I’ll try to go through these sets of numbers over the weekend – and get this story & today’s newsletter out shortly after noon.
The notion that Auckland’s main port, on Waitemata Harbour, is leaving town soon has to have been squashed by 2 reports undertaken for Ports of Auckland Ltd.
That doesn’t mean the port’s future on the Auckland waterfront is secure.
The 2 reports the port company commissioned – from the NZ Institute of Research & infrastructure advisory company Castalia Ltd – both contain numerous questions. They are doubters rather than positive asserters.
On my brief excursion into the reports, I was surprised they were able to raise so many points on fact & assertion.
- EY (Ernst & Young) prepared an economic evaluation for the Upper North Island Supply Chain Strategy working group, of moving Ports of Auckland’s freight business (not the cruise business) 140km north (as the crow flies) to Marsden Point, on the southern head of Whangarei Harbour
- EY calculated a benefit:cost ratio of 2:1
- It put the total net cost of moving Ports of Auckland’s freight task to Northport at $1.8 billion in present value terms
- Ports of Auckland got a review from the NZ Institute of Economic Research and a second assessment from Castalia Ltd
- Castalia constructed a comprehensive analysis of all costs associated with the relocation compared to staying put, then compared this analysis with EY’s estimates
- Castalia estimated the cost of moving would be $6.7 billion in present value terms, nearly 4 times more than EY’s estimate
- By this Castalia estimate, the benefit:cost ratio falls well below 1.
Castalia told Ports of Auckland: “We find that EY has made a number of important errors & omissions which lead to underestimation of fiscal impact of Ports of Auckland’s relocation. In particular, EY ignored the significant increase in the logistics operating costs and missed some significant required investments in the event of the move to Northport.”
Castalia didn’t try to estimate the social benefits of removing port activities from the Auckland cbd, but said: “In our view, some of these benefits are highly doubtful, as cities thrive through a mix of white collar & blue collar activities. However, if we were to accept EY’s optimistic estimate of social benefits and combine it with a more realistic estimate of costs, the benefit:cost ratio falls well below 1.”
The Institute of Economic Research grouped its findings about the EY research into “good”, “surprising” & “concerning” – and summed up by saying the study group’s recommendations should be treated with a high degree of caution.
The surprising findings:
- Assumptions about Ports of Auckland & Port of Taurang being capacity constrained within the study window, when the data reveals that capacity is adequate, and Ports of Auckland is actively improving TEU (20ft-equivalent container units) density by at least 25% within the 30-year window
- That Northport has moved from being an outside contender (12th in the Port Futures Study) to being preferred, with no explanation
- That moving freight 215km by rail &/or 165km by road to the point of consumption, plus multiple mode lifts, is massively offset by the benefits of value uplift in Auckland, but this is not separately costed nor identified. (A crude estimate suggests that the road freight cost increase is $300 million/year, and rail freight cost increase is $1.2 billion/year – based on EY 2017 estimates & volume of TEUs at 1.5 million/year. This does not include the cost of shipping bulk cargo)
- That Northport is physically able to grow sufficient capability & berthage to handle 4.5 million tonnes of import containers & 12.5 million tonnes bulk cargo by 2049
- That rail will make up 70% of the freight task (and that this assumption is fixed). There is no empirical basis provided for this assumption. In the rest of the network, rail has 5.6% market share by tonnage, or 11.6% share by tonne/km.
- That the 400% increase in CO₂ emissions as a result of freight being unloaded in Northport and transported by rail/road to Auckland is inconsistent with Government policy to reduce carbon (compared to sea freight)
- That this enormous freight task will be fitted into the existing transport network from the North, and managed through the bottlenecks of the central isthmus, without worsening congestion or increasing conflict between rail tasks.
Then it listed “concerning” findings:
- The multi-criteria assessment framework is insensitive to changing the weighting of factors. Why? – Ports of Auckland comes last regardless of how the factors are weighted. The same consultant came up with a different answer in 2017. What has changed?
- The feasibility of continuing to develop Ports of Auckland capacity (eg ASCs) has been dismissed. However, unbudgeted road & rail infrastructure development have been included in the base case. Why?
- The benefits set out in the report hinge on the potential value uplift in land used by Ports of Auckland, but the report doesn’t clearly address the dis-benefits & risks of massively extended logistics & supply chains of moving the port to Northport
- The impacts on the supply chains for freight owners, freight consumers & Aucklanders using the transport network have not been analysed and are likely to be significant
- This report proposes a fundamental reorientation of Auckland’s economic geography. Why are the impacts on people, public infrastructure, housing & businesses not identified?
- Overall there is insufficient data or assumptions published in the analysis to permit even a limited BBC-type review process of the preferred solution.
Next, NZIER asked: Where’s the transport economics?
- For a report that claims to be about assessing the costs & benefits of transport options it is very light on detail.
- The reader is left to trust the authors on:
- road transport costs & investment (including what is to be included in the base case)
- transport emissions
- the feasibility of 70% of cargo going by rail
- the cost of the rail upgrade
- the road safety outcomes
- all of the benefits.
- Assurances that this solution promotes supply chain resilience needs to be thoroughly explored & tested. A reasonable counterfactual is that dependency on a long supply chain, with considerable vulnerability (88 bridges, 13 tunnels) through difficult terrain is risky
- There is a hard-coded assumption that 70% of cargo will travel to & from Northport by rail, and no discussion of the feasibility or sensitivity
- The carbon cost of moving freight by land, even if 70% is on rail, is at least 400% higher than moving the freight to Auckland by sea (Ministry of Transport data).
Ports of Auckland’s comment was sparing: “We will make no comment other than to say that they [these 2 reports] show that there are major problems with the EY study and that the idea of moving Auckland’s port to Northland is seriously flawed.”
Attribution: Release from Ports of Auckland, reports from Castalia & NZIER.