Economic health of NZ’s port sector is being brought into question

Significant questions are being raised about the economic efficiency and competitiveness of the port sector.

Reports this week of the  Commerce Commission receiving complaints  about  anti-competitive conduct   by  NZ   port companies  follow the  Office of the Auditor-General   writing to port company chairs and  CEOs to raise a raft of issues identified  in its annual audit of the  sector.

The  OAG  had  found  considerable  variation in port companies’ approach to valuations.

Others  involved in the industry are convinced  many ports  are  making  uneconomic  investment  decisions,  some  companies earning  less  than  2%   return on  equity.  They  back  the OAG   who  advised  port companies  to use   fair value, based on expected  cash flows to be  generated.

The  complaints to the Commerce  Commission have spurred  it to start a preliminary assessment of the conduct that is being questioned but it hasn’t embarked on a formal investigation. The  report  said a number of these complaints raised potential issues about various ports taking advantage of their market power in markets for the supply of services.

The national port network is also under review from legislators with the upper North Island supply chain study underpinning the government’s desire to integrate port, rail and road transport infrastructure.

This week  the  NZ  Herald  reported the Auckland Council is worried  that Ports of Auckland  (which it owns)  could be compromised   by the outcome  of   the government’s working group.

The Upper North Island  Supply Chain Strategy Working Group, chaired by former  Far  North Mayor  Wayne Brown, is expected to  report to Cabinet  around February.

The  Herald   quotes  Auckland  Mayor Phil Goff  as  saying  “It’s like a patient with the doctors talking over you, while you lie there as if  you’re already dead” .

It  goes  on  to  say Goff is  worried  the working group  may have a predetermined  approach to the  future of  the ports in Auckland, Tauranga and  Whangarei.  The  NZ First leader and  deputy PM, Winston Peters,  last year  proposed  several  times the car-importing  business of Ports of  Auckland  should be transferred  to Northport, at  Whangarei.

Goff  made it clear  to the council’s planning  committee  that he is not trying  to  say everything the Auckland port does  now should remain with it.   But he wants its  long-term  future to be  considered carefully.

The committee  voted to send a  “clear message”  to the working group, when it meets on December 1,  stressing the need to protect and maintain the commercial  value of the Ports of Auckland Ltd, as well as  the  other upper North  Island  port companies and related  industries.

Meanwhile  Port of Tauranga   which is NZ’s largest container port, points to  its market-leading productivity rates at the container terminal, with a ship rate of 87.4 moves per hour on average, well above the reported national average of 75.0 moves per hour and nearly 60% ahead of the Australian rate of 55.5 moves per hour.

Looking to the future, PoT  says  it is now working out what it needs to do to accommodate the next stage of cargo growth.  It is working with importers and exporters on how they can best utilise Tauranga’s transport links to the intermodal freight hubs available in the Waikato and Auckland, as well as the new business park at Rangiuru, to create highly efficient supply chains.

It cites  an independent report by Middlebank Consulting Group on the cost-effectiveness of using Tauranga as a logistics hub. The report was commissioned by the local Regional Economic Development Agency, Priority One.

The report assessed furniture, electronics and apparel being imported from Asia. It found that Tauranga was cheaper by about 5% over Auckland as a distribution hub, primarily as a result of the infrastructure and efficiency at the port and its transport connections to other regions.

When it came to vehicles, Tauranga was a slightly more cost-effective gateway for vehicles destined for locations south of Auckland.

This report confirms what importers and exporters have known for a long time:  PoT’s cargo-handling expertise, rail and road transport connections and international shipping options give a competitive edge to companies which use the port.

But  will  the government’s working group  see it that way?

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