A bold proposal for the Government to invest in shipping charters has been put on ice, as ministers watch to see whether exporters can work together to get their produce to international markets.
New Zealand's biggest fruit, meat and seafood producers are paying up to double the odds to charter ships to the lucrative markets of Asia, Europe and the USA.
It will add to the consumer price of this country's food in Northern Hemisphere supermarket chillers or cut into export margins – but for some producers, the alternative is dumping their produce.
The international supply chain crisis, getting supplies in and exports out, has become critical. It's understood the Government was in industry talks to intervene, floating the radical solution of buying or chartering its own ships like the late Prime Minister Norman Kirk's NZ Shipping Corporation.
For now though, any such intervention is on hold as exporters try charting their own course. Transport Minister Michael Wood said ministers were meeting regularly and seeking advice about government's role in mitigating the impacts of the "severe" disruptions.
Zespri, which pioneered the shipping initiative, is chartering three additional purpose-built ships – Kākāriki, Whero and Kōwhai – from local broker and shipping agent Oceanic Navigation, to get its kiwifruit to China, Korea and Japan. Others in the "big end of town" – including pipfruit growers T&G, AFFCO meat and its sister company Talley's Seafood – have also begun chartering conventional reefer ships.
Small to mid-size exporters are hoping the producers' charter deals will then free up capacity on the container ships for their goods, says ExportNZ executive director Catherine Beard.
And freight companies Mondiale and Mainfreight are getting in on the action too, because it allows them to bring their customers' imports back into New Zealand. Southbound, the reefer ships collect bananas and pineapples from the Philippines, and sometimes imported cars from Japan too – but there is much more capacity to bring goods south.
Fonterra, Silver Fern Farms, and Sealord already have their own solution: They and some others have partnered Maersk Shipping since the Global Financial Crisis 10 years ago, to ensure they can get their produce on Maersk's container ships to Asia, Europe and North America.
Nelson-based Sealord chief executive Doug Paulin said Maersk had brought on extra capacity at the end of June that allowed them to clear a lot of back-order product – but the problem would arise again in a few months. Breakbulk charters were expensive and it could be a problem re-containerising produce on the other side of the world, but were a necessary solution when the container ships were at capacity.
He backed moves for the Government to invest in coastal shipping, to help exporters get their produce onto the big international cargo ships. "Getting a vessel to do coastal shipping is far easier than getting a container ship. For ports around New Zealand that aren't destinations for the larger container vessels, having a consistent feeder service around New Zealand is critical. At the moment, it's very intermittent from a Nelson perspective."
Chartering ships works out as much as $1.10/kg of meat, for some companies; chartering one ship to North American or Europe is said to cost $2m to $4m. But there is not enough coolstore capacity in regional cities like Nelson to hold the backlog of undelivered frozen goods.
New Zealand Council of Cargo Owners chair Simon Beale said his company T&G had partnered Talley’s/AFFCO in June to charter the Lagoon Phoenix from Nelson and Tauranga to Philadelphia, with apples, lamb, mussels and a little fish. It was the first mix of these commodities in about 20 years.
The same month, T&G chartered the Cool Girl to take apples from Nelson to Antwerp and Dover.
"When the New Zealand supply chain started to combust this year, T&G ended up with four charter vessels which helped clear Nelson ... The issue will be getting vessels, as there are not many around due to all vessels being fully utilised post-Covid." – Simon Beale, Council of Cargo Owners
"When the New Zealand supply chain started to combust this year, T&G ended up with four charter vessels which helped clear Nelson, which was a region shipping lines were not able to cover, and to get our markets back on track with large volumes of fruit," Beale said. "We also carried fruit for other NZ apple exporters who had the same pains."
Because Nelson is very tidal, many big container ships hadn't been able to make it into the port and, in a year of tight schedules and delays, had opted to just sail on by, instead.
But Beale said charters were challenging: exporters in Australia and around the world were also trying to charter reefer ships, so charter prices were soaring. "The issue will be getting vessels, as there are not many around due to all vessels being fully utilised post-Covid."
That would be just as much of a challenge for the Government, if Transport Minister Michael Wood wanted to push ahead with a proposal that it charter vessels. Catherine Beard said the last meeting she'd attended had been organised by the Ministry of Primary Industries, three weeks ago.
