Port power still riles shippers

By DANIEL RIORDAN transport writer

Port companies - rapacious monopolists gouging exporters or expert wealth creators keeping the country moving?

Despite a Government-backed report finding that the industry is generally competitive and there is no need for an inquiry into alleged monopoly pricing, many of the ports' customers continue to claim they are captive victims of the ports.

Certainly the biggest ports are delivering the goods for their shareholders.

A study of the five listed ports for the Business Herald by international consultancy Stern Stewart has found the three biggest make returns on capital well above the average for listed companies.

In economic value added (EVA) terms, Lyttelton made a 17 per cent return on its capital, Auckland 9 per cent and Tauranga 6 per cent.

Bluff's South Port lost 1 per cent and Northland lost 16 per cent.

All figures were based on the companies' last completed financial years (to June 30) apart from Northland, for which March 31, 2001 figures were used. Northland, which has been through a huge restructuring in the past several years, reported vastly improved financials last week, and if these had been available to Stern Stewart its returns would have been much higher.

The comparable average return on capital for the sharemarket's 35 biggest companies last year was 1.2 per cent.

Debate over how fair these returns might be flared again after a Government-commissioned report released 12 days ago found New Zealand ports compared favourably with their international counterparts in efficiency, price and service levels.

Consultancy Charles River Associates concluded that the industry was generally competitive, that an inquiry into alleged monopoly pricing was not needed, and that changes to competition laws and industry-specific legislation were not necessary.

But the report identified several areas where competition was limited and where customers were "captured" by a port, unable to go elsewhere.

The study was sparked by findings of the Shipping Industry Review, released in March last year, which said port companies had a prima facie case to answer on accusations that they were behaving like virtual monopolies in many areas, with non-contestable pricing making them cash cows for their shareholders.

The review recommended that the Commerce Commission investigate, but the Government waited six months, then initiated this report.

Commerce Minister Paul Swain and Transport Minister Mark Gosche said they would respond to the report near the end of August. Interested parties have until June 10 to express their views.

The Government report did little to placate the ports' critics - the shippers and shipping companies who have lobbied under the umbrella of the Captive Port Customers' Group.

They had commissioned a study from Simon Terry Associates which was presented to the Government review in March, and which concluded that at least five port companies were overcharging customers. In the past decade, the ports had overcharged customers by around $300 million, the group claimed.

That conclusion was based on the assumption that an 8 per cent rate of return on shareholders' funds was considered reasonable for regulated utilities.

The report said that five of the six ports it studied had rates of return above 8 per cent, ranging from 11 per cent at the Port of Nelson to 20 per cent at Lyttelton, the only listed port company in the study. Port companies dispute the figures' veracity, as well as claiming the 8 per cent benchmark was too low a benchmark for them anyway, since they are not regulated utilities.

However, a KPMG report into the transport sector, released last week but written before the Government report's findings were made public, also found New Zealand's ports had only weak monopoly characteristics, and that real market power in the export transport chain lay most strongly with shippers and carriers.

KPMG pointed to the Commerce Commission's draft report on airport companies' landing charges, which recommended that specialised airfield assets be listed at historic rather than higher replacement cost.

KPMG said that if ports were to come under price control, the commission's stance on asset valuation would put downward pressure on port charges.

* In Forum tomorrow: The port companies and their customers have their say.