Hive News Tuesday: Quake repairs could cost 'billions'; Upper South Island logistics networks crippled

Downtown Wellington after the November 14 Kaikoura earthquake. Copyright Bernard Hickey / Hive News

Over 1,200 tourists and residents are now stranded in a wrecked and cut-off Kaikoura. HMS Canterbury is now on its way from Devonport to Kaikoura via Lyttelton to re-supply and support Kaikoura, while helicopters are expected to fly up to 200 people out of the town today, weather permitting.

Meanwhile, the country's freight operators are scrambling to rebuild their connections between the North Island and Christchurch because the main rail and road routes that connect Picton to Christchurch could be out of action for months, or even longer.

State Highway 1 and the railway through Kaikoura is engulfed or wiped out by slips at many points north and south of the town. Last night NZTA said it re-opened an alternative route from Blenheim to Christchurch via State Highways 6 and 7 through Murchison and Lewis Passes that can handle trucks, but it was down to one lane in places and adds three hours to the journey. NZTA said it was also working to re-open the old State Highway 70 linking Culverden to Kaikoura to provide some road access to Kaikoura "within days."

John Key said repairing the damage to State Highway 1 and the rail line could take many months and cost billions. He compared the task to the NZ$40 million spent over 13 months to reopen the Manawatu Gorge road after a slip in 2011.

"The roading and rail issues north and south on State Highway 1 are horrendous. If you turn your mind back to the Manawatu Gorge plus some. I saw at least six of that size north of Kaikoura," Key said in Kaikoura yesterday, adding he had not flown south of the town, where he had been told there were more slips of a similar size.

"It's a massive clean-up job," he said.

"You've got to believe it's in the billions of dollars to resolve these issues. They're huge slips. I'm not sure how long it will actually take to move this level of rubble off the road, not to mention the damage to the railways. It's a very, very big job for both the Transport Agency and KiwiRail," he said.

He suggested in an RNZ interview this morning that NZTA and KiwiRail may even have to consider realigning the road and rail route along the coast north and south of Kaikoura.

The longer-term prospect prospect for the route is particularly challenging for KiwiRail, given it is losing around NZ$200 million a year and faces constant questions about the long-term viability of its main-trunk network -- of which the Picton to Christchurch route is a crucial part.

"When people have a chance to reflect on the scale of it and the damage to the rail network, you can't help but wonder whether the Transport Agency won't say that some sort of realignment programme (is needed)...or at least question whether the road might be in the right place," he said.

He denied the entire road would have to be abandoned. "But it's not just about taking the rubble away. It's about future proofing the road to a certain degree," he said.

This leaves open the question about whether the Picton to Christchurch rail route is ever re-opened, given KiwiRail does not have access to the National Land Transport Fund, which has a contingency for this sort of natural event damage.

Bill English told Corin Dann last night that the Land Transport Fund had the contingency funds to deal with the road repairs. The footage of the interview in English's offices in the 7th floor of the Beehive is also worth a watch because an after-shock hits while they are talking on camera.

Freight operators eye coastal shipping

The closure of the main road and rail routes is particularly problematic for freight companies and businesses supplying and receiving goods to warehouses and supermarkets in Christchurch because it is the main way that imports into Auckland are moved to Christchurch, particularly Fast Moving Consumer Goods (FMCGs) in logistics systems using 'just-in-time' delivery.

The Wellington to Picton link was also cut off yesterday because of damage to the loading ramps for KiwiRail ferries at Wellington and checks to the berthing facilities for Bluebridge Ferries in Wellington.

Bluebridge said it had resumed sailings late last night. KiwiRail said this morning the Kaiarahi and Kaitaki ferries were scheduled to sail between Wellington and Picton today, while the Aratere would remain anchored in Wellington Harbour until a berth became available. KiwiRail said the sailings would carry freight and vehicle passengers only, while foot traffic passengers would not be carried because of damage to its terminal.

Mainfreight said late yesterday it was actively looking at using coastal shipping to move goods between Auckland and Christchurch.

"We are recommending to our Inter-Island customers to consider increasing stockhold in either our Christchurch or Auckland warehouses as an option to mitigate ongoing Inter-Island transit delays during this challenging period," it said.

Road Transport Forum CEO Ken Shirley told me the blockages to the main route to Christchurch would disrupt usual logistics systems for FMCG goods imported through Auckland and transported to Christchurch. He acknowledged New Zealand's coastal shipping system was "under-cooked" and the quake damage to the route through Kaikoura would force a re-think about the nation's transport infrastructure, including coastal shipping.

