I have written in BayBuzz previously on the shortage of sea containers and the choked-up supply chain we are facing.
Unfortunately, the situation has not improved in the last six months and is not expected to get better by the end of 2022.
With the upcoming season (summer and autumn 2022) not that far away, it is a given that there will be a shortage of refrigerated containers available for exporters of fruit, meat, dairy, and vegetables.
This is exceptionally important to the Bay as the major producer and export region for apples and a large meat, vegetable, and associated products grower.
So, what can be done?
To a degree Hawke’s Bay is at the mercy of the shipping lines and the services and containers they put into the area.
I have had several exporters of apples I have worked with over the years call me as to why they cannot get containers or space bookings on vessels for the last shipments of their 2021 season. They have also asked why Fonterra and meat companies are being allocated supply before apples.
It is not that long ago that we would see pallet-loading refrigerated vessels call Napier on a regular basis.
These vessels, known as ‘reefers’, were full of meat, apples, kiwifruit, dairy, seafood and plied the trade between New Zealand and the USA, Canada, and UK.
These reefers worked in opposition to, but alongside container lines. This brought a degree of balance to the trade and kept a lid on freight increases due to competition.
The vessels were chartered in by ship brokers or by exporters large enough to charter their own vessels. The vessels that delivered product to the west coast of the USA brought back South American bananas to New Zealand and some vessels coming back from the UK shut down their refrigeration and loaded machinery and vehicles for buyers and importers in New Zealand.
What happened to the charters, these refrigerated workhorses?
They still move around the world in good numbers, but due to the consolidation of the meat industry and the muscle of the large container lines they found it uneconomic to come to New Zealand with regular services.
Zespri however continue to fill vessels to Europe and the USA during their season on a regular basis. These vessels are predominantly loading at Tauranga/Mt Maunganui and are exclusively chartered by Zespri.
Reefers for the Bay?
Can Hawke’s Bay exporters charter vessels for the 2022 season to relieve the pressure brought about by the lack of containers and unreliable services?
Yes of course they can, however there are profoundly serious considerations that must be undertaken before a charter party (contract for chartering) can be signed.
Chartering is the ultimate take or pay contract. You book the vessel; it sails halfway around the world to get here; then if you do not fill it up you pay for it anyway.
Exporters are starting to see this from container lines during the current environment. If you book a container and then do not uplift it or deliver it to the vessel, lines are charging penalties for non-performance. They can do anything they like when containers and shipping space is at a premium!
There are also logistics and arrangements needed for a charter vessel at the load and discharge ports. Not every port
overseas or in New Zealand can manage charter vessels and there are several support parties that need to be contracted to ensure the load and discharge goes smoothly. If the vessel is too long in port, then owners of the vessel may charge a fee per day for the delay. This can be in the thousands of dollars!
Apple exporter shipping history
Hawke’s Bay apple exporters have a poor record in meeting obligations when it comes to shipping space.
They had the opportunity for their own seasonal service following deregulation, but were not prepared to take the risk of ‘take or pay’ by committing to a contracted number of tonnes or pallets for each vessel chartered in. Consequently, the only alternative was to ship in containers, and this resulted in a “one horse race” and we end up with today’s scenario.
Exporters of apples would need to appoint a chartering ‘independent’ to run their charters as a history of using one of their own tended to raise questions as to who was looking after whom. They will, of course need to remunerate an independent manager.
I participated in an independent apple shippers’ group which pooled shipping space on container vessels. The shipping rate was the same for all parties irrespective of size, but if an exporter met contracted volumes there was an incentive paid per container. Rates were averaged out to flatten out the high rates charged by some lines by using lines with cheaper rates.
Multiple exporters signed up to this, but failed to meet the volumes promised, sometimes falling short by fifty percent or more. Of course, they argued they should still receive their incentives!
With the mistakes from the past now known and the unregulated industry (apple) now matured to some degree, a chance to do this once again is here.
In my opinion, a regular service of reefers alongside the container offerings would be the best way to go, ensuring that the balance was there, but also using the reefers to move the peak tonnages mid-season.
Other perishable exporters
Why Fonterra and meat companies receive preference over apple exporters (and onion exporters too) is a matter of commercial power. Dairy and meat are 12 months of the year exporters, and their volumes are massive. The apple industry is seasonal and traditionally pays lower rates of freight.
Zespri have a quite different shipping season to apples and previous attempts to combine the industries in shipping negotiations have not proceeded. Contracting to have apples as a partner on charter vessels has no commercial advantage to Zespri who ship in months where little other produce moves and consequently kiwifruit enjoys competitive rates.
Napier Port and Government help
Napier Port is flexible enough to cater for chartered reefers and has done so in the past fairly well. The port has cool stores albeit with a road separating the store and the wharves.
Government assistance is another area that has not, as far as I know, been fleshed out in the current environment (as if they have not got enough on their hands!).
Air New Zealand and the forwarding community to get seasonal charter flight to move perishable exports during the last summer.
It would make sense for the Government to invest in Reefer time -charters (vessels chartered for an agreed period) on behalf of perishable exporters and have this run by an independent chartering manager. This could be the catalyst in diffusing the pressure points coming next summer.
If we don’t move in this or a similar direction, we could see full Hawke’s Bay cool-stores early in the season and, as a worst case scenario, product rotting on trees, not from no RSE’s but because there is nowhere for it to go!
Food for thought.
A licensed customs broker by trade, Murray Painter has years of experience in international trade with a focus on perishable products. He is a former chairman of Export Hawke’s Bay.