PORTS PONDER FONTERRA'S CALL

It has been set up with business collaboration strategies between New Zealand's largest shipper, the country's only railfreight operator, and with input from the core global shipping lines that form the shipper's preferred key suppliers.

So, the deal inevitably throws down the challenge - or opportunity - for the competing container ports of Auckland and Tauranga to work with Fonterra and the key shipping carriers, and to demonstrate that their business strategies go far beyond the mere transactional.

Fonterra is looking for business plans that are sustainable both commercially and environmentally, and that demonstrate an ability to provide for the needs of its landside suppliers. Predominantly, that means wharf rail connections, planning for growth in the container marshalling and transfer areas, and ensuring that inland terminals have provided for anticipated future volumes.

This adds to the challenge for the port companies. In this business environment, they are not selling their services one-to-one with a single shipper. They are buying-into a business environment which requires a multi-faceted rapport with others in the shipper's supply chain.

The basics are that Fonterra will build a 50,000 metric tonne dry dairy store on a site next to the main trunk rail line and close to a major dairy plant, near Hamilton. This places it in the heartland of the Waikato/Bay of Plenty dairy-producing area, central to Fonterra's major North Island supply points.

Toll will develop an adjoining "freight village", encompassing a container-rail transfer terminal, container depot and a truck distribution/receival area. The operation will be up and running by mid 2005 and will establish rail as the predominant form of dairy transportation in the upper North Island.

Behind the announcement lies years of careful planning, and several key initiatives both by Fonterra and Toll. Strategically, the running was made by Fonterra (then the NZ Dairy Board) five years ago. The Board gave sea carriers a clear message that strategic thinking was going to be of vital importance into the future, and that it would soon be insufficient for carriers to concentrate purely on the day-to-day business of working out available container slots for the next couple of sailings.

What it wanted was a longer-term focus to plan its transport and logistics business and be confident that its chosen carriers would develop the service patterns and tonnage requirements to handle that business. The overall goal was to look five years ahead, to forecast business needs and then to pursue strategies (such as relationships with carriers) to achieve those goals. A key appointment was Nigel Jones, with the brief to encourage carriers to take a longer-term view. Now as Fonterra's general manager logistics, Jones has carried that work through to this point.

From the carriers' perspective, it has been critical to achieve "preferred supplier" status with Fonterra, entering a select strata with whom the dairy giant would talk "strategically". Some carriers undoubtedly found the change hard to make. But for those who fitted in with this strategic direction, perhaps the rewards are now coming through.

Another strategic beneficiary has been rail, where Toll's takeover of the rail business and Government investment in the track infrastructure has paved the way for Fonterra to place its faith in the rail mode.

EQUIPMENT INNOVATIONS Toll too has joined in this collaborative approach, adding its own logistics initiatives to work in with Fonterra's long-terms aims. One of the first innovations was the TSM, a 25ft side-opening container specially developed for the dairy industry that offered Fonterra a new, much more cost-effective and efficient method for moving dairy products domestically between factory and either pack point or storage. The TSM is unique in that its internal dimensions have been tailored to the special pallets used by the New Zealand dairy industry, meaning that much more product can be loaded on rail.

Two 25ft containers maximise all the available space on a rail wagon, providing about 20% extra capacity compared to traditional ISO equipment on the same wagon. Every wagon equates to one and a half truck and trailer road units. In addition, because a rail wagon can be loaded up to 56 tonnes, twice as much weight can be put on a wagon compared to a truck.

Dairy product is loaded onto the TSM in palletised form and can be double-stacked, leading to much faster unloading at the centralised dairy store, where it is consolidated into the export containers. This has the potential to reduce labour costs.

Finally, the TSM offers an intermodal solution, so that road bridging can be employed where necessary, with rail still the primary transport mode.

Logistically, the 25ft container is a homogeneous unit allowing consistent load-out procedures to be developed at packpoints. By comparison, each truck can differ with unique tie-down points and load constraints. Importantly, trucks need to be loaded immediately whereas 25ft containers can be stuffed throughout the day before the TSM is loaded on to the rail wagon.

A second initiative was to develop "Herd Chasers" - a network of local train services and shunts that will reach out into the dairy hinterland of Waikato and Bay of Plenty and pick up product from key factories and drop off empties on a daily basis. This involves a combination of existing services, new local shunt services and new site-specific shunts. A new section of line has been reopened to accommodate this and is the first piece of rail track commissioned in New Zealand for 14 years.

The final piece of the jigsaw is the creation of the dry store and container terminal at Crawford Street, as the central hub for collection and distribution of dairy product. This gives Fonterra and its shipping line suppliers much greater flexibility in the final port selection.

Currently, Fonterra uses stores leased from the port companies in Auckland and Tauranga. Product is usually roaded, often in palletised form, and is packed at the port facilities. That split of storage and packing capability between two ports commits Fonterra to using the ports in question for particular shipments. It is undesirable, once product is at port A, to ship it from anywhere but port A.

The new arrangement will see palletised product go into the central, port-neutral store and be packed into containers. Those, and the full deliveries to the terminal, will connect with the mainline trains to whichever port is concerned with that particular shipment.

This leaves the final key question - which port gets the major volumes? Factors that will come into play in determining the final outcome include the ability to demonstrate the port can handle the immediate rail volumes being discussed, can work in with Toll's needs and has the infrastructural capability to handle growth in rail volumes.

Growth not only projected for the next five years but the next 20.

Each port has to look at the matrix of rail moves in total, including the supply of empties and ensuring profitable train backloading, in assessing the cost/revenue base of the overall supply chain package.

It is also something the shipping carriers and Fonterra will be aware of, and something they will bear in mind when talking of an overall volume-based export package with the respective ports.

Now, the focus over the coming months will switch to the ports and to Fonterra's preferred shipping carriers. Who will be the winners and losers? There can be expected to be some frenzied activities behind the scenes over the next few months.