Commission examines performance of international freight

MEDIA RELEASE: Embargoed until 2pm Wednesday, July 13

Productivity Commission examines performance of international freight transport sector

Local authority ownership of ports, and the ways in which competition, co-operation and regulation play out in international freight transport are scrutinised in an Issues Paper released by the Productivity Commission today.

The Commission wants public submissions on the Issues Paper to shape its inquiry into the performance of international freight transport services.

Releasing the Issues Paper, Commission Chairman Murray Sherwin said the inquiry would explore some important and contentious issues for New Zealand’s international freight industry. It puts all components of the international supply chain under the microscope.

“This is an important inquiry for New Zealand. We live in the most remote developed country in the world and the way we get our products to and from international markets is critical to our success,” Mr Sherwin said.
“Better performance in freight transport should result in lower prices for imported goods, higher profits for exporting industries, and quicker freight turnaround – benefiting importers, exporters, employees and consumers.
“New Zealand exporters and importers currently spend about $5 billion on freight each year. We’re looking at whether these costs can be lowered and the services improved.”
One of the questions the Issues Paper asks is whether council ownership is getting in the way of ports and airports performing more efficiently to help exporters and importers. It asks whether ports need to be more collaborative and innovative to improve performance, which is lagging behind that of ports in some other countries.

The paper also asks if regulatory arrangements are adequate to deal with anti-competitive behaviour in the international freight industries and whether the Minister of Transport should continue to exercise certain regulatory functions, or hand these over to the Commerce Commission.

“The inquiry will help ensure that New Zealand has the best regulatory framework and the right incentives to achieve best practice across the industry. It will also help to drive improvements in infrastructure investment, innovation and supply-chain coordination,” Mr Sherwin said.
The issues paper is the first step in the inquiry process. It elaborates on the context for the inquiry, the approach that the Commission intends to take, and identifies key questions.

The Commission encourages New Zealanders to get involved in the inquiry. For a copy of the Issues Paper, including information on making a submission, visit www.productivity.govt.nz

The Commission is due to release its draft recommendations for improving the performance of international freight transport services in December this year. It will deliver its final report and recommendations to the Government in April 2012.

ENDS

Report: NPC3143IssuesPaperFreightWEB.pdf

Productivity Commission International Freight Transport Services Issues Paper: background information

About the Productivity Commission
• The Productivity Commission aims to provide insightful, well-informed and accessible advice to increase productivity and improve the wellbeing of New Zealanders.
• The Commission’s advice and research will help the Government to improve the framework – laws, regulations, institutions and policy choices – that guide and incentivise how decisions are made by individuals, businesses and organisations.
• The Commission completes in-depth inquiry reports on topics referred to it by the Government, carries out research that helps improve productivity over time, and promotes understanding of its work to increase support for improving productivity.
• An independent Crown Entity with about 15 staff, the Commission was established under the New Zealand Productivity Commission Act 2010. It has been operational since 1 April 2011.
The Commission’s inquiry into International Freight Transport Services
• New Zealand is the most remote developed country in the world relative to international markets. Efficient freight services for exports and imports are critical to the economy.
• The inquiry will look at all components of the international freight supply chain – spanning regulation, port and airport ownership, Customs and MAF processes and fees, logistics, domestic freight interfaces, technology and market trends.
• The inquiry is timely – international freight volumes have been growing strongly, rising oil prices have put pressure on sea and air freight costs, and the trend to larger ships and aircraft will generate both threats and opportunities for exporters and importers.
• The potential benefits of improved performance are major. International evidence suggests that a 10 per cent reduction in transport costs could lead to a 1 to 2 per cent increase in trade, or about $1.25 billion worth of extra imports and exports each year. Reducing transport times for both imports and exports by one day would yield an estimated $670m benefit every year.
• International commercial cargo ships make around 3300 calls each year at New Zealand ports. Most commercial flights to and from New Zealand also carry freight, to the extent that the busiest airport – Auckland – is New Zealand’s second-largest “port” in terms of value of international freight.

Questions raised by the Issues Paper
The issues paper seeks views on many important and possibly contentious issues, including:

• Could council ownership be getting in the way of ports and airports performing more efficiently to help exporters and importers?
• Do the owners of ports, airports, ships, planes, roads and rail exercise market power to impose higher prices and/or lower quality on freight shippers? Is there a risk that, individually and together, they will under or over invest and poorly co-ordinate their decisions?
• International sea- and air-freight carriers have enjoyed long standing exemptions from the pro-competition provisions in the Commerce Act. Are exemptions harming or benefitting New Zealand traders?
• What are the merits of letting the parties compete and/or co-operate in line with market forces, versus attempting to improve coordination under a more planned approach?
• Are regulatory arrangements adequate to deal with the investigation and prosecution of collusive behaviour in the international shipping, freight forwarding and air-freight industries?
• Should the Minister of Transport continue to exercise regulatory powers under the shipping and civil aviation acts, or might the role be better played by the Commerce Commission?
• Has the productivity and efficiency of New Zealand ports stalled after the improvements that followed port reform in the early 1990s? Is performance slipping relative to Australian and other overseas ports?
• How far do labour-management practices and employer-union relationships remain an obstacle to lifting efficiency and productivity in ports and airports?
• How much time and money could be saved with more streamlined customs and biosecurity services?
Submissions process and timeline
• The quality of the Commission’s work depends on input from a wide range of people. It encourages New Zealanders to get involved by making submissions.
• The Commission will use the submission process to gather ideas, opinions and information to ensure the inquiry is well-informed and relevant.
• Information about how to make a submission is included in the Issues Paper, which is available at www.productivity.govt.nz . Submissions can be made on the website.
• Submissions close on 31 August, 2011 and the Commission will be out and about over the next few months visiting a wide range of people and organisations interested in international freight transport services, including submitters.
• The Commission will release its draft recommendations for improving the productivity of international freight transport services in December 2011. It will report back to the Government in April 2012.

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