Competition functions truly only when it is both natural and sustainable. On occasion, regulation can act as a substitute while, at the same time, expediting the development of competition.
But such departures from the rule, as when Governments privatise large or monopoly utility companies, should be temporary. Persevering unnecessarily with regulation eventually tilts the playing field away from the interests of the customer.
Likewise, regulation should not be contemplated unless there is undeniable evidence of monopoly activity. Regulation in the form of pricing control, however, is the course implied by the report of the Government-instigated shipping-industry review.
It recommends, in the first instance, that the pricing of port companies should be investigated by the Commerce Commission. Those companies stand accused of behaving like virtual monopolies in many areas, with non-contestable pricing making them cash cows for their shareholders.
Such behaviour would, of course, depend mainly on an absence of competition between ports. It would also help if the port companies' customers, the shipping lines, were in such a weak position that they could not resist unreasonable pricing.
To a degree, the latter may apply. Excess capacity has prompted strong competition among shipping lines, a position exacerbated by some carriers' pursuit of market share at the expense of profitability.
In recent years, shipping lines' adoption of hubbing may also have had unintended consequences. Hubbing has seen the carriers concentrate their activities on a limited number of ports worldwide. The chosen ports are those with a reputation for efficiency, sizeable capacity and, generally, a good export-import balance. In the case of New Zealand, that balance is struck most naturally by Auckland.
Other ports may boast a large export trade in commodities but the small population in their hinterland provides little incentive for their use as imports handlers. With the loss of container traffic to Auckland, such ports have had to rely increasingly on their commodity traffic. Sometimes, shipping companies may have little choice as to what port they use for such commodities. If the carriers have a case, it lies in the lack of competition for that traffic.
In most respects, however, competition appears alive and well. Auckland's position as the country's premier port - and any potential for it to become something of a natural monopoly - has certainly not gone unchallenged. The Port of Tauranga has introduced competition in an innovative way. Rather than being content with its lot as a log-exporter, it has built Metroport, an inland port - a cargo-handling depot - in South Auckland.
That prompted the Australia New Zealand Direct Line to move its New Zealand port of call from Auckland to Tauranga. Port of Tauranga has also sought to sharpen its competitiveness by linking with Northland Port Corporation to build a deepwater port at Marsden Pt.
Such initiatives may or may not be successful in the long run. They suggest, however, that shipping-company claims are overstated. All ports, with the possible exception of the uniquely located Nelson, face significant competition from neighbours in a country overloaded with ports. Port Taranaki, for example, recently lost one of its major contracts.
The shipping industry review does, however, validly criticise port company transparency. Lack of detailed disclosure prevents users from being able to accurately assess the fairness of pricing regimes. Often, that shortcoming is found among ports whose ownership remains in public hands. That ownership structure, and the tendency for such companies to act for other than commercial reasons, may also have delayed port rationalisation. Ongoing competition and shipping companies' next major innovation dictate, however, that a shakeout is imminent.
Supersized container vessels are due to enter service next year. Their arrival will mean reduced harbour calls, increased crane height and draught requirements, and an even greater emphasis on efficiency. Inevitably, it seems, there will be greater centralisation of national cargoes by road and rail. For some ports, the chief hope is that coastal shipping will play a part in that process.
The quantum leap in ship capacity should provide shipping lines with far greater bargaining power. The boot will be increasingly on their foot. More than ever, ports will need to demonstrate a competitive advantage. And that imperative will do more to ensure fair pricing than the leaden foot of regulation.
<i>Editorial:</i> Competition will rationalise ports
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