107 Summarised Report of Shipping Survey

[31 October 1980]1

RESTRICTED

Trans-Tasman Shipping Survey 1980

In February 1980, the Transport Ministers of Australia and New Zealand announced that a further survey of exporters' views on trans-Tasman shipping services would be undertaken by Transport officials in both countries. This survey followed similar surveys undertaken in 1977 and 1979 as a result of concern by the NAFTA Minsters with the cost and adequacy of trans-Tasman transport services.

At the same time the Transport Ministers also announced a joint study of the trans-Tasman shipping services by the Australian Bureau of Transport Economics and the New Zealand Ministry of Transport. Shipping in this trade was identified as requiring special review in the context of consideration of initiatives for a closer economic relationship between the two countries.

The survey of exporters' views was completed recently and a report on the survey findings was submitted to the NAFTA Ministers' meeting on 12/13 August for consideration. The NAFTA Ministers noted that the results of both the survey and study reports will be examined together when the latter becomes available later this year. Further steps that may be taken to improve the efficiency of the services will then be considered.

The recent survey covered a much larger number of respondents than the previous surveys, 131 in Australia and 111 in New Zealand. It confirmed the findings of previous surveys that some exporters were dissatisfied with the level of their freight cost and saw this as an inhibiting factor in respect of their trans-Tasman exports. On the basis of the recent survey, the freight cost did not appear as a critical factor for the majority of exporters. It indicated that there was some improvement in the exporters' freight cost situation as compared with the previous surveys. The level of service was also regarded as generally satisfactory by most respondents.

Some of the improvement was due to the change in the Union Steam Ship Company's freight rating policy announced in January 1978, which introduced both developmental and commodity rates into this trade. A large proportion of the trans-Tasman liner trade in now carried at these rates. Increased competition in the trade has also been a moderating influence on sea transport costs. A number of exporters supported the view that a greater competitive element could be beneficial. The special condition in this trade is that there is an agreement between maritime unions of both countries to reserve trans-Tasman cargoes for national flag vessels.

There was a dramatic turnaround in the level of trans-Tasman liner trade between 1977-78 and 1978-79 with the volume of exports increasing between 100 and 200 per cent in both directions. This reversed the declining trend in this trade since 1975 but the substantial increase was considered to be due to factors other than improvement in transport costs.

In analysing the survey results, a comparison was made on the basis of the volume of exports shipped, rather than value, in the following categories: Small (100 tonnes or less per annum), Medium (101-1,000 tonnes per annum) and Large (over 1,000 tonnes per annum). In general the larger exporters accounted for the major proportion of both countries' trans-Tasman export earnings. However, it was noted that large exporters shipped generally lower value products as indicated below:

Weighted Average Australia ($A)Export Value Per Tonne New Zeland ($NZ)
Large Exporters920500
Medium Exporters1,7702,500
Small Exporters3,5002,700

In general, a higher proportion of medium and large exporters than small exporters indicated sensitivity to the freight cost and larger exporters were also more active in seeking freight rate concessions. This did not alter the overall conclusion that the majority of exporters as well as a substantial volume of exports were not significantly affected by the freight cost factor.

It is also noted that the Metal Trades Industry Association of Australia National Export Group recently completed a survey of those members who had not been included in the joint governmental survey. The same questions were employed in the MTIA survey, which had similar results in relation to the importance and sensitivity of the freight cost in the trans-Tasman trade. However, approximately one half of the MTIA survey respondents reported dissatisfaction with the service frequency and serious delays in contrast to the governmental survey, which indicated that the majority of exporters considered the service to be generally adequate. This result could have been due to the much smaller number of respondents (16) to the MTIA survey than the governmental survey (over 200).

MAJOR FINDINGS

(a) Export Details

An improvement in trade levels was reflected in the response of both Australian and New Zealand exporters. Amongst Australian respondents 61 per cent reported an increase in trade, with 18 per cent reporting a decrease and 21 per cent stating that trade was static. New Zealand respondents reported on an even larger increase: 81 per cent stated that trade had improved, 15 per cent reported trade to be static, while only 3 per cent reported a decrease. This compares favourably with around one-third of exporters in both countries who indicated an increase in the 1979 survey.

Most of the tonnage on both sides of the Tasman is exported by a very small group of shippers. In Australia 86 per cent of the 245,000 freight tonnes represented in the current survey was shipped by 25 respondents. This is typical of most Australian outward liner trades. In New Zealand a substantial proportion of the tonnage included in the survey was shipped by the 27 respondents who accounted for 425,000 tonnes (95 per cent) out of an approximate total of 450,000 tonnes exported to Australia.

The majority of Australian respondents (58 per cent) supplied the New Zealand manufacturing market while the majority of New Zealand respondents (61 per cent) supplied the Australian consumer market. In terms of tonnage exported, however, the majority of tonnage represented by the survey was exported for manufacturing purposes on both sides of the Tasman. This was consistent with the findings of previous surveys.

(b) Method of Shipment

The majority of respondents on both sides of the Tasman indicated that they utilised the services of a freight consolidator. Approximately 16 per cent of all respondents shipped most of their goods directly through a shipping line. Up to 40 per cent of large exporters shipped direct.

Approximately 20 per cent of exporters in both countries used air to transport most of their goods across the Tasman, with approximately half of all exporters using air freight to some extent. Small exporters, with high value/low volume shipments, were the main users of air freight. Those exporters who used air freight said that it was either cost competitive, mainly for low density products and for small shipments, or other benefits made it competitive, such as speed of delivery, security and the perishable nature of the goods. However, relatively fewer exporters included in the current survey used air freight than in the 1979 survey, as recent increases in air freight costs have tended to make air uncompetitive for many exports.

