Between the lines: Booming ports business undergoing a metamorphosis

As the eyes are the mirrors of the soul, so the ports are the conduits for the nation's wealth.

As such, with a low exchange rate and rising commodity prices boosting demand for our exports, it is no surprise the port companies have just completed awfully good years. But can they sustain those improvements this year? It will not be easy.

Without exception, the nation's five listed ports posted strong profits in the latest reporting season.

From north to south, Northland (Whangarei) lifted its net profit 28 per cent, Auckland 30 per cent, Tauranga 9 per cent, Lyttelton 13 per cent and South Port (Bluff) 40 per cent. All results were for the year to June 30, bar Northland's, which was for the six months to March 31. Smaller, unlisted regional ports have also done well.

While each port faces specific challenges, and elements of each result were unique, common to all were higher volumes and lower costs.

It is not hard to see where the higher volumes came from.

Exports and imports recorded double-digit growth last year. Ports clip the ticket both ways.

But while the cake for the ports grew richer, the way that cake was sliced changed dramatically, a trend that will have a major bearing on how each performs this year.

Most significantly, a greater share of exports are moving through regional ports, as Ports of Auckland chief executive Geoff Vazey acknowledged last month.

In a couple of key markets, meat exports through Auckland dropped 15 per cent while dairy was down 4 per cent last year. The success of the smaller ports was illustrated most clearly in Auckland's result.

The company achieved its record profit despite losing market share in all its key categories.

Cost reductions and a jump in property income from the America's Cup were the biggest contributors to the bottom-line.

But even though the company lost 10 per cent of its crucial container trade to Tauranga after shipping line ANZDL took its business south, Auckland's container volumes were basically unchanged, thanks to growth of about 20 per cent on an adjusted basis.

The port is unlikely to sustain its bottom-line growth this year without an America's Cup.

The key to Tauranga's success will be moving its South Auckland hub, Metroport, from a weekend to a seven-day-a-week operation.

That will require Tranz Rail to commit rolling stock.

Clearly, regional ports owe a large vote of thanks to shipping lines and our major exporter, the Dairy Board, for their boom performance.

The country's biggest exporter last year did away with the inland transport subsidies it paid to dairy factories, encouraging them to ship through the nearest available port instead of transporting their product to the bigger hub ports.

That proved a boon to ports outside the two hubbing ports of Auckland and Lyttelton.

Hubbing may have been the buzzword of the industry for most of the past decade but what has happened more recently seems to have gone against that trend - whether that is just temporary or more permanent remains to be seen.

A major contributing factor is overcapacity in the shipping industry which is boosting the regional ports. Certainly when it comes to containerised trade, the shipping lines would prefer to visit just Auckland and Lyttelton with exporters having to truck their goods to those ports to meet their needs.

But because competition is so fierce in the industry right now, with more shipping lines making more port visits than can reasonably be sustained, the bigger exporters in particular are in stronger bargaining positions. They have been saying "Come to us" and the shipping lines have had no choice but to increase their visits to the region.

On the expense side of the ledger, labour costs are expected to rise once the Employment Relations Bill becomes law.

The ports may have squeezed as much productivity gain from their operations as is possible, leaving them more exposed to union pressure than they were a year ago.