"Challenges in larger volume shipping in Australasia "
Don McLeod - B.Tech (Hons), CIRM, MCILT
Past Chairman NZ Shippers' Council
Introduction
We have a number of balances in our economy, such as the balance of trade, and the balance of payments. Recent news for both New Zealand and Australia has been the widening gap of the balance of trade, with imports exceeding exports. Most recently, this trend is reversing. In logistics and shipping, there is also seen to be a balance. With many factors involved in each of these balances, they may better be described as dynamic balances.
In New Zealand , service and infrastructure changes have been frequent over the last number of years. For logistics service providers, absorbing and managing these changes alone has become a significant part of the job. With major New Zealand manufacturing sites or specialised manufacturing nodes remaining relatively fixed in location, and with regular patterns to seasonal produce volumes, the question remains why such regular service changes occur. This also gives rise to the question how we can further develop a more stable and solid backbone of logistics and shipping infrastructure.
Trade volumes have remained relatively steady for New Zealand and Australia over the last number of years. The next challenge is to build a platform for growth for shippers. With additional focus seen as required in increasing value added exports, it is likely that a significant period of time will be needed to build these businesses in New Zealand and Australia , particularly to attract the necessary investment, and skills.
The basis of this paper is from the view of shippers, with particular experience from The Laminex Group:
The Shippers' Council
The Shippers' Council is a voluntary group of cargo owners, comprising a number of New Zealand 's larger shippers *1. Originally set up for bulk and homogenous cargoes in 1983, the council has seen a steady shift of members' cargo to containers. The Shippers' Council operates to encourage, promote, and advance bulk shipper interests. It is involved in and lobbies relevant legislation, and works with other aligned groups. The Shippers' Council supports the development of professionalism in shipping and logistics, and is a major sponsor of the New Zealand Maritime School .
The Laminex Group
The Laminex Group is a leading Australasian manufacturing and distribution group, and is owned by Fletcher Building Ltd. The primary sector is panel products manufacturing, marketing, and distribution. The Laminex Group has 14 manufacturing sites and 40 regional branches across Australia , and New Zealand . The major bulk export is a relative commodity, MDF, with approximately 250,000m3 exported per annum. Local New Zealand and Australian markets are more focussed on value added products, such as the Melteca and Laminex brand low pressure laminate, and Formica brand high pressure laminate.
*1 New Zealand Shippers' Council - Carter Holt Harvey, Carter Holt Harvey Pulp and Paper, Tenon, Norske Skog, The Laminex Group, Holcim NZ Limited, Fonterra Cooperative Group Limited, NZ Steel Limited, ZESPRI International, NZ Meat Industry Association, Pan Pac Forest Products, Rayonier NZ Ltd, Winstone Wallboards
New Zealand - Hub or Spoke?
Managing the dynamic balance of supply and demand driving international exports and imports is at the core of our logistics and shipping services. Shipping equipment utilisation and turn-around time is gaining increasing attention, with the growing need for containers particularly back in Asia , and the high cost of having equipment idle.
Breakbulk product flows, being independent of containers, tend to follow the least cost transport option to the nearest port of call. Furthermore, breakbulk cargoes eliminate the need for container movements, and best suit point to point shipping with a minimum of inland transport. Coastal transhipment using breakbulk feeders at origin or destination are sometimes possible or worthwhile, depending on the commodity type and port operations employed.
The balance of breakbulk and container cargoes is outlined in the following figures for New Zealand 's largest export port, the Port of Tauranga . Comparative figures for the Port of Brisbane are also shown:
Port of Tauranga - 2004/5 financial full year to end of June 2005
- 12.6million tonnes
- 7.9m tonnes bulk, export 4.25m tonnes, import 3.65m tonnes
- 4.7m tonnes in containers, export 3.1m tonnes, import 1.6m tonnes
- 438,214 TEU
- above includes inbound, outbound, transhipment, and bulk liquid
data source - courtesy of The Port of Tauranga
Port of Brisbane - 2004/5 financial full year to end of June 2005
• 26.0million tonnes
• 19.8m tonnes bulk, export 7.8m tonnes, import 12.0m tonnes
• 6.2m tonnes in containers, export 3.4m tonnes, import 2.8m tonnes
• 726,145 TEU
• above includes inbound, outbound, transhipment, and bulk liquid
data source - courtesy of The Port of Brisbane Corporation
The balance of container flows for both New Zealand and Australia , has excesses hence offers cost benefits for imports in 20' containers, and exports in 40' containers. Australia generally has more consistent excesses of export containers and shipping space, than do exporters out of New Zealand .
