KEY POINTS:
There are too many ports in New Zealand, but until last week none of the 14 port companies or shipping lines had moved to kick-start a much anticipated rationalisation programme.
Port Otago and Lyttelton Port Company said they had signed a memorandum of understanding to explore a merger of operations.
Rationalisation will be the making of major ports, but the death knell for others and is likely to prompt the loss of jobs around the country.
The proposed merger will be scrutinised closely by business and unions and will likely set legal precedents.
Ports around New Zealand have spent the past five years waiting for "someone" to get the rationalisation ball rolling because the country is overserviced for its export and import volume as the number of visiting ships dwindles.
Not since the 1989 abolition of the Waterfront Industry Commission, which hired its members out to port companies, will the sector have seen such upheaval.
Port Otago, along with the entire waterfront sector at the time, went through a bitter seven-year period, described by many as a "union busting" era, and Port Chalmers staffing was slashed 55 per cent to 125 employees by 1996.
The credit crunch will bring a slew of new problems to the table of major ports during the next two years because of the lack of lenders, higher interest rates and the magnitude of the cost of major projects.
Since the rationalisation question arose, the focus has been mainly on the Ports of Auckland and Tauranga, with sabre-rattling talks of takeovers or buy-ins, while shipping lines such as the giant Maersk held sway, deciding which port it would patronise.
The same game was played out in the South Island, with Port Otago and Lyttelton "vying"for first P&O Nedlloyd then Maersk's patronage.
That may all be about to change.
The story starts off in true southern parochial fashion, with Port Otago gatecrashing a ploy by Lyttelton's owners the Christchurch City Council, to buy out the listed Lyttelton, delist it from the stock exchange then on-sell the company into foreign management.
Port Otago eventually gained 15.47 per cent for $37 million, sidestepping claims it had purposely purchased a blocking stake to stymie the sale.
Whether Port Otago would ever be sitting around the bargaining table with Lyttelton, without holding the blocking stake, may never be answered, as the world has changed vastly in the past two years.
If Lyttelton had gone into aggressive foreign-owned management, that company would be unlikely to be offering any olive branch to its competing southern neighbour.
The Maritime Union of New Zealand was quick to react to last week's announcement, offering its "qualified" support to the proposal.
However, the union was looking further afield, encouraging discussion to encompass South Port and PrimePort Timaru, knowing there are several hundred members' jobs at stake in the medium to long-term.
Lyttelton has had a tougher ride with the union in recent years, specifically over operation of a third shift and retention of pay and conditions, with more proposed strike action than Port Chalmers.
The union's stance was held partially to blame for a decision by former P&O Nedlloyd to choose Port Chalmers over Lyttelton as the preferred South Island call for its round the world service in October 2002.
Port Chalmers' only major clash was over heated casualisation issues in 2001 when the union, backed by local support, picketed the port boundary when an out-of-town stevedoring company was used to load ships. In 1996, Port Otago hit the skids, with a bare staff of 126 and container numbers plummeting from 55,000 annually to 35,000.
However, from 1998 dairying prompted rebuilding, starting with a new Maersk deal then a huge push in warehousing development, upgraded wharves and most recently new cranes - hand in hand with a more than doubling of staff to 300.
The Maritime Union notes ports are not only businesses but the essential supply chain between New Zealand and the global economy.
Other ports, such as those at Timaru and Bluff, should be included in the merger proposal and the proposal could spark debate on a national ports plan and some form of national ownership.
Of more immediate concern is which province will dominate on the board of the new holding company that will oversee commercial operations of both ports.
Insiders believe a boardroom tussle will be avoided, emphasising the boards had secretly nutted out the memorandum of understanding.
The final make-up of the new holding company will likely be split evenly, from its shareholding, directors' votes and even through to profits - essentially 50-50 all the way.
Both provinces would have to understand their respective ports may have to underpin vast losses from its neighbour at some point in the future, and equally share profits in the good years.
Lyttelton is larger, with 10 times the tonnage across its wharves, 25 per cent more staff, more than the double the ship calls and 33 per cent more revenue, but its dividend to shareholders was $5.2 million against Port Otago's $9.5 million , which includes a special $2.5 million component.
However, Lyttelton is essentially becoming a coal port, requires more infrastructure spending and does not have access to hinterland produce of Otago and Southland.
Port Otago is expected to become the main export point for Fonterra's dairy produce, from both Southland and South Canterbury, which will boost tonnage.
The subject of delisting the company will be appealing, as the new entity would relieve itself of the need for continuous disclosure releases, public shareholder interference and analysts' reviews.
Compared to the Port of Tauranga, both Port Otago and Lyttelton are underachieving in their return on assets, but together their respective diversity and market standing would be close to the size and sway the Port of Tauranga commands.
Port Otago may well be content in owning 100 per cent of a successful company, albeit on a smaller scale to Lyttelton. But if the investigation into the merger proposal finds profit opportunities, it will likely forgo outright ownership to secure a half share in a more powerful entity without parochialism being an issue.
- OTAGO DAILY TIMES
