Monday, January 16, 2012

Port of Auckland Dispute: Time to move on

Nevile Sidney Lodge, Evening Post 1976.

Whatever side you are on over the Ports of Auckland (POA) employment dispute, what would be agreed by most is that the impasse must be ended and it must be ended quickly.

The striking union workers have cost the port millions in lost revenue, cost it its reputation as an easy and reliable place to do business, cost Auckland City in terms of business from related industry and cost New Zealand in terms of its competitiveness and with other markets.

What is at stake now though from this ongoing dispute is the future of the port and they way it will do business in years to come.

The port is a highly inefficient one and makes a poor return on capital invested compared to its peers, especially Port of Tauranga Ltd [POT.NZX] which is a least 20% more efficient in terms of container movements.

The unionised workforce at POA has been thus far unable to get efficiencies that ports like POT have because the union is grounded in past employment practices that date back decades and are no longer relevant in this fast-paced competitive global market we all now compete in.

The Maritime Union and its head, Gary Parsloe, were unwilling - or unable - to come to the party and let go of perks. In one glaring example that would have them being paid for work they didn't do and as a consequence the union workforce at the POA site are in jeopardy of losing heir jobs to workers who are now in the process of being employed on an individual contracting out basis. Their rates of pay are also pretty spectacular for semi-skilled work.

It would have been much better for the union and its members to agree that they must become more efficient of course but that looks unlikely to happen now that their strikes and stoppages have brought the company to its knees and the issue to a head.

We must look at Port of Tauranga for a solution.

Unlike POA, POT has a totally different structure in terms of its workforce, management and organisation as a business.

POT has a non-unionised workforce that is open and flexible in its outlook towards how its employer runs its business and they are fully aware of their need to be competitive in a global environment. As such its efficiency is far higher and its ability to gain business at the expense of competition like POA is clearly obvious.

This doesn't mean that POT workers are short changed though. A large number of the ports workers own shares in the company so are incentivised in that respect to work with the company, rather than just as employees. One cannot underestimate the value of ownership and if POA workers had this incentive available to them you can bet they would be keen work rather than keen to work their employer.

If we compare the financial performance of the two, as Brian Gaynor has in a Herald piece on Saturday we can see a yawning chasm between the two:

"As the accompanying figures show, POA has been hammered by POT in recent years: POA's ebitda has fallen from $92.6 million in 2003 to $74.4 million, whereas POT's has increased from $69.5 million to $95.0 million; POA's ebitda margin has fallen from 55.3 per cent to 40.5 per cent while POT's has increased from 47.6 per cent to 51.2 per cent; most importantly, POA's dividend has declined from $34.5 million to $17.6 million while POT's has increased from $22.8 million to $40.2 million.

This is a huge concern to Auckland ratepayers as the $17.8 million POA dividend represents a return of only 2.1 per cent on POA's $848 million 2005 takeover value.

The biggest difference between the two companies is in terms of costs as they both have fairly similar total revenue, but POA has had total June 2011 year costs of $109.4 million compared with POT's $90.3 million.
This is where the argument about internal employees and outsourcing comes in, the issue at the heart of the current industrial dispute.

In 2010, POA had total employee expenses of $51.9 million compared with only $18.5 million at POT and last year employee benefits plus pension costs were $54.9 million at POA compared with POT's $25.3 million".

Emmerson, NZ Herald, Jan 2012
Never underestimate how much negative pressure politicians have put on the likes of POA as well, one in particular has had a big impact on the port.

Mike Lee, former head of the Auckland Regional Authority (ARC) and now semi-retired on Waiheke Island but still muddling through local politics, lobbied to buy back the partially listed POA in 2005 and put a $858 million value on it and as of today the company is returning just over 2% based on that sale value. Clearly that is not acceptable and something needs to change.

Mr Lee also milked  hundreds of millions of dividends from the port to pay for mostly transport related spending and left the POA balance sheet seriously laden with debt which is still a millstone around its neck today.

In 2006 -7 when POT started discussing merging with POA, Mike Lee and his ARC put the kibosh on the merger because not only was it an ATM for spending for the council, Mike has a philosophical and political view that this kind of asset should be publicly owned and dirty private enterprise should keep their mitts off it, never mind that the merger would have brought economies of scale