Ports of Auckland vehicle needs

Postscript: I adopted a fairly cautious tone when I wrote this post, as I hadn’t really had a chance to go back and check my thesis modelling and see how my results compared to NZIER’s. Now I have, and my (rather mechanical) modelling shows 155,000-190,000 vehicles imported into the country each year, based on typical assumptions around population growth and vehicle scrapping. Even using more bold scrapping assumptions, there’s still only up to around 210,000 vehicles a year. As such, I believe that NZIER’s forecasts are very high – definitely “at the upper end”. I imagine they got there by assuming that “vehicles per capita” continue to increase well into the future, which seems unlikely.

NZIER have published a report for Ports of Auckland Ltd (POAL), claiming that the port will eventually run into capacity constraints and that it’s important to plan for expansion now. I don’t necessarily disagree with that conclusion. However, one of the forecasts in the report looks quite bullish, and that’s the number of “light vehicles” (vehicles under 3.5 tonnes) that will be imported into the future.

It’s an important forecast, since the report notes that vehicle imports make up 45% of POAL’s imports by weight, and no doubt more than that in terms of space taken up, time to process and so on. “The dominance of vehicle imports for POAL is suggestive that these are a key driver of any capacity constraints… [and they] need to be temporarily parked for processing using wharf space”.

NZIER predict that vehicle imports will rise well above historical levels in the 2020s and 2030s:

Light vehicle imports have grown rapidly since 2010. Growth has been supported by the replacement of ageing vehicles that some people deferred in the recession and a high exchange rate. Light vehicle imports have already exceeded the forecast for 2041 made in the PwC upper North Island port study (2012b). They are projected to increase by between 19% to 46% by 2025 and to continue to grow over our forecast period with ups and downs reflecting natural replacement cycles in the vehicle fleet (see Figure 5).

The upper bound projection in Figure 5 assumes POAL maintains its current market share and the lower bound assumes its average market share since 2007. Vehicle imports are heavily concentrated in POAL (around 90% of vehicle imports). This reflects the fact that Auckland is New Zealand’s major market and the focal point of vehicle wholesaling, refurbishment and distribution. This is unlikely to change in the foreseeable future.

So, there isn’t really any of what we call “sensitivity testing” here – NZIER presumably make a single forecast for the total number of vehicles being imported into New Zealand, and then take a higher percentage (the red line) or a lower percentage (the blue line) which is assumed to be Auckland’s share of those vehicles.

Incidentally, here’s what the historical trend looks like for the whole of New Zealand, based on data from NZTA:

We can see here that vehicle registrations (pretty much identical to imports) were close to an all-time high in 2014, having previously reached this level in the heady days of 2003-2005. As NZIER note, there was a strong recovery from 2010 onwards, following a major dip in the recession/ GFC years.

I should also note that the actual figure for 2014 was higher than the NZIER forecast (they predict around 180,000, whereas the actual for NZ was around 260,000, and 90% of that would be 230,000 for POAL). So that figure at least is conservative.

What are the assumptions that go into this model?

The econometric model used to create our forecast takes into account:

• The ageing of the light vehicle fleet, including scrapping or retirement of vehicles
• Population growth, including taking into account net migration
• The propensity of different age cohorts to purchase vehicles (revealed preferences of households)
• The effect of increasing incomes as gross domestic product grows
• City density and public transport use (these can reduce car use, and potentially car ownership in some instances).

The first bullet point is an important one, and scrapping is hard to predict – it was very low in 2014, for example, despite plenty of new cars being added to the fleet. Many cars in NZ were made around 1996 – often imported second-hand in the early 2000s – and those are getting to the end of their lives. Will they all be replaced, and with new cars or used imports?. This is a source of uncertainty for any forecasts, and could be explored with different scenarios. My own feeling is that some of these cars won’t be replaced; we could very well be looking at “vehicle saturation”, and this could lead to lower vehicle imports.

The number of “vehicles per household” has tended to increase in the past, and NZIER note that “vehicles per household increased 0.1% per annum between 2006 and 2013, despite a very sluggish economy and medium household income growth of only 0.6%”.

Figure 7 shows that vehicle ownership rates across New Zealand are back on the rise as the economy recovers. Ownership rates relative to the population fell during the global financial crisis as people put off major purchases, but have begun to grow again. Vehicle ownership trends are a good indicator of demand for vehicle imports.

But the concept of vehicle saturation – a tailing off in cars per household (or per person, or however you want to measure it) is well established now, being observed in most OECD countries. The number of vehicles per household has now stabilised, or is even falling, in many countries.

I should also note that NZ already has more vehicles per household than almost every other country in the world, with the exception of the US and a couple of others. And what’s happening in the US? From this link, which we’ve covered in previous posts:

Anyway, I certainly don’t have an issue with the port’s need to plan ahead, figure out how much capacity it needs and future proof its ability to provide that capacity. That’s all fine, and the potential effects on other harbour users can be debated by the council and Aucklanders. But forecasts like this are quite uncertain – they depend on the assumptions you put in, including things like what fraction of cars entering the fleet are going to be new and how long they’ll last, and how many cars households will want. There should be some exploration of the uncertainties around them, and ideally a range of possibilities should be discussed. This forecast is just one possible outcome, and it seems to be at the upper end. If that’s the case, then it probably makes the port’s situation look a bit more urgent than the reality.

Share this