Costs of freight transport - FAQs

Examining the costs of freight transport is part of the Understanding Transport Costs and Charges (UTCC) project (phase two). This page has some frequently asked questions about the costs of freight transport.

Is there any linkage between the UTCC project and the International Freight Transport Services Inquiry to be carried out by the Productivity Commission?

The UTCC project aims to update knowledge of transport costs and charges for the road, rail and maritime sectors. This project looks at both people and freight movements. The Costs of Freight Transport sub-project looks at the role of transport costs in freight logistics, how selected pieces of legislation affect freight transport costs and how infrastructure costs affect freight transport.

The Productivity Commission inquiry into international freight transport services will evaluate “the factors influencing the accessibility and efficiency of international freight transport services available to New Zealand firms and opportunities to increase the accessibility and efficiency of these services”. To do so, the inquiry will involve a more in-depth review of costs, productivity and the effectiveness and efficiency of the existing regulatory regimes for international freight transport services.

What does the UTCC paper on Transport Costs in Freight Logistics cover?

During March and April 2010, the Ministry interviewed representatives from ten key businesses and industries to better understand the relative importance of domestic and international transport costs in freight logistics.

The Transport Costs in Freight Logistics paper provides a quick overview of the literature on total logistic costs and summarises the results of the business survey, to enable a better understanding of the role of transport costs in freight logistics.

What are the key factors that businesses consider as important when selecting transport modes and transport service providers?

The top five factors respondents considered the most important were:

• the cost of service provision
• reliability of delivery
• flexibility
• freight safety and security
• customer service

What are the logistics costs of freight transport for New Zealand businesses?

According to the business survey, total logistics costs represent around 8.4 percent of total turnover, on average.

In terms of share of total logistics costs by expense item, transport costs amount to 47.8 percent for international transport and 12.1 percent for domestic transport. Costs associated with customs and bio-security represent around 21.3 percent. Warehousing, port charges and logistics administration make up the remaining 18.8 percent.

What does the UTCC paper on Legislation and Freight Transport cover?

In the follow-up business questionnaire, participants were asked to identify the key pieces of legislation that have an important influence on the efficiency and effectiveness of transport logistics.

The Legislation and Freight Transport paper summarises the key pieces of legislation that affect the freight transport sector and explores the impacts of this legislation on freight transport costs.

What legislation did businesses perceive as having important influences on supply chain efficiency?

The surveyed businesses identified three pieces of legislation as having an important influence on the efficiency and effectiveness of transport logistics. They are:

• Section 198 of the Maritime Transport Act 1994
• New Zealand taxation for coastal shipping operators
• Emissions Trading Scheme

What are the effects of the Maritime Transport Act 1994 on coastal shipping?

The analysis found the legislation does not have any obvious impact on the size of the domestic coastal ship fleet but has increased coastal services availability and price competition. While the overall ship fleet has remained relatively static, there have been increases in inter-island and general cargo services. In 2009, foreign vessels provided just over one-third of direct port-to-port weekly visits as well as a similar proportion of twenty-foot equivalent unit slots. Freight rates have also seen a 25 percent reduction for certain routes.

However, such effects are limited by the interest of foreign carriers in meeting long haul freight schedules and the demands of freight owners. The New Zealand policy framework also limits the routes and level of services that can be operated by foreign carriers.

What are the effects of taxation on coastal shipping?

Lower wage rates for non-New Zealand seafarers, coupled with the tax obligations for New Zealand operators (including corporate, income and non-resident withholding taxes) and the tax incentives provided by overseas jurisdictions means international shipping operators are able to undercut New Zealand shipping operators on coastal shipping freight rates.

However, the impact of taxation on competition is not dissimilar to that of the import of goods and other services. In both cases, locally produced goods and services are subject to local cost levels and tax requirements, while imported goods and services are subject to foreign cost levels.

Furthermore, international shipping operators are subject to the Maritime Transport Act 1994 on coastal shipping, which limits the routes and level of services that can be provided by these operators.

What is the cost implication of the Emissions Trading Scheme for the freight transport sector?

The New Zealand Emissions Trading Scheme (ETS) is a means for meeting our international obligations around climate change. Under the ETS and the current carbon price of NZ$12.5 per carbon dioxide equivalent emission unit, the freight sector will face an additional cost of around three cents per litre of fuel consumed.

The analysis found that the ETS adds an average of $0.86 per 1,000 net tonne kilometres to coastal cargo movement. For road freight transport, the ETS adds around $1.32 per 1,000 net tonne kilometres to vehicle operating costs. The additional cost of the ETS for rail is the lowest, estimated at $0.45 per 1,000 net tonne kilometres.

What is the purpose of the 2011 Freight Charge Comparison Report?

The purpose of this study is to obtain a snapshot of the financial costs faced by low volume importers and exporters on:

• international ocean freight transport and related charges
• domestic freight transport and related charges by mode

What is the scope and methodology used in the 2011 Freight Charge Comparison Report?

To enable a broader freight comparison, this study looks at the freight costs for the movement of several commodities and regions. The comparisons are based on 20-foot full container load shipments and include all ancillary charges such as customs and biosecurity fees. This study only provides a snapshot of the current charges, which may be subject to changes as the supply of and demand for shipping services change over time. 

The information was collected based on a series of telephone interviews and conversations conducted by Pacific Logistics Limited during early to mid July 2011.
 
Around 40 organisations were contacted. These included international and coastal shipping lines, freight forwarders, KiwiRail, customs agents, road haulage companies, port companies and government departments (New Zealand Customs, New Zealand Food Safety Authority and Ministry of Agriculture and Forestry).

What are the key findings of the 2011 Freight Charge Comparison report?

The key findings of the report are as follows.

• International ocean freight charges are not directly proportionate to distance because they are affected by the level of competition and the needs to relocate container boxes.
• Domestic land charges for imports are generally higher than for exports, reflecting the difference in customs and biosecurity clearance, documentation and other administrative requirements. In total, customs and biosecurity related charges (including services charges imposed by freight forwarder agents) represent between 5 and 11 percent of the total international freight transport costs for low volume cargo owners for the selected destinations.
• Domestic transport costs (especially road transport) between Auckland and Christchurch is higher than some international ocean freight costs (eg to Australia and Asia). This shows the importance of location decisions and the ability to ship cargo to and from the nearest port to reduce the needs for moving cargoes around the country.

Are the findings from the Freight Charge Comparison report and the Transport Cost in Freight Logistics report directly comparable?

The findings from the two reports are not directly comparable due to the following reasons.

• The Transport Cost in Freight Logistics report was based on a business survey conducted during early 2010. This report summarised the average costs based on the actual cost incurred by the surveyed large volume importers and exporters. The 2011 Freight Charge Comparison report summarised the average standard freight rates for low volume importers and exporters. Large volume freight owners can negotiate a volume discount of between 10 and 50 percent of the standard freight rates. As the freight rate reduces, the relative importance of other cost components increases.
• The Transport Cost in Freight Logistics report presents results including duties (but exclusive of goods and services tax) and any overseas customs and biosecurity charges payable by freight owners. Due to the accounting practice adopted, the respondents are unable to separate the official customs and biosecurity fees from other related charges. The 2011 Freight Charge Comparison report excludes duties and goods and service tax.
• The business survey includes the results of primary produce exporters, including a company that uses chartered vessels. The use of chartered vessels can have some influences on port charges as well as customs and biosecurity related charges.