BUSINESS CASE EXECUTIVE SUMMARY CHANNEL CAPACITY UPGRADE

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2 2 $10 BILLION in trade value Introduction The Port of Townsville is the largest container and automotive port in Northern Australia and last financial year handled around $10 billion worth of trade. As one of the four Priority Ports under the Sustainable Ports Development Act 2015, Townsville Port is an essential component of the State s transport network, connecting communities, regions and industry. The Queensland State Infrastructure Plan recognises that increased movement of freight by sea will require a focus on maintenance of shipping channels to ensure safe and efficient operation of ports, enabling import and export industries to operate and compete in global markets. This includes an increase in containerisation and development of multi-modal hubs, and a recognition that optimisation of port activity will support the State s economy. The Channel Capacity Upgrade is a critical project for the future growth, competitiveness and resilience of North Queensland. The Channel Capacity Upgrade Detailed Business Case delivers on the first major commitment under the Port City initiative of the Townsville City Deal. This summary outlines the direct and indirect benefits of widening the existing navigational channels, with a goal of ensuring growth of trade and maximising the efficiency of existing port infrastructure. Channel widening will provide the safest, most cost effective and environmentally sustainable solution for meeting the freight requirements of North Queensland. Renita Garard Chair Port of Townsville Limited Ranee Crosby Chief Executive Officer Port of Townsville Limited

3 3 BUSINESS CASE EXECUTIVE SUMMARY Project Snapshot ECONOMY $580 million of value to the regional economy with a Benefit Cost Ratio of 2.90 and aggregated benefit over 40 years of $380 million. REGIONAL GROWTH Channel widening will make Port of Townsville a globally competitive port. This will enable the largest city in Northern Australia to import and export freight directly, fuelling job growth, investment and development. TRADE GROWTH Increase the size of container ship accessing Townsville from 2,500 TEU to 5-8,000 TEU ships. This will provide cost savings for goods imported and exported and maximise the capacity of existing infrastructure. JOBS The project will create 120 FTE jobs in Townsville during construction and support 245 FTE jobs in Queensland. TRANSPORT SAVINGS Channel widening will deliver transit time savings of freight for customers in North Queensland of about 17 hours per leg. CRUISE TOURISM Cruise ships carrying >3,000 passengers (up from 1,500) will be able to access the Port of Townsville, allowing growth in Townsville s tourism industry from the world s fastest growing tourism sector. SHIP SAFETY Allow safe access for ships up to 300 metres in length. ROAD SAFETY If larger ships can access Port of Townsville, it will remove up to 8,230 B-Double trucks per year off road highways between Brisbane and Townsville (25,000 TEU s), meaning less congestion and less road accidents. ENVIRONMENT Shipping is the most environmentally sustainable form of transportation; channel widening will reduce trucking and railing of freight between Townsville and Brisbane, therefore reducing emissions into the atmosphere. GLOBAL CONNECTIVITY International shipping lines (with larger ships) will call Townsville if the channel is widened; meaning more services, better transit times and less cost for North Queenslanders.

4 4 Background NORTHERN AUSTRALIA The Port of Townsville, supplies a population of nearly 800,000 people in North Queensland with essential things like cars, fuel, gas, food, furniture, electrical goods, clothing, cement and bitumen. Local farmers export their products like sugar, frozen meat, cattle, fruit and vegetables, and mining company s ship out commodities like copper, zinc, silver, lead and fertiliser. Townsville is THE LARGEST city in Northern Australia Port of Townsville also supports critical Defence operations and cruise tourism in the region, and will welcome more than 33,000 passengers and crew to Townsville in 2017/2018. More than 8,000 jobs are connected to the Townsville Port. Over the past 150 years the Port has expanded in three key stages in response to growth of the region. The Townsville Port Expansion Project is a long term development of six new berths and channel widening and deepening, staged to meet forecast trade demand over the next 30 years. Over the past 40 years ship sizes have grown significantly and are continuing to get bigger. Townsville s channel has not kept up with this growth and is approximately half the width of channels at other major ports. Larger ships are already bypassing Townsville to pick up and drop off freight for North Queensland at capital city ports where they can fit. Cruise lines have indicated they want more vessels to call Townsville, but cannot fit their larger ships through the channel safely. The Channel Capacity Upgrade involves widening of the channels to cater for larger ships. Port of Townsville is THE BIGGEST container and automotive port in Northern Australia

