Two aviation logistics professionals, a trade specialist and an NZIER economist on how the Southern Link could put New Zealand in the middle of a Global Value Chain

The New Zealand China Council has a podcast series featuring New Zealanders and their business with China. It is here with permission.

The tyranny of distance has been a historic challenge for New Zealand as a small trading nation. But the Southern Link trade route, first proposed by the New Zealand China Council in 2019, could see our geographic distance turned into a competitive opportunity.

New Zealand offers the shortest air route between many major cities in Asia and South America, along with time zone advantages and highly efficient hubbing and servicing. This means that instead of being the last bus stop on the planet, New Zealand could be positioned in the middle of a global value chain, capitalising on the growing airborne trade links between the two continents. 

Research reveals three major benefits to NZ

NZIER economist Chris Nixon has completed the first economic analysis of the potential benefits to New Zealand of the Southern Link, and sees three key reasons to be excited:

The first is the potential shift in the country’s economy from being a producer of raw materials at the periphery of value chains, to becoming much closer to global consumers, generating new opportunities for Kiwi businesses.

The second is the fact that the Southern Link is built on e-commerce trade from online platforms that barely existed five years ago.  He says e-commerce gives us the opportunity to develop sustained links with South America which other trades and services can capitalise on.

Third, the Southern Link increases New Zealand’s overall connectivity, which brings down barriers to trade and generates dynamic innovation, allowing the country to leverage future opportunities that don’t currently exist.

“Connectivity drives the value.  NZIER estimates nearly $1.87 billion could be generated over 10 years, mainly from e-commerce trade but also from tourism, education, exports, and business intermediaries. There are regulatory barriers to be overcome and challenges, particularly for tourism and education, but they're not insurmountable,”  Nixon says. 

How technology and a pandemic are driving the Southern Link opportunity

The Southern Link was already being used prior to the outbreak of Covid-19, with trade flows between Asia and South America having grown steadily for a number of years.  The advent of the pandemic has had the effect of boosting demand, with ecommerce trade one of the fastest growing industries. 

Steve Jones, NZTE's Regional Director for Latin America, says the upswing in online purchasing is the result of a combination of factors - the growth of 4G mobile connectivity, and improved access to bank accounts and financial services.

“In Brazil in 2017, about 60% of Brazilians had formal bank accounts.  Last year, that figure rose to 88%.  What we're seeing is that a lot of social spending has been released to lower income groups, and the only way that people have been able to receive that is by entering the formal banking sector.  They now have accounts, they have the ability to purchase online, and it's generating growth in the e-commerce sector, which is, I think, the second highest in the world, and is set to continue to grow very rapidly.”

Justin Watson, Chief Aeronautical and Commercial Officer at Christchurch International Airport, says the pandemic has upweighted the importance of freight for airlines, meaning that trade routes like the Southern Link are becoming more attractive compared to routes that are predominantly passenger focussed.

“Freight traditionally makes up about 10% of the revenues. Through covid, it's making up around 40 to 50% of revenue.  The forecasts are for freight to sit somewhere between 20-15% of an airline's revenue in the future, so freight will impact network decisions where airlines deploy their aircraft more than it ever has,” Watson says.

NZ’s core advantages - speed, capability and capacity

Lionel Berthe, the Asia Pacific head of global mail and courier company Asendia, says the core advantages of New Zealand as a transit point between Asia and South America are superior capability and capacity - in other words, the route can move goods efficiently, faster than competitor routes, and at lower cost. 

“We could better control the quality of service through New Zealand, just before Covid.  I believe the number one factor that will continue is capability and capacity, because it's a route which is a very, very high growing trade lane in the world.”

While Australia has larger airports than New Zealand, Berthe says size is not the most important factor for large ecommerce or logistics companies when it comes to selecting the best facilities. 

When they are selecting airport hubs, they don't necessarily select the biggest airport in each region.  They want the airport which has the flexibility to address their freight needs, and consistent quality of service for the turnaround.

“That would be an advantage that they would expect from Auckland Airport, and making sure there is less congestion.  The airports that are much bigger and have a lot of passenger flights – this type of constraint can slow down the consistent quality of service and the turnaround through the airport for the freight,” Berthe says. 

And while Asendia found that sending goods via New Zealand before Covid was significantly faster than European routes before the pandemic, Berthe says things will have to move even faster in the future.

“I think now, what we're looking for in the future, what we are going to need after COVID, is a shorter timeframe.   We will be facing competition because of the growing market and the evolution of the needs of the sender, so it will need to be even faster than what we had before,” Berthe says. 

Watson agrees New Zealand’s lack of congestion and availability of slots for aircraft is a major drawcard relative to larger and busier airports in the region that have more constraints.

“You've got a modern infrastructure environment in New Zealand, with no restrictions effectively.  So Christchurch, for example, operates 24 hours a day, seven days a week, there's no curfew, there are no restrictions, so freight operators could operate right through the night.

“If you couple that with a shorter overall distance and more fuel-efficient aircraft, you're getting significant savings for the airline and the operation that will be able to be passed on through the value chain.  If you take, for example, Guangzhou to Santiago, flying over New Zealand is three to four hours faster than going over the Middle East or Europe, which is significant. That equates to about a 12 to 15% reduction in fuel utilisation, which is significant when it comes to the cost of those goods,” Watson says.

Building further opportunities - but we need to move quickly

Nixon says one of the most exciting prospects of the Southern Link is the potential for new opportunities to be created as the route develops.

“In terms of businesses, it could be a free trade zone, for example, where further transformation happens. There could be more services associated with the hub, accounting and legal services.  There are also links with South America which are growing, and our time zone means we can talk to both Asia and South America in business hours.  We’re going to see dynamic innovation, and there are going to be opportunities which exist tomorrow that don’t exist today,” Nixon says.

Watson believes that as well as benefits for sectors like tourism and export education, the route could also help New Zealand rebalance its overall share of imports and exports.

“We currently export two thirds, and we import one third. So if you're bringing in goods from China across New Zealand, to South America, it should increase the overall capacity between Asia and New Zealand, which will have a flow on benefit for New Zealand exporters.”

Watson also points out that with New Zealand at risk of being left off the routes of major airlines as the global network rebuilds, the Southern Link offers a pathway to mitigate this.

“We have seen some airlines pull capacity out of New Zealand that were delivering freight, and have put their capacity onto passenger markets that are opening up around the world. So the risk for New Zealand is that we get left behind. 

“What the airlines need is timing and certainty on border re-openings.  They also need to see commitment from both industry and government around pathways out of this. So we've got this window of opportunity as a country to stand up something like the Southern Link, because at the moment, airlines are questioning where they go in the world,” Watson says.

Watson believes that as the world reopens, we have to move quickly and collectively as an industry and government to send the right signals that New Zealand is serious about attracting airlines, and is making progress to operate as a world class aviation hub.

“To secure an international air service can take three to five years. So when you're sitting there with an opportunity that's got some roadblocks, then airlines will just look at it and go ‘well, there's other options for me’. So it's all about clearing the pathway for them to make an informed decision,” Watson says.

*Rachel Maidment is executive director of the NZ China Council, and a former diplomat and entrepreneur who served as New Zealand Consul General in Guangzhou from 2016 to 2019.  She is a host of the NZ China Council Podcast which can be accessed here.