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?