A perfect storm at the ports: inside our freight and port delays

Gupreet Singh’s truck is parked up on the side of his road near his house in Takanini ready for him to slip into the cab at 5am.

As a driver for PBT, he’ll spend three hours driving into Northland to pick up one or two of the more than 1000 containers being offloaded from the Constantinos P at Northport.

If he picks up a container from the port directly he might spend three hours waiting in line to get it. He’s been a truck driver for two years in Auckland and never made a run to Northland before Covid-19 hit.

Now he’s doing it regularly.

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Singh is one small player in a perfect storm engulfing supply chains across the globe and particularly our region.

Ports of Auckland (POAL) unload the equivalent of two-thirds of a Constantinos P container-load every day, but ships are still waiting an average of nine days at sea thanks to port issues around staffing, automation and an influx of goods.

The Constantinos P is stretching Northport’s facilities to the brink including using up half of the port’s available berths and forcing drivers like Singh to spend hours twiddling their thumbs waiting for containers to be offloaded.

Port of Tauranga is another alternative, but after more ships skipped the wait in Auckland by docking there the influx of traffic is causing congestion problems.

There’s a lot more than just a few Christmas gifts and poorly-considered online impulse purchases in those stacks of containers.

At an event to unveil the largest vaccination programme in our country’s history on Thursday Covid-19 Minister Chris Hipkins revealed the first shipment of extra refrigerators needed for the Pfizer Covid-19 vaccine (which has to be stored at -70C) would arrive in New Zealand waters this year, but wouldn’t be offloaded until next year due to congestion at the Ports of Auckland.

Prime Minister Jacinda Ardern says the delay won’t hamper the vaccine’s roll-out overall because the refrigerators will still arrive earlier than the vaccine itself: “I appreciate that the Minister shared that extra layer of information. We have no concern though that that is causing any issue”.

Over decades supply chains – the term for a system of organisations involved in producing and distributing products – have been refined to deliver goods just when they were needed, saving time, money and storage space. Now Covid-19 is breaking several links in that chain at once and our region has the potential to be badly affected by the chaos.

The delay of imports can have a bigger impact on our economy than you might think. The production of manufactured goods and even some primary sector goods rely on a lot of items we import.

Employer and Manufacturers Association head of advocacy and strategy Alan McDonald refers to the ripple effect a delay to the delivery of one of their members could cause.

“They do hot water cylinders. Those cylinders come in on boats. Currently that boat is sitting out there and they’re facing the very real prospect of shutting the factory.

“Not only the cylinders, but the tops and bottoms are also on another boat somewhere. They haven’t got here.

“Which will cause a problem for the housing industry because you can’t get a code of compliance for a new house unless you’ve got a hot water cylinder.”

Maersk’s Oceania head of market My Therese Blank says there will also be issues for our exporters as the shipping line is considering cutting down how often they send ships here.

“We are looking into the opportunity to have fortnightly calls instead of weekly.”

Such a move could effectively cut shipping capacity by 50 per cent because ships would visit half as often.

Shipping lines are already having to take actions which will hamper our exporters over the next few months.

They’re sending ships to other ports in our country first, which means they’re taking fewer exports out when they leave. Because these ships are still carrying imported cargo bound for Auckland they don’t have as much space to take out exports from our regions when they dock.

Or they’re skipping some ports altogether. Centreport CEO Derek Nind says November was not a good month for them with several container ships cancelling.

“At the moment the schedule is all over the place.

“And in some cases we’re getting ‘omits’. They’re not coming into Wellington.”

Even if these ships are able to offload their imported cargo in Auckland then continue around to other ports around the country they won’t able to take out the same level of exports thanks to a container shortage here.

Strikes on the docks in Australia mean our country hasn’t built up the stockpile of high-grade containers it needs to export food during their peak season.

Maersk normally bring containers into an Australian port, upgrades them to “dairy grade” (for the transportation of food) then stores them here so they’re ready to go when primary sector exporters need them during our peak season. However, industrial action across the Tasman means there isn’t the same stockpile here this year.

It’s not just shipping. Demand for airfreight is exceeding supply, causing major price hikes despite a government subsidy which the Transport Minister says has kept air freight operating at 90 per cent of pre-Covid levels.

Quite a lot of freight is carried in the belly of international flights and the International Air Freight Capacity scheme subsidised Air NZ for its flights at the equivalent rate of a plane at 80 per cent occupancy to keep freight flying.

However, unlike some overseas airlines, like Air Canada, Air New Zealand is not using the space above the belly of the aircraft to store goods. Other airlines overseas have been stripping their cabins of seats or strapping goods into sparsely populated flights, but Air NZ is not doing this despite half of the international flights it runs being cargo-only journeys with no passengers.

A spokeswoman for Air NZ says it takes nine months to turn a Boeing 777 passenger aircraft into a cargo aircraft by removing the seats.

“When we were making these decisions we didn’t know how long Covid-19 was going to last. So, ultimately we made the decision to use the current belly space of an aircraft for transporting cargo. In our Boeing 787s you can hold up to 40 tonne of cargo.”

There’s such an imbalance between supply and demand when it comes to airfreight it’s proven economical for private player DHL to start a new dedicated overnight freight service carrying 19 tonnes of cargo between Australia and NZ.

When people aren’t able to get their freight through on planes they either have to put it on a ship or give up on freighting it anywhere (some goods perish too quickly to be shipped).

