Plea for ratepayers to give up port control

Ratepayer control of New Zealand’s ports is a barrier to improving efficiency, dragging down their ability to be truly competitive, both with each other and also Australia.

Heavy hitting lobby group the Local Government Forum this morning released a report on the performance of New Zealand ports, which suggested local authority ownership has stymied their ability to improve international competitiveness and export growth.

Instead, the ports are focused on competing, with each domestically reducing New Zealand’s ability to optimise use of the ports’ infrastructure to boost exports.

Local Government Forum chairman Charles Finny said because local government was unlikely to “to do the right thing,” central government would be challenged to respond to the policy suggestions put forward today.

Efficiency stalled
The forum’s report, “Port Ownership and Performance: An assessment of the evidence,” was written by researcher and former director of the New Zealand Institute of Economic Research (NZIER) Brent Layton.

Dr Layton is also a former chairman of the Lyttelton Port Company.

The report finds efficiency improvements in New Zealand’s ports have stalled and claims there is evidence suggesting they rank at the bottom end of ports in developed countries.

The report was presented to the government late yesterday afternoon, immediately after a meeting with the heads of New Zealand’s ports in Wellington.

Mr Finny said the government has to send a message to local government but said it was unlikely there would be any discussion about privatisation before the next election.

“We’re hopeful that after the election there will be some progress. We’ve provided some clear evidence that something must happen,” Mr Finny said before the meetings yesterday.

Ratepayer barrier
Dr Layton’s report states that both the OECD and the 2025 Taskforce, led by Don Brash, have highlighted the high level of local authority ownership of ports and suggested it was a barrier to rationalisation.

It was deemed this barrier could lead to inefficient investment in ports.

Dr Layton agreed with that conclusion in his own report and further suggested that ratepayer ownership prevented the introduction of experienced international operators into the management of the ports.

In addition, he said that most ports have considerable scope to improve the quality of their services and efficiency.

“There is evidence that their relative performance has declined in recent years, at least when compared with major Australian ports.”

Dr Layton also concluded there was evidence that Ports of Auckland, and possibly Lyttelton Port Company, had succumbed to “local pressures” to retain and build up the volume of trade by offering cheap rates to shipping lines, which was not economically viable.

Stagnant merger talk
The report draws heavily on publicly available information, including news reports spanning years, and claims that local body politicians were reluctant to face public criticism that would result from rationalisation.

Dr Layton said political control has resulted in failure to capture the gains in efficiency of operations in duplication of capital equipment that would have been brought by the merger and rationalisation of ports.

“Since the port companies were formed, none has merged. Nor have any of the commercial ports ceased to operate or significantly rationalised their activities by fundamentally reducing the range or type of services they provide,” he said.

Dr Layton added that there have been a number of proposals to merge ports over the last 15 years, but none were implemented.

Among these proposals were merger talks between Ports of Auckland and Port of Tauranga, which collapsed in early 2007.

Following that Auckland pushed and won a sole contract with the world’s biggest shipper Maersk while Tauranga snared rival Hamburg Sud aware from Auckland to fill the capacity that was lost by the deal.

Dr Layton surmised that Maersk “undoubtedly” extracted significant discounts from Auckland to secure its business. He also noted that Port of Tauranga’s net profit after tax was better than Auckland’s following the Maersk decision.

He also concluded that drawn out merger discussions between Port Otago and Lyttelton Port Company over the last five months suggests the difficulty in reaching a decision are political.

“It is not plausible that evaluating the commercial sense, or folly, of such a decision could take such an extended period of time given that the boards of the port companies themselves have done enough analysis to reach a commercial decision,” he said.

The Local Government Forum’s study suggest four policy options for the government to consider:

  • Increased information disclosure
  • Contestability in container stevedoring where practical
  • Separation of the roles of port landlord and stevedoring services
  • Divestment of shares in port companies to encourage more efficient operations and rationalisation

Mr Finny said improvements in port industry performance were imperative to improve international competitiveness and export growth.