Can Ports of Auckland put the politics behind it, and just get on with business? Nick Smith reports.
Times have been tough for Auckland's port company. Revenue was hit hard by the global financial crisis. Even harder blows were traded behind the port company's boardroom doors, resulting in the departure of 13 directors - including two chairmen and two chief executives - in the past five years.
Ports of Auckland now has a new chief executive, former Maersk executive Tony Gibson, and a new owner, Auckland Council Investments Ltd - the council controlled organisation (CCO) which will manage the super city's commercial assets, including the ports and the airport.
Finally, say Gibson and CCO chairman Simon Allen, the company has an appropriate governance structure and the mandate to operate as a purely commercial entity.
As well, peace seems to have broken out between commercial and recreational interests each wanting a slice of the downtown waterfront. The area from Marsden wharf east to Fergusson wharf will be the port of Auckland's commercial district; Queens wharf west to Westhaven will be developed for the use of all Aucklanders, including other commercial interests.
The fate of Captain Cook wharf, which lies between those two zones, has yet to be decided; either it or Queens wharf will be the new passenger ship terminal. Gibson concedes that Captain Cook wharf may yet be ceded to another CCO, the Waterfront Development Agency, chaired by former Waitakere City mayor Bob Harvey. For his part, Harvey says he is not "taking on a war with the Ports of Auckland" and will concentrate on his patch in the west.
If the waterfront war is settled, what about the fight over funding? A sale of Captain Cook wharf to the council would certainly help; Queens wharf fetched $40 million when it was sold in 2009.
Any money might come in handy: the Shippers Council, representing the country's largest exporters, published a report late last year suggesting the port company will need to spend $200 million so its wharves can handle the big container vessels expected to serve the Asia-Pacific region in the near future.
Yet Mayor Len Brown has made it clear that non-essential spending must be deferred. He has told the CCOs that savings of $55 million across council operations must be made by June next year to keep the rates increase at 4.9 per cent.
Allen says the $200 million cited is a speculative figure, and even the need to accommodate large vessels anytime soon is debatable. There are development plans but no chance of extra financial support in the near term, he says. Funding for existing commitments, including the $6.5 million development of Fergusson wharf, will proceed.
Ask Gibson and his chief financial officer Wayne Thompson about spending plans and you get more waffle than at an American breakfast.
Once Fergusson is done by the end of the year, allowing it to accommodate large ships carrying up to 6000 containers, there will be additional dredging and filling in to create more wharf space. But a start date and budget are unclear. Mention the years 2015 or 2016 and they clear their throats. Sometime around then, apparently; clear as mud.
Allen: "They've got plans but they're not necessarily ones where you would go and write a cheque out." And, "existing free cashflows after dividends should be sufficient to satisfy the financing needs of the organisation in the near term."
The key phrase in Allen's quote is "after dividends", and dividends are a sore point. The dividends which the port company pays the city council are expected to be around 75 per cent of after-tax profit in the year to June. That represents a considerable improvement on 16 per cent in 2008-09, at the depth of the crisis. Retained earnings were needed, say critics, because too much was taken out under the previous regime.
"You don't have to be a rocket scientist to figure out that you don't pull out a whole lot of cash one minute - and then have to turn around and put it back in - to know that you've got inappropriate decision-making going on," says Stephen Selwood, chief executive of the Council for Infrastructure Development.
Selwood is referring to 2009's $50 million recapitalisation of the port. Allen points out that $40 million of that represented the sale of Queens wharf to the old Auckland Regional Council and the government (plenty of people argue the toss about the related party aspect of that transaction). A short term loan of $10 million will be repaid in due course, he says.
Allen argues that the money was needed following the fall in port activity due to the financial crisis, a point emphasised by the ports' current management, Gibson and Thompson.
Many private sector owners also moved to pump cash into their businesses to bolster balance sheets during the crisis, and in that sense, Gibson and Thompson say, the council's actions were entirely ordinary.
Mike Lee, Auckland Regional Council chairman at the time dividend decisions were made, says: "Did we take too much money out? It's fair to say possibly too much was taken out."
Many private sector owners also starve their companies of capital, but Selwood's point is that those decisions are made based on business conditions and the state of the company, not on the electoral cycle and council's funding needs, as happens with the ports.
Lee's argument is that port profits are better spent on Auckland, not on foreign shareholders, in the event of a total or partial privatisation. Port activity has generated about $1 billion in regional council earnings, he estimates, since 1992.
Yet the council's return on its investment remains shockingly low: 6.1 per cent on equity in 2009-10 and only 4.6 per cent the previous year. "Both figures are regarded as unsatisfactory by the business and its shareholder," says ports spokesman Craig Dowling.
Capital expenditure, meanwhile, has come back from the giddy heights of $60 million in 2005-06 and nearly $80 million the following financial year to $21 million and just $9.1 million for the past two years.
"There is still very much a Harbour Board mentality and that means a willingness to spend a huge amount of money on capital investments," Lee says. "With the hindsight of experience, I would say that Auckland has over-invested in terms of capital and it's now essential that a return is achieved."
If ports want more money, Gibson admits, they are going to "have to make the assets sweat", a sentiment heartily endorsed by his boss, Allen.
A big part of the problem is productivity.
Maersk NZ estimates that container moves-per-hour at Auckland slipped from 22.8 in 2009 to 19.9 last year, although the shipping company's managing director Julian Bevis says there has been recent improvement. Tauranga, by contrast, increased its productivity from 29.7 moves per hour to 31.8, better than Melbourne and Singapore (more than 29 and 28, respectively). Even Port Chalmers outdoes Auckland, with 24 moves per hour.
