Read a transcript of Craig Carmody’s speech to the Hunter Business Chamber Infrastructure Luncheon on Friday 30 November 2018.
Good afternoon.

My speech this afternoon is about global container trade developments and how the planned Newcastle Container Terminal will ensure Australia is not left behind.

In my last job, I spent considerable time in Copenhagen. One of my favourite stories involves the Danish Navy. In 1807 the British destroyed the Danish fleet. Denmark’s King ordered a forest of oak trees be planted in order to build a new national fleet. In 1979 the Danish Department of Defence received a letter from the Department of Agriculture. The letter said their oak trees were now ready!

A story like this reminds us that timing is everything. If you wait too long you will miss your chance. You risk being overtaken by the future.

In that context, today I want to talk about global trade and whether Australia is prepared for the future. I’m going to start with the global shipping industry because global trade is basically sea trade. A recent United Nations report on trade and development estimates that shipping carries 80 per cent of the world’s trade. In Australia, 97 per cent of our trade travels by sea; making us the fifth-largest shipping task in the world. We send large volumes of coal, iron ore, wheat and LNG by ship. It’s something we know about at Port of Newcastle – we are the world’s largest coal port, shipping around 160 million tonnes per year.

However, the future of trade is literally in containers.

In 1980 – 1.8 million containers were moved by sea.
In 2018 – 764 million containers will be moved across the sea – 61% of which was in Asia and Oceania.
95 per cent of world trade is now conducted in containers.

The container trade is driven by business activity and consumers consequently, it dipped for a couple of years during the GFC and some economists predicted a decade of flat growth. But the economy of five years ago is not the economy we have today. Container trade did not go flat for a decade – it bounced back quickly. Australia added one million extra containers to its freight task this financial year. The Port of Melbourne saw growth of 17 per cent alone.

Yet on the east coast we have only three container ports – Botany, Melbourne and Brisbane. Our freight infrastructure has been planned geographically and politically – we have one container port for each state. But the container trade is global. Container volumes are not driven from offices in our capital cities – they are driven by businesses and consumers. Countries with fast-growing middle classes have an increasing appetite for consumer goods, and it is they who lead the container trade. In Africa and Asia, containers are being used for bulk goods such as grains, to reduce infrastructure requirements, theft and contamination. And governments in the developing world are building container ports because of the clear connection between containers and economic growth. The surge in container volumes means two long-term trends are emerging that effect Australia’s future prosperity.

A move to larger container vessels, and the need for port infrastructure that can handle these vessels.

Let’s start with the vessels. As container volumes grow, the shipping lines want to carry more containers on each journey – which means they can operate fewer vessels, at lower costs. Larger vessels reduce the unit-cost of carrying one container – what they call the Slot Cost. So, the shipping lines want to use larger container vessels.

One is called the New Panamax. These are designed to fit through the recently widened Panama Canal. They carry over between 10,000 and 14,500 twenty-foot equivalents – also called TEU or containers. The New Panamax is twice the size of the average vessel calling at our east coast ports. And there are larger vessels being built. They are called Ultra-Large Container Vessels and they carry between 14,501 and 20,000 TEU. I will refer to them as Maxis from now on because ULCV is such a catching acronym.

Let’s look at how vessel-size affects slot costs in Europe:

An 8,000 TEU vessel has a slot cost that’s around 10% lower than a 5,000 TEU vessel, BUT
the Maxi vessel has a slot cost around 52% lower than a 5,000 TEU vessel.

That’s a simple equation – the Maxi vessels are cutting the slot costs in half. All the major shipping lines are building these very large container vessels, with the deliberate intent of making them the new workhorse of global trade. We can safely say that over the next decade, the major ports through which Australia trades – in Singapore, Dubai, Hong Kong, Shanghai, Mumbai, San Francisco and Los Angeles – will be ports that can handle the Maxi vessels.

The future of world trade is large vessels – and the countries trading with them will enjoy a significant reduction in their supply chain costs. Countries that cannot accept these large vessels in their ports will pay more for their exports and imports. Where will Australia be in this scenario?

Currently, the east coast of Australia is limited to container ships of no more than 8,000 TEU. Brisbane and Botany have one berth each that can theoretically handle a 10,000 TEU vessel. But Australian ports typically handle vessels of around 5,000 TEU. The wharves, cranes and quay-lines of these ports are not big enough to handle the large vessels. Even if our ports could berth Maxi vessels, our stevedores probably couldn’t unload them at rates that make it worth the vessels stopping. The quay cranes must be able to reach across 23 rows of containers, not the 12 rows of containers that our ports are accustomed to. In Melbourne the Westgate Bridge is too low to take ships much bigger than they do currently. In Sydney the airport’s proximity presents problems. Australia’s port infrastructure is not big enough for the new class of vessels. But we have further infrastructure constraints.

Australian ports need better wharfside and landside productivity to handle a vessel that carries THREE times the current average. A vessel over 15,000 TEU requires four Quay Cranes to unload it efficiently. And once the boxes are unloaded, can the ports stack the containers at the rate required?

