping capacity has expanded rapidly to meet this demand, from 621 million deadweight tonnes (dwt) in 1992 to 1.86 billion dwt today, an increase of three times. With growth in ship capacity exceeding trade growth, combined with improved vessel productivity, severe excess ship capacity has arisen, sharply driving down shipping rates.

2016 – A Year of Surprises2016 brought both surprises and challenges for the global shipping industry. On the challenge ledger, profitability remains elusive for shipping lines. Competition saw rates plummet, driving average operating margins below zero. Collectively, the shipping lines are expected to lose USD$10 billion, building on accumulated losses since the GFC.

Amongst the surprises was the bankruptcy of Hanjin. The surprise was less that a shipping line collapsed under the strain of poor returns, but more the fact that Hanjin, #7 ranked containership line, was not saved by its substantial South Korean owners, or its banks. The resultant shockwaves (including shippers having freight trapped in vessels for months during high season), however, may have sown the seeds of a sustainable solution. Shipping rates have since rebounded and shippers are more willing to engage in rate discussions.

Mergers and acquisitions were another key theme in 2016, both the number, and the size of the parties. The top ten shipping lines have now formed 3 dominant alliances.

Seaborne container trade 2010

Seaborne container trade 2030

Major container trade routes (thousand TEU)

Europe–Far East Europe–Latin AmericaEurope–Middle East & South AsiaFar East–Latin AmericaFar East–Middle East & South Asia

Intra–Far EastIntra–EuropeIntra–Latin AmericaIntra–North AmericaNorth America–Latin America

North America–Middle East& South AsiaTrans–AtlanticTrans–PacificAfrica–Far East

5,000 25,0001,000 190,000

Source: Lloyds Register’s Global Marine Trends report (2013)


11

4.0

3.0

2.0

1.0

3.5

2.5

1.5

0.5

Mae

rsk

COSC

O

Hap

ag-L

loyd

Yang

Min

g

UAS

C

MO

L

K Li

ne

Wan

Hai

MSC

CMA

CGM

Ever

gree

n

Ham

burg

Süd

OO

CL

NYK

Hyu

ndai

ZimPIL

0

Top 20 container lines (million TEU)

2M Ocean Alliance

Independent Chartered Orderbook

ConsolidationAccording to key shipping observers (Drewry, Lloyds Register, Alphaliner), 2017 is expected to be characterised by five themes; consolidation, scrapping, excess capacity, bunker prices and shipping rates.

The top seven lines will control over 65% of the global container ship capacity in a market where scale economies are considered vital. However, 2016 was distinguished by unprecedented consolidation, with these independent lines forming into three new alliances.

• 2M Alliance: The two largest lines, Maersk and MSC formed the 2M alliance, later adding Hyundai. Maersk subsequently acquired Hamburg Sud (38% share of global containership capacity).

• Ocean Alliance: CMA CGM, COSCO, Evergreen and OOCL, unravelling several preceding pacts. Meanwhile CMA-CGM acquired APL/NOL, while COSCO merged with CSCL (28% share of global capacity).

• The Alliance: Hapag-Lloyd, having merged with UASC, formed an alliance with Yang Ming, Hanjin, K Line, NYK and MOL, and survived the subsequent bankruptcy of Hanjin (15% share of global capacity).

These three alliances collectively control 80% of global containership capacity, 90% of the Trans-Pacific trade, and 96% of Asia-Europe trade.

ScrappingAs new ships are delivered into continued overcapacity, scrapping will accelerate, with forecasts for 2017 ranging from 0.5 to 0.8 million TEU.

In context, in excess of 1 million TEU of capacity is currently idle (at anchor), while the current shipbuilding order book is 2.8 million TEU (to be delivered over 3-4 years). As such, global containership capacity is not falling.

Notably, almost half forecast scrapping will be Panamax-size ships, a class now made largely obsolete since the expanded Panama Canal was commissioning in June 2016. When opened in 1914, the Panama Canal transformed global trade routes, allowing ships to avoid the long perilous journey around Cape Horn. Opening of the expanded Panama Canal in June 2016 is set to again reshape global trade lanes. Ship size had been constrained by the lock dimensions (294m long by 33.5m wide by 12.8m deep – Panamax ships up to 5000 TEU).

The new locks (427m by 55m by 18.3m deep) will allow ships up to 13,000 TEU to transit. It will remove constraints on Asia and Oceania routes to East Coast North America and Europe. The MOL Benefactor (8900TEU) was the first through the new canal, paying a record fee of $841,000. Over 600 containerships have transited the new canal since opening. Source: Alphaliner


12

90

70

50

20

80

60

40

30

10

0

Containership demolition activity (2015–2016)

Intermediate (+3,000–7,999 TEU) Feeder (100–2,999 TEU) Panamax (+3,000 TEU)

Oct

16

Sep

16

Aug

16

Jul 1

6

Jun

16

May

16

Apr 1

6

Mar

16

Feb

16

Jan

16

Dec

15

Nov

15

Oct

15

Sep

15

Aug

15

Jul 1

5

Jun

15

May

15

Apr 1

5

Mar

15

Feb

15

Jan

15

6080

100120140160180

02040

OthersChinaEurope

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

World new ship orders 1990–2015 (million GT)

Japan South Korea

Excess capacityPrior to the GFC shipbuilding activity exceeded demand, as shipping lines all pursued the same growth strategy – larger, more efficient new-generation ships. The order book peaked at an all-time record 170 million Gross Tonnes (GT) in 2007 (pre-GFC). Even as shipping line losses continue, the order book remains at historically elevated levels – averaging over 80 million GT since and 77 million GT in 2015.

Shipbuilders are, however, widely reported to be struggling with unutilised capacity, severe competition squeezing prices and rising costs. Yards in China and South Korea are under the greatest pressure, and are seeing the greatest volatility in orders.

Deliveries peaked at 102 million GT in 2011, since falling to 65 million GT in 2014 before increasing to 68 million GT in 2015.

According to Clarkson’s research, the size of all new ships (excluding containerships) delivered between 2000 and 2015 has averaged 20,000 GT. Newly delivered containerships, having averaged 40,000 GT since 2000, started getting materially larger from 2009, to exceed 80,000 GT by 2015, four times larger than other ships. By number, containership deliveries peaked at 15% pre-GFC, and after falling have since recovered to 7%. However, as containerships got larger, their share of delivered GT, having peaked at 28% pre-GFC, have since recovered to 27%. Containers share of the global freight task has risen steadily from 5% to 16% since 2000.

Shipping lines have faced a perfect storm. A sharp decline in trade post-GFC, and a lacklustre recovery followed a period of aggressive shipbuilding. Compounding this, bunker (fuel) prices, representing up to 50% of operating costs, rose sharply. Shipping lines responded in three ways.

First, they lowered prices to keep their ships occupied – but given all mirrored this strategy, the benefit was passed onto shippers.

Second, they instituted slow steaming, primarily to reduce bunker costs but also served to utilise more vessels.

Third, the lines entered new alliances to best manage fleet utilisation. Despite these efforts, idle capacity has risen to over 1 million TEU, increasing to 1.7 million TEU since the withdrawal of Hanjin’s ships following its bankruptcy.

Source: BIMCO, Clarksons*based on the old Panamax design with narrow beams, not exceeding 32.3m in width

Source: Shipbuilding Statistics; March 2016


13

8

16

18

20

Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16

Global container shipping capacity (million TEU)

10

12

14

Active Idle Demand

Global Financial Crisis

Hanjin

0

40000

50000

60000

Global freight task (billion tonne-miles)

10000

20000

30000

0

20.0

5.0

10.0

15.0

Container Other dry Total oil Container share (RHS)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

%

0

80

100

120

140

160

Oil price (US$/bbl)

20

40

60

Brent FOB STEO forecast

Dec1987

Dec1991

Dec1995

Dec1999

Dec2003

Dec2007

Dec2011

Dec2015

Dec2019

Bunker pricesAs mentioned, bunker prices peaked pre-GFC, fell briefly (as did prices for many commodities), before firming from 2009 to 2014. Since 2015, aggressive global production (including US shale oil) saw prices fall, although recently Organisation of the Petroleum Exporting Countries (OPEC) has seen prices rise above US$50/bbl. Heading into 2017, the oil price predictions by major

organisations and investment banks are generally not widely diverging. Energy Information Administration (EIA) forecasts Brent crude oil prices to average US$55/bbl in 2017 and US$57/bbl in 2018 (and West Texas Intermediate US$1/bbl less). On 2 February 2017 NYMEX contracts suggest a range for 2017 between $US45/bbl and US$65/bbl.

Source: Drewry Maritime Research, JOC.com, Statista.com, Deloitte analysis

Source: United Nations UNCTAD Review of Maritime Transport 2016 Fig 1.3

Source: EIA, CME Group


14

0

800

1000

1200

1400

1600

1800

Global container price indices

200

400

600

SSE – SCFI – Shanghai–Europe Drewry – WCI – Global

11 A

pr 1

4

11 Ju

n 14

11 A

ug 1

4

11 O

ct 1

4

11 D

ec 1

4

11 F

eb 1

5

11 A

pr 1

5

11 Ju

n 15

11 A

ug 1

5

11 O

ct 1

5

11 D

ec 1

5

11 F

eb 1

6

11 A

pr 1

6

11 Ju

n 16

11 A

ug 1

6

11 O

ct 1

6

11 D

ec 1

6

Shipping ratesAnalysts are predicting a US$10 billion industry-wide loss for container shipping operators in 2016. This follows an intense price war for volume which materially depressed freight rates. Pacific rates between Asia and West Coast North America dropped below $750 per FEU (40’ container), and $1,500 per FEU to the East Coast, previously sectors which averaged $2,000 and $3,000 per FEU respectively.

Shipping rates clearly vary for each route, by cargo and client, between shipping lines, and over time. Various indices such as the Baltic Dry Index (BDI, for dry bulk) seek to track price changes over time. In the container markets, two prominent indices are Drewry’s World Container Index (WCI) and the Shanghai Shipping Exchange’s Shanghai Container Freight Index (SCFI). The WCI uses an average of spot rates on 11 key global routes. The Shanghai Shipping Exchange created the Shanghai Container Freight Index in 2005, again a composite of key global routes, although also presented for each key route.

Drewry, having described the prevailing mid-2016 rates as “unsustainable”, observed that rates have bounced by 62% since Hanjin’s bankruptcy (August 2016). As presented, the WCI and SCFI show great volatility. Both faced an overall decline since 2009. The Hanjin Shipping collapse in August 2016 appears to have precipitated a recovery in spot rates, although this will not become fully apparent until contract shipping rates are formally reset.

While shippers (importers and exporters) have been beneficiaries of low rates, the underlying concern is that this is not sustainable.

Source: SSE - SCFI - Shanghai-Europe

Case Study: Hanjin

Hanjin Shipping was the largest shipping company in Korea, and the world’s seventh-largest container shipping company. It operated a fleet of 98 container vessels (2.8% container market share), carried 2.7 million TEU p.a. and employed 6,000 staff across 60 countries. In August 2016 it filed for bankruptcy protection having failed to secure support of its creditors. The receivership stranded US$14 billion worth of cargo. Subsequently (as at March 2017), 11 ships (77,000 TEU, including two 13,000 TEU ships) have been chartered by Maersk, its former 2M Alliance partner, as have another 20 to other lines. In January 2017, 63 former Hanjin ships (460,000 TEU) remained idle.

So, what went wrong? Hanjin chairman stated that the firm lost a “game of chicken”. Following Korean Air Lines acquiring a controlling stake in 2014, Hanjin invested US$1.8 billion in fleet expansion, and priced aggressively to secure market share. However, it lacked the resources of its larger or state-backed rivals. The recovery in shipping rates since August 2016 has been attributed to removal of Hanjin ships from operation. It is too early to assess whether shipping rates will return to sustainable levels.


15Source: REUTERS / Lucy Nicholson - stock.adobe.com


16

Global ports

Growth continuesThe international port sector appears to be in good heart. Global throughput growth remains positive (except for a decline in 4Q15) although the rate of growth has been falling (per a Shanghai International Shipping Institute publication, below). Throughput growth, a key port measure, was particularly marked across the top 20 ports, averaging 4.1% for the period from 2011 to 2014, then easing to 1.2% from 2014 to 2016. Notably, there are 10 Chinese ports appearing in the top 20 global ports, 15 from Asia, 3 from Europe and only 1 from North America (Los Angeles at #19).