Bevis says he doesn't know what the problem is and doubts there is a single cause. "This is a problem for the industry as a whole: the port, its shipping line customers, the major exporters and importers, the railway, the shareholders and government," he says.
He also supports the cautious approach to spending, particularly around big ships. "We won't get to very large ships overnight," says Bevis. "There will be a process whereby ship size and [the port] pipeline size gradually increase."
Some stakeholders mention the Maritime Union in connection with productivity issues. Tauranga has competition among stevedores; Auckland has the Maritime Union of NZ (MUNZ), they say.
We can kick shit out of the unions but all that's going to get you is peanuts and a bitter, disgruntled workforce," comments Lee. "They feel braver taking on the unions than taking on the big shipping cartels.
"You might be able to extract a little bit more value [from the workers]," he continues, "but you're not going to change the box price and it only has to change $10 to become millions of dollars."
Auckland gets $260 per container; in Australia, it is $400. More than 850,000 containers were shifted through Auckland in the year to June 2010.
The price is a legacy of the battles for container custom between Tauranga and Auckland, Lee says. "[Maersk] had a chance to go to Tauranga but they chose Auckland because it was commercially advantageous," he remembers. "They went through a protracted competitive process and they screwed down Auckland."
In a rare moment of unanimity, CCO chairman Allen agrees with Lee that the container rate is a central issue, but his chief executive Gibson says container rates are intrinsically linked to moves per hour. If Auckland can improve productivity, then he is in a better position to demand a better rate from the shipping lines.
As for the union, "the relationship with Munz, clearly for me is a key". Finger-pointing, Gibson says, serves no purpose and it is only through collaborative relationship building that improvements will be made.
A relationship or even merger with Tauranga remains a moot point. Lee argues that provincial hostility has exacerbated both ports' financial woes as the pair engage in a "race to the bottom".
"We in Auckland tend to be unaware of the whole [anti]-Auckland thing but it's actually quite real," comments Lee, who is these days a city councillor and chairman of the city's transport committee. "The Tauranga people seem to be motivated by a certain zeal and that is to screw those Jafas.
"The good and the great ... sitting around the board of Ports of Auckland have been outfoxed again and again by Tauranga."
Despite the port company's clear commercial focus, Allen readily agrees it faces an additional requirement, beyond core commercial imperatives. It has a social role as the conduit for broader Auckland commercial activity, a sort of Citizen Port instead of Private Port.
There is also still a political element to decision making. Allen's CCO must have regard to both the council's long term plan and draft annual plan.
It is this element of the structure that fuels further calls for privatisation.
While that issue has not been seriously debated since 1992, the ideological battle for the Ports of Auckland is far from over. Many businessmen believe the present Left-leaning but cash-strapped council should either privatise the entire asset, or retain land ownership and sell the ports operation to the private sector.
The second option would avoid an all-out battle over privatisation, provide significant revenue through leases and a proper commercial focus to operations, Selwood argues.
"It's kind of the best of both worlds," he says.
Not for Mike Lee. But even given his whole-hearted support (and that of the mayor) for local body ownership, Lee is scathing of the port company's spendthrift attitude.
"You spend money to make money and you shouldn't spend it for any other reason," is his view. "During my tenure I was unimpressed with the outlook and strategic approach of Ports of Auckland."
"The fundamental focus is to lift the return on investment and productivity for the port so there are better stakeholder outcomes both in terms of the customer base and the shareholder," says Allen.
The port is not a problem child, he insists. "It's definitely got challenges. But it's in growth mode; its numbers are coming back." Import volumes rose 6.1 per cent during the six months to December 31; total container volumes were up 3.4 per cent to 453,498. Break bulk - freight which is neither containerised nor bulk - which had been sliding since 2006, actually increased to 1.88 million tonnes.
Auckland is not being left behind because of lack of investment in new kit and infrastructure, Gibson argues.
"We continue to regularly dredge and fill, which allows us to grow as we go," he says. "At the moment we can handle 5000 [-container vessels]" and when Fergusson is completed the port can accommodate vessels carrying 6000.
The workforce and operations of Fergusson and Bledisloe wharves have been consolidated, delivering benefits that are beginning to be felt on the balance sheet, he continues.
'Our cranes [costing $15 million each] are bigger and stronger, our diesel/electric hybrid straddle fleet [$1 million a pop] is the most up to date and we have a consented dredging programme that has us well positioned to handle incremental increases in the size of container vessels," he says.
"While we've got work to do, I think we've got a lot of strength as the Ports of Auckland and maybe the story should be about why Aucklanders aren't more supportive of all this activity that takes place on the city's doorstep."
Contested port
* 1988: Ports of Auckland formed as corporatised successor to the Auckland Harbour Board. Owned by Auckland Regional Authority (80 per cent) and Waikato Regional Council (20 per cent).
* 1993: Waikato sells its stake. Ports of Auckland is listed on NZ Stock Exchange.
* 2005: Auckland Regional Council mounts successful takeover bid for the 20 per cent of the port company it does not already own. Ports of Auckland is delisted.
* 2006: Ports of Auckland and Port of Tauranga launch merger proposal, but talks collapse the following year.
* 2009: Port of Tauranga rejects Ports of Auckland plan to merge their container businesses.
* 2010: With creation of Auckland super city, ports company is now owned by Auckland Council Investments, an arm of the city council.
* As well as Auckland, port company has operations in Onehunga, at Wiri, and 19.9 per cent stake in Northland Port Co.
2009-10 Results
* Revenue: $166m
* Net Profit: $37.2m
* Dividends to owner: $17.11m
* Containers handled: 867,000 (20-ft equivalent units)
* Staff: 573 (full-time equivalents)
