What is the Real Value of NZ Coastal Shipping (vs Road)

5-minute read

Will lightning strike twice with an EY (Ernst & Young) report into “externalities” producing a boost for a particular mode of freight transportation?

That’s what the coastal shipping industry will be hoping with the release by the Minister of Transport Phil Twyford of a report by EY entitled The Externality Value of Coastal Shipping, mentioned in last week’s Commentary.

Nearly three years ago, Minister Twyford released a very similar study EY had done into the hidden economic benefits of having a rail network.

This showed rail delivers more to the country in externalities (reduced congestion, fewer road casualties, less carbon emissions etc) than it costs the Government in funding.

That report, prepared as part of a joint KiwiRail/NZ Transport Agency team looking at integrated transport planning, asked what would happen to our roading network if there was no rail network.

By putting an economic value on various benefits of rail, the report was able to reveal in financial terms an ongoing value that does not show up on a normal balance sheet.

The bottom line, it said, is that rail is delivering up to $1.5 billion a year to New Zealand in hidden benefits.

That finding was the launch pad for a Government policy to invest billions of dollars to reinvigorate and expand the rail network.

Now, three years on, we have an EY report which reveals for the first time – in economic terms – the externality benefits that are delivered to New Zealand by the existence of a coastal shipping operation.

Will it have similar consequences for our NZ-flagged fleet? The EY approach was similar to that taken when examining the hidden benefits of rail.

The consultants examined maritime externalities under three scenarios – what would happen if there was no coastal shipping and freight hypothetically switched to road and rail; what would then happen if coastal shipping grows by 8.6% on current volumes; and lastly the effect if coastal shipping grows by 20% growth on current volumes.

Note however that EY accepted other additional benefits of shipping to the New Zealand economy were not captured through their analysis, including direct contribution to GDP through jobs, and the opportunity cost of avoiding investment in road and rail networks, which would be required if freight volumes now moving via coastal shipping switched to alternative modes.

A further unquantified benefit of an effective coastal shipping network is that it gives the country resilience by being able to move freight through times of disruption (as was experienced through the Kaikoura and Canterbury earthquakes).

So there are benefits inherent in the shipping mode that are not reflected in EY’s report. Nonetheless the core finding is strong enough anyway.

It is that coastal shipping provides demonstrable value to road users (and the wider society) in the form of reduced negative externalities.

If coastal shipping were not available, then it is estimated that $306.4 million a year of externality value would be lost.

This value accrues in the form of reduced congestion costs and reduced safety incidents for road users, reduced road travel times and reduced greenhouse gas emissions.

The biggest area of benefit is in avoiding road congestion, which accounts for $229.7 million per year – 72% of the total.

The greater the amount of coastal shipping, the greater the externality benefits for road users.

Importantly, the study defined coastal shipping as the movement of purely domestic coastal cargoes by either domestic or international vessels – i.e. the movement of containers from one New Zealand port to another New Zealand port, which are not import or export transhipments Therefore we should note that the value added by international ship operators is captured in the study findings.

It is interesting to give some insight into how EY arrived at its findings. In terms of emissions reductions, different scenarios were modelled in which the price of carbon varied from $65 a tonne in the low scenario to a high of $200.

The Productivity Commission’s assessment of policy interventions to achieve a low-carbon economy suggests a range of $150 – $250 per tonne of carbon is appropriate, particularly as this price would be necessary to achieve Paris Climate Agreement obligations, so EY’s low scenario is very conservative.

In terms of the value of reducing road congestion, EY adopted the model used in the work they originally did on rail to put a value on the congestion that would arise if coastal freight options were not available.

When it came to working out how many truck movements would be required if coastal shipping was not available, EY used a “full container” conversion factor of 13.25 tonnes per truck.

This is the average full container weight of export, import and domestic containers.

The number of safety incidents potentially avoided was based on a low scenario of the average number of road incidents during the last five years, rising to a high scenario based on the maximum number of incidents in a given year during that time.

EY first determined a count of deaths, serious and minor injuries per year related to heavy vehicle travel. This was then divided by the average kilometres travelled by heavy vehicles.

An average “incident per TKT” figure (truck kilometre travelled) was calculated by taking the average annual deaths, serious and minor injuries and dividing by the average kilometres travelled by heavy vehicles.

Five-year totals were then undertaken to smooth out any seasonal and/or year-on-year fluctuations.  Viewing the report as a whole, the question now is where we go from here?

Obviously, nothing is going to happen before the general election because this report has the potential to inform Government policy going forward.

Last week’s column underlined where Labour stands in terms of its policy.

It has included coastal shipping in its draft Policy Statement on Land Transport (GPS 2021) with an initial three years of funding – up to $45 million – mainly for research to see what future support for shipping will help achieve the Government’s aims for more transport options, improved freight connections, better safety and reduced transport emissions.

However, that will only come into fruition if Labour gets re-elected or if it is in a coalition Government with NZ First and the Greens, both of whom have shown support for coastal shipping.

We don’t know what National’s maritime policy will be, or if it even has one. Whoever gets in will have this EY report on the Minister of Transport’s desk.

The New Zealand domestic shipping industry will be hoping it sparks a similar shift in policy as EY’s earlier report did for rail.