The global container port and terminal industry is nevertheless under pressure from two interrelated factors. First, larger shipping alliances are creating more complex and formidable counterparties. Second, to cater for ever larger containerships, ports are required to invest heavily in more capacity and new technology, driving up capital expenditure requirements and operating costs. Larger ships are segmenting container terminals (into those that can handle larger ships vs those that can’t). Larger ships make fewer visits, creating higher peak workflows (and more downtime), while demanding faster handling, and creating accelerated terminal obsolescence. This is

2%

4%

6%

8%

Global throughput growth

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50

54

56

52

Quarterly port throughput growth rate Global GDP growth rate

Global PMI Index

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16

0

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30

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Top 20 ports (Million TEU)

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placing greater demands on stevedores, challenging existing labour agreements, and helping accelerate terminal automation. While shipping lines or shippers may wish ports to lower prices, global consultancy Drewry has warned that demands for lower terminal handling charges may put future port investment at risk, and so the ability to handle larger ships. The scale, cost and risk of port expansion is rising.

Source: Shanghai International Shipping InstituteSource: worldshipping.org


17

Ports operational challenges & opportunities

An international perspectiveFaced with global trends and challenges, ports are entering a new paradigm, being swayed by disruptive innovations and exponential developments in technology, developments in demography, economy and society. Reconfigurations within the transport supply chain, and the ongoing push towards renewable energy and circularity to fight against greenhouse gases, are pressuring ports to adapt in order to survive, to improve their performance and efficiencies. In doing so they preserve jobs and protect the added value they generate around port activities.

This requires well informed strategic decision making.

The Deloitte Port Services team recently released a paper outlining key challenges and opportunities for port operations. The following is drawn from that report. If you would like access to the full report please contact us for a copy.

Port theme 1 – Greenification / circular economyEnvironmental issues are assuming critical importance in policy as society addresses environmental degradation and pollution, and global climate change. The continuous push for greener and more sustainable solutions forces ports and port companies to face these realities and consider new approaches:

• Environmental: Ports affect city noise, dust and visual amenity. More than half of Hong Kong’s CO2 emissions are shipping related.

• Land Use: Ports occupy what today is considered “prime CBD land”. Antwerp’s port occupies a third of the city’s total land area.

• Congestion: Ports enable trade and supply the cities – largely served by trucks. Port truck traffic accounts for more than 85% of total truck traffic on some sections of Los Angeles’ highways.

The energy and environmental transition could unfold much faster than anticipated requiring strategic preparation from ports.

The share of renewable energy is increasing - Reflecting international climate targets, the world is increasingly transforming the energy-mix, with the share of renewable energy increasing rapidly. Energy efficiency is going up while renewable energy costs are falling fast. With the handling of fossil fuels and chemicals at the core of many of the world’s largest ports, these changes will have a major impact on port operations and its industrial clusters.

The energy transition is happeningPort authorities and businesses that operate within the port area need to strategically prepare for the energy transition. With the ongoing electrification of transport in the most developed countries, total demand for fuels is decreasing in these countries. Developing economies in Asia and Africa are expected to fully offset this downward trend.

Middle distillates and gas are the new fuels - Fuel consumption and carbon emissions are high on the agendas of port authorities and shipping companies, both from a sustainability and operational efficiency point of view. The substitution of middle distillates and gas for bunker oil in fuelling ocean and inland shipping is increasing sharply. This requires strategic action via investment in dedicated port infrastructure.

Biofuels are on the rise - Biofuels are on the rise and bio-based chemical products are becoming more mainstream. Strategic action is required to facilitate the development of local bio-based chemical clusters in the port area, for instance through public private partnerships.

Environmental planning is required to lead the energy transition - Port authorities are increasingly aware that ports are a significant source of emissions and could help facilitate the energy transition. To instigate this, Port Authorities need to pursue targeted clean air programs with the goal of eliminating harmful emissions from port-related sources and companies in the port must incorporate

environmental planning into their development plans. Renewable energies, green charging where environmentally friendly modes are rewarded, waste management, cyclical economies and biofuels are some of the actions undertaken by ports to spare the environment.

Port theme 2 – Smart portsPorts extensively employ data-driven technologies, digitising much of their operations. Ports, ships, shippers and regulatory agencies increasingly operate via integrated systems which monitor, analyse and share data and market information. Combined with advanced robotics and analytics, the functions and responsibilities of ports are being redefined. Such technological advancements offer ports new business model opportunities and the potential to transform into smart ports.

Data-driven technologies and Internet of Things, combined with advanced robotics, analytics and additive manufacturing will redefine the future of ports.

Becoming a smart port to remain relevant Smart ports are capitalising on the ever-expanding universe of connected ‘things’; the Internet of Things. Technology already has a strong impact on ports around the world today, but that impact will further increase. Being disrupted simply translates to not being prepared and to become redundant over time. Preparing implies becoming data-minded; new approaches to data management, new platforms, innovative delivery models and novel governance tactics.


18

Data is key - Data analytics and data exchange are becoming a new comparative advantage for port players. Capacity sensing, route optimisation, energy management, fault detection & resolution can be done much more (cost) effectively. Advanced data analytics allows for streamlining and optimising existing infrastructure usage and operations by eliminating unnecessary / empty transport.

Robots and sensors will continue to replace people - Increased efficiency of robotics and analytics will drive automatisation even further and the usage of drones for inspection of ports/ ships will increase efficiency of cargo handling. Self-steering ships will become the standard and the usage of sensors will replace the need for towing.

All New Zealand ports employ IT platforms which integrate with government systems for trade, customs and biosecurity, while many assist shipping lines with logistics and load/unload schedules. Automation opportunities are actively being investigated by domestic port operators.

Port theme 3 – Integration of supply chainsThe further integration of traffic flows on both the seaside and the landside requires strategic coordination.

Consolidation in terminals and shipping Globalisation, and the subsequent increase in shipping volumes, have driven the requirement for increased transport efficiency and

additional port capacity. In the last decades, the market has seen a consolidation in terminals and shipping. Shipping companies, logistics providers and terminal operators have become global and a few players gained market power implying a strong bargaining position, giving rise to supply chain rationalisation.

Further evolving hub and spoke network Determined by economies of scale and efficiency, a hub and spoke-network of ports is evolving and competition between ports is increasing. The largest vessels, such as the 22,000-TEU ships which are at the design stage, can only call at a limited number of ports as they require more depth, wider docks, stronger quays and larger cranes.

Hinterland connections are critical - The appropriate player to improve the competitive position of the port is the port authority. Aside from favourable pricing, efficiency of operations and automation can create competitive advantages. As supply chains integrate, hinterland connections are becoming the ports’ most important assets. The port authority should focus on improving hinterland connections, taking the lead in putting together a common investment agenda for required infrastructural improvements. Its role changes from landlord to active participant in (and potentially coordinator of) the supply chain.

Port authorities can facilitate the implementation of technology Better insights into transport flows will help companies active in the port to further optimise their supply chains and make them more flexible. The port authority of the future is assisting companies through port community systems. Technologies like blockchain drive this transformation, cutting the middle man (broker) out of the transaction increasing visibility.

The development of logistics technologies and the integration of supply chains is driving increased transport efficiency, which port authorities have the opportunity to orchestrate.

Domestically ports have invested upstream into inland ports, transport and logistics, facilitating better planning and integration with cargo generators, shipping lines, and rail and road operators.


19

Port theme 4 – Organisational efficiencyThe internal organisation of port authorities needs to be flexible to adapt to the increasingly dynamic environment. Increased competition between ports provides ports with the opportunity and imperative to focus on organisational efficiency and performance management.

Private sector interest in the port industry Port privatisation and liberalisation is a result of the increased competition between ports and the changed function of ports in the supply chain. Private sector participation in the port industry can improve port operational efficiency and increase adaptability to customers’ demand. This in turn increases port competitiveness. However, the competitive environment of ports favours considerable local autonomy.

Increased co-operation between ports In Western Europe ports are clustered closely together often offering similar services. We see a growing tendency of port co-operation in this market driven by the increased competition and shifting market forces. A recent example is the merger between Dutch Zeeland Seaports and Flemish Port of Ghent.

Ports focusing on traditional operations are at risk - Shifting market forces put traditional key players within ports at risk of delocalisation or even of becoming obsolete. For example, traditional chemical or fuel-based industries.

Port authorities need to focus on efficiency and performance management This challenge requires ports to focus on organisational efficiency and performance management. Ports need to evaluate their talent base as the shift from a landlord port to a cluster authority with facilitating / coordinating function requires a new skillset. Also, the ongoing push for fully integrated supply chain solutions and Internet of Things, requires a high level of IT knowledge.

Port theme 5 – Safety & securityThe digitalisation of transport and logistics combined with the strategic importance of ports emphasises the importance of cyber security.

The dark side of technology - Technological advancements also have a dark side. Cybersecurity and cyber-resilience are becoming more important as a parallel to physical security. Port security has become a top priority for ports worldwide, also because port security (ISPS Code) is becoming a critical location factor for international shipping / transportation companies.

Ports are vulnerable to cyber crime Ports should be prepared to deal with existing and emerging cyber threats that could shut down large pieces of the country’s critical maritime transportation system. A prominent example is the Port of Antwerp where drug traffickers recruited hackers to breach IT systems that controlled the movement and location of containers.

Active risk management is required - Ports and port facilities are required under ISPS Code to implement risk management activities and take numerous precautions, such as drafting security plans, engaging security officers and deploying security equipment. These safety and security precautions now significantly influence many ports’ day-to-day business activities.

Security software technology increases reliability - When developing new ports or port areas, security procedures and processes can be optimised with the implementation of state of the art security software technology. The use of various control systems and increasing automation in general in the port will reduce the risk of human errors and automation increases reliability of the system. The same applies to integrating RFID-technology to increase transparency and detectability.

A secure port requires a risk-aware culture The importance of cybersecurity will only increase when the “Internet of Things” takes a more prominent place in port operations. But the solution to a safe and secure port is not just technological – it requires building a risk-aware culture.

The International Maritime Organisation (IMO) is responsible for developing a global regulatory framework for shipping and related sectors including safety, environmental concerns, legal matters, technical co-operation, maritime security and the efficiency of shipping. A recent initiative is verified gross mass (VGM)

for container shipping where shippers and shipping lines are required to provide authorities with actual loaded container mass.

New Zealand is a member of the United Nations and a signatory to the IMO’s codes.

Port theme 6 – Port / city dualityPorts have played a vital role in the establishment and functioning of cities throughout the world. With ever increasing cities, more and more ports are enveloped requiring new strategies towards port / city ecosystem development.

Port and city are disconnected - The relationship between ports and cities are changing. Port and city have institutionally been disconnected in many cases as port authorities have been privatised in many countries with limited governmental control over port activities. Urban ports remain dominant - However, most of the world’s leading ports are located in and are closely connected to their hosting urban environment. The urban ports maintain their dominance over better located competitive non-urban ports.

Ports can contribute to urban economic development - The increased attention of policy makers towards the development of the port is focused on ports being a key factor in the economic development of local economies.


20

Port activities and typical urban business activities such as maritime services, insurance, banking, (commodity) trading are increasingly considered to be synergetic.

Waterfront (re)development is an opportunity - Combined with increasing population migration towards cities, waterfront redevelopment of port areas is more topical than ever. Since urban centres have historically evolved around transport hubs, ports are often located in or near the CBD, a challenging location for ‘environmental unfriendly’ port activities.

Combined with high land values, where feasible inner city ports are being relocated to sites with less impact on the city and the people that live in it, whilst former port areas are redeveloped into lively working and living areas (e.g. Sydney Darling Harbour).

In 2010 the OECD published its report, The Competitiveness of Global Port-Cities, which considered the dynamic between ports and their cities. While the historic links between ports and their cities were strong, over time these have been diluted given city economies have grown and diversified. Further, the economic benefits of ports are becoming shared across wider regions, while adverse impacts (disruption, congestion) remain localised. The OECD’s key observations include:

• A well-functioning port brings many economic benefits; a lower cost of trade, employment

and attracting businesses. As a rule of thumb, 1 million tonnes of throughput typically generates US$100 million in economic activity and generates 300 jobs, while catalysing innovation in port-related sectors.

• Many benefits spill over to other/wider regions.

• Ports generate negative impacts: environmental, land use, and congestion.

• Ports must be competitive to fully add value to their cities – by creating employment and urban wealth, and being a good corporate citizen.

• Cities can leverage their ports by creating maritime services clusters, industrial development and port-related waterfront development.

• Supportive city policies, such as master planning, financial mechanisms and education, all help attract high value added companies.

• Public policies can boost port-city performance, covering port, transport, education (port-university-business co-operation).

While all New Zealand ports are local government-controlled, several have facilitated private investment. All ports demonstrate a recognition of their key role in the local economies, while dealing within local and Resource Management Act (RMA) constraints regarding expansion and development.


