Shipping rates 'unsustainably low' as Kotahi, other supply-chain deals mop up cargo, South Port says

The federation is producing a strategy paper on coastal shipping that, among other things, will call for competition between ports to ensure they didn't use their monopoly advantage.

Shipping rates in New Zealand waters have become "unsustainably low" in the wake of supply chain agreements such as between Kotahi and Port of Tauranga, South Port New Zealand [NZX: SPN] chairman Rex Chapman says.

He told shareholders at South Port's annual meeting in Bluff that the company's strategy is to maintain good working relationships with other ports, to take advantage of the "inevitable changes in the port sector."

"Just as Tauranga has now reached into the South Island through Timaru, it is expected that other ports will be seeking to enter into working relationships with one another in order to capture regional cargo outside of their immediate catchment area," Chapman said.

"New supply chain agreements such as that between Kotahi and Port of Tauranga have triggered intense competition between shipping companies for the remaining cargo and shipping rates are at unsustainably low levels," he said.

Annabel Young, executive director of the eight-member New Zealand Shipping Federation, said unsustainable rates were "a truism accepted throughout the industry" and coastal shipping "was more fragile than people realised."

Federation members faced a number of issues including competition from Kotahi, the freight venture owned by Fonterra Cooperative Group and Silver Fern Farms, and the unfair advantage of foreign operators who would marginally price their operations around the coast on vessels with foreign crews that didn't have to pay for emissions trading scheme credits on bunker fuel that were imposed on local shippers, she said.

The federation is producing a strategy paper on coastal shipping that, among other things, will call for competition between ports to ensure they didn't use their monopoly advantage.

South Port is buying a second container crane as part of a $6.5 million investment to retain its container shipping customer MSC (Mediterranean Shipping Co), which "faces competitive pressure to retain and attract cargo out of Bluff."

The port is embarking on its own inland port project, the Invercargill Freight Centre, on a "modest" 0.8 hectare adjacent to KiwiRail's rail-head, to offer "a cost competitive and efficient import-export service for the southern region."

Mr Chapman said 2016 profit is expected to be "slightly lower" than 2015's record $7.7 million, which had been driven by a record cargo throughput of 2.68 million tonnes. Market conditions were more subdued and there was a possibility the low dairy payout could lead to lower dairy-related volumes.

He said the decision by the owner of the Tiwai Point aluminium smelter to extend an electricity supply contract with Meridian Energy has given the port more certainty about the aluminium trade.

South Port shares were last at $4.65 and have climbed 19% this year.

(BusinessDesk)

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