On the insurance front, Gerry Brownlee said he rejected suggestions EQC would be financially stretched to cope with the damage. "EQC is guaranteed by the Crown," he said.

The financial implications?

If the road repairs do indeed cost billions over the next year or two and the funds are not diverted from other roading projects, that would represent a small fiscal stimulus and extra pressure on construction cost inflation at a time when the availability of infrastructure skills and building materials is already stretched.

Graeme Wheeler said last Thursday there was currently no need for extra fiscal stimulus, which was different to his comments in December 2015 ( see our December 11 Hive News ) when he said the Reserve Bank could do with some 'fiscal policy mates.'

"The economy's growing probably at around 3.5%, maybe a little bit faster. We think potential output growth's probably about 2.9% so you are creating a positive output gap," Wheeler said at the news conference after the bank's last OCR decision before February 9.

"So would you say to yourself: do you need fiscal stimulus at this point? And the answer is probably not, no you don't," he said.

Wheeler said Governments would always need to make decisions about whether to spend on current consumption or infrastructure investment.

"If I look at the housing market there are issues around increasing housing supply up in Auckland, and to the extent that there are regulatory issues or there are land availability issues or infrastructure constraints and bottlenecks, and if that's something that could be handled through expenditure allocation or engagement with the councils to get improved outcomes then that's all to the good," he said.

"But I don't see any need at this stage, given where the economy is, for further fiscal stimulus."

Economists did not think the Kaikoura quake would trigger the same reaction seen after the February 2011 quakes in Canterbury, when the Reserve Bank cut the OCR from 3.0% to 2.5%. Most saw yesterday's events as unlikely to change the outlook much, given the OCR is seen on hold at 1.75% for the foreseeable future and the inflationary impacts of extra spending on road and rail repairs could be offset by any hit to business confidence at the top of the South Island in particular.

However, the event highlighted the risks for the Reserve Bank's new OCR schedule, which leaves a 3 month gap between the November 10 and February 9 decisions.

The New Zealand dollar initially wobbled but closed last night broadly where it was before the quake, although it has fallen to around 71 USc from 73 USc after the election of Donald Trump and a sharp rise in US long term interest rates in anticipation of an inflationary spending spree on infrastructure in America. The bigger financial risk to watch is the ongoing sharp slides on global bond markets, which have increased longer term interest rates by around 50 basis points in a week. For example, Co-operative Bank and NZCU South raised their term deposit rates yesterday. Co-operative Bank also raised its fixed mortgage rates for three years and beyond -- joining ASB and BNZ, which made similar moves last week.

LVRs hitting Auckland...for now

REINZ reported house sales volumes fell 12% in Auckland in October from September as the effects of the Reserve Bank's October 1 LVR restrictions rolled through the market.

Median house sale prices remained high and actually rose in Auckland by NZ$43,000 in the month of October to NZ$868,000, largely due to a drop in lower-priced properties to investors affected by the restrictions. Even the stratified measure, which strips out the compositional effects of fewer low-priced house sales, rose in Auckland by 1.3% in October to over NZ$1 million for the first time. The stratified measure rose 0.4% nationally and fell 1.8% in Wellington during the month.

The jury remains out on whether the slowdown will last longer than the 2-3 month period of hiatus after the first and second rounds of LVR restrictions in 2013 and 2015.

However, some banks see a longer-lasting effect because of rising long-term mortgage rates and a reduced appetite to lend into an over-valued market.

ANZ's Philip Borkin said the market was cooling in a broad-based way.

"Turnover is falling, houses are taking longer to sell and price growth is slowing – quite abruptly for some," Borkin said.

"The tighter LVR restrictions appear to be having an impact, and we suspect this cooling could prove to be longer-lived than in earlier rounds of macro-prudential measures given a maturing interest rate cycle, affordability constraints and as banks lean against the top."

Tweets of the day

Glenn Inwood: on news Statistics NZ's Wellington building on the waterfront suffered quake damage. RNZ reported one floor had pancaked down onto another.

Statistics NZ say there's a 64% chance they'll get back into their building in 12 months. #eqnz

Ian Apperley:

Now we play the Wellington shaking game 1) was that a quake 2) or was it the wind 3) or am I just freaking out? #eqnz

Have a great day. I hope it's less shaky, less windy and less wet for you than where I am (Wellington).

cheers

Bernard