21

Domestic environment

New Zealand ports and freight yearbook 2017 | Domestic environment

22


23

Industry focus

Economic environmentReserve Bank Monetary Policy Statement June 2017On 22 June 2017, the Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged at 1.75%, a record low level.

The RBNZ observed increased and more broad based global economic growth, however, major challenges remain with ongoing surplus capacity and political uncertainty. Commodity prices have risen over the past year with strong global demand. Monetary policy is expected to remain stimulatory, but less so going forward.

NZIER - Quarterly Predictions, December 2016The key message – the New Zealand economy is solid enough to overcome challenges.

The New Zealand economy is in good shape, providing a buffer against recent shocks. Recent Kaikoura earthquakes have disrupted business activity and introduced more than the usual uncertainty into the economic outlook. Further, the US election has led to some uncertainty in global relations. Tourism remains strong, construction activity continues to ramp up, and immigration is surging. New Zealand Institute of Economic Research (NZIER) expects annual GDP growth of >3% over the next five years. With deflation fears subsiding, inflation expectations are rising.

1%

5%

6%

7%

8%

9%

2000 2003 2006 2009 2012 2015 2018

Official cash rate

2%

3%

4%

Source: RBNZ estimates

Projection

New Zealand’s financial conditions have firmed with long-term interest rates rising and continued upward pressure on the New Zealand dollar exchange rate. Economic growth has increased and the outlook remains positive, supported by a low OCR, strong population growth, increased household spending and construction activity. Dairy prices have recovered in recent months but uncertainty remains around future outcomes.

NZIER - Quarterly Survey of Business Opinion, January 2017The key message - businesses continue to expect good times ahead

Business confidence remains high, with 26% of businesses expecting an improvement in economic conditions, higher than a year earlier. This indicates continued solid momentum in the New Zealand economy, which should provide a buffer against the downside risks from unexpected events both here and abroad.Factors include the continued recovery in global dairy prices, confidence in Wellington, and strong building activity. Employment is high, with immigration easing labour shortages. Household demand was solid underpinning retailer confidence. Capacity utilisation rebounded to 92.7% permitting some price rises.


24

Trade volumes

The Ministry of Transport publishes several statistical databases, such as the National Freight Demand Study (3 over 8 years), and since 2010, the Freight Information Gathering System (FIGS), where it collects, analyses and presents port, trade and transport data.

Freight Information Gathering System (FIGS)This commentary and highlights are drawn from the FIGS release for the period to June 2016.Trade export volumes, having grown strongly over the last decade, have eased since 2014, although selectively. Coal exports were down in 2015, reflecting falling prices and the troubles at Solid Energy (in liquidation), while forestry exports also eased (both price and demand were down in 2015, this trend having subsequently reversed). All other export sectors have continued to expand. For imports, having fallen across the board post GFC, volumes have resumed growing, notably food items, although as with exports, growth has eased since 2015.

45,00040,00035,00030,00025,00020,00015,00010,000

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02Q4 05Q4 07Q4 09Q4 11Q4 13Q400Q4 01Q4 03Q4 06Q4 08Q4 10Q4 12Q4 15Q414Q4

NZ sea export volume (tonnes ‘000 / rolling 12 month totals)

Forestry Products Other, confidential MetalsMachinery, electrical, transport Chemicals, plastics, rubberMinerals, coal, oil Food, skins, wool Dairy

25,000

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NZ sea import volume (tonnes ‘000 / rolling 12 month totals)

Other Vehicles (road, rail, air, sea) Machinery/electricalMetals Chemicals, plastics, rubber Oil and coal Food

Source: FIGS


25

National Freight Demand Study (NFDS)The Ministry of Transport has been behind some key initiatives to better understand the actual flows of different trades. In 2008 it initiated the National Freight Demand study (NFDS), providing a best-estimate snapshot of the movement of freight around New Zealand, by commodity, by mode. The NFDS, repeated in 2011 and 2014, provides a unique and valuable resource, and usefully includes 30 year forecasts. The focus on NFDS is on domestic freight flows, although this dataset can be readily adapted to capture imports and exports.

Traffic countsViewing the heavy vehicle traffic counts at key remote SH1 monitoring sites over a longer period reveals steady annual growth beneath the seasonal effects. The Kaikoura earthquake struck on 14th November 2016, resulting in traffic through Kaikoura ceasing immediately, and Blenheim being largely by-passed. Waipara on SH1, still receives all traffic, now being diverted via SH’s 63, 6, 65 and 7 (Lewis Pass), further boosted by displaced rail volumes. The indicated growth is consistent with ANZ’s Truckometer survey, which aggregates all heavy vehicle traffic, and with the NFDS forecasts of 2.5-3.0% annual growth.

90

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Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15

TEU volumes Since 2012, imported TEU volumes are up 14% and export volumes are up 12%. Some of the recent domestic growth is containerised cement.

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Wellsford Taupiri TaupoSanson Ohau BlenheimKaikoura Waipara Milton

Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16

Kaikoura Earthquake Nov 16

Source: FIGS


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Container trade expandsThese trends are reflected in the container trades, where imports and exports continue to grow, albeit at lower rates. Coastal volumes have been up markedly since 2014 and paradoxically, transhipments continue to trend down potentially raising a question regarding the capturing of information for coastal and tranship volumes.

Bigger shipsFor several decades containerships have been getting progressively larger. The race to build more and larger ships has maintained a frenetic pace even post-GFC. By 1988 the biggest containership, at 4300TEU, was reaching the capacity of the Panama Canal (the Suez presents no such size restrictions). Yet ships got even bigger, reaching 8700TEU by 1998, and 19,000TEU by 2015. The merit of larger ships reflects scale economies. But to deliver these gains for shipping requires ports to invest in infrastructure and for cargo to be efficiently aggregated.

In 2002 P&O (now Maersk) introduced a fleet of new 4100TEU ships into New Zealand, a step up from the previous largest at 3500TEU. More recently, 5500TEU ships have been rostered in to cater for peak export months.

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Cargo on ships of 4,000 TEU or more(rolling 12 months)

Ships of 4,000 TEU or more handle a significant share of the import and export containers at the following ports.

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LytteltonCentrePort

Port of NapierPorts of Auckland

Port OtagoPort of Tauranga

Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15

Maersk introduced 9500TEU ships onto its Triple Star service in late 2016. Including Tauranga as its only New Zealand port, this service links Asia ( Japan, Korea, China and Taiwan) with South America (Peru, Chile, Panama, Colombia and Mexico). Tauranga is New Zealand’s first port to complete dredging to 14.5m so enabling these larger vessels to visit. Tauranga has also become New Zealand’s first port to handle 1 million TEU.

Coastal shippingCoastal shipping plays a key role in New Zealand’s domestic freight task, being principally specialist bulk ships (such as petroleum and cement) and inter-island RORO ferries. In the general freight market, domestic ship operators are confronted by two key challenges: competition with other transport modes (road, rail and air), and the competition with international ship operators.

While coastal shipping provides slower transit times relative to other modes, shipping delivers lower emissions and prices. Coastal capacity can also be readily expanded and would require limited additional port infrastructure.

There has been an increase in coastal shipping post the Kaikoura earthquake. This could represent a sustainable uplift for coastal operators, reflecting lower prices than traditional rail or road freight, demonstrated resilience and increasing frequency of ships.

600,000500,000400,000300,000200,000100,000

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Imports Exports Export transhipment total Import transhipment load

Import, export and transhipment movements (TEU)

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Coastal bulk volumesCoastal volumes are dominated by bulk trades in petroleum products from the refinery at Marsden Point (Whangarei) and cement (from Portland (Whangarei) and Westport (until Holcim closed its plant in June 2016). The coastal freight task for petroleum products is some 2.5 million tonnes annually, with Tauranga, Lyttelton and Wellington the key destinations. Petroleum product is also piped from the refinery to Wiri (Auckland), while Z-Energy barges product to Auckland. Refined product is also imported to supplement the refinery’s capacity. The refinery itself imports its crude oil feedstock (with domestic crude oil production exported).

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Source: FIGS

Source: FIGS

New Zealand ports and freight yearbook 2017 | New Zealand Freight Task

28

New Zealand Freight Task


29

New Zealand Freight Task

This section reproduces elements from Deloitte’s 2016 Port & Freight yearbook. For a full breakdown please refer to that publication.

Each year, 236 million tonnes of freight are moved within New Zealand, some 50 tonnes per person. This task can be classified into four broad groupings: primary produce, energy, construction materials, and manufactured and retail goods.

The primary sector is New Zealand’s key generator of domestic freight, much destined for export. The flows are from source (farm gate or plantation forest) either direct to ports for export (such as logs) or more usually via intermediate processing industries (dairy factories) for both domestic consumption and/or export. Favourable export conditions and a buoyant construction sector have supported the strength in forestry, while dairy has enjoyed rapid expansion (much enabled by irrigation). Dairy alone exceeds the tonnage of all other agricultural commodities: livestock, meat, wool, horticulture, grains, and fish.

Petroleum and coal freight are concentrated on a few key regions where the resources are located and extracted, coal from West Coast and Waikato, and petroleum from Taranaki or Northland where it is imported and refined.

Key construction materials, aggregate and cement, are also produced in high volumes, although generally close to domestic markets given their bulk and relatively low unit value. Manufactured and retail goods, whether domestically made or imported, are usually smaller and of greater unit value, and are observed to be transported greater distances.

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Source: NFDS 2014


30

Regional freight generationClear patterns are evident in domestic freight flows. Primary producing areas generate flows to export ports, typically via processing facilities. Population is a major driver of both consumption and manufacturing activity. The Golden Triangle (Auckland, Waikato, Bay of Plenty) combines both population and primary industries (forestry and dairy) to account for 45% of all freight tonnage produced.

Canterbury is the dominant freight generator in the South Island producing 15% of the national freight task.

Manufacturing and retail freight tonnage correlate strongly with population, notably in Auckland and Canterbury, which host manufacturing hubs, large scale distribution centres, and receive consumer goods through their ports.

The primary sector locates in regions offering favourable topography, climate, and soil. Waikato, Taranaki, Manawatu, and Southland have proven well-suited to dairy production, as well as Canterbury if irrigation is available, with dairy accounting for over 20% of total freight generated for these regions. This is similar for forestry, where warm climate and lower-value land have attracted substantial plantings in Northland, Waikato, Bay of Plenty, Gisborne, Hawkes Bay, and Tasman/Nelson/Marlborough. Forestry volumes account for over 35% of freight in these regions (excepting Waikato at 16% and Northland at 26%).

Crude oil flows are either direct export (from Taranaki) or direct import (to the refinery in Northland). Domestic transport of petroleum products is primarily from the Northland refinery to coastal distribution, with a rising direct import share, and then by truck to the nation’s service stations. West Coast coal production is principally for export via Lyttelton, while Waikato coal serves a domestic market in the upper North Island. The outlook for coal is overshadowed by low prices and its high environmental footprint. Cement is manufactured at plants in Northland and West Coast for distribution by coastal ships and then road and rail. The West Coast plant is being superseded by direct import. Southland hosts the Tiwai Point Aluminium Smelter, which while generating largely direct import export flows, accounts for almost 10% of the regions total freight flows.

