Opinion: Coastal shipping may railroad Toll off the tracks

By NZPA

Friday 23rd March 2007

An apology to the regions -- while the focus was on Auckland wooing the huge container ships of the future, there was something big going down in shipping in the regions. Maersk, the world's biggest container ship operator, did shift its largest services to Auckland to the annoyance of Port of Tauranga, which thinks the resulting congestion and low margins on the business will eventually show it to be a bad idea. But at the same time Maersk reshuffled other services to become a major force in coastal shipping capable of putting rail out of business and crowding out New Zealand owned shipping services. "Maersk is going everywhere. And there is no way that any industry that pays New Zealand wages under New Zealand law can compete with a foreign owned company that pays Philippino workers $US1 a day," said Wayne Butson, general secretary of the Rail and Maritime Transport Union. The problem Paul Nicholas of the New Zealand Shipping Federation has with Maersk's emergence as a big player in coastal shipping is that "it stuffs rail and sets the price for everyone else". There are quite a lot of people wondering if rail has a future beyond passenger services. Even though a deal is believed to be very near on access fees to the government-owned network for Toll NZ, the old Tranz Rail, the speculation is that neither side is happy with it. If the access fees are too high, rail won't be able to compete with trucks benefiting from the Government's big roading spendup, and if they are too low, the Government just hands profits to an Australian-owned company. But if rail gets too hard, Toll can focus on trucks because it has one of the biggest trucking fleets in the country. "At a meeting I was at, for the first time I saw in writing an admission from Toll that they are putting more trucks on the road," Butson said. The big picture in transport is that 80% of freight goes on road, 13% on rail and the rest on coastal ships. The total size of the pie is forecast to double by 2020, which is huge and requires some forward planning. Road transport operators are sitting pretty. Rail and coastal shipping can't compete on time-sensitive freight and the work available in their industry is outpacing the economy. The pie is getting so big that some people argue that road can't handle it and that is why operators like Mainfreight and Peter Baker Transport are lobbying for better rail services. The trade off is between rail and coastal shipping as to who gets the overflow. Maersk's big move in coastal shipping is turning heads. It is going to court. As always there are two sides to the story. Maersk had a problem in Nelson with the fruit, as Nicholas tells it. Vessels with 500 plugs for refrigerated containers were needed. It decided to put on two 1800 container capable vessels that had the required 500 refrigeration plugs on a new Pacific service. The problem everyone has with the Pacific service is that it is really a New Zealand coastal service that pops off for a couple of calls to the Pacific to avoid New Zealand immigration laws, in effect to avoid playing by the same rules that everyone else has to play by in New Zealand. New Zealand shipping was deregulated along with everything else in the 1980s and 1990s and international ships have been free to pick up and drop freight as they go around New Zealand. There has been much debate about whether that's anti-competitive because foreign-owned ships have cheap labour and register in tax havens and they can undercut on a relatively small part of their business to put the locals out of business. Most countries have some kind of regime to limit it and there's been a protracted policy debate about the issue here, but no action. But there's plenty of devil in the detail to make it difficult to work out what is really happening in any attempt to crunch the numbers to get to the truth. Maersk's Pacific service seems to go a step further. Instead of doing a bit of local freight on the side of an international route, it has created a local route that barely travels internationally. Whether the service complies with Section 198 of the Maritime Transport Act is to be tested in the High Court. Unions and the shipping federation are expected to line up with the Crown against Maersk. A concern is that other shipping companies will follow Maersk's lead. This is playing out while the Government reviews its coastal shipping policy and what it charges the main rail freight operator. Port chiefs said Maersk's coastal network is larger than the Pacific service. Three of its services -- Pacific, Oceania and Asia -- effectively cover nine New Zealand ports. A container loaded at New Plymouth on the Oceania service, gets shifted on to other Maersk vessels at other ports. This can apparently be slow, so other shipping companies that run more direct services are picking up some of Maersk's business at particular points of the network. Timaru has been an example, port chiefs say. The concern the locals have is that even if Maersk doesn't have everything its own way, the way policy is currently configured, local shipping companies and rail are not getting a fair deal and that can't be good for the country. The Government wants rail to be available as an option in its land transport policy so there are alternative routes if a road goes down, or if the freight needed to be moved in a region suddenly increases. That means it wants a national network. It is not clear that Toll NZ does. The Government has already invested $200 million in the rail network it bought back for $1. Outside that, $600m is going into the Auckland passenger network and $200m into the Wellington passenger network. Clearly, more will have to go into the national network and it will not all be recovered in access fees as the policy stands. Finance Minister Michael Cullen has said as much. Coastal shippers say coastal shipping has its place in national risk management strategy and has to be considered together with land transport policy. In this case, it is the rule book that needs fixing, not the network.

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