5 5 Executive Summary As one of the four Priority Ports under the Sustainable Ports Development Act 2015, the Port of Townsville is ideally positioned to support increased growth in line with both State and Federal governments objectives. However, trade through the Port is being limited by the capacity of the access channel; should this limitation continue there is a real risk that trade will decline as larger vessels more frequently used to achieve economies of scale in shipping will be unable to access the Port. On 9 December 2016 the Australian Government, Queensland Government, and Townsville City Council signed Australia s first City Deal. The Townsville City Deal is a 15 year commitment between the three levels of government for a collective program of planning, reform and investment in Townsville. A key element of the Townsville City Deal is the Port City Initiative, which states: Townsville will attract employment opportunities and diversify its economy by capitalising on its coastal location, with significant economic activity being generated from port industries. The growth in port industries will be supported by investment in infrastructure. The Port of Townsville is a key import and export gateway to service freight demand across northern Queensland. The Port City Initiative has been designed to: improve coordination and efficiency of transport and logistics activities particularly between the Port of Townsville, national freight rail and major road networks; coordinate major infrastructure projects; and diversify the local and regional economy to improve economic resilience. The Channel Capacity Upgrade Detailed Business Case delivers on the first major commitment under the Port City Initiative. Widening the channel to give access to larger ships will increase useage of existing berth and the demand for additional berths, growing the North Queensland economy BIGGER SHIPS need a bigger channel

6 6 Current Challenge The size of most classes of vessels frequenting Australia is driven by global shipping trends. Port of Townsville s existing channels only allow access for ships up to 238 metres in length and 32 metres wide (in typical operating conditions), falling well below national and international standards. If improvements are not made, Port of Townsville will find it increasingly difficult to maintain competitiveness in national and international markets. The channel width limits ship access by constraining the length and width of vessels that can be accommodated, as well as imposing restrictive conditions such as wind speed and tidal constraints. The narrow channel means that restrictive constraints are placed on many vessels, and others are simply too big to enter the Townsville Port at all. Vessel sizes continue to increase and there is an increasing prevalence for carrier alliances (vesselsharing agreements) and ocean alliances (representing 77% of global container capacity and 96% of east-west trade). For Townsville Port to be competitive, it must be able to accept large alliance vessels to support its population and industry with affordable goods imported and exported in containers. The economic and social growth of Northern Australia must ensure that freight produced in the region is able to cost-effectively get to global markets. It is also important that people living in the north can receive the goods they need at the same time and cost as capital cities. To achieve this, Port of Townsville must widen its access channels to accept larger vessels. EXISTING SEA CHANNEL Current Vessels, (238m x 32m) restricted entry due to narrowness of channel Requires Post Panamax Design Vessel (300m x 40m) // 1985 CENTRELINE OF CHANNEL Vessel Aligned to Compensate for Normal Wind and Currents Current Direction Wind Direction 92M