New Zealand regions

Northland (NTH)

Gisbourne (GIS)

Hawke’s Bay (HKB)

Wellington (WLG)

Tasman Nelson Marlborough (TNM)

Canterbury (CAN)

Otago (OTG)

Bay of Plenty (BOP)Auckland (AKL)

Waikato (WAI)

Taranaki (TAR)

Manawatu (MAN)

West coast (WST)

Southland (STH)


TOTAL FREIGHT GENERATED (MILLION TONNES)

Dairy Forestry Other Agri Petroleum Coal Aggregate Cement Manufctrd Goods

Other Retail Other Total

NTH 1.29 4.35 0.72 2.73 0.06 1.69 2.45 0.28 0.03 3.28 16.88

AKL 0.73 1.44 1.58 1.40 0.06 5.76 2.76 9.91 11.77 13.98 49.39

WAI 7.08 5.15 2.72 - 1.77 5.70 1.68 1.02 0.24 6.70 32.06

BOP 1.62 9.80 2.20 1.03 - 1.24 1.57 1.26 0.49 5.83 25.04

GIS 0.02 1.87 0.63 - - 0.27 0.06 0.08 - 0.86 3.79

HKB 0.27 3.57 1.85 0.22 - 0.70 0.93 0.54 0.14 2.07 10.29

TAR 2.69 0.26 0.91 0.49 - 0.42 0.67 0.48 0.01 1.69 7.62

MAN 2.19 1.70 1.64 - - 1.09 0.26 0.51 1.35 1.82 10.56

WLG 0.33 0.89 0.41 0.58 - 1.43 0.69 0.96 0.60 2.52 8.41

TNM 0.39 3.34 1.07 0.27 - 1.02 0.56 0.36 0.07 2.24 9.32

WST 0.65 0.43 0.12 - 2.50 0.03 1.43 0.07 0.04 0.27 5.54

CAN 5.12 1.54 3.97 0.93 0.05 5.30 2.94 3.27 3.26 9.01 35.39

OTG 1.24 1.52 1.05 0.28 0.09 1.84 0.86 0.48 0.24 2.44 10.04

STH 2.79 1.40 1.12 0.21 0.52 0.51 1.11 0.21 0.05 3.77 11.69

TOTAL 26.41 37.26 20.01 8.14 5.05 26.99 17.98 19.45 18.31 56.42 236.02

TOTAL FREIGHT GENERATED (BILLION TONNE-KILOMETERS)

Dairy Forestry Other Agri Petroleum Coal Aggregate Cement Manufctrd Goods

Other Retail Other Total

NTH 0.11 0.61 0.08 2.42 - 0.07 0.24 0.06 - 0.21 3.80

AKL 0.07 0.41 0.11 0.07 - 0.20 0.04 1.77 1.86 0.67 5.20

WAI 0.50 0.43 0.28 - 0.08 0.30 0.14 0.15 0.03 0.39 2.30

BOP 0.17 1.05 0.23 0.12 - 0.03 0.18 0.24 0.09 0.49 2.60

GIS 0.01 0.27 0.13 - - 0.01 - 0.03 - 0.15 0.60

HKB 0.04 0.50 0.19 0.01 - 0.04 0.10 0.13 0.03 0.17 1.20

TAR 0.29 0.03 0.12 0.06 - 0.01 0.13 0.10 - 0.06 0.80

MAN 0.42 0.24 0.21 - - 0.02 - 0.13 0.20 0.08 1.30

WLG 0.05 0.08 0.07 0.05 - 0.02 0.02 0.30 0.25 0.06 0.90

TNM 0.05 0.41 0.15 0.09 - 0.03 0.02 0.11 0.01 0.23 1.10

WST 0.07 0.08 0.01 - 0.86 - 0.29 0.03 0.01 0.04 1.39

CAN 0.41 0.15 0.45 0.05 - 0.07 0.11 0.99 0.49 0.58 3.30

OTG 0.12 0.27 0.20 0.02 0.01 0.03 0.06 0.18 0.03 0.18 1.10

STH 0.22 0.10 0.20 0.02 0.08 0.01 0.09 0.10 0.02 0.16 1.00

TOTAL 2.53 4.64 2.47 2.91 1.03 0.84 1.43 4.32 3.00 2.47 26.30

Source: NFDS 2014, MoT FIGS

Dairy

Coal

Other retail

Forestry

Aggregate

Other

Other Agri

Cement

Petroleum

Manufactured goods

Dairy

Coal

Other retail

Forestry

Aggregate

Other

Other Agri

Cement

Petroleum

Manufactured goods

90%

100% 60

Intra vs Inter-Regional Freight Flows

0 5 10 15 20 25 30 35 40 45 50

NTH AKLWAIBOPGIS

HKBTAR

MARWLGTMNWSTCANOTGSTH

NTH AKLWAIBOPGIS

HKBTAR


0.0 1.0 2.0 3.0 4.0 5.0

billion tonne-kms Total freight generated million tonnes

Total freight generated

Dairy

Coal

Other retail

Forestry

Aggregate

Other

Other Agri

Cement

Petroleum

Manufactured goods

Dairy

Coal

Other retail

Forestry

Aggregate

Other

Other Agri

Cement

Petroleum

Manufactured goods

90%

100% 60

Intra vs Inter-Regional Freight Flows

0 5 10 15 20 25 30 35 40 45 50

NTH AKLWAIBOPGIS

HKBTAR


NTH AKLWAIBOPGIS

HKBTAR


0.0 1.0 2.0 3.0 4.0 5.0

billion tonne-kms Total freight generated million tonnes

Total freight generated

31

Port resilience

New Zealand ports and freight yearbook 2017 | Port resilience

32


33

Port resilience

In February 2011 Christchurch was struck by a 6.3 magnitude earthquake. In 2017, the city is part way through an extensive, complex $40 billion rebuild.

In November 2016 a 7.8-magnitude quake struck Kaikoura. SH1 and main trunk rail remain closed. Aftershocks caused considerable damage to Wellington, where the container operations at CentrePort remain disrupted.

Both have served to put infrastructure resilience onto the front page.

In this section we present an international perspective of what resilience is, why it is important, how vulnerabilities can be understood and prepared for, and so to create a resilient value proposition. Deloitte Port Services recently presented in relation to Resilience in Seaports internationally, key elements of which are reproduced below.

Resilience in portsResilience is the concept of preparing for, recuperating from and improving after ‘shocks’. As well as the increasing global perception of uncertainty, ports are often located in vulnerable areas, and deal with hazardous activities. There are several factors which may make ports more vulnerable to shocks:

• Dealing with dangerous goods (biosecurity, toxic chemicals)

• Dangerous locations (faults, volcanoes, tsunamis)

• Industrial environments

• Security threats

• Dangerous activities

• Pollution threats

In addition to the shocks caused by hazardous activities and goods, large scale industrial, social and natural shocks or disasters occur regularly. Changing trends in shipping routes and supply chain activities put pressure on ports, with uncertainty rising and traditional hubs being replaced by new, rising hubs. Furthermore, traditional activities and demand for goods may change or decline, putting pressure on port’s large capital structures. Although trends are monitored and predicted, there are always surprises and uncertainty over every potential scenario. Higher uncertainty leads to a greater level of risk and difficulty in decision making.

Resilience is important for ports facing uncertain factors on a macro and micro level. Ports are integral parts of the economy and contribute significantly to local GDP both directly and indirectly. Ports are strategically located, contain strategic goods and stocks, and impact the competitive position of a country. Therefore any disruption to ports can impact productivity and GDP, competitiveness of local industries and local consumers of goods. When investing in resilience, the location, cost and impact of investment needs to be taken into account.

The following chart shows an example of the curve of cost of disruption vs cost of prevention as resilience measures are undertaken. The area where cost of disruption crosses cost of prevention is where resilience strategies become optimised.

Highcost

Lowcost

Low resistance High resistance

Cost of preventionCost of disruption

Cost of disruption vs Cost of prevention

Source: Deloitte port services


34

How ports can create resilienceStep One: Analysing vulnerabilities – being prepared is knowing what makes you weakA port is subjected to multiple types of shocks

• Industrial (e.g. 2015 explosion at Port of Tianjin)

• Natural (e.g. 2012 Hurricane Sandy, US East Coast)

• Human (e.g. 2015 transport strikes at Port of Calais)

• Not each port is equally susceptible to these shocks, with some being: – Located in vulnerable areas – Focusing on declining activities – Facing a difficult local operating environment

Two main resilience evaluation approaches exist:

• a port specific in depth case study

• a regional benchmark

A port vulnerability assessment may be undertaken, to understand states of susceptibility to shocks, and so guiding normative analyses of actions. Deloitte developed a port vulnerability index, used to benchmark ports in Europe. This revealed a strong link between latitude and port vulnerability, finding that co-operation between ports can reduce vulnerability. These results may have relevance to New Zealand, where each location may carry differing vulnerability to natural, industrial or human events.

Step 2: Analysing causes and reactions to shocksTraditional shock parameters are probability, severity and duration of the event. One can also analyse growth differences and learning capabilities. Deloitte created a framework for the measurement of past shocks, allowing benchmarking of independent events in one port against regional/global shocks affecting multiple ports, using four parameters:

01. Resist – minimise the shock

02. Recover – minimise fallout

03. Renew – maximise bounce back

04. Remember – learn from the shock

To better understand the causes of shocks, studies can observe trends across industries that impact ports and what this may mean for ports.


35

Step 3: Creating a culture focused on resilienceThe Deloitte resilience study showed critical factors for port resilience include:

01. Proactive landlord function – balanced activity and allowing for innovation. Innovative activities are vital, and may include new transport technologies, ‘Internet of Things’ platforms and innovative cargo groups. By introducing innovative activities, new product lifecycles are added to the traditional set, increasing diversification. A focus on activity portfolio management can also apply to ports. A balanced portfolio allows the port to focus on multiple markets.

02. Regional authority – strategic co-operation, inland hubs and creation of a port network. Port strategies don’t need to be limited by their geographical position. Joint ventures, co-operation agreements and foreign investments can lead to greater co-operation and resilience. Large networks allow ports to increase their value proposition.

03. Community manager – Port as a brand, strong maritime culture, increasing cohesion. Cohesion between institutions, partners and lobby organisations can enhance co-operation at a local level. Creating the notion of a maritime culture can enhance port resilience and is evident in situations such as port waterfront

36

Determine weakness

Assess internal and external environment

Determineindustrial diversity

Assess position on the supply chain

Focus on resilient strategy

Make adjustments based on lessons learntRe-evaluate

Measure shockresponse

redevelopment. Looking beyond cargo flow generation to other factors such as employment and environment builds community support, which is essential when facing shocks.

Step 4: Understanding the needs of the supply chainPorts may be regarded as commodities in the supply chain. Alternatively ports may choose to specialise and stand out, to seek growth and find strength from size. Some ports may choose to strategically focus on industrial activities or may commit more available land area to specific cargo groups.

Step 5: Completing the resilient value propositionA port authority may increase resilience throughout the value chain, in order to facilitate local activities and improve the value proposition. This means each segment in the value chain, from producer through to hinterland transport can have tools for resilience improvement applied to them from the port authority perspective. Each segment of the value chain can be analysed in terms of potential shocks and risks, with tools for resilience applied to these.

The five steps, from assessing the environment to focusing on a resilient strategy combine to produce a roadmap to reduce and learn from shocks.

The figure above shows an example of a typical process to evaluate and monitor shocks.

Source: Deloitte port services


36

New Zealand context - EarthquakesIn February 2011 Christchurch was struck by a 6.3-magnitude earthquake, resulting in the loss of 178 lives and major damage to property and infrastructure. The port, while quickly operational, was also extensively damaged.

Then in November 2016 a 7.8-magnitude quake struck Kaikoura. Damage around Kaikoura was severe, with major slips and ruptures closing both SH1 and rail. Yet it was the strong aftershocks closer to the capital, Wellington, which raised alarm. Several buildings remain closed while some will be demolished. The port also suffered material damage to wharf structures, pavement and buildings.

These events have served to put infrastructure resilience on the front page, and initiate a conversation on preparedness. The Ministry of Civil Defence and Emergency Management, and local authorities, are required to maintain plans in readiness for earthquakes, tsunami, emergency waste management and natural and man-made events.

National Infrastructure Plan (NIP)In 2010 The Treasury produced the inaugural National Infrastructure Plan (NIP), a strategic plan reviewing the major infrastructure sectors: transport, telecommunications, energy, water and social infrastructure sectors, and providing both a stock-take and gap analysis. Subsequent annual editions have updated progress and set out the vision that ‘by 2030, New Zealand’s infrastructure is resilient and coordinated and

contributes to economic growth and increased quality of life’.

Transport fared well, with the NZTA operating strong planning and good budgeting. The NIP recognised resilience as one of its six guiding principles, the others being investment analysis, funding mechanisms, accountability and performance, regulation and coordination. Under the NIP, resilient infrastructure is that able to deal with significant disruption and changing circumstances.

Resilience encompass risk management in anticipation and more particularly the ability to respond promptly and cogently to events which may evolve slowly (such as rising sea levels, changing demographics) or occur dramatically (such as earthquake, flooding, or global oil supply restrictions). Anticipation is not about building infrastructure able to withstand any event, nor building redundancy, unless the consequences of loss or disruption warrant that investment. But it does seek strong business case analysis capturing costs, risks and consequences of various events.

The NIP identified several attributes of resilience.

• Service Delivery – to meet national, business and community needs.

• Adaptation - capacity to withstand disruption, act effectively in a crisis.

• Community Preparedness - understand outage risks and mitigate.

• Responsibility - individual and collaborative.

• Interdependencies - identification and management of risk.

• Financial Strength - capacity to deal with significant disruption.

• Continuous - on-going assurance and anticipation activities.

• Organisational Performance - leadership and culture.


