Brian Rudman: The big issue behind port dispute

The current battle over labour issues is masking bigger questions about the port's role in Auckland. Photo / Dean Purcell

Every summer silly season needs a whipping boy to beat-up on around the smoky barbecues, and who better these past wet weeks than 330 pesky Auckland wharfies. As far as Auckland's port goes, the present employment tussle is hardly the big issue. That is the failure of both market and political forces, to bring about a rationalisation of the country's port services.

The dilemma for Auckland could well be, if the revolution in work practices the port bosses are demanding does attract more container traffic into the CBD, the extra profits shareholder Mayor Len Brown is demanding could quickly be gobbled up ameliorating the deleterious effects of the additional freight passing through the city.

In other words, is the battle for port supremacy with Tauranga one Aucklanders want to win? Is fighting for the right to ship the milk powder and butter from the Waikato dairy belt out through the bottom of Queen St, really going to help achieve the mayor's goal of becoming the world's most liveable city?

Planner and one-time Auckland regional councillor, Joel Cayford, outlined the consequences of Ports of Auckland (POAL) and Auckland Council's projected growth plans for the port in a salutary blog last November. He noted the port company's plans for a further 20ha reclamation out into Waitemata Harbour which will obstruct views up and down the harbour.

Dr Cayford calculates that by 2040, assuming POAL's 5 per cent per annum growth strategy, there would be 3.6 million container movements a year through the port. Half would be reshipped by sea, but the other half would go by rail and road through downtown Auckland.

He estimates that if half the latter - 900,000 - went by rail through residential Orakei, Panmure and Glen Innes, this would require 30 trains a day, each a kilometre long, running for three and a half hours, 300 days a year. By then it's reasonable to surmise that public transport would dominate the tracks during waking hours, leaving freight until after midnight to start rumbling through suburbia. No doubt there would be road trains to match.

With all new reclamation and other infrastructure in place, there will be the on-going risk, as now, that the shippers, and Fonterra, could play the market, and march off with little warning to another port.

Port of Tauranga chief executive, Mark Cairns highlighted the economic downside of the "arms race" raging between the country's ports in his submissions to the 2007-2009 Royal Commission on Auckland Governance. "New Zealand has a very high port density with 13 commercial ports and a number of regional ports, resulting in an industry that generally performs very poorly from a financial perspective." He said reforms and competition since 1988 had lifted productivity overall, "however, that competition has been underwritten by considerable over-investment by regional government-owned port companies, which has generally driven returns to well below the cost of capital." (Figures show his part-privatised port is equally guilty on this count).

He said most ports were not meeting the Port Companies Act principal objective "to act as a successful business" with "most ports not achieving their current cost of capital."

Auckland Regional Council off-shoot, Auckland Regional Holdings made the same point in an October 2009 report on long-term optimisation of the New Zealand port sector. "Currently the structure of the NZ port sector is neither efficient nor sustainable - the nation's future international competitiveness is under threat." It warned of the "potential for considerable unnecessary duplication of investment if hub port status continues to be contested and transport investment not co-ordinated."

It said that "inadequate returns is an industry-wide issue, with port companies' local authority shareholders foregoing up to an estimated $109 million of annual earnings in 2008 (equivalent to over 20 per cent of their combined rates income.)"

Last month's Productivity Commission report on International Freight Transport Services underlined this point. "From 2008 to 2011, most of the ports recorded negative EVAs (Economic Value Added) - that is, their returns were less than the cost of capital over the period." In other words, the funds could have been better invested elsewhere. Both Auckland and Tauranga were among the worst performers on this scale.

For 20 years before the 1988 Port Companies Act, which replaced harbour boards with commercial port companies, the battle to attract the revolutionary new container ships was held in check by the New Zealand Ports Authority. Established to foster an efficient and integrated ports system for New Zealand, it controlled all expenditure by Auckland and Wellington Ports in excess of $250,000, with even lower limits for other ports.

Such central planning is now frowned upon, leaving port companies to slug it out to the death, matching straddle carrier to straddle carrier. The latest looming contest is the competition to attract the larger 6000-7000 container vessels. Port of Tauranga has just got Environment Court permission to begin a $50 million dredging programme to handle the new vessels. Initially this involves a metre deep cut, but a further 2m will need to be removed within five years, bringing the total price to $80 million.

Ports of Auckland claims it can already accommodate the larger ships twice daily, at high tide, however the Shippers Council says another $50 million of dredging will be required, presumably to provide 24-hour capability.

For ratepayer shareholders in Auckland and nationwide, the question must be, how long do we continue to fund this inter-port arms race. For Aucklanders there's an even more basic issue.

Do we want to win a prize which could have such an awful impact on our "liveability".