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export growth in 1H suggests economy in not too bad a shape

Port of Tauranga's Cairns says export growth in 1H suggests 'economy in not too bad a shape'

By Jonathan Underhill

Feb. 23 (BusinessDesk) - Port of Tauranga chief executive Mark Cairns says the 9.4 percent growth in export volumes from New Zealand's biggest port suggests the economy "is in not too bad a shape" as log and dairy shipments rise alongside an increase in farm inputs.

Cargo volume growth drove a 13 percent gain in the port's first-half profit to $47 million and the company raised its full-year profit guidance to a range of $92-$96 million from an earlier forecast of $88-$92 million. That would be an increase of as much as 15 percent from 2017's $83.4 million. The port company's shares jumped 3.8 percent to $5.18 and have gained 17 percent in the past 12 months.

Total trade rose 13 percent including a 16 percent increase in container volumes to 590,803 TEUs (twenty foot equivalent units) and Cairns today forecast full-year volume to reach 1.2 million. Import volumes rose 21 percent, led by increases in grain and dairy feed supplements, while exports rose 9.4 percent, led by a 13 percent gain in log volumes. Strong demand for logs in China and record prices drove volumes up 3.3 million tonnes in the first half. Other forestry-related exports gained 2.6 percent to 1.1 million tonnes.

Imports of grain and feed supplements jumped 35 percent, which Cairns said is an indication the dairy sector "is in stronger health." Fertiliser imports were up 3.1 percent and Cairns said that more modest growth may reflect higher rainfall or seasonal fluctuations in use.

The company also said it had an increase in imports of cars and other vehicles, including some which are then railed to Auckland. Ports of Auckland, which is hemmed in at its CBD site and has long-term options including being relocated to Whangarei, operates its own imported car handling facility.

Cairns said he is reluctant to comment further on the Auckland rival "because ports have suddenly become political again". However, he did comment on transhipments of containers - where Port of Tauranga is increasingly the main export-import facility where smaller ports around the country send their containerised trade flows. Transhipped containers jumped about 48 percent.

"That's the real acid test - Tauranga is New Zealand's international hub," Cairns said.

Almost all of the North Island's dairy production now exits via Tauranga thanks to the tie-up with Kotahi, the logistics company owned by Fonterra Cooperative Group and Silver Fern Farms. The partners expanded their relationship through Coda, a freight-hubbing, warehousing, and transport business.

Coda Group was a black spot, with a 24 percent drop in profit that Port of Tauranga says reflects the loss of a large customer at an empty container depot. Cairns declined to identify the customer but said that business "is very transactional, the customers are very mobile." He expects Coda will win new customers in that business, which includes cleaning and preparation of containers, known as pre-tripping.

Cairns repeated concerns his chairman David Pilkington expressed last year that it didn't make sense for smaller port companies to invest in dredging, as Tauranga has done, to accommodate bigger ships that are likely to want fewer, bigger port visits - the company's hub and spokes plan.

"The Ports Company Act section 5 requires ports and their boards to price and invest to get a cost of capital return," Cairns told BusinessDesk. "I've no problems with other ports getting ambitious but they have to ask, is their cargo big enough to justify a $100 million investment that needs to be able to wash its own face."

The results also included MetroPort Auckland, which had an 8.4 percent increase in TEUs in the first half, while the number of trains between MetroPort and the Tauranga Container Terminal has been increased from 78 to 86 per week to handle the growing volumes.

Cairns said there was still room to increase capacity on the critical Auckland-Hamilton-Tauranga railway route. The line is double tracked between Auckland and Hamilton but only single-tracked on the Hamilton to Tauranga leg. While there was a case to complete the double tracking, it wasn't likely to happen fast.

"KiwiRail has very much got a mandate if there's a commercial case. We're regularly in strategic planning meetings with Rail - like the port, KiwiRail is in long-run infrastructure," he said.

Cairns said the port expects to handle 1.2 million TEUs this year, having broken through 1 million for the first time last year. “We can handle up to three million TEUs annually without any further reclamation," he said, citing Ernst & Young's Port Future Study.

The company will pay an interim dividend of 5.7 cents a share, up 14 percent from a year earlier.



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