37

Resi

lienc

e ex

pect

atio

ns

Asse

ssed

re

silie

nce

Des

ired

m

ovem

ent

Indicator sources / points of assurance

Transport global: transport monitoring indicator framework (TIMF)Best practice asset management plans e.g. PA S 55 or IIMM 2011Business continuity management e.g. Standards NZ BCMAnnual financial reportsResilient organisations practices

Local roads

Suburban –

Main arterial with alternate –

Main arterial – no alternate –

Strategic freight routes

National roads

National with alternate –

National – no alternate

Road / rail link span

Cook Strait ferries & terminals –

Rail Suburban (incl rolling stock)

National (incl rolling stock)

Ports Individual ports – Compliance international ship and port security code

Ports with specialist facilities Compliance international ship and port security code

Ports network Compliance international ship and port security code

Airports Regional airports –

Airways NZ –

International airports –

Transport (example only)

Low resilience Medium resilience High resilience

The gap analysis for Transport identified 5 areas requiring improvements. An example of this is presented below.

Resilient infrastructure and specifically resilient transport infrastructure is vital to our modern society and economy. The increased frequency, intensity and awareness of global hazard events mean that building resilience is a justified and important goal.

Source: National Infrastructure Plan

Port performance

New Zealand ports and freight yearbook 2017 | Port performance

38


39

Operations

Source: Annual reports

1.0

0.8

0.6

0.4

0.9

0.7

0.5

0.30.20.1

AKL NPE NSN LYT POE BLUTRG NPL WLG MLB TIU0

NZ container throughput (million TEU)

2013 2014 2015 2016

• Major container ports: TRG and AKL continue to be the dominant players in the market with a combined market share of 62% of all containers handled. – TRG: TRG is now New Zealand’s largest port by container throughput, handling a record 0.95 million TEU in 2016. TRG overtook AKL for the first time in container throughput in 2016. TRG is the only port with capacity for ships >6500 TEU.

– POAL: AKL moved to be the second largest container port in 2016, handling 0.91 million TEU. The Port has several initiatives to boost the Fergusson container terminal capacity, completing the reclamation, building the North berth, and partially automating the terminal.

• Highest growth: TRG container volumes have grown over the last year with TEU increasing 11.76% from circa 850,000 TEU to approximately 950,000 TEU. TIU container volumes continued to grow following its alliance with TRG. NPE, LYT, WLG and NSN also saw growth in container volumes from 2015.

• Other movements: BLU container volumes declined slightly, due to weaker imports for the dairy sector (high-end stock food and fertiliser).


40

Composition

800

1,000

600

400

200

0

400

200

0

100

200

0

12 month rolling TEU totals (thousand TEU)

Domestic Tranship & other Import Export

Ports of Auckland

1713 14 15 16

Tauranga

1713 14 15 16

Lyttelton

1713 14 15 16

Napier

1713 14 15 16

Otago

1713 14 15 16

Centreport

1713 14 15 16

Nelson

1713 14 15 16

Timaru

1713 14 15 16

Southport

1713 14 15 16

• Import volumes: AKL has the highest import volumes in the country, and accounts for close to 40% of the total import volumes. TRG import volumes have increased over the FY14-FY16 period.

• Export volumes: TRG has the highest export volumes in the country and accounts for approximately 40% of total export volumes.

• Domestic: AKL and LYT have the highest domestic volumes, together accounting for 56% of total domestic volumes.

• Transhipment: TRG has the highest transhipment volumes, accounting for 41% of total NZ transhipment numbers.

• Import-Export gap: AKL, TRG, & NPE all have a significant import and export imbalance. AKL import volumes are almost twice as large as export volumes. While TRG and NPE import volumes are almost two thirds of their export volumes. The rest of the ports have an Imports: Exports ratio of between 0.85-1.14.

• Port Taranaki does not have any container shipments.

Source: FIGS Source: FIGS March 2017 data tables


41

NZ port ship rates –containers/hour

FY2014 FY2015 FY2016Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec

AKL 77.2 83.6 74.6 81.4 88.6 91.3 87.0 81.2 85.1 82.8 79.4 79.4

LYT 57.9 58.1 62.0 60.9 59.5 61.3 64.4 61.7 62.5 55.1 68.1 58.7

NPE 50.0 48.3 56.1 58.3 61.3 54.4 60.5 58.4 57.4 54.9 57.0 57.2

OTE 61.1 59.1 59.2 59.3 60.9 58.4 56.4 62.9 62.5 60.0 60.8 61.4

TRG 74.9 76.3 77.1 76.9 80.8 83.0 82.9 86.6 85.7 82.9 88.8 89.8

WLG 65.3 65.6 58.9 58.1 54.4 48.1 51.6 52.8 46.5 52.0 51.3 52.6

NZ 64.4 65.1 64.6 65.8 67.6 66.1 67.1 67.3 66.6 64.6 67.6 66.5

NZ port vessel rates – containers/labour hour

FY2014 FY2015 FY2016

Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec

AKL 68.5 73.7 65.6 72.8 73.4 80.1 77.2 72.3 75.0 72.6 70.1 71.4

LYT 43.5 44.0 45.5 44.4 41.9 42.8 47.3 50.1 51.5 44.5 54.6 47.7

NPE 37.1 36.5 43.2 44.0 45.2 43.1 44.6 45.0 41.0 39.9 41.2 40.6

OTE 49.7 47.5 47.5 48.4 50.1 47.8 45.5 52.5 51.2 49.4 48.6 50.6

TRG 62.3 62.3 61.0 63.7 65.1 52.4 67.5 70.5 66.9 66.1 69.7 70.7

WLG 55.7 58.1 49.3 51.5 47.0 39.1 44.8 47.7 39.4 42.2 43.9 46.2

NZ 52.8 53.7 52.0 54.1 53.8 52.6 54.5 56.3 54.2 52.4 54.7 54.5

NZ port crane rates – crane lifts/hour

FY2014 FY2015 FY2016Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec

AKL 33.3 34.0 33.1 33.3 36.4 37.3 36.7 36.1 37.3 36.2 35.0 34.9

LYT 28.8 27.3 30.1 30.5 30.4 31.4 31.9 31.3 32.7 31.5 33.5 30.4

NPE 23.0 22.3 24.7 23.8 24.2 23.4 24.9 24.4 23.1 22.6 23.8 23.8

OTE 32.3 32.6 34.9 33.6 33.9 32.2 32.7 33.6 34.0 33.0 33.1 34.7

TRG 36.7 37.2 36.2 34.8 36.4 35.6 35.9 35.6 35.7 35.2 35.9 35.9

WLG 34.2 34.5 32.7 32.0 30.9 28.9 29.8 30.0 27.9 31.2 32.7 33.7

NZ 31.4 31.3 32.0 31.3 32.0 31.5 32.0 31.8 31.8 31.6 32.4 32.2

4.0

3.0

2.0

3.5

2.5

NZ port crane rates

80.0

60.0

40.0

70.0

50.0

100.0

90.0

NZ port ship rates

70.0

50.0

30.0

60.0

40.0

90.0

80.0

NZ port vessel rates

AKL LYT NPE OTE

TRG WLG NZ Average

2009 2010 2011 2012 2013 2014 2015 2016

Mar

Sep

Mar

Sep

Mar

Sep

Mar

Sep

Mar

Sep

Mar

Sep

Mar

Sep

Mar

Sep

Container terminal efficiency

Source: FIGS rolling totals (note not year end)


42

Port utilisation

Container ship utilisation:

• Major container ports (AKL, TRG, LYT) had the highest container ship utilisation, followed by POE and BLU.

• AKL has significantly higher crane utilisation than other ports.

• NPL estimate is excluded, due to low levels of containers recorded in FY16

Bulk terminal utilisation:

• AKL had the highest bulk terminal utilisation (Bulk Tonnes/Bulk Terminal ha) and TRG the highest land utilisation (bulk tonnes/ general wharf metre).

Container terminal utilisation:

• AKL had the highest container land utilisation (TEU/Terminal ha)

• AKL and TRG had the highest TEU throughput / container wharf metre

• Estimates for NPL, MLB and LYT were excluded due to a lack of container wharf.

Source: Deloitte, Port, Annual ReportsSource: Deloitte, Port, Annual Reports

Source: Deloitte, Port, Annual Reports

1,600

1,200

800

400

1,400

1,000

600

200

AKL NPE WLG MLB LYTTRG NPL NSN POE BLUTIU0

180,000

140,000

100,000

40,000

160,000

120,000

80,00060,000

20,0000

TEU / Container Ship TEU / Container Crane

Containership utilisation (TEU per year)

1,200

800

400

1,400

1,000

600

200

AKL NPE WLG MLB LYTTRG NPL NSN POE BLUTIU0

25,000

15,000

30,000

20,000

10,000

5,000

0

TEU / Container Wharf Metre TEU / Terminal ha

Container terminal utilisation (TEU per year)

700,000

500,000

300,000

800,000

600,000

400,000

200,000

100,000

LYT0

10,000

6,000

12,000

8,000

4,000

2,000

0

Bulk Tonnes / Bulk Terminal ha Bulk Tonnes / General Wharf Metre

Bulk terminal utilisation

BLUPOETIUMLBNSNWLGNPENPLTRGAKL


43

Financials

250

150

50

300

200

100

0

Revenue ($ million)

2012 2013 2014 2015 2016

BLUPOETIULYTMLBNSNWLGNPENPLTRGAKL

1639 2878

250

150

50

300

200

100

0

Profitability ($ million)

NPAT Tax Interest Depreciation Expenses


Drivers for revenue increases included improved port operations, container and cargo tonnage volume growth, and increased cruise ship activity.

• Ports with revenue increases: Reported revenue has increased for 6 ports in FY2016. Ports reporting revenue increases include NPE (rising log volumes), WLG (increased container and log volumes), NSN (increased container throughput), MLB (increased cargo tonnes), TIU (revenue up 5% despite lower trade volumes, offset by log exports and cement trade) and BLU (higher bulk cargo tonnages).

• TRG reported the highest revenues for the year at $245.5m despite revenue falling from prior year.

• Ports with revenue decreases: Ports reporting a revenue decrease include AKL (reduced container volumes), TRG (cargo handling & exports down), NPL (trade volumes and vessel numbers down), and LYT (reduced volumes).

• POE remained relatively stable over the 15/16 period with the total revenue of $81m including dividends received and other revenue.

All ports reported positive profits in 2015. In 2016, all ports reported positive profits with the exception of Lyttelton which posted a loss.

• Ports with profitability increases: Auckland saw reported profit increase from $63m to $84m. Centerport Wellington also saw significant increase in profit from $8m to $18m. Other ports with small increases in profit included Timaru and Southport.

• Ports with profitability decreases: Other ports saw lower profitability levels due to factors such as decreased volumes, increased competition for market share and flat or rising expenses such as employees, financing costs, and revaluation changes. Lyttelton reported a significant loss due to an impairment booked at 30 June 2016.

Source: Deloitte, Port, Annual Reports Source: Deloitte, Port, Annual Reports


44

2012 2013 2014 2015 2016

100

60

20

120

80

40

Capital expenditure (Real 2016 $ millions)

0


All port shareholders received a dividend in 2016.

• BLU announced a 10% dividend uplift after a record year for revenue and profit.

• LYT is in a development phase with paid dividends decreasing to reflect this. Cash is mostly allocated to future capital projects. (LYT website CE statement).

• TRG paid a dividend of $72.1m, in line with increased revenue and profit.

• AKL paid dividends of $42.2m, comprising of the FY16 interim dividend and FY15 final dividend. Total FY16 dividends declared amount to $54.3m after a final dividend was announced following an improved profit in FY16.

70

50

30

80

60

40

20

Cash dividends paid ($ million)

10

0BLUPOETIULYTMLBNSNWLGNPENPLTRGAKL

2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

100

60

20

120

80

40

Capital expenditure (Real 2016 $ millions)

0


Large capital investments are underway for many of the ports. Port development includes:

• AKL acquired 33ha for a new freight hub.

• TRG approached the end of its $350m capital programme.

• LYT had significant spend on land improvements and harbour structures – Cashin Quay 2 wharf was opened in February 2016 and its second inland port became operational in June 2016.

• POE commenced stage 2 of industrial land development in Hamilton and deepening of the channel to 14m.

Source: Deloitte, Port, Annual ReportsSource: Deloitte, Port, Annual Reports

Financials


45

300

200

100

50

350

250

150

Cash net debt ($ million)

0LYT BLUPOETIUMLBNSNWLGNPENPLTRGAKL

2011 2012 2013 2014 2015 2016

New Zealand ports are investing for the next generation of ships and improving port infrastructure.

Total net debt (interest bearing debt less cash) in 2016 was $937m, up from $810 million in 2015. This excludes LYT, which had negative net debt in both periods.

• AKL interest bearing liabilities increased 20% on FY15.