(c) Freight Cost

There are difficulties in comparing freight costs between individual trades, primarily because of the different characteristics of each trade, which can have a significant effect on the economics of the shipping operation. For example, some of the claims of a higher cost in the trans-Tasman trade than in other trades were based on a comparison of cost per tonne/mile, which does not necessarily constitute a freight cost disadvantage to an exporter in absolute terms. Moreover it is not appropriate to compare short haul tonne/mile rates with longer routes as the average tonne/mile costs fall with increasing distance.

However there is some validity in using comparative freight rate analysis between one survey and another. In the recent survey in respect of New Zealand, there has been a significant change in the relationship between trans-Tasman freight costs and the costs of shipping to Asian and Pacific markets. In 1979 none of the exporters reported trans-Tasman costs to be lower. This year 22 per cent of exporters reported trans-Tasman costs to be lower, with 36 per cent stating that they were higher, and another 17 per cent considering them to be about the same.

Among Australian exporters the change was not as significant: 59 per cent of respondents stated that costs were higher trans-Tasman compared with Asian and Pacific markets while 16 per cent said they were about the same. There was some improvement in this situation since the 1979 survey when 80 per cent of respondents stated that trans-Tasman freight costs were higher than to other markets.

The average air freight was between $A700-800 per tonne and was not considered competitive by the majority of respondents on both sides of the Tasman. By comparison the weighted average sea freight was estimated at $Al39 per tonne for Australian respondents and $NZ125 per tonne for New Zealand respondents.

(d) Importance of Freight Cost

For the majority of Australian exporters to New Zealand the freight cost was less than 20 per cent of CIF price but large exporters had a greater freight cost component than small exporters.

Although close to 60 per cent of the cargo volume consisted of low value exports, this was not reflected in a high freight cost component in the CIF price of these exports. The survey response indicated that only about 20 per cent of the volume of exports had a freight cost component exceeding 20 per cent of CIF price. It therefore appears that many low value cargoes also had a relatively low freight rate.

The majority (66 per cent) of New Zealand exporters had freight costs of less than 20 per cent of CIF prices. However, amongst large tonnage shippers, 52 per cent had freight costs of over 20 per cent. In contrast to Australia, the high freight costs for this group led to 86 per cent of the total volume of exports surveyed having freight costs of over 20 per cent. This in part reflects the low value per tonne for large volume New Zealand exports. Large volume Australian exporters shipped cargoes with a value almost twice as much per tonne in comparison with New Zealand.

According to the USS Co. about 60 per cent of its trans-Tasman cargoes were moving on concessional rates. The Australian response indicated that over 75 per cent of the volume of exports included in the survey were receiving freight concessions. In New Zealand 50 per cent of exporters were receiving freight concessions, though the actual volume of exports being discounted would again be considerably higher. The majority of respondents indicated that they preferred commodity rates to FAK rates.

Exporters were asked to estimate possible increases in their exports if freight rates were reduced either by 10 per cent of 30 per cent. The majority of respondents indicated a low level of responsiveness or no effect in their export shipments to freight reductions. Some exporters commented that other factors were more important than freight cost. However the sensitivity to freight rate reductions was found to be greater in New Zealand than in Australia.

(e) Adequacy of Service

Three-quarters of the Australian and New Zealand respondents thought that the service was adequate except for minor delays resulting from industrial action on the waterfront and a communication problem by the dominant shipping line to advise variations to sailing schedules.

The majority of exporters were also not prepared to either pay more for a more frequent service or pay less frequent service.

Exporters views were not sought on the lack of direct services to Australian ports other than Sydney and Melbourne. However respondents' comments suggest that a reintroduction of direct services could assist with the development of trade between New Zealand and those Australian States which are not served directly at present. The question is whether or not such a service would attract sufficient cargo to make it economically viable.

Apparently the majority of respondents on both sides of the Tasman do not seem to experience any difficulties in obtaining adequate cargo space. However, 20 per cent did report difficulties, the bulk of the problems being experienced by large shippers. This is probably due to the fact that large shippers' goods are often very bulky and non-containerisable.

A space shortage problem had developed in late 1979 with a number of short shipments on both sides of the Tasman, but this was subsequently overcome. However, individual exporters continued to experience problems related to their particular types of cargo, due to unsuitability or shortages of seafreighters.

A number of complaints were also received about the condition of the seafreighters, indicating that they were sometimes in a poor state of repair and difficult to assemble, as well as offering inadequate protection against pilferage and the elements.

Serious delays were reported by approximately one-third of Australian and New Zealand respondents. Industrial disruptions were a continuing problem.

Seasonal delays were reported by more New Zealand than Australian exporters: 45 per cent of New Zealand respondents reported delays at particular times, compared with only 23 per cent of Australian respondents. Reported delays occurred mainly during the November/January period, though Australian exporters also reported delays in the May and June period, which coincides with the end of the New Zealand licensing period.

(f) Trans-Tasman Shipping Improved over the Past Year?

An improvement in the service was indicated by 26 per cent of Australian respondents during the current survey as compared with only 8 per cent during the 1979 survey. The reported improvement was considerably higher amongst New Zealand respondents, with 47 per cent stating that it had improved compared with only 8 percent who stated that service adequacy had improved in the 1979 survey.

[NAA: A1838, 370/1/19/18, xx]