Port of Tauranga Limited Annual Meeting 26 October 2010 Mark Cairns, Chief Executive

by Press Release on 2010-10-27

Good afternoon Ladies and Gentlemen

I am proud to report on another successful year for your Port, despite the many challenges the current business climate continues to create.

Our diverse income streams and balanced portfolio of bulk, breakbulk and containerised cargoes have helped us to maintain growth, with revenue up 3.1% and underlying earnings up 9.3%.

Total trade for the 2010 year was up 2.4% to 13.748 million tonnes, which compares favourably with last year’s slight decrease in tonnage of 0.5%.

We have increased our market share significantly in the year to 30 June where we now handle some 80% more international cargo volume than our nearest competitor (up from 56% last year) and three times the volume of international exports.

Exports increased more than 8% to 9.19 million tonnes, with forestry exports increasing 19% to 6.04 million tonnes.

Forestry products have always been a strong backbone for this port and to report such an increase is very encouraging, particularly through the recession.  Logs represented 44% of the total tonnes handled in the 2010 year, increasing by 25%, and sawn timber exports also increased 36%.  

Container volumes were down by 6.5%, mainly as a result of service rationalisation by some of the big lines.  The recession has prompted several mergers and vessel sharing arrangements, and while we gained increased exports, some market share was lost in imports.  We consider this consolidation and the trend of larger vessels calling at fewer ports will be ongoing into the future, and I will expand on this further shortly.
 
Our best-in-class productivity, strategic land holdings, excellent road and rail connectivity, cargo diversity, and financial strength are some of the many reasons that Port of Tauranga is the obvious choice to lead the investment required to accommodate the larger ships that will visit New Zealand.

And we’re pleased that this logic has been recognised by the New Zealand Shippers’ Council in its long-awaited and well-researched report into New Zealand’s international supply chain and readiness for larger more efficient vessels in the 5,000 to 7,000 TEU range.

The report, released in August, recommends that Tauranga should become the first port in the North Island to become 7,000 TEU ship-capable, and that it should be done in the next five years.   As the Chairman mentioned, we’ve already got our dredging plans well underway, with the Environment Court  hearing  scheduled for early next year.  We can do the necessary expansion at a comparatively lower cost to other Ports, in the timeframe required, and – I would highlight – we will do the first stage of dredging within our existing working capital.

The report notes that we are already providing an efficient alternative delivery point for imports, with our direct rail link to MetroPort in South Auckland, and to the Waikato.  And because we are the largest bulk port in the country, we can leverage off our existing infrastructure and strategic land bank.  We have a stable political environment and none of the urbanisation pressures faced by other ports.  The report also points out that Tauranga is currently the only New Zealand port that can handle a fully-laden 5,000 TEU vessel.

What the Shippers’ Council report has given us is a well-researched, robust, objective report on which New Zealand can base its future discussions and investment decisions.  The Shippers’ Council membership represents more than half of New Zealand’s exporters.

As the Council says, we’ve got a real opportunity here to increase the efficiency, reliability and cost-effectiveness of our supply chain infrastructure, allowing our importers and exporters to remain profitable and internationally competitive - and avoid the chance that shipping companies could choose to use Australian ports as regional hubs.
 
We’ve already seen consolidation in port calls.  Most recently, the main North Asia container service decided to stop direct calls at New Plymouth, Wellington and Nelson.  Instead it will utilise Pacifica Shipping to provide a scheduled coastal shipping service which will hub through Tauranga and Auckland.

Larger vessels are already starting to arrive.  The largest container vessel in the New Zealand trade started regular calls at Tauranga in April.  The OOCL New Zealand can carry up to 4,578 TEUs – until now, the average vessel size has been less than 3,000 TEUs.  Other shipping lines will introduce larger ships in the coming year, and we expect further consolidation on hub ports, with greater reliance on rail and coastal shipping.  One of the challenges that these larger ships bring, is the need to move much larger volumes on and off wharves, and it is here that Port of Tauranga really has strengths.

We remain the most efficient port in Australasia, as measured by the Australian Productivity Commission.  Our net crane rate over the year averaged a rate of 35.1 moves an hour.  Truck turn times through our terminals averaged below 15 minutes at Sulphur Point and MetroPort Auckland – well ahead of other ports.   We’ve just doubled the number of truck lanes at MetroPort to accommodate increased traffic to the terminal.

As previously mentioned, we have the space and excellent transport links required to handle larger cargo volumes.  Significant additional route capacity is already available on the East Coast Main Trunk rail line between the container terminal and MetroPort.  Our business partners Kiwirail have committed to increasing the number of trains to up to 12 per day, and they are increasing the length of trains by up to 40% over the next few years, as track capacity is improved and new locomotives are introduced.

KiwiRail is also investing in track reliability, with its new $25 million track maintenance fleet having been working on the Hamilton-Tauranga rail link.  We’re also backing the Shippers’ Council call that as much as possible of the Government’s $750 million investment in KiwiRail over the next three years goes into the key freight routes.