• LYT remains debt free following an insurance settlement in 2014.

• TRG net interest bearing debt is up 7% on FY15.

• TIU saw borrowings increase by over 400%, in line with increases in fixed assets as it purchased 2.1 hectares of land and extended its Eastern Extension Breakwater.

50%

40%

30%

20%

45%

35%

25%

15%

10%

5%

0

14.0

10.0

6.0

2.0

12.0

8.0

4.0

0

Debt covenants

Gearing (D/D + E) (LHS) Interest Cover (RHS)

LYT BLUPOETIUMLBNSNWLGNPENPLTRGAKL

The above ratios indicate a company’s capacity for additional borrowing and ability to service current debt levels.

• The gearing ratio is calculated as debt divided by debt plus equity.

• The average gearing ratio in 2016 was 17%, up from 15.4% in 2015.

• The interest cover ratio is calculated as normalised EBIT (removal of associate or joint venture earnings and abnormal items) divided by net interest expense.

• AKL has increased interest cover ratio compared to 2015

• WLG has 2.3 times interest coverage, reflecting that its investment property portfolio records the lowest ratio.

• BLU had 18 times interest coverage, with increased operating profit and decreased interest expense.

• POE had increased interest coverage from 6.6 in FY15 to 10.5 in FY16 despite reduced EBIT, due to reduced interest expense from $4.2m to $2.2m.

Source: Deloitte, Port, Annual Reports Source: Deloitte, Port, Annual Reports

Financials


46

Du Pont analysis

AKL TRG NPL NPE WLG NSN MLB LYT TIU POE BLU NZ

Net Profit Margin 30.5% 31.5% 19.9% 15.8% 27.1% 9.5% 14.8% -82.9% 22.3% 24.6% 23.2% 14.1%

Asset Turnover 20.8% 18.6% 24.8% 24.0% 22.0% 22.7% 15.0% 21.2% 20.7% 16.3% 69.3% 20.6%

Return on Assets 6.4% 5.8% 4.9% 3.8% 6.0% 2.2% 2.2% -17.6% 4.6% 4.0% 16.0% 2.9%

Equity Multiplier 1.58 1.49 1.34 1.61 1.62 1.37 1.41 1.06 1.60 1.24 1.49 1.42

Return on Equity 10.0% 8.7% 6.6% 6.1% 9.7% 2.9% 3.1% -18.7% 7.4% 5.0% 23.9% 4.2%

Source: Annual reports, Deloitte

Du Pont analysis breaks down Return on Asset (ROA) and Return on Equity (ROE) into their components making it possible to identify the causes of variation in ratios between ports based on company specific factors.

Definitions of metrics:

• ROA is a firm’s asset turnover multiplied by its net profit margin.

• The equity multiplier is the ratio of assets divided by equity.

• ROE is the product of ROA and a firm’s equity multiplier.

• Asset turnover measures how well a company utilises its assets to generate sales (sales divided by assets).

• Net profit margin (net profit after tax divided by sales) measures how much of every $1 of revenue a firm converts into net profit.

Port comments:

• AKL and TRG show the highest net profit margins across all ports with margins over 30%. LYT generated a significant net loss as a result of property, plant and equipment impairment.

• Excluding the outliers (AKL, TRG and LYT), the remaining ports have an average net profit margin of 20% (12.8% - 27.1%).

• BLU exhibited the highest asset efficiency compared to other ports.

• Equity multiplier ratios are influenced by the gearing level of the ports. The ratio continues with the same nationwide average around 1.4 as 2015. AKL, NPE, WLG and TIU, which all have relatively higher levels of debt compared to the other ports consequently have higher equity multipliers.

• BLU once again has the highest ROE, which is attributable to an exceptionally high asset turnover rate (more than double the next highest rate).


47

New Zealand port summary – NZ$ million

FY 2016 AKL TRG NPL NPE WLG NSN MLB LYT TIU POE BLU

Income Statement

Revenue 211.1 245.5 44.7 72.7 76.2 45.5 25.8 105.7 16.1 81.0 36.7

Revenue - Port 204.9 207.9 44.7 72.6 72.5 40.3 16.0 105.7 13.1 63.9 36.7

Expenses 103.5 115.8 25.0 42.2 53.7 27.2 13.8 82.3 9.7 49.9 21.1

Gross Profit 107.6 129.7 19.6 30.4 22.5 18.3 12.1 23.4 6.4 31.1 15.6

Associate Earnings 1.2 13.4 - (0.0) 13.3 - - - - 0.3 -

One-Offs 27.2 (0.0) - - (3.8) (3.4) (2.7) (99.5) 0.2 19.7 0.2

EBITDA 135.9 143.2 19.6 30.4 32.0 14.9 9.4 (76.1) 6.5 51.1 15.8

Deprn&Amort 24.5 23.7 6.0 10.3 6.9 5.3 3.4 14.4 1.2 8.1 3.0

EBIT 111.5 119.4 13.7 20.1 25.1 9.6 6.0 (90.5) 5.3 43.0 12.8

Net Interest Expense 11.5 16.3 1.3 4.2 6.8 1.6 3.3 (8.2) 0.5 2.2 0.7

Taxation Expense 15.9 25.8 3.4 4.5 0.4 2.7 0.8 (22.4) 1.3 6.7 3.4

Reported Profit 84.0 77.3 8.9 11.5 17.9 5.3 1.8 (59.8) 3.5 34.1 8.7

Other Comprehensive Income 67.6 (8.4) 7.4 (2.3) - (1.6) 20.6 (0.2) 0.6 (0.3) -

Comprehensive Income 151.6 68.9 16.3 9.2 17.9 3.6 22.5 (60.0) 4.1 33.8 8.7

Normalised Profit 64.6 77.3 8.9 11.5 20.6 4.3 3.8 (87.7) 3.6 19.9 8.5

Cashflow Statement summary

Net Operating CF 78.6 88.1 13.7 23.1 18.7 12.0 6.9 20.4 5.0 18.2 12.0

Balance Sheet

Total Assets 1,013.1 1,322.4 180.0 302.6 345.8 200.6 172.3 498.6 77.5 497.1 53.0

Net Debt 255.2 308.6 34.9 79.2 101.9 29.2 31.2 (165.2) 25.6 61.3 9.8

SHF 642.0 885.7 134.5 188.2 213.1 146.6 121.9 469.1 48.3 401.7 35.6

Ratios

Share of NZ Sales 22.0% 25.5% 4.7% 7.6% 7.9% 4.7% 2.7% 11.0% 1.7% 8.4% 3.8%

Gearing (D/D+E) 28.4% 25.8% 20.6% 28.4% 32.3% 16.6% 20.4% 34.6% 13.2% 21.6%

Gearing ex Revaluations 35.5% 44.4% 31.2% 37.6% 40.4% 34.3% 15.2% 44.9% 13.2% 21.6%

EBIT Margin 52.8% 48.6% 30.6% 27.7% 32.9% 21.0% 23.0% -85.6% 33.1% 53.1% 34.8%

ROE 10.0% 8.7% 6.6% 6.1% 9.7% 2.9% 3.1% -18.7% 7.4% 5.0% 23.9%

ROA 6.4% 5.8% 4.9% 3.8% 6.0% 2.2% 2.2% -17.6% 4.6% 4.0% 16.0%

Source: Annual reports, Deloitte

Port comparator tables


48

Port facilities & capacity comparison

AKL TRG NPL NPE WLG NSN MLB LYT TIU POE BLU

Port Harbour Type Natural Natural Breakwater Breakwater Natural Natural Natural Natural Breakwater Natural Natural

Draught (m) (min) 12.5 14.5 12.5 12.41 11.4 10.3 13.5 12.4 11.6 13.5 7

Port Operating Land (ha) 77 190 65 67.1 70 45 10 90 40 25 40

Container Terminal Area (ha) 34 75 2 24 24 9 0 14 10 15 3

Total Wharf Length (km) 3.27 2.83 1.72 1.61 3.40 1.17 0.62 2.70 1.51 2.83 1.92

Container Wharf Length (km) 0.65 0.77 0.42 0.39 0.59 0.48 0.00 0.59 0.46 0.60 0.43

Quay Cranes 5 8 0 2 4 0 2 0

Mobile Cranes 0 0 3 6 0 3 2 3 0 2

Forklifts/Stackers 13 0 4 31 15 24 8 14 5 7

Straddles 39 46 0 12 24 0 15 0

Reefer Slots 1,467 2,090 192 1,111 450 765 546 750 1,850 200

Tugs 4 3 3 2 2 3 2 2 3 3

Pilot Launches 2 2 2 1 2 1 1 1 2 1

Rail Connection Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes

Bulk Tonnes Handled (millions) 5.8 20.1 5.2 2.03 2.0 1.4 0.8 5.8 1.4 1.3 2.7

Bulk Ship Calls (est) 780 1,482 522 263 291 651 186 726 316 178 268

TEU Throughput (000) 907.1 954.0 257.4 131.6 96.5 387.7 84.4 172.4 35.1

Container Ship Calls (est) 599 845 0 380 234 210 391 130 208 49

Bulk Tonnes / Bulk Terminal ha 725,000 173,552 116,854 132,008 43,792 38,889 78,691 46,667 134,300 72,973

TEU / Terminal ha 24,117 12,788 10,725 5,417 10,722 8,440 11,493 11,700

Bulk Tonnes / General Wharf Metre 773 9,771 4,000 1,667 711 2,003 1,269 1,340 601 1,811

TEU / Container Wharf Metre 1,315 1,239 660 225 203 654 183 289 82

Bulk Tonnes / Ship 19,333 13,549 9,962 7,700 6,873 2,151 4,231 4,430 7,545 10,075

TEU / Container Ship 1,336 1,130 677 563 460 992 649 829 716

TEU / Container Crane 160,020 119,251 42,900 65,823 32,166 96,925 28,133 86,200 17,550

Ship Rate 81.5 86.9 56.5 50.7 60.5 61.2

Vessel Rate 72.2 68.5 40.6 43.5 49.1 50.0

Crane Rate 35.8 35.7 23.3 29.7 31.9 33.7

Source: Company Reports, Deloitte, MoT, Port Management

New Zealand ports and freight yearbook 2017 | Port summaries

Ports of Tauranga (TRG)

Ports of Napier (NPE)

CentrePort (WLG)

Lyttelton Port of Christchurch (LYT)

PrimePort Timaru (TIU)

Port Otago (POE)

Northport (NTH)

Ports of Auckland (AKL)

Port Taranaki (NPL)

Port Marlborough (MLB)Port Nelson (NSN)

Southport (BLU)

Eastland Port(EST)


50

Port summaries


51

Ports of Auckland – AKLOverview

AKL’s key facilities comprise its container and multi-purpose cargo terminals on the Waitemata Harbour (adjacent to Auckland’s CBD), and inland ports at Wiri, Mt Maunganui, and Longburn. The port also has ownership of NZX-listed Marsden Maritime Holdings, pilotage providers North Tugz, and commercial marine fuel supplier Seafuels. Auckland is the first port call for a number of international services, receiving full import containers and generating a strong flow of empty containers destined for export.