University of Auckland Centre for Supply Chain Management director Tava Olsen says supply chains are supposed to flow smoothly like water, but now the whole the chain is ‘lumpy’ which is causing greater consequences the further down it.

“One of the things we teach in Supply Chain 101 is called the ‘bullwhip effect’.

“It’s an effect where small changes at one end of the supply chain turn into big ripples at other layers of the supply chain.”

“Ripples caused by Covid are making for even bigger ripples and lumps now.”

Much of this “lumpiness” has been caused by a ramping up of manufacturing supply in China. With China’s factories coming online they’ve been fulfilling a backlog of orders at a time when ports were planning for a downturn in container loads.

This caused a wave of delays as ports and freight carriers struggled to cope with an unpredicted level of demand. Those led to more delays as businesses started packing as many goods as they could onto ships and planes to guard against being unable to secure freight spaces in future.

Ports of Auckland spokesman Matt Ball says one beer distributor received three months’ worth of it in one shipment.

“The port is set-up to work on a ‘peak and trough’ basis because that is normal.

“At the moment we’ve got ships every single day of the week. There is no trough. And everyone’s used up their max hours all the time.

“So whenever we have to give people days off there’s always a ship in port that always needs servicing and we’ve basically got more and more behind.”

Ball says as lockdowns began across the world container lines told POAL to expect a 30 per cent decrease in container volumes for the year. So the port planned for a downturn, cutback its capital spend and made 19 people redundant across the organisation.

“We did have a bit of a cost-cutting exercise…and took the opportunity to performance-manage.”

Chief executive of the Customs Brokers and Freight Forwarders Federation of New Zealand Rosemarie Dawson says it’s not just about POAL. Costs are piling up right through the system.

Between January and September freight rates increased by 36 per cent for a 20-foot container and 54 per cent for a 40-foot container.

Then between September and December they soared by 247 per cent and 289 per cent respectively.

On top of this land-based depots like Ports of Tauranga-owned Metroport (which store containers) are filling up and lumping on extra storage charges to manage demand while shipping lines have added in a congestion surcharge on top of already high freight rates.

All of this will undoubtedly cut into exporter margins and some exporters privately say they might end up having to export their products at a loss just to maintain market share in overseas markets.

Horticulture Export Authority chief executive Simon Hegarty says he hasn’t heard of any exporters doing this, but acknowledges it is “theoretically” possible it could come to that in the current climate.

“If you can’t get your product to market and you’ve got a supply contract with a retailer then you’re going to face some difficult times because it might have taken you years to build that up.”

Transport Minister Michael Wood says there are some issues specific to the Ports of Auckland, but there’s also “a perfect storm” of weather events, industrial disputes in Australia, shipping congestion between Europe and China along with predictions of falling freight demand which ended up being the opposite.

“We’re a little country at the bottom of the South Pacific. The world sneezes, we catch the flu.

“The source of the problem is not our ports. The source of the problem is an international issue.”

His Ministry have also come in for a bit of criticism from companies within these supply chains. Publicly companies within the supply chain say MoT are working closely with them and doing a lot of listening.

Behind closed doors they call MoT a policy shop out of its depth in making the awkward pivot from rail and public transportation issues into highly technical fields like logistics and supply chain management.

And working through these issues can get very technical. For example, fleet and logistics manager for the Alexander Group Rod Alexander – whose company transports medical supplies and goods for food production – says these types of goods are regulated by specific rules which will make it difficult to transport them between the North and South Islands.

That will be another potential complication this year with added pressure on all types of shipping and rules preventing these goods being transported on the Interislander ferry, and one we’ll probably only feel once it happens.

Supply chain manager for the Ministry of Transport Harriet Shelton says in response that her team are leading an intergovernmental team of officials including the Ministry of Foreign Affairs, New Zealand Trade and Enterprise and the Ministry for Primary Industries on issues like assisting POAL with their staff shortages and are working with KiwiRail on how dangerous goods can be transported between the North and South islands.

“While we cannot solve operational pressures on the ground, we can enable the right discussions and feed into government decision-making for the transport system and the supply-chain to work in a more seamless manner.

Olsen says the worst-case scenario for our country is if the level of disruption gets so bad shipping lines decide to make Australia a cargo hub for New Zealand the way we are for the Pacific.

This would add a lot of delay into the supply chain with shipping lines dropping freight due in New Zealand off in Australia then reshipping it here.

Thankfully Blank says this is something Maersk is not considering.

Road Transport Forum chief executive Nick Leggett says there is a bigger problem with all of this. Nobody is looking at an overarching ports strategy which could allow for better co-ordination between ports too used to being in competition with one another.

An overarching strategy is something the Maritime Union of New Zealand national secretary Craig Harrison says he’s in favour of too, but he doesn’t accept POAL don’t deserve the bulk of the blame for an automation project he views as largely responsible for many of the present delays.

And it’s easy to see why he thinks so. To the naked eye on the port the automated cranes seem to work at a slower pace to the human-operated ones, something even Ball himself has spotted (although Ball insists POAL’s studies show the automated cranes are faster overall).

While Harrison accepts such technology will eventually end up operating more efficiently, he contends they’re just not there yet and won’t be by next year either.

“Everybody thinks that next year there’s going to be an automated terminal and there’ll be no ships waiting.

“They’ll be waiting. They’ll be waiting the next couple of years.”