Milked for stream of easy money

By PAUL NICHOLAS*

What would you do if you found out that you paid more for all your telephone charges, because only one telephone company offered service to your street, while people in another street with competing service providers paid less?

How would you feel if you complained to the telephone company and they told you to like it or lump it?

You would feel as angry and ripped off as the captive customers of New Zealand ports.

Shipping companies with special facilities on wharves, like pipelines, storage units and processing plant, are shabbily treated every day.

They are forced to pay twice for the same services and pay more than customers who could use other ports or modes of transport.

Even when they try to lower costs by using other suppliers, ports simply increase other charges or restrict external suppliers from accessing the port.

It is a rich stream of easy money for ports. A recent economic study by Simon Terry Associates showed that over the past decade a mere five ports had jointly earned $300 million in excess of what would be regarded as a fair return for a successful business.

That excess profit is being earned from port users, and captive users want the price gouging practices stopped.

A Government report on port power conducted by Charles River Associates was also released recently.

It concluded that generally ports are competing, but also found that there are specific customer groups for which competitive pressures on ports are limited, leading to the existence of market power.

The Captive Port Customer (CPC) Group agrees that for higher value container cargoes (those cargoes that can absorb inland transport costs) there is competition between ports. Choice exists also for those exporters that work to minimise the total supply chain costs, and those that are located at the junction of two or more port hinterlands.

But for lower-value container cargoes, and for those companies that are in niche markets like Cook Strait, dedicated coastal operators with special loading and unloading requirements and major importers of bulk materials like fertiliser do not have choice.

The problem is that existing laws do not prevent, penalise or discourage ports.

The Commerce Act has proved incapable of helping captive users ensure the efficiency of pricing of port services or access port facilities on fair and reasonable terms.

This was confirmed by a Privy Council decision in the case of Clear Communications v Telecom, which restricted the reach of the law against anti-competitive conduct.

The ruling was subsequently applied by the NZ Courts to port companies in Port Nelson v the Commerce Commission.

The restricted trade practice provisions of the act are no help either.

They prohibit behaviour such as price fixing and unjustified price discrimination, but provide no means by which a customer can challenge prices because they include monopoly rents.

Although a new provision provides the commission with increased flexibility in inquiring into and administering price control, it is entirely dependent on the discretion of the minister.

The discretion held by the minister has been exercised only once since 1986.

Recent history has shown that litigation to resolve issues has been less than satisfactory for either side.

It is time consuming, costly and the results are generally less than satisfactory.

The Government report concluded that it would be difficult to deal with the situations where ports abuse their market power.

The CPC Group disagrees. The problem is very costly to the country, but is easy to fix.

The group is promoting a specific, targeted and cost-effective information disclose and dispute resolution process that can be managed by the parties with an independent arbitrator.

Its simple, low-cost suggestions have caused some incredibly panicked overreactions from port companies.

If they have nothing to hide, they should not be concerned.

The fact is, they have hundreds of millions of dollars at risk if their treatment of captive customers is curtailed.

It is now up to the Government to formulate a policy that will ensure that all importers, exporters and transport service providers get the best service at fair and reasonable prices. The economy is the loser under the present regime - port shareholders are the winners. For the good of New Zealand, ports' mistreatment of captive customers has to be stopped.

* Paul Nicholas is secretary of the Captive Port Customers Group.

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