Port development • Lifted freight capacity following Kaikoura earthquake with daily

rail link between the port, inland hub at Wiri and Longburn in Palmerston North

• Acquired land north of Hamilton and has begun work to build Waikato freight hub

• A new 300m container wharf at Fergusson container terminal will be completed in 2017

• Investigating providing electricity to cruise ships to reduce carbon emissions

• Work has begun on partially automating Fergusson container terminal • Developing North Island supply chain network • Investing in container terminal infrastructure, wharves and cranes • Announced strategic alliance with Napier Port

Trade • Container TEU: 907,099 (6.7% ↓) – in line with industry reduction in

container throughput • Vehicles: 248,065 (1.7% ↑) • Total Breakbulk: 5.79m tonnes of (2.2% ↓)

Financial performance • Revenues: $211.1m (3.3% ↓) • Expenses: $103.5m (21.9% ↓) – cost management and accounting

adjustments • Investment Property Valuation increase: $12.2m – improvements to

Wiri freight hub • Net Profit after Tax: $84m ($21m ↑ 32.9%) • Dividend of $54.3m paid to Auckland Council

Interim results • Revenue up 4% to $110.5m • Trading profit before income tax $36.9m, up 5.89% • Net profit after tax $29.3m compared with $31.6m for the same

period last year

Port Auckland – AKLIncome Statement FY14 FY15 FY16

Revenue 220.8 218.3 211.1

Revenue Port Operations 216.1 217.3 204.9

Operating Expenses 115.3 132.5 103.5

Gross Profit 105.5 85.8 107.6

Associate/JV Earnings 3.1 2.0 1.2

One Offs / Other Items 4.2 15.5 27.2

EBITDA 112.7 103.3 135.9

Depreciation & Amortisation 23.8 21.1 24.5

EBIT 88.9 82.2 111.5

Net Interest Expense 11.3 11.2 11.5

Taxation 3.6 7.8 15.9

NPAT 74.0 63.2 84.0

Other Comprehensive Income 4.5 17.8 67.6

Comprehensive Income 78.5 81.0 151.6

June Balance DateBalance Sheet FY14 FY15 FY16

Current Assets 35.7 30.2 60.9

Fixed Assets 617.3 666.6 752.9

Intangibles 15.3 17.2 19.0

Deferred Tax Benefit - - -

Investments 4.1 9.6 6.0

Other Assets 103.9 126.4 174.3

Total Assets 776.3 850.1 1,013.1

Current Liabilities 34.9 48.0 47.8

Debt 186.9 212.9 246.8

Other Non Current Liabilities 61.2 67.8 76.6

Shareholders’ Funds 493.4 521.3 642.0

Total Liabilities/SHF 776.3 850.1 1,013.1

Cashflow

Operating Cash Received 257.7 266.5 233.7

Operating Cash Paid 163.9 182.3 155.1

Net Operating Cash Flow 93.8 84.2 78.6

less Asset Purchases 29.2 43.3 82.4

less Dividends Paid 51.0 54.8 42.2

Funding Surplus (Deficit) 13.6 (13.9) (46.1)

Proceeds of Asset Sales 3.3 2.2 0.1

Increase in Net Debt (16.9) 11.7 46.0

Equity Raised - - -

Funding Provided (13.6) 13.9 46.1

Source: Company Reports, DeloitteRevaluation reserves

1,000

600

200

1,200

800

400

0

Balance sheet – Auckland

SHF (ex revals) Debt

Liabilities Total assets

1998 2001 2004 2007 2010 2013 2016

250

150

50

300

200

100

0

Income statement – Auckland

Reported profit InterestTax

Depreciation RevenuesExpenses

1998 2001 2004 2007 2010 2013 2016


52

Port of Tauranga – TRGOverviewTRG’s key facilities include the Mount Maunganui bulk terminal, Sulphur Point container terminal, MetroPort and its South Auckland inland container port. The port has a high degree of vertical integration with interests in other ports, stevedoring, and freight transport.

Port development • Completed its dredging programme to widen and deepen port channels.

• This was part of its $350 million capital expenditure programme.

• First 9,500 TEU ships to start calling at Port of Tauranga in October – after channel dredging (12.9m to 14.5m inside harbour, 15.8m outside)

• Two additional cranes and 13 additional straddles delivered

• Timaru Container Terminal reached an all-time record in container volumes – of 84,402 TEUs (↑ 18%)

Trade • Container TEU: 954,006 (12.1% ↑)

• Total Cargo Handling: 20.1m tonnes (0.3% ↓)

• Total Exports: 13.1m tonnes (1.2% ↓)

• Largest port in New Zealand

Financial performance • Revenues: $245.5m (9% ↓)

• Operating Expenses: $115.8m (15% ↓)

• Net Profit After Tax: $77.3m (2.4% ↓)

• Gearing Ratio: 24%

• Fully imputed special dividend paid of 25 cents per share

Interim results • The port announced an 8.5 per cent lift in group half year net profit to $41.9 million.

• Revenue is up 2.8 per cent to $125.3 million. • Soon to become the first port in the country to handle more than 1 million containers in a year.

Port of Tauranga – TRGIncome Statement FY14 FY15 FY16

Revenue 266.3 268.5 245.5



Gross Profit 132.0 132.5 129.7


One Offs / Other Items 0.1 0.7 (0.0)

EBITDA 141.5 143.5 143.2


EBIT 119.1 120.0 119.4


Taxation 26.6 26.2 25.8

NPAT 78.3 79.1 77.3

Other Comprehensive Income 3.3 64.5 (8.4)




Fixed Assets 998.7 1,097.4 1,127.4


Deferred tax benefit

Investments 71.1 119.0 123.3

Other Assets - 0.3 -

Total Assets 1,155 1,297.0 1,322


Debt 256.3 305.4 320.2



Total Liabilities/SHF 1,155 1,297 1,322

Cashflow


Operating Cash Paid 180.4 180.3 161




Funding Surplus (Deficit) (77.8) (44.8) (44.7)

Insurance Proceeds - - -


Dividends from Associates 8.2 8.5 8.7

Increase in Net Debt 65.3 33.5 25.0

Equity Raised 0.0 0.2 0.0

Funding Provided 77.8 44.8 44.7

Source: Company Reports, Deloitte

250

150

50

300

200

100

0

Income statement – Tauranga



1998 2001 2004 2007 2010 2013 2016

1,250

750

250

1,500

1,000

500

0

Balance sheet – Tauranga

1998 2001 2004 2007 2010 2013 2016

Revaluation reservesSHF (ex revals) Debt



53

Port Taranaki – NPL

Overview NPL is the only deep water port on New Zealand’s western seaboard and services bulk liquids (serving the region’s oil and gas industry), dry bulk (logs, fertiliser, stock feed) and project cargo.

Port development

• NPL will get a new $12 million tug in 2018.

• Purchased second set of ShoreTension units to dampen the motion of vessels while berthed.

• Purchased Omata tank farm.

• Purchased terminal on Centennial Dr and signed deal with BP NZ to allow increased fuel supplies to be shipped to Taranaki rather than being trucked in.

Trade

• Total Trade Volumes: 5.15m tonnes (8.1% ↓)

• Cargo vessel arrivals (24.9% ↓)

• 357,000 JAS logs exported (70% ↑)

Financial performance

• Revenues: $44.7m (10.6% ↓) – due to reductions in volumes of exports, imports, bulk dry volumes and bulk liquids.

• Operating Expenses: $25.0m (3.8% ↓)

• Net Profit After Tax: $8.9m (22% ↓)

• Gearing Ratio: 25.0%

Interim results

• Port Taranaki Ltd post a net half-year profit after tax of $4.57m, up 1.5%

• Revenue from operating activities dropped by 4% to $21.3 million.

Port Taranaki – NPLIncome Statement FY14 FY15 FY16

Revenue 55.2 49.3 44.7



Gross Profit 24.7 23.3 19.6

Associate/JV Earnings - - -

One Offs / Other Items (0.2) 0.0 -

EBITDA 24.5 23.3 19.6


EBIT 18.3 17.3 13.6


Taxation 4.6 4.6 3.4

NPAT 11.7 11.4 8.9

Other Comprehensive Income 0.7 (1.8) 7.4

Comprehensive Income 12.4 (1.8) 16.2



Fixed Assets 151.5 155.6 167.6


Deferred Tax Benefit 0.6 0.7 0.9

Investments - - -

Other Assets - - -

Total Assets 162.3 163.5 180.0


Debt 32.0 30.0 35.2



Minority interests - - -

Total Liabilities/SHF 162.3 163.5 180.0

Cashflow




less Earthquake Costs - - -



Funding Surplus (Deficit) 4.1 3.0 (6.2)

Insurance proceeds - -


Dividends from Associates - - -

Increase in Net Debt (4.2) (3.3) 6.1

Funding Provided (4.1) (3.0) 6.2


50

30

10

60

40

20

0

Income statement – New Plymouth



1998 2001 2004 2007 2010 2013 2016

120

240

180

60

0

Balance sheet – New Plymouth

1998 2001 2004 2007 2010 2013 2016

Revaluation reservesSHF (ex revals) Debt


54

Port of Napier – NPE

Overview NPE is New Zealand’s fourth largest container terminal by total TEUs. The port’s productive hinterland and outreach initiatives drive its throughput with key trades including agricultural produce and forestry.

Port development

• Announced deal with KiwiRail to run dedicated log service from Wairoa to port next year.

• Port alliance between Ports of Auckland and NPE.

• Proposing to build a new wharf at northern end of container terminal.

Trade

• Container TEU: 257,380 (0.4% ↑)

• Total Volume: 3.9m (3.8% ↓)

• Log Volume: 1.21m tonnes (8.7% ↑)

• Bulk Cargo: 2.025m tonnes (3.6% ↓)


• Revenues: $72.7m (0.8% ↑)




Port of Napier – NPEIncome Statement FY14 FY15 FY16

Revenue 67.0 72.1 72.7




Associate/JV Earnings - - (0.0)

One Offs / Other Items 0.5 - -

EBITDA 29.3 29.7 30.4


EBIT 22.1 22.2 20.1



NPAT 13.4 12.9 11.5

Other Comprehensive Income (0.1) (2.2) (2.3)




Fixed Assets 260.0 288.7 288.1




Other Assets 0.3 0.7 0.4

Total Assets 275.1 301.5 302.6


Debt 62.8 84.3 79.7





Cashflow







Funding Surplus (Deficit) (2.9) (21.6) 4.7




Increase in Net Debt 2.6 21.5 (4.9)

Equity Raised - - -

Funding Provided 2.9 21.6 (4.7)


75

45

15

90

60

30

0

Income statement – Napier



1998 2001 2004 2007 2010 2013 2016

Revaluation reserves

250

150

50

300

200

100

0

Balance sheet – Napier



1998 2001 2004 2007 2010 2013 2016


55

Centreport – WLG

Overview Wellington services a diversified cargo base spanning containers, bulk trades (oil, logs), cruise, and interisland ferries. This activity is supplemented with other on-Port services including cold storage, and vanning / devanning.

Port development

• A number of its port buildings and commercial buildings were damaged in the 7.8 magnitude earthquake on 14 November 2016

• Regular container shipping is returning to Wellington, with weekly visits by a geared ship linking central region businesses with international markets

• Work is underway to secure the gantry cranes, as the Port develops plans to resume modified container operations within four to six months

• CentrePort’s key trades of ferries, fuel, logs, cars, and cruise ships continue to operate successfully

• CentreRail is a scheduled daily train service that links all of the key trade areas in the lower North Island and upper South Island with CentrePort. CentreRail - Waingawa Log Hub in Wairarapa completed.

• Interislander infrastructure improvements completed.

Trade

• Container TEU: 131,645 (23% ↑)

• Log Trade: 1,044,248 JAS cubic meters (19% ↑)

• CentrePort, its customers and suppliers support approximately $2.5b in GDP.


• Revenues: $76.2m (9.2% ↑)

• Expenses: $53.7m (11.9% ↑)

• Net Profit After Tax: $17.9m (27.9% ↑)

• Gearing Ratio: 32.6%

Centreport – WLGIncome Statement FY14 FY15 FY16

Revenue 65.9 69.8 76.2





One Offs / Other Items (8.5) (1.3) (3.8)

EBITDA 14.9 28.1 32.0


EBIT 8.4 21.6 25.1


Taxation 2.1 (0.7) 0.4

NPAT (1.9) 14.0 17.9

Other Comprehensive Income (2.6) (0.4) -

Comprehensive Income (4.5) 13.7 17.9



Fixed Assets 182.7 180.7 185.5


Deferred Tax Benefit - - 0.0

Investments 133.3 134.1 138.9

Other Assets - - -

Total Assets 329.8 326.8 345.7


Debt 114.8 103.0 102.9




Cashflow







Proceeds of Asset Sales 0.0 11.5 -


Increase in Net Debt 2.1 (10.7) 0.4

Equity Raised - - -



75

45

15

90

60

30

0

Income statement – Wellington



1998 2001 2004 2007 2010 2013 2016


375

225

75

450

300

150

0

Balance sheet – Wellington



1995 1998 2001 2004 2007 2010 2013 2016


56

Port Nelson – NSN

OverviewNSN occupies a sheltered corner of New Zealand, secured by a productive hinterland, topographical isolation, and the absence of a rail link. It owns a portfolio of properties within the Port area, with ongoing demand for industrial development. The port is heavily focused on export of the regions primary production, with key trades being wine, fish, fruit and forestry. Reflecting limited import demand, most import containers are empty. While its key trades are international exports, Nelson records a high level of transhipments.

Port development

• NSN is spending $60 million on consolidating cargo storage areas over the next three years in response to projected growth.

• Dredging of Caldwell Basin

• A new 13.000 square meter warehouse opened in February 2017

Trade

• Cargo Volumes: 2.7m tonnes (3.9% ↑)

• Container TEU: 96,497, record volumes (6.7% ↑)

• Increased demand following Kaikoura earthquake - NSN service

• QuayConnect handled 40% extra wine freight across the north of the South Island since the earthquake.

• Largest cruise ship to visit Nelson docked at port.