"It's a taxi service coming from the port you choose to the port you want to discharge, rather than the traditional bus service going around all the stops." – John Malyon, Oceanic Shipping
The Government's $540m air freight connectivity package had taken six months to design, she said, and transport officials told her a sea freight deal would be even more complex and time-consuming.
"We're hoping the big breakbulk charters will take the pressure off the container ships for small to medium exporters," Beard said. "And more big ships are being built as we speak – they will take a couple of years to arrive, but Government would take just as long to set up a shipping line. I think the Government's first hope if that exporters and importers will talk to each other."
Exporters say that if the Government doesn't intervene in the market by buying or chartering ships, there are other more immediate ways it can help. These include:
- Subsidising sea freight costs – though exporters admitted this could turn into a bottomless money pit as everyone would expect the same support;
- Ministry of Foreign Affairs and Trade negotiating for the removal of overseas regulatory bars, like a Chinese rule prohibiting break-bulk cargo and containers being unloaded from the same ships;
- Investing in coastal shipping to improve links between the big and small ports, and requiring that coastal shipping be operated by local companies rather than tacked on the end of the international container lines' voyages;
- Streamlining the Ministry of Primary Industries monitoring and inspection regime for inbound ships;
- Progressing an MPI proposal to build an online portal to help exporters hook up with each other to jointly charter ships.
At Oceanic Shipping, managing director John Malyon confirmed there was a big increase in demand for charters.
And he said their chartered conventional reefer ships had a range of benefits. As well as being fast and direct, they didn't need terminals like container ships; they could just tie up at the dock and discharge or load. That allowed them to bypass the logjam of container ships waiting for their slot at the terminal.
If a company chartered a ship, it sailed direct from the company's home port to its intended destination. "It's a taxi service coming from the port you choose to the port you want to discharge," Malyon explained, "rather than the traditional bus service going around all the stops."
“Severe disruptions to the global supply chain, including containerised sea freight, persist due to pandemic-driven global consumer demand.... International shipping lines tell me they remain committed to servicing New Zealand businesses in difficult global circumstances. We continue to monitor the situation." – Michael Wood, Transport Minister
The ships Oceanic was chartering to New Zealand producers carried on pallets the equivalent of 240 40-foot containers, kept below deck in chilled holds. An additional 100 to 120 containers would be shipped on deck. Reloading full containers could prove difficult in China, and he endorsed diplomatic negotiations around those regulatory bars. But in other respects, he said, the conventional reefer ships were ideal for many New Zealand producers' needs.
Newsroom has spoken to a range of exporters and logistics businesses about their discussions with Government ministers to help resolve the supply chain challenges. The Ministry of Primary Industries, the Ministry of Transport and the Ministry of Business and Innovation, have all been involved in talks over the past two or three months.
In Whangārei, Northport poured cold water on the idea of the Government investing in shipping again. "While the idea of a state-owned shipping line may appeal to the government and unions, in reality it is unlikely to have any real impact on the congestion issues," the company said.
"Our trade lanes are too wide for just one shipping line. Longer term, of course, an island nation having its own international and coastal shipping can only be advantageous when it comes to supply-chain contingency."
Michael Wood said ministers were meeting regularly to oversee the situation, coordinate officials and were seeking ongoing advice about the appropriate role for government to mitigate the impacts of supply chain problems.
“Severe disruptions to the global supply chain, including containerised sea freight, persist due to pandemic-driven global consumer demand outstripping available shipping and port capacity internationally," he told Newsroom. "One-off shocks like the blockage of the Suez Canal have added more stress to the system."
The air connectivity scheme had kept critical air freight flowing and trade channels open, he said, which was important for the supply of time-critical goods like medicine. Since May last year, that temporary support had enabled more than 8,500 flights carrying over 156,000 tonnes of airfreight worth around $12.5 billion, he said.
Measures included working with Ports of Auckland to raise productivity by bringing in additional skilled workers; and with KiwiRail to add more trains on the Auckland-Tauranga connection. Officials had helped fast-track critical imports and new capacity such as Maersk’s Sirius Star service. And the Ministry of Transport has also facilitated workshops with exporters to support co-ordination of bulk export capacity.
"International shipping lines tell me they remain committed to servicing New Zealand businesses in difficult global circumstances. We continue to monitor the situation, and officials are constantly working with the sector to support supply chain collaboration and keep me well informed."
