Some freight cost savings but S.I. still disadvantaged

Press, 5 November 1984, Page 30

Some freight cost savings but S.I. still disadvantaged

A majority of South Island manufacturers have achieved freight cost reductions of from 5 per cent to 50 per cent in the six months since deregulation, but the best gains were made within the South Island, not on the important inter-island routes.

These findings emerge from a major survey by the Canterbury Manufacturers Association — covering 45 per cent of total South Island manufacturing production, and 75 per cent of South Island exports — prepared for the National Business Review.

The survey is the first wide-ranging check so far on the effect of deregulation on transport users. The survey found that manufacturer’s best gains from the competition which followed the deregulation of road transport occurred within the South Island, not on inter-island freighting. Nonetheless, companies have obtained reductions in costs to the North Island outside the framework of deregulation, as a result of Pacifica’s competitive shipping rates, which have encouraged the Railways Corporation to review charges. Disappointingly, however, the best gains were made within the South Island, not on freight to the north —

the best benefit has failed to eventuate.

Some 45 per cent of the sample reported that freight costs remain a significant factor in losing North Island orders.

Six surveyed companies said they are considering increases in their North Island-based operations — two may shift their total operation north — mainly because of freight costs and transport delays. The South Island’s share of New Zealand manufacturing, 24.5 per cent in 1972/73, had fallen by 3 percentage points to only 21.4 per cent by 1982. The Canterbury Manufacturers Association says freight costs are substantially responsible for those losses.

Of 69 companies reporting, 38 had achieved reductions in freight cost averaging 20 per cent; seventeen companies gained by 5 per cent and seven had cut costs by 50 per cent or more. Twenty-two companies reported no change. Nine were paying higher freight than they did before deregulation. The results were less impressive, however, when freight costs are taken as a percentage of sales. One third of the sample achieved no reduction on that basis.

Among those who did gain, the average was 1.6 per cent.

Thirty-five of the 69 comees reported a change in • principal mode of transport since November. Three-quarters of those changed from rail to road, usually for transport within the South Island.

Transit time, frequency, reliability, damage in transit, and the availability of door-to-door service were all reported as important factors in determining those changes of transport mode. Railways remained the principal carrier of manufactured goods to the North Island, and retained most of its inter-island business.

It “successfully introduced new services offering improved speed and delivery,” according to the survey. But "unfortunately, industrial problems prevented these from achieving full potential." Picton industrial problems had delayed goods in reaching their markets, and created uncertainty about supplies of raw materials. “The continued existence of coastal shipping is essential to provide competition for rail,” the survey says. . A quarter of the surveyed companies had used Pacifica’s Spirit of Free-Enter-prise inter-island shipping service during the six months. They found it helped to keep rail charges down.

Thirty-nine per cent of 69 respondents reported faster deliveries, against eight reporting longer delivery times than they achieved before deregulation. But 20 of those improvements were for times within the South Island, against 11 to the lower North Island, and only eight to the upper North Island.

As to the type of transport chosen, 64 per cent were using consolidators, 11 per cent Railways, 11 per cent coastal shipping — and a surprisingly high 14 per cent airfreight. Air freight, the dearest mode, was regarded as appropriate for high-value products, it provided high frequency, reliability, minimum pilfering, and speed

which permitted lower stocks plus improved cash flow.

The survey very heavily underlined the importance of northern markets to South Island manufacturers — 89 per cent of the sample shipped goods north of Taupo. Two thirds of the sample had raised the percentage of their products sold in the North Island since 1982.

On the other hand, 19 per cent reported a decline in their North Island sales during that period. Ignoring the changes of mode, how had each of the separate modes of transport responded? Forty-four manufacturers won freight reductions from road operators, but 44 did not.

Forty-two companies also won reductions from rail or consolidators against 47 who did not.

With improved delivery times, both manufacturers and suppliers of raw materials found themselves able to hold less stock, on the other hand, this had increased their vulnerability, if delays did occur. The growing role of exports in the business of South Island manufacturers was demonstrated by the fact that 53 respondent companies (59 per cent) were not exporting some of their production. Over the next three years, as export performance incentives phase out, “they will be keenly reviewing their transport costs.” Some 81 per cent of those exporting companies were now regularly selling into Australia, a market which they said had shown growth for them while little had been available within New Zealand.

Twenty-two companies (57 per cent of the exporters) said their sales to Australia were up on last year, only six (15 per cent) said their Australian sales were down.

An astonishing 30 per cent reported that air freight was their principal transport mode to Australia — a reaction to space availability and the high cost of trans-Tasman shipping space.

The survey quotes containers as costing . $1.19 a km to Sydney, against only 57c to Hong Kong, 45c to Yokohama, 33c to San Francisco, 30c to London — and 26c to Rotterdam for E.E.C. markets. “We look forward to the release of the Ministry of Transport onshore costs survey, which we expect to identify excessive-cost areas in trans-Tasman shipping,” the survey commented.

One-quarter of the exporting South Island manufacturers named South-East Asia as their principal export market other than Australia, 19 per cent the Pacific Islands, 16 per cent the United States, and 14 per cent Europe. Other destinations scored lower than this.

Most said they shipped from South Island ports to those destinations, but Pacific Islands cargo usually leaves via North Island ports, incurring cost penalties which can be decisive for viability. “Sea freight rates relate to product value. Charges for some .manufactured goods can therefore be twice those for primary products? The national interest would be served if this cost differential could be narrowed, to assist further processing of primary products within New Zealand,” the survey said.

Based on survey results, South Island manufacturers now intend working to achieve these key objectives:

• Continued healthy transport competition.

© Lower Cook Strait costs thorough ferry operating economies. 0 Continued Government unit freight rebates on South Island manufactured goods moving to the North Island.

© Reductions in transTasman shipping costs, starting with lower port charges and stevedoring costs.

0 More frequent transTasman air cargo flights from the South Island. © A lower differential between primary and manufactured goods shipping to Europe.