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POA Speech by Chief Executive Geoff Vazey


Ports of Auckland Half Year Results Announcement Tuesday 15 February 2005

Speech by Chief Executive Geoff Vazey

Welcome to the Port of Auckland once again.

Volumes

Container volumes for the six months were down 5% to just under 327,000.

These volumes were affected by factors that we have announced previously – the loss of a shipping service in February 2004 that had accounted for 8% of our volumes, the four-day strike in September 2004, and the disruption to shipping in November and December 2004 caused by congestion on the West Coast of the US.

Full import and full export TEUs held their ground, both down just 1% to 128,900 and 87,300 respectively. Transhipments were hit hard by the congestion in the US and took the major impact.

As we said at the time we lost the NZAX shipping service a year ago, volumes will suffer initially but we will make up ground over the medium to longer term with market initiatives and underlying growth.

The Company is responsive to market changes. Over the period we have: Worked hard to help our shipping line customers grow volumes through Auckland, with good results. Proved our ability once again to match costs to market demand. Gained significant new shipping services, and Improved our service offering for Auckland import containers.

Also, our experience that not all cargo volumes involved follow shipping changes has held true.

Breakbulk volumes

Breakbulk, or non-containerised cargoes, increased 11% to 2.4 million tonnes for the six months. Imported vehicles continue to make an important contribution and we see no let-up in this trade.


New shipping services

The exciting news is the announcement of three new shipping services that will boost our container volumes by over 35,000 TEUs a year.

Just before Christmas, Maersk Sealand announced that its Oceania Service would call at Auckland on its southbound leg from the US and Central America. That service is now under way.

Then Mediterranean Shipping Company announced that a new two-ship service will call weekly at Auckland from March or April. This will enhance the trans Tasman services available via the Auckland Port. It involves 52 additional ship calls a year at Auckland.

Then CP Ships announced the restructure of its trans-Tasman roll-on roll-off service, which will result in the service leaving Tauranga to hub on Auckland from next month.

Further to that, shipping services that were reconfigured to avoid congestion in the US, causing us to lose 1,000 TEU per month since November, are returning to normal.

While we face some uncertainty until P&O Nedlloyd announces a decision on whether it will move further volume from Auckland or move Tauranga volume to Auckland, we are confident that we will continue to grow volumes over the longer term irrespective of the outcome.

As you are aware, there is a disagreement between P&O Nedlloyd and Ports of Auckland over the interpretation of certain contract provisions. The sum in dispute is $850,000 and is fully provided for.

Ports are a long-term business. Periodic wins and losses between ports are a reality of the container business. Care needs to be taken not to undermine a port’s long-term viability by focusing just on the short term.

Shipping services do not operate in isolation and when one shifts other lines are quick to move into a perceived gap in the market. Some of the recent new services bear witness to that.

Strategy

Our business environment continues to change, largely in response to global trends.

Entire supply chains are in competition with each other and a port’s competitive edge is increasingly found in its ability to contribute to smooth cargo flows along the supply chain in which it participates.

Ports of Auckland has a clear strategy to achieve ongoing growth.

We are:

Delivering innovative logistics solutions both inside and beyond our port boundaries. Delivering superior service at the seaport. Ensuring that we have the required capacity and capability to serve our customers many decades into the future.


Logistics solutions

United Containers Limited (UCL)

Empty containers are a significant part of container supply chain costs. The movement of empty and full containers is inextricably linked.

The vast majority of imports come into Auckland and this is where the pool of empty containers originates. Our investment in the container depot business, as announced by the Chairman, will provide improved logistics solutions.

We are already in container depot activities at the seaport. This acquisition takes us into inland depots.

UCL is a sizeable container depot business with operations in Auckland, Napier, Wellington, Christchurch and Tauranga, as well as in Fiji. UCL also carries out container depot activities on-site at our Auckland container terminals.

The investment is a good strategic fit. It moves the Company into greater depth in the supply chain.

Wiri inland port – Development of our new inland port at Wiri is on track and it will begin operating soon. Toll Rail will run a rail shuttle service, as I announced at our Annual Meeting in October. Truck shuttle operators will also be involved to optimise service flexibility. Some customers are already confirmed, and other cargo owners and the freight community have shown keen interest.

East Tamaki inland port – The operation is continuing to attract trade, with record volumes and several new customers on board.

Prioritising of import containers – Same-day or overnight delivery to local importers is giving us a significant competitive advantage. Containers are often being delivered to local importers the day the ship berths. It is important to note that only imports through the Port of Auckland enjoy this level of service. We are enhancing this arm of our business.

Delivering superior service at the seaport

The requirement for excellent service at the seaport is a given.

Axis Bledisloe now has a fourth crane, transferred from Axis Fergusson during the period. This allows ships to have up to three cranes working them simultaneously. New container depot and ancillary businesses have been added at Axis Bledisloe to increase our value-added content. These have attracted the business of three shipping lines in only the second month of operation.

Productivity – Both terminals continue to achieve high productivity as a matter of course and repeatedly demonstrate their ability to handle peaks.

At Axis Fergusson, a record 3,540 containers were moved in one 24-hour period during November.

A key global shipping line customer has recently provided us with data that proves once again that Auckland has the highest productivity levels among eight New Zealand ports. The second-highest port was 25% behind Auckland, which is a large gap.

After-hours trucking – Nearly 40% of all containers trucked to or from the seaport are transported after hours, resulting in smoother container flows.

After-hours rail – Our rail exchange is working through the night when required and volumes will build further when the Wiri inland port is brought into operation. Axis Rail is well equipped to handle three times its current volumes.

Ensuring capacity and capability into the future

Careful planning ensures that the Company always has capacity.

Dredging – Work began on the main contract to deepen the commercial shipping lane in the Rangitoto Channel. Auckland is an all-weather port and when dredging is completed, large vessels will be able to access the Port at virtually all states of the tide.

Terminal extension – Work continues on Stage One of the Axis Fergusson extension.

Reefer capacity – Stage two of the $4.5 million refrigerated container facility at Axis Fergusson was completed in December, giving the Port a total reefer capacity of 1,800 TEU. Completion of the terminal extension will provide further reefer capacity.

IT capability – An extensive upgrade of our IT capability continues so that we can continue to roll out advanced e-commerce products for customers and to make further systems enhancements.

People

We have a committed and highly skilled workforce that works hard to achieve the high levels of service and productivity demanded by our customers.

In December, we finalised a collective employment agreement with the Maritime Union of New Zealand that will provide a basis for further improvements to customer service. We suffered a four-day strike in the negotiation process but we got back on track quickly. Our relationship with the Union is constructive.

POAL in strong position

We are in a strong position to attract container volumes that may be repositioned as a result of market changes. Our delivery advantages include:

Very good Port infrastructure.

High customer ratings for our service delivery.

Spare container-handling capacity and enhancements to handle volume increases mapped out over several decades.

Advanced refrigerated-container facilities and technology.

The lowest-cost supply chain for the majority of the North Island’s import cargo.

The lowest impact solution from an environmental standpoint for the container import market.

Good transport infrastructure, with roading improvements under way to enhance access to the seaport, and spare rail capacity.

The future

Our strategy is clear and we are focused on achieving against it.

The recent shift of shipping trades to Auckland is significant and very encouraging. If we lose some services we will attract others.

We are determined to succeed in our service offerings to customers and in our returns for shareholders.

Thank you

End

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