• Revenues: $45.5m (7.8% ↑)

• Expenses: $27.2m (10% ↑)

• Net Profit After Tax: $5.3m (29%↓) – includes Caldwell Basin dredging and stabilisation expenses of $2.7m and asset impairments of $0.7m


Port Nelson – NSNIncome Statement FY14 FY15 FY16

Revenue 43.3 42.2 45.5




Associate/JV Earnings (0.2) (0.1) -

One Offs / Other Items (0.1) (0.1) (3.4)

EBITDA 18.5 17.3 14.9


EBIT 13.0 12.2 9.6



NPAT 7.6 7.5 5.3

Other Comprehensive Income 0.3 (1.0) (1.6)




Fixed Assets 169.0 164.6 171.7





Total Assets 190.5 187.1 200.6


Debt 27.0 22.1 29.5





Cashflow







Funding Surplus (Deficit) 6.7 2.9 (8.0)




Increase in Net Debt (10.0) (3.4) 8.0

Equity Raised - - -

Funding Provided (6.7) (2.9) 8.0


50

30

10

60

40

20

0

Income statement – Nelson



1995 1998 2001 2004 2007 2010 2013 2016


250

150

50

300

200

100

0

Balance sheet – Nelson



1995 1998 2001 2004 2007 2010 2013 2016


57

Port Marlborough – MLB

OverviewMLB remains New Zealand’s most diverse port company, spanning property, inter-island ferries, general wharves, a deep water bulk terminal, marinas, and aquaculture. Notably, MLB does not have a container terminal. The port’s primary trade is log exports.

Port development

• Hosted 35 cruise ship visits during 2015-16 season.

• Port’s tug Maungatea underwent significant refit.

• MLB trade negatively impacted post Kaikoura earthquake with freight shipped direct from Auckland to Lyttelton.

Trade

• Ferries: 3,534 (1.1% ↓)

• Log Volumes: 705,547 JAS cubic metres (0.4% ↓)

• Cement Volumes: 9,763 tonnes (56.3% ↑)

• Fish Volumes: 10,357 tonnes (22.1% ↑)

• Other Cargoes Volumes: 34,141 tonnes (4.6% ↑)


• Revenues - Port Installations and Services: $15.97m (5.8% ↑)

• Revenues - Investment Properties: $9.0m (4.6% ↑)

• Revenues - Marine Farm Facilities:$0.76m (6.8% ↑)

• Operating Expenses: $13.8m ( 6.2% ↑)

• Net Profit After Tax: $1.8m (65.1% ↓) – due to investment property devaluation


Port Marlborough – MLBIncome Statement FY14 FY15 FY16

Revenue 22.5 24.5 25.8





One Offs / Other Items 0.0 0.4 (2.7)

EBITDA 10.5 11.8 9.4


EBIT 8.4 9.5 6.0



NPAT 5.6 5.2 1.8

Other Comprehensive Income - - 20.6




Fixed Assets 64.9 65.4 92.9




Other Assets - - -

Total Assets 143.8 146.4 172.3


Debt 33.5 31.5 31.5




Cashflow






Funding Surplus (Deficit) (2.0) 2.2 (1.2)

Proceeds of Asset Sales - 0.0 -



Equity Raised - - -

Funding Provided 2.0 (2.2) 1.2


25

15

5

30

20

10

0

Income statement – Marlborough



1995 1998 2001 2004 2007 2010 2013 2016


150

90

30

180

120

60

0

Balance sheet – Marlborough



1995 1998 2001 2004 2007 2010 2013 2016


58

Lyttelton Port of Christchurch – LYT

OverviewLYT is positioned as the South Island gateway port, facilitating bulk trades, vehicle imports, and containerised trade. Key facilities include the Cashin Quay container terminal, specialist liquid, bulk and vehicle terminals, and a coal export facility. The CityDepot inland port in Woolston offers off-port warehousing and container park services.

Port development

• Officially opened its inland port at Rolleston.

• LYT is proposing to dredge the channel, deepening and widening it to allow larger ships access to the port. The resource consent is being processed.

• Building a new marina at the inner harbour pile moorings. First stage of a wider regeneration plan.

• Alliance formed with Ports of Auckland, KiwiRail and LYT in response to Kaikoura earthquake, moving freight between Auckland and Christchurch.

Trade

• 361,812 TEU

• 678,871 Bulk

• Crane rate 31.4

• Ship rate 59.8

• Coal load out rate (tonnes per day) 26,692


• Revenues: $105.7m (3.1% ↓)

• Operating Expenses: $82.3m (3.7% ↑)

• Earnings From Operating Activities: $-90.5m (623.1% ↓) – asset write-down

• Net Profit After Tax: $-59.8m (390.3% ↓)

• Gearing Ratio: no debt

Lyttelton Port of Christchurch – LYTIncome Statement FY14 FY15 FY16

Revenue 115.8 109.1 105.7





One Offs / Other Items 336.8 - (99.5)

EBITDA 369.8 29.6 (76.1)


EBIT 358.7 17.3 (90.5)

Net Interest Expense (3.2) (12.2) (8.2)

Taxation 18.7 8.9 (22.4)

NPAT 343.2 20.6 (59.8)

Other Comprehensive Income 0.7 0.2 (0.2)

Comprehensive Income 343.9 20.8 (60.0)



Fixed Assets 248.9 327.9 296.5


Prepayments - - 0.8

Investments - 40.0 -


Total Assets 597.5 589.5 498.6


Debt - - -




Cashflow




less Earthquake Costs 15.1 - -




Insurance Proceeds 385.3 - -




Equity Raised - - -



200

400

300

100

0

Income statement – Lyttelton



1995 1998 2001 2004 2007 2010 2013 2016


600

200

800

400

0

Balance sheet – Lyttelton



1995 1998 2001 2004 2007 2010 2013 2016


59

PrimePort Timaru – TIU

OverviewTIU is owned 50:50 by Timaru District Holdings Limited (TDHL) and Port of Tauranga Limited (POTL) acquired its stake for $21.6m in 2013 to implement a hub and spoke model. The sale included a 35 year lease of the container terminal to Timaru Container Terminal Limited (TCTL). The port services a range of regional primary industries including meat, fish, and forestry exports, as well as imports of fertiliser, stock feed, petroleumand cement.

Port development

• The Council is proposing merging a section of road and land to support future development of the port.

• A Council proposal to secure access to the port over KiwiRail land was rejected due to only a 10 year tenure being offered.

Trade

• Container volumes: 84,402 TEU (18.9% ↑)

• Gross Registered Vessel Tonnage: 6.1m (4.7% ↓)

• Total Cargo excluding containers: 1,335,100 tonnes (3% ↑)

• Log exports (12% ↑)


• Revenues: $16.1m (4.5% ↑)

• Revenues – Port Operations: $13.1m (0.3% ↓)


• Net Profit After Tax: $3.5m (12% ↑)


PrimePort Timaru – TIUIncome Statement FY14 FY15 FY16

Revenue 15.8 15.4 16.1






EBITDA 3.2 5.2 6.5


EBIT 2.2 4.3 5.3

Net Interest Expense (0.0) 0.0 0.5


NPAT 1.9 3.2 3.5

Other Comprehensive Income 0.6 0.8 0.4





Intangibles - - -

Deferred Tax Benefit 1.9 1.5 0.8



Total Assets 44.3 55.4 77.5


Debt - 7.5 27.0

Other Non Current Liabilities - - 0.2




Cashflow












Equity Raised (9.5) - -



25

15

5

30

20

10

0

Income statement – Timaru



1995 1998 2001 2004 2007 2010 2013 2016


60

45

75

15

90

30

0

Balance sheet – Timaru



1995 1998 2001 2004 2007 2010 2013 2016


60

Port Otago – POE

OverviewPOE operates two port areas, with Port Chalmers handling containers and bulk (largely forestry) cargoes, while the upper harbour Dunedin wharves handle lower draft vessels. The port’s catchment provides it with primary products for export from much of Otago and Southland, particularly dairy from Fonterra’s Edendale plant. POE has also built a significant $296m industrial property portfolio spanning Auckland, Hamilton and Dunedin.

Port development

• Dredging to deepen the Otago Harbour to 13.5metres chart datum has been completed.

• Dredging work is underway to deepen the harbour to 14.0 metres. This is expected to be completed in December 2017.

• Planning is underway to extend the wharf by 140 metres to accommodate larger vessels. Work on the wharf extension is expected to get underway in June 2017.

Trade

• Container TEU: 172,400 (0.2%↓)

• Log Exports: 813,000 tonnes (3.2%↓) – making up ~60% of total conventional tonnage


• Revenue: $81m (0.7% ↓)

• Operating Expenses: $49.9m (10.6% ↑)



Port Otago – POEIncome Statement FY14 FY15 FY16

Revenue 77.9 81.6 81.0






EBITDA 50.6 71.5 51.1


EBIT 42.9 62.8 43.0



NPAT 31.8 52.4 34.1



Fixed Assets 159.9 158.6 179.2



Investments 283.3 248.8 273.3


Total Assets 494.4 461.8 497.1


Debt 119.6 54.7 62.4




Cashflow












Equity Raised - - -




500

300

100

600

400

200

0

Balance sheet – Port Otago



1995 1998 2001 2004 2007 2010 2013 2016

75

45

5

90

60

15

0

Income statement – Port Otago



1995 1998 2001 2004 2007 2010 2013 2016


61

Southport – BLU

OverviewBLU is New Zealand’s southernmost commercial port. Operating from a 40ha man-made island in Bluff harbour serving a productive hinterland yielding forestry, fish, and meat exports. BLU services imports of oil, fertiliser, and stock feed, as well as NZAS’s Aluminium Smelter (imports of alumina and exports of aluminium). BLU is listed on the NZX and is majority owned by the Southland Regional Council.

Port development

• Construction of Intermodal Freight Centre which opened in July 2016

• New Reach Stacker purchased

Trade

• Cargo Volumes: 3.05m tonnes (6.6% ↑) - *Record high*

• Container TEU: 35,100 (2% ↓)

• Stock Food & Molasses Imports: (25% ↓)


• Revenue – Port & Warehousing: $36.7m (6% ↑)

• Operating Expenses: $21m (4.5% ↑)

• Net Profit After Tax: $8.7m (12.6% ↑)

Southport – BLUIncome Statement FY14 FY15 FY16

Revenue 31.3 34.6 36.7






EBITDA 12.2 14.4 15.8


EBIT 9.7 11.7 12.8



NPAT 6.7 7.7 8.7

Other Comprehensive Income (0.2) 0.2 0.0





Intangibles - - -


Investments - - -

Other Assets - - -

Total Assets 45.7 47.2 53.0


Debt 10.3 8.2 10.7




Cashflow










Increase in Net Debt 0.1 0.7 3.6

Equity Raised - - -



75

45

15

90

60

30

0

Income statement – Southport



1995 1998 2001 2004 2007 2010 2013 2016


75

45

15

90

60

30

0

Balance sheet – Southport



1995 1998 2001 2004 2007 2010 2013 2016


62

Marsden Maritime Holdings – MMH Eastland Port – EST

OverviewMMH (formerly Northland Port Corporation) is an NZX-listed company, with its largest investment being a 50% stake in Northport (NTH) (with TRG also holding 50%). MMH’s portfolio interests currently include a 50% interest in NTH, 50% interest in North Tugz, 180ha of industrial zoned land, and the Marsden Cove Marina. Port development NTH investment activities include:

• Completed construction of 4,200sqm warehouse on industrial estate for storage of bulk commodities, which has been let.

• Construction of new factory premises for an Auckland based plastics manufacturer.

• Construction of three new units including a recreational boat sales yard.

Trade

• Cargo Volumes: 3.4m tonnes (6.3% ↓)

• Log Exports: 2.7m tonnes (steady)


• Revenue: $11.9m (10.5% ↑)

• Net Profit After Tax: $12.1m ($3.7m ↑)

Interim Results

• Profit up 21%

• Net Profit at $5m (up from $4.1m for the same 6 months last year)

• Revenue $6.8m (↑ 20%) – bigger return from its share of Northport where cargo volumes are up 12% to 1.85mt.

OverviewEastland Group is wholly owned by Eastland Community Trust (ECT) and has interests in key infrastructure of the Tairāwhiti region. These comprise Eastland Logistics (Eastland Port and Eastland Airport), Eastland Electricity (lines network), Eastland Generation, and Eastland Investment Properties. EST is located at the mouth of the Taruheru River in the city of Gisborne. EST is solely an export port.

Port development

• $12 m investment into the expansion of Eastland Port’s upper log yard.

Trade

• Cargo Volumes: 2.3m tonnes (1.86% ↓)

• Log Exports: 2.3m tonnes (3.6% ↑)

Financial performance Not available for port performance only.


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