English looks at freight price fixing

Bill English

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Finance minister, Bill English says he will give a “thorough response” to recommendations following the Productivity Commission’s investigation into international freight services.

These recommendations are directed towards improving sea freight efficiency, the substantial costs of which represent about $ 5 billion, 2.7 % of the country’s GDP.

“International freight issues are vitally important to New Zealand. Increasing our export competitiveness is a critical part of achieving better productivity growth,” Mr English says.

The commission recommends, amongst others, that New Zealand require shipping companies wishing to collaborate to fix prices or limit capacity to demonstrate to the Commerce Commission that there will be a public benefit which will outweigh anti-competitive effects.

The commission tested the price competitiveness of international shipping services to and from New Zealand and found that Auckland routes are considerably more expensive than Sydney routes for the sea-transport component.

The difference, while partly explained by the fact that New Zealand has lower freight volumes, means that it is more imperative for the country to maximise any available efficiencies, due to the structural costs.

Mr English will also have to report back on recommendations for improvement to port governance.

“The commission does not think a specific legislative response is required but that progress can be expected from improving the governance of the unions and port companies,” the report states.

Implementing a hybrid model of unionism may be met with resistance from more “traditional” union members who may see this as a weakening of the union’s ability to represent its members, the report warns.

The report says the approach of the Port of Tauranga was a good example of how owners and customers can benefit.

The company’s mixed ownership structure and the fact that its majority owner, The Bay of Plenty Regional Council, treats it as a financial asset to be managed according to commercial principles, as well as the port’s contestable business model for freight handling, had contributed to its success.

The proposals suggested by the commission for commercial focus in council- controlled port companies include:

  • A requirement in the company to be a “successful business as profitable and efficient as comparable businesses privately owned”
  • Maintaining a separation between the council’s wider objectives and commercial objectives of the port by precluding elected council representatives and council staff from becoming board members.
  • The ministry of transport publishes an independent comparative analysis of the financial performance of port companies.

Mr English says he will respond to all these recommendations in the coming months.

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