7 7 Project Need Widening of the sea channels is crucial to the future growth of North Queensland s economy. Townsville Port handled more than 9 million tonnes of trade worth around $10 billion in Trade forecasts show a potential trebling of trade over the next 30 years. Townsville Port currently handles around 60,000 TEU s each year, which is forecast to increase to more than 200,000 TEU s by Each ship, on average, contributes $3.8 million in economic output and creates 12 FTE jobs for one year for North Queensland. The operation of container trade through the Port of Townsville generated a total impact on the North Queensland economy of $484 million in Currently around 150,000 twenty foot equivalent (TEU) containers are transported by road or rail between Townsville and capital city ports for import/export. This is because only 5% of container vessels sailing in Australian waters can access the Port of Townsville. Larger vessels are used by shipping lines due to the cost efficiencies of handling more cargo on a single ship. These larger vessels cannot fit into Townsville Port, and must use southern capital city ports. Freight for or from North Queensland is road and rail transported to these southern capital city ports, creating additional time and cost burdens on road and rail networks. Motor vehicle imports are forecast to triple from just over 15,000 units to more than 45,000 units by 2045, however Townsville s ability to secure growth in this market is constrained by the inability to receive larger car carrier ships. WHEN LARGER VESSELS WITH CARGO DESTINED FOR TOWNSVILLE BYPASS OUR PORT, CARGO MUST THEN BE TRANSPORTED BACK VIA ROAD OR RAIL 1381 KMS MORE EMISSIONS TWO DAYS MORE COST Fuel imports are forecast to double from one million tonnes to two million tonnes over this period. As refining exits Australia Townsville s opportunity to facilitate this growth is dependent on the ability of Townsville Port to accept larger, long-range ships. More than 60% of the cruise ships visiting Australia will be over 260 metres length by Townsville has experienced strong growth in cruise ship visits since opening the Quayside Cruise Terminal in 2013, with 16 ships booked in Growth to 30 ships within 5 years and 60 ships by 2030 will only be possible if larger ships can access the sea channels.

8 8 ONLY 5% of container ships servicing Australia today can fit into the Townsville Port

9 9 Project Overview The Channel Capacity Upgrade is estimated to cost $193.5 million and will take over six years. Capital Construction Costs Quarry / Armour Rock Rock Wall Dredging Reclamation Navigational Aids Detailed Design The construction cost of $193.5 million is a P90 costing, and has been subject to an independent verification. The existing sea access channels to the Port of Townsville have been operating for over 140 years. The last major upgrade to channel capacity was undertaken more than 20 years ago to deepen the channels. The Channel Capacity Upgrade involves the widening of the existing channels from the current 92 metre width to 180 metres at the harbour entrance, tapering to 120 metres at the sea channel entrance.

10 10 Environmental Approvals Key environmental considerations for the project: A comprehensive Environmental Impact Statement (EIS) and an Additional Environmental Impact Statement (AEIS) addressing State and Commonwealth requirements has been completed for the Townsville Port Expansion Project, which Dredging and marine Dredge material Coastal Construction impact and Amenity impacts - air, noise, includes the Channel Capacity Upgrade. water quality impacts placement processes construction traffic lighting, visual amenity (including import of rock for breakwaters) Environmental outcomes: Townsville is a Priority Port under the Sustainable Ports Development Act 2015 $6.15 million environmental offsets for the Port Expansion Project Best practice dredging methodology and 100% beneficial re use of capital dredge material (zero sea placement) Robust technical, regulatory and community oversight and transparency Stringent environment impact assessment completed Detailed management plans for all aspects of construction and operations Reduction of greenhouse gas emissions with $248.8 million in avoided environmental externalities Best practice stakeholder collaboration and extensive community engagement

11 Project Benefits The Channel Capacity Upgrade will deliver benefits of more than $580 million with a Benefit Cost Ratio (BCR) of The appraisal demonstrates the benefits across the Queensland freight network through improved travel time, savings in vehicle operating costs, reductions in road accidents, reductions in environmental impacts such as air pollution and greenhouse gas emissions and the residual value of assets. BENEFIT COST OUTCOMES DISCOUNTED ($M) Benefits Travel Time Savings $31.4M Operating Cost Savings $259.3M Avoided Environmental Externalities $248.8M Avoided Crash Cost Externalities $32.5M Residual Value of Asset $8.3 M Total Benefits $580.3M Costs Capital & Building Costs (Discounted) $159.3 M Operating & Maintenance Costs $13.4 M Landside Transport Costs $16.0 M Coastal Shipping Costs $6.5 M Adverse Environmental Costs $4.9M Total Costs $200.1M Benefit Cost Ratio (BCR) 2.90 Net Present Value (NPV) $380.2M $580 million in project benefits for Queensland $259 million in road/rail operating cost savings