The answer is No – our ports can’t service a Maxi vessel in turnaround times that the ship owners would be happy with. And if the shipping companies can’t make money at your port, they won’t visit your port. The world trade system is run by the shipping companies – they go where their ships are loaded and unloaded at the best rates. Landside infrastructure, the roads, the railways and the intermodals are crucial because they dictate the vessel’s turnaround times. The east coast container ports are reaching their landside capacity:

Our container ports have been built inside bottlenecks. In Sydney, the commitment to new transport infrastructure to support Port Botany’s growth, is around $11 billion in direct support – more than $27 billion in broader transport upgrades. The spending is mostly on roads because rail is a lost cause at Botany. The longest train they can fit into Port Botany is 640 metres – but truly efficient port trains are over 1.2 kilometres and the best are up to 1.8 kilometres long. The east coast container ports understand their predicament:

As the global trade system scales-up, our east coast container ports are stranded assets. They rely on trucks and I doubt they have the social licence to put increasing container volumes on the roads. In a city such as Sydney, the traffic congestion is already famous – where will all the extra trucks go? Botany’s container trade will double by 2040.

I didn’t come here today to disparage other ports – in the four months I’ve been in this job I’ve been adamant that the plans for Port of Newcastle’s container terminal are about joining the world – not about competing with Botany.

Australia has to be part of the global trade networks – it has to drop its parochialism and invest in scale and productivity, because the countries that accommodate the Maxi container vessels will enjoy the world’s lowest freight costs.

The world is shifting from a system where many ports could handle ships of around 5,000 TEU – to a system where there’ll be a Tier One network of Maxi ports, and daylight second. The Tier One will service ships over 15,000 TEU, while the rest of the ports will be in Tier Two – with:

Just as the Airbus A380 forced airports to commit to future infrastructure, the Top Tier ports – many of them our trading partners – are forging ahead with facilities for the very large vessels.

Over $4 billion has been spent so Maxi vessels can use New York and New Jersey’s container terminals – the upgrades included raising the Bayonne Bridge by 64 feet.

Then there’s upgrading of the Panama Canal to allow passage of 15,000 TEU vessels – it cost over $5 billion.
Port of Long Beach has spent $1.5 billion to make it ready for the Maxis.

Port of Los Angeles has deepened its channel, automated its handling equipment and added a fleet of large quay cranes.
Port of Singapore has invested almost $3 billion in new berths and automated cranes to handle the Maxis.

Unfortunately, Australia’s three east container ports will NOT be taking the Maxi ships – at least there’s no viable plans to do so. This means Australia will be in the Second Tier of container ports. And that’s something we want to remedy with a Container Terminal at Newcastle.

Australia’s trade figures support our Container Terminal.

In 2018, Australia’s total throughput of containers will be over 8 million TEU. We’ve had an 11 per cent growth in Australian container volumes in the past 12 months.

And we don’t see our Container Terminal as competition for Botany – our catchment is regional New South Wales.

The Hunter Region has a larger economy than Tasmania or Northern Territory, and NSW north of Sydney is growing strongly, on the back of industries such as coal, wine, and agricultural exports – as well as advanced manufacturing, food processing, defence industry and high-tech services. Deloitte Access Economics – in a recent report – estimated that the existing potential from Northern NSW was around half a million TEU, growing to more than one million TEU in 2050.

But we’re also global. Just look at our coal business. We have an outward-looking view of the container trade. A Newcastle container terminal will be benchmarked to Singapore, Los Angeles, Shanghai and Tauranga in New Zealand. Yes, I said New Zealand! I will come back to that. We start with natural advantages:

Our development plan is costed at approximately $1.8 billion in private investment involving 11 quay cranes. Our best-in-class stevedoring operation will feature:

Building a fit-for-purpose container port means a terminal that is built around Maxi vessels and rail – the two most efficient transport modes. We will run the most productive container terminal in Australia with the lowest carbon intensity. Most important – our port will give regional NSW a way to access the lowest container charges in the world.

There is also the carbon benefits of these ships. Currently our attention is focused on the emissions from electricity generation – but when emission targets are directed at transport, Maxi ships will be the way to trade. Transport carbon intensity is measured in the grams of carbon emitted to shift one tonne of freight: 47 grams are emitted to shift one tonne by truck; and just 3 grams of carbon are emitted to move the same weight on a Maxi container ship.

We believe these are the final days of a carbon-intense freight task. The older, smaller container vessels we’re trading with have relatively inefficient engines and most of them use bunker fuel which emits sulphur oxides. From 2020 the IMO will restrict the use of bunker fuel – and Australia is likely to sign-on to this standard.

The carbon intensity of trucks is also a problem – the way forward is container terminals built around low-carbon rail. However, the immediate demand for business is for reduced freight costs.

The choice is simple: join the Tier One container shipping networks, with low slot costs. Or stay where we are with high slot costs. You’re all in business – which one would you choose?

The highest-volume container route in the world is East Asia to North America. However, some of these vessels go AROUND the Pacific, from China and Japan, to Los Angeles, to Chile, to New Zealand and back to East Asia. Australia’s East Coast could capitalise on this route if we had the ports to handle the big vessels.

This is one of those times where we can say: if we build it, they will come. The container vessels are already big – the reason they aren’t here is there’s nowhere for them to come.

To those people who want to get into parochial squabbles, I say: Look out the window – the world is moving on without us.

I started with a Danish maritime story that warns us about being overtaken by the future. Here’s another cautionary tale.

In our part of the world, there is only one port taking container ships greater than 10,000 TEU. It isn’t Botany, or any other Australian port. That port is Tauranga – a deep-water port about 200 kilometres south of Auckland. This port takes vessels up to 11,500 TEU. These size vessels are calling weekly at Tauranga, which means New Zealand is connected – with frequency – into China, the United States and South East Asia with lower costs of trade. As the size of the vessels increase, the costs come down – and businesses and households benefit. Or should I say, New Zealand businesses and households benefit.

We think it’s obvious – the future of world trade is size, frequency and scale. Port of Newcastle can be part of that future – and so can Australia. But we have to build it – or they won’t come.

Thank you.

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