What's POAL Really For?

This table shows how much it costs to ship a 20 foot container from Hamilton, via Ports of Auckland, to a destination outside Sydney. It doesn't include the cost of packing or unpacking the container. (NB: It is difficult to get specific quotes for container shipping costs. These figures are mid-range.)

So. Your packed container - which must weigh less than 20 tonnes - gets picked up by a truck in Hamilton, driven along SH1 to Ports of Auckland for around $700.00. Ports of Auckland puts it on a ship for about $200. Etc.

The percentage of POAL costs in this particular supply chain is tiny - less than 4%.

If the same container was shipped through Ports of Tauranga, which charges slightly more per container than POAL, the overall cost would not be very different. However, if Auckland's Southern Motorway gets more congested, and if reliability of delivery time becomes an issue, then POT quickly becomes more attractive.

The point is, there is very fine cost balance between POT and POAL for sea freight. Auckland has kept ahead by price cuts at the margin. And that is why POAL dividends and profits have been steadily slipping away. However those who own the Ports of Auckland (Auckland Council) talk up its importance hugely:

By value, POAL handles 40% of New Zealand's total imports and 21% of NZ total exports, representing 13% of national GDP, or approximately $24.5 billion of trade...

This on the strength of a 4% share of the transport supply chain, and being a transport link which could readily be provided by NorthPort or Ports of Tauranga.

The blog below this one (wherefore-ports-of-auckland) was my ramble through the economics of Ports and Containerisation. This one sticks to basics, and asks questions that must be answered before Auckland Council agrees to a 20 hectare reclamation into Waitemata Harbour to accommodate Ports of Auckland growth plans.

I was a Councillor on the Auckland Regional Council when ARC purchased the remaining 20% private stake in POAL for $170 million. At the time critics suggested that POAL would need to earn profits of more than $60 million annually to justify the share value. In fact POAL profits and dividends have been rather less than this figure since, dipping below $20million/year. But in 2007 the port company transferred its Tank Farm, or western reclamation, property assets to ARC. These assets were valued at $284 million at the time of transfer in April 2007. Chalkie, of the Independent Newspaper, wrote in 9 October 2008:

"...It was widely thought at the time of the takeover it was this land ARC was really interested in gaining control of rather than the port company itself...."

Which is interesting. My recollection is that the ARC was interested in both aspects. However I became very concerned that the ARC's very first proposals for Tank Farm were that:

development returns should be maximised to fund public transport...

. While I am a strong supporter of public transport, I did not support scarce waterfront land - then in public ownership - being developed to maximum potential. But I digress slightly.

Back to POAL expansion plans over the next few years. These growth plans are predicated on assumptions of a massive increase in container traffic (from the present 890,000 container movements/annum up to around 4,000,000) which are not supported by the literature for shipping, even without taking into account the sharp declines in air freight costs that are being experienced.

My research wherefore-ports-of-auckland also notes the massive investment that would be required to land transport networks (SH1, Freight Rail, Grafton Gulley), if POAL growth plans went ahead in totality. Yet as far as I can tell, these transport improvements have low priority as far as Auckland Council is concerned.

So. Why allow the Port to expand, without investing in transport connections?

There seems to be only one answer. That is, to produce more waterfront CBD land for property development, and to make Ports of Auckland Ltd more valuable should a proportion of its shares be sold (to free up capital for investment in transport for example).

Auckland Council only needs to grant POAL Resource Consent for reclamation out to the PMA (Ports Management Area) line in the Waitemata Harbour. The economics are attractive. I am advised it costs about $1000/square metre using cleanfill/concrete to create new land through reclamation, and equivalent Central City land has capital valuations around $7000/square metre. Assuming a margin of $5000/square metre, a 20 hectare reclamation would add a cool $1,000,000,000 to the POAL balance sheet....

So. POAL growth plans could be seen as an opportunity for Auckland Council to profit from property development, rather than a serious engagement with imports and exports.

Only a local authority could get away with this in New Zealand.