Roading-wise, the $250 million Harbour Link project to duplicate the Tauranga Harbour Bridge was completed in December, which has given us motorway access ramps direct to the container terminal.

We were then very pleased with the recent decision to fast-track the $455 million Tauranga Eastern Arterial.  This will be the Bay of Plenty’s largest ever roading project and will shave about 24 minutes off a return journey to the port from the south east.  

The main route to and from the Waikato via SH29 is also being looked at, with a bypass around Tauriko being investigated.

CargoConnect
Whilst maintaining our strong focus on containing costs, we have continued to improve customer service over the year.  I’ve already talked about our productivity measures, but we are also helping our customers to improve their own productivity.  In January, we launched CargoConnect, New Zealand’s first comprehensive online cargo management system.  Shipping companies, importers, exporters and border agencies alike can now access a single web-based system to manage all of their cargo movements and information transfer to and from the container terminal.

CargoConnect is enabling our customers to automatically generate and update cargo documentation, which is streamlining processing at the terminal gate.

On-wharf infrastructure
Over the year we have added another couple of Kalmar twin-lift straddles to the fleet to ensure we can efficiently service a five-crane operation. We are adding another two this year.

We are investing in expansion of our Sulphur Point cold storage facility, which is operated by Cold Storage Nelson.  Storage capacity will be increased by around 70%, with additional blast freezing capacity, to better manage existing demand as well as take advantage of any growth.

We are about to take delivery of our new pilot boat, the Arataki, which replaces the 25-year-old Tauranga II.  The new boat is faster, safer, much quieter and more fuel efficient.

 
Associates
We had a much stronger contribution from our associate companies, with earnings up 62%, following excellent performances by Northport and C3.

Our vertical integration into the supply chain was enhanced with our acquisition of Tapper Transport in Auckland.

Acquiring Tappers is helping us build on MetroPort as our Auckland integrated freight centre and distribution hub.  Importers and exporters are already benefiting from the integration of the neighbouring operations and we’ve moved quickly to lower charges to customers picking up or delivering containers at MetroPort Auckland to better reflect the lower costs of operating from the Southdown site.

Tappers gives us warehousing and distribution services adjacent to MetroPort and this freight village is at the very centre of the commercial and industrial zone which produces and receives most of Auckland’s imports and exports.

I must say that the integration of Tappers into our business has gone very smoothly so far and customers have responded well to the lowering of charges and Tappers is trading well above last year’s position.  We knew that Tappers was a logical choice of business partner for us - we have many compatibilities, we share similar cultures, and we look forward to working together to grow both businesses.

Safety
I am not proud of our safety performance and we were very disappointed with the number of accidents during the year.  While the six lost time injuries were relatively minor in nature, we are striving to achieve a 30% improvement in performance in the coming year.  Despite the efforts of the Port Users’ Health and Safety Forum, which we facilitate, the port community suffered a fatality in June when stevedore Brian Shannon died.  This tragedy is under investigation by the Department of Labour and the forum will also be addressing the circumstances around it and any changes that need to be made to improve safety on the wharves.
 
I am one of 104 New Zealand Chief Executives to sign a pledge with the Minister of Labour on the Zero Harm workplace initiative as a member of the Business Leaders’ Health and Safety Forum, and I will continue to strongly lead our efforts in this area.

People
I consider that I am privileged to lead a relatively small, competent, senior management team - small in number, but long on talent and commercial nous.

We have had several retirements of long-serving senior staff this year, including Terry James, who retired from his role of Corporate Services Manager after 13 years.  He has been a very valuable member of the senior management team and our “can-do” culture is in no small part due to his cultivation.

We welcome Sara Lunam as Terry’s replacement.  Sara has a wealth of commercial experience across a number of business sectors which will benefit the company into the future.

I strongly believe that it is our staff who provide the Company with its greatest source of competitive advantage.

NZL Dispute
I need to provide an update on the NZL dispute. This matter is before the High Court following our lodging of declaratory judgement proceedings last year in an attempt to resolve our differences over contractual interpretation.   It has become apparent to us that there is a lot more to this dispute than meets the eye.  We are concerned that claims being advanced by NZL are, in fact, being driven by and for the benefit of Ports of Auckland.  Accordingly, we have recently joined Ports of Auckland to the proceedings.

As this matter is before the Courts, I am not permitted to elaborate much more here but we will endeavour to keep you updated as best we can on developments.

 
Outlook
In closing, I would like to take a look at our first quarter’s trading this financial year and contrast it with the prior corresponding period last year.  We have trade up 10%, containers up 25%, and Net Profit After Tax up 10%.  Provided there are no significant market changes, we expect to achieve full year earnings in the current range of analyst forecasts which between $51 to $53 million.

I sincerely thank our customers, business partners, staff and Directors who have helped us achieve another record result.

Thank you, ladies and gentlemen.



Mark Cairns
CHIEF EXECUTIVE
Port of Tauranga