12 12 The Channel Capacity Project will: Foster growth in trade and provide essential trade pathways for trades in accordance with the National Ports Strategy, enhancing the economic prosperity, growth and development of the region Enable future capacity to be delivered in line with expected demand, ensuring the Port of Townsville does not become the bottleneck for the development of North Queensland and Northern Australia Support tourism growth in the region through increased cruise vessels visits Ensure optimal utilisation of existing assets and capacity at the Port of Townsville Improve navigational safety for all vessels entering the Port of Townsville Reduce impacts and costs on road and rail infrastructure between Brisbane and Townsville Increase direct shipment of products for businesses operating in Northern Queensland Support strategic Defence capability by improving navigational safety for vessel transit of the channels Create 120 FTE jobs during construction and 60 FTE jobs in average annual terms over the period to 2044 in Townsville, and around 245 FTE jobs for Queensland Provide the safest, most cost effective and environmentally sustainable solution for meeting the freight needs of North Queensland 245 FTE Jobs in Queensland 120 FTE Jobs during construction Delivery method to maximise local benefits

13 13 Delivery and Funding The Channel Capacity Upgrade will be delivered over a period of six years from 2018 to An indicative delivery schedule is outlined below. PROJECT STAGE Early/Enabling Works Quarry Platypus Channel Dredging Sea Channel Dredging Rockwalls Reclamation A delivery model with Port of Townsville as the Principal Contractor is preferred (direct engagement method), due to the specific nature of the major components of work. The delivery methodology has been independently reviewed to verify that the preferred methodology is viable, the selection of this methodology is appropriate, and the risk treatment and risk allocation have been comprehensively assessed. Approvals / Procurement Construction Commission/Operation The methodology for assessing the preferred delivery model for the Channel Capacity Upgrade was developed based on the Queensland Government s Project Assessment Framework (PAF) and Building Queensland s Business Case Development Framework (BCDF). Delivery options were assessed against the following criteria: Facilitate achievement or optimisation of project objectives and outcomes A number of key principles have been established to guide the procurement and delivery methodology for the project. These include: Minimise disruption to commercial shipping in the channel and harbour Maximise flexibility of works delivery for weather events (e.g. cyclones, strong winds, floods) over duration of construction Ensure construction works are aligned with environmental approvals and conditions across the Port Expansion Project EIS and quarry approvals (e.g. timings for works, volume limits, environmental conditions etc) Minimise risk of cost exposures and claims/variations Ensure long-lead time approvals and equipment are ordered early Achieve innovation for reuse of dredge material to reduce rehandling costs (short and long term) and maximise commercial use of land created and Minimise whole of life asset cost. Funding The Detailed Business Case demonstrates that the Channel Capacity Upgrade is economically and commercially viable. It is proposed that the balance of funding for the $193.5 million project will be through a combination of debt and equity. The Queensland Government has committed $75 million to the project. Best suit the characteristics of the project Achieve the most suitable balance between the control the State requires and the risk it is best placed to bear Provide the best value for money and Provide appropriate risk allocation.

14 14 What does the future look like with channel widening? Townsville becomes a globally competitive Port City NQ boasts a globally competitive container port Freight hub of Northern Australia Less freight on roads = less emissions A booming cruise tourism port More jobs, economic growth and population growth Strategic Defence port capabilities Lower freight costs for North Queensland

15 15 CHANNEL WORKS No capital dredge material will be disposed of at sea All material will be 100% beneficially re used As per the requirements of the regulator RECLAMATION AREA EXISTING CHANNEL // TOTAL WIDTH 92M // DECLARED DEPTH 12M APPROXIMATELY AFTER CHANNEL WIDENING // TOTAL WIDTH 180M (PORT END) TO 120M (AT SEA END) // DEPTH AS EXISTING

16 More information Contact Port of Townsville Limited s Manager Corporate Affairs pep@townsvilleport.com.au