KEY POINTS:
Whether by design or accident, Maersk, the world's biggest shipping line, appears to have destabilised the planned merger of the ports of Auckland and Tauranga. Statements accompanying the Port of Tauranga's half-year result this week were hardly encouraging, and considerable doubt must now surround the proposal. That is unfortunate. It is time perhaps for parties to the negotiations to take a step back and recall the rationale that originally inspired the project.
To a degree, it is unsurprising that the logic underpinning a merger has become obscured. Much has happened since the proposal was first announced in October. Then, the Bay of Plenty port was a strong and vibrant rival for Auckland, boasting impressive productivity, transport links and robust expansion plans. It had even made significant inroads into Auckland's business, despite the latter's natural advantages. In sum, Tauranga appeared to have a good case for being an equal partner in any merger.
All that changed in November, however, when Maersk, which has 40 per cent of the New Zealand market, announced the bulk of its North Island service would be run through Auckland at the expense of Tauranga. Some portrayed the decision as a deliberate attempt by the Danish shipper to undermine the merger negotiations. This was probably not the case; Auckland's population generates the export-import balance that is an important ingredient in any thinking on a hub port. Nonetheless, the tenor of negotiations changed dramatically.
The Auckland Regional Council, which owns Ports of Auckland, said almost immediately that it wanted a bigger slice of any merged port. A structure under which Auckland would own a third of the entity, Tauranga a third and private investors the remaining third was deemed unacceptable. Similar abruptness was evident on Wednesday, with the regional council's infrastructure holding company saying it wanted "more specific detailed information on the business case of a potential merger ... as the information provided so far is inconclusive". That indicated negotiations were, at best, proceeding slowly.
Tauranga, for its part, has had to resort to pressing for the merger on the basis of public benefit and national interest. That pitch, made from a position of weakness, is, nonetheless, compelling. The merger was proposed on the basis that it would allow the resulting 'super port', not overseas shipping lines, to call the shots in bargaining. Traditionally, companies such as Maersk have been able to play off New Zealand ports against each other in terms of contract pricing and scheduling. A union of Auckland and Tauranga, controlling 60 per cent of the country's container traffic, would change that, improving New Zealand's international competitiveness in the process. Further, it would deliver a much-needed rationalisation and heightened efficiency to the national port structure.
Auckland, having turned the tables on Tauranga by securing most of Maersk's business, should not lose sight of this. A short-term contract triumph must not overshadow the long-term benefits of a merger. That, indeed, is exactly what shipping lines such as Maersk would like to happen.
This is not to say, of course, that Ports of Auckland's owner should not extract a deal that represents the current reality. Or that Tauranga need not accept changed circumstances. But, with an eye on the bigger picture, both must ensure that bickering over detail does not torpedo the whole deal. If it does, shipping lines will continue to rule the roost - and the ports and the national economy will be the loser.