In Australia , there are hubs in Fremantle westbound, and Brisbane eastbound, for repositioning containers in to Asia , and for export cargoes. Coastal services and the use of shippers' own containers support these repositioning container flows. Seasonal product demands possibly impact more on New Zealand export shipping services which is capacity constrained during seasonal periods.
New Zealand and Australia are relatively small in world shipping terms. New Zealand has the added difficulty of being the more isolated. Relative container volumes for some major Pacific region ports are shown in the following chart:
Mapping major shipping lanes is no simple task, more so at the moment with the current major restructuring of the shipping industry in progress. The following map summarises major liner shipping lanes.
The trade figures for New Zealand 's balance of trade and export markets are as follows:
Source: Statistics New Zealand 2005 calendar year, provided courtesy of Mondiale Freight Services Ltd
Data source - Statistics NZ, chart provided courtesy of Njord Ltd
It is also interesting to compare tonnage and value changes of exports. There is some indication that relative value of goods exported from New Zealand is already increasing. Comparing 2004 and 2005 export figures from New Zealand , export tonnage dropped by around 3%, where export value remained close to the same. Whereby Australia and China export tonnages from New Zealand were close to the same in 2005, export value for the same period was approximately 22.3% to Australia, compared with 5.3% to China *
* source, Statistics New Zealand, Overseas Trade, provided courtesy of Mondiale Freight Services Ltd
Defining a spoke as a route leading to a hub, and a hub, a concentration of supply routes to one collection point, then New Zealand can be seen to be developing a number of types of hubs, and spokes.
In general, shipping services for commodity products follow markets where products and supply chains are competitive. Low costs are essential, as supply costs are typically a major component of the total product cost. Higher value products lead markets where the products and services are competitive.
For breakbulk from New Zealand , there tends to be local hubs at both regional and main centre ports. In Australia , local breakbulk hubbing is seen to be concentrated more in the regional ports, with a move away from main centre ports for this type of cargo.
Similar patterns are seen with VSAs, where direct calls in to destination ports are targeted. It is seen as likely that a further segregation of bulk and container ports will occur in New Zealand , as has happened in Australia . With the current restructuring and consolidation of shipping in Australasia , VSAs are seen to be diminishing.
The other major trend in New Zealand has been the development of inland port hubs. Inland ports require significant infrastructure and scale to be efficient. These are seen to be staging points or feeders for ports, so to a degree reflect the capability, capacity, and other constraints of the surrounding infrastructure and shippers. With the rapidly changing balance of supply and demand, seasonal factors, and growing compliance requirements, it is likely that the use of inland ports, both in Australia and New Zealand , will continue to grow. In this regard, inland ports are becoming complete import/export logistics staging facilities. It is also seen likely that inland port services will extend further in to container fleet management. More flexible leasing arrangements if provided for between lines and container leasing companies could also support better container utilisation, faster turnaround, and lower costs for all parties.
Changing international container flows and growth of trade particularly with China , have contributed to port congestion issues over recent years, with a down-stream impact on reliability of round the world container services. The Asian hubbed services from New Zealand and Australia partly overcome this problem; hence this type of hubbing can be expected to grow. It is seen as unlikely that much larger than the 4100 container ships already servicing New Zealand will be seen here in the medium term, particularly while export volumes remain relatively steady, and the demand for these larger ships is restricted to a very small number of major exporters. Shipping conferences are also disbanding.
Dedicated regional shipping services also work well from a shippers' perspective, however the question is whether the economies of these services will be adequate to retain as many as we have currently.
It has been seen that the control of shipping route and capacity management for New Zealand and Australia , has shifted further overseas along with the shipping line parent companies.
Balancing the International Logistics Supply Equation
During my induction and training in larger scale logistics and shipping some years ago, my then mentor and trainer gave me some wise words:
"It is important to understand the dynamics of international shipping"*
* Leo Turner - former Transport and Shipping Manager, Fletcher Wood Panels
The meaning of this statement has come clearer as time has gone on.
Service, Cost, and Risk
The balance of service, cost and risk has long been at the core of the national and international logistics supply equation. Internally, Australia has perhaps better recognised the trade off between these factors, whereas in New Zealand , customers have tended to expect at least improved service, for less cost. Although improved efficiency, increased utilisation, and managed risk can improve all three factors, at the higher level, there is seen to be a trade off.
Take for example an internal long-haul rail service compared with an international vessel coastal shipping service. There could be an improvement in delivery service time and reliability by rail, possibly at a cost premium. For a fixed schedule coastal service with the same transit time and risk profile as rail, then the two services would be competing on total supply cost, alone.
The third factor, supply risk, it seen to be the fastest growing factor to be considered. Risk may also fall in to the cost category, where unrecoverable losses or unplanned costs may be incurred. With logistics managing the physical product, service, and accompanying information flows, effective supply risk management is essential. With breakbulk shipping for example, there may be cost benefits, as long as the relative supply risks are recognised and managed effectively.
Consider the supply chain for export wood panel products:
Some of the risk factors involved in this supply chain are:
• health and safety
• biosecurity, and border security
• product damage loss, physical or wet damage
• transport capacity
• production, or service delays or hold ups
• correct identification and loading of product
• port shed, or external packing facility capacity
• co-ordination and correct timing of operations
Sales and Operations Planning
Sales and Operation Planning (S&OP) is a tactical and sometimes strategic tool used to forecast market volume, supply, and supply chain capacity and resource planning requirements. Its use is by nature a risk management tool. With typical application in manufacturing businesses, it equally can be applied to inbound and outbound logistics and shipping resource planning, such as ship capacity planning, or container management planning.
Grouping of product or services is used to amalgamate demand. For example, if using a hubbing shipping service, the shipping forecast level by region may be as far as required, on the basis that the shipping capacity constraint is the leg out of New Zealand to the overseas hub port, rather than to each final destination.
Capacity Planning Through the Supply Chain
For larger shippers out of New Zealand particularly, shipping capacity is a major consideration, primarily during the peak produce season from the end of February, through to the end of May. Demand for shipping services has been seen to be fluid for commodity products on the more direct services, along with the changing locations of manufacturing overseas particularly in China. More recently India is an example of an emerging growth manufacturing centre and export destination.
To manage capacity in this environment for major shippers', volume forecasting, service level agreements, and slot allocations with shipping lines are becoming increasingly important. Similarly with LCL groupage planning in the case of using a freight forwarder.
Difficulties arise when final volumes are not known until close to vessel receiving time, such as for seasonal produce. This situation requires flexible or additional shipping capacity, as has been seen with Maersk's 'extra loaders' in the past, or flexibility for use of alternative shipping lines. It would be helpful for shipping lines to better provide for flexible shipping of this type. Allowing and supporting the use of shipper's own containers, for example, could allow greater flexibility on late vessel changes for seasonal produce. Alternatively, shipping lines may benefit from tailoring their services for cargo of a particular risk profile.
The change of international product flows as seen in exports from China to the USA - Los Angeles is more strategic and cost driven. Shippers are dependent on strategic infrastructure keeping pace with significant international product flow changes. Port congestion surcharges, from a logistics viewpoint, go against these principles.
Meeting the Promise
In everyday logistics and shipping, shippers seek to provide a competitive and reliable service to their end customers. Reliability and consistency of the delivery promise are fundamental to this. Dynamic changes in shipping services in recent times have made this a particularly challenging task.
Within the supply chain, it has often been said that the next operation in the supply chain is the next customer. This principle holds true, and gaining further recognition and importance in practice and legislation. For example, we have 'chain of responsibility' being introduced in New Zealand and Australia .
Service network change is usually expected to bring benefits, ideally for both the customer, and service provider. It is of key importance that the customer requirements are fully understood in these changes and that in implementing the changes, that they are fully; assessed, tested, and trained to new or existing staff.
The scope of service network change requirements can easily be under-estimated, and attention to detail is also a key consideration. Many recent shipping and logistics service changes have been seen to fall well short on combinations on planning, resourcing, and testing. The change of IT customs systems in to Australia last year is a highly visible example, whereby major delays and costs were incurred. The question that needs to be answered by change leaders before the change is implemented are i) is this change going to benefit both customers and suppliers?, and ii) are the involved stakeholders willing to be fully accountable for the change and have sign off?
Networks
Network management is central to international logistics management. The major elements are shown in the following chart. With this framework built around business processes, and process integration, the ongoing management of the networks is through the lead logistics provider. The lead logistics provider can be an internal business function, contracted out, or a combination of the two.
Lead logistics can cover part, or all of the supply chain. 4 th party logistics is a type of lead logistics, whereby the logistics leader is by nature somewhat independent from the contractors involved, and provides a central platform for integrating the parties, with a view to adding value, sharing operating costs and gains, and with a consistent governance arrangement. The central North Island Matrix transport group initiated by CHH is seen as a recent example with some elements of a 4 th party logistics platform.
Lead logistics functions are also emerging in freight forwarding. Typically, this applies to smaller volume LCL shippers, using the forwarders' own established logistics network. There are increasing cases of larger scale use of freight forwarders, notably where there is some value added method or equipment, or integrated IT system involved. With added flexibility, freight forwarders are beginning to be able to link in to networks outside of their own.
With increasing customs, biosecurity, war-risk security, health and safety, environmental, and other compliance requirements in international export and import, the lead logistics provider is being called on more often to be able to efficiently integrate these requirements in to the supply networks. From a shippers' perspective, the most equitable and least cost application of the required compliance costs is sought.
Shippers' Perspective on Infrastructure Development - What Lies Ahead?
Components of Infrastructure
While it is the physical components of shipping and logistics infrastructure that are the most visible, it is seen that robust infrastructure is made up of the combination of the physical elements, with business processes, information systems, and supply networks. Integration of these elements is possibly the most difficult task, and the one which often is the most critical for ultimate success. Understanding customers' requirements is essential, as is customers need to be able to look at options with an open mind.
Critical Mass
There has seen to be considerable and accelerated consolidation of both large industry, and shipping over recent years. Notably within this grouping, there has been consolidation of core industries, and capacity of industry and shipping more aligned to customer demand, and full utilisation of the assets employed. These industries are characterised by seeing that for world competitiveness, the necessary scale, and ongoing investments in tangible and intangible assets and business growth are essential.
Grouping has largely been by acquisition, co-operatives, and alliances. Alliances generally work where the alliances are in non-competing areas, and are seen to be particularly important for the size of our economies in New Zealand and Australia . From a shippers' and logistics perspective, supply chain alliances can add considerable value where the value can be shared between stakeholders.
On a recent trip to the Wairarapa, I noticed a new wine bottling plant in Martinborough. This type of co-operative would be beneficial to the wineries to lower their costs, while maintaining their competitive position on the individual labels and wines. It was also pleasing to see a growing regional value added industry. These regional industries are particularly strong in some of the world's biggest economies, such as Germany .
Alliances can also assist our international competitiveness. For example, if port companies set up and shared performance KPI's based on New Zealand and Australian port operations. Although the scale is largely different for major ports overseas, to be able to performance benchmark against these ports is also likely to be beneficial. In terms of performance, cost based measures would likely be the most meaningful. Cost based measures would also be most helpful for shippers, to be able to understand these costs, and how to work with ports to better utilise resources and reduce real costs for mutual advantage and international export competitiveness.
Drivers to Change
Drivers to change typically occur from a strategic approach, or an unacceptable position in terms of the service, cost and risk balance equation. Fortunately, the strategic approach in New Zealand is seen to be growing in recognition and application.
International and compliance regulations within the risk balance is quickly growing in importance and significance in driving infrastructure change. Within chain of responsibility requirements for example, safety is gaining much necessary focus and accountability. Environmental regulation and new technology are also major drivers of change and likely to increase in importance in the future.
The combination of these factors is expected to promote further grouping and consolidation of infrastructure nodes in Australia and New Zealand .
Setting Up New Infrastructure
Without doubt, setting up new shipping and logistics infrastructure is one of the most challenging, difficult, and potentially rewarding tasks. To do so requires a brave stance from key stakeholders, and there have been a number of these in recent times.
New infrastructure rarely uses completely 'greenfield' operations, with the Fonterra Hamilton logistics DC rail hub opened last year, perhaps one of the closest.
Some of the options for developing infrastructure are to:
• set up your own
• network existing components of infrastructure
• use a freight forwarder
• 4 th party logistics
Major infrastructure such as rail is core to many other parts of infrastructure. With the relatively small number of major exporters particularly from New Zealand , an individual company's infrastructure developments can impact significantly on other parts of infrastructure. For example Fonterra's Hamilton DC rail hub can be expected to significantly impact road, rail, and container flows in the Waikato and surrounding regions. Major changes in infrastructure of this type can lead to risks and opportunities for others.
Example - Paccon
Within the Laminex Group, one example of relatively new export infrastructure employed was setting up the Paccon Logistics network.
This method of shipping to Australia addressed a number of difficulties and risks with the previous method of shipping the long, bulky packs of particleboard, which previously employed 40ft flatracks.
Paccon was when introduced by Laminex, a start up business, utilising a special container loading device, called the Tynecat (see photograph below). Masterpacks are staged outside of the container prior to loading.
The Paccon supply method provides benefits of:
• container utilisation up 35%
• total supply costs down 20%
• improved safety (breakbulk receive, and delivery)
• near zero damages
• the use of more standard shipping equipment
• simplified biosecurity
• greater flexibility in shipping
• use of lead logistics provider to 'package' supply chain services
Summary and Conclusions
Australasian shipping and logistics involves a dynamic balance of services and product flows.
New Zealand and Australia are relatively small in world shipping terms, and have similar and related import/export flow profiles. Bulk and container ports are possibly more defined in Australia , and this is seen as likely to develop further in New Zealand .
Container hubbing out New Zealand is expected to trend further towards inland port hubs, and overseas port hubs. There have also been additional constraints overseas, such as port congestion driving this. Breakbulk hubbing occurs more naturally, around the point to point type shipments, and from the need to minimise transport and supply costs for the largely commodity type products involved.
Balancing the international logistics supply equation is seen to work around the balance of cost, service, and risk. The factor of risk is gaining significance and importance. Demand planning tools such as sales and operations planning, can be useful for more effectively managing high cost and risk areas, such as shipping space, and shipping equipment management.
With the need for critical mass, world class competitiveness, and to manage the increasing supply risks, consolidation of manufacturing, shipping and logistics services in our region can be expected to continue to occur at an accelerated rate. Alliances are expected to play a key part in service and infrastructure development. Further specialisation of shipping and port services is also likely to occur.
For shippers, there is a critical need for the shipping and logistics services to be well managed, and that the processes and integration between functions be well defined and controlled. Following on from this, is the expected growth of lead logistics.
Shipping and logistics infrastructure has seen outstanding developments in Australasia in recent years. It is viewed that from the components of infrastructure, inland ports as integrated port feeders, and lead logistics will take on increasingly important roles. Other major infrastructure developments may follow when the need or benefits are great enough, along with some type of alliance or industry grouping to gain the necessary long term support and capital.
There is a more commonly recognised economic need to grow significant value exports from Australasia along the lines we are seeing with the wine industry. There are already indications that the relative export balance from New Zealand is increasing in value per unit weight. The value shift process in exports is likely to be gradual; hence a reliance on bulk commodity exports from Australasia is likely to remain for some time. With the expected shift in export volume profiles, will be a change in the shipping service and infrastructure requirements.
References and Acknowledgements
The author would like to acknowledge the following people or organisations, that inspired or contributed to this paper:
1. The New Zealand Shippers' Council
2. The Laminex Group
3. The New Zealand Maritime School
4. Mondiale Freight Services Ltd
5. Toll Owens Ltd
6. Paccon Logistics Ltd
7. The Port of Brisbane Corporation
8. Owens Logistics
9. Tasman Orient Line
10. Maersk Line
11. Leo Turner - former Transport and Shipping Manager, Fletcher Wood Panels
12. Mark Nicholls - Mondiale Freight Services Ltd
13. Dave Hope - The New Zealand Maritime School
14. Bo Samuelsson - Njord Ltd
15. Grant Macvey - Port of Tauranga Ltd
16. Lloyd McGrath - Integrated Shipping Management Services Ltd - Melbourne
Disclaimer
The contents of this paper are the view of the author, and do not necessarily represent those of either The Shippers' Council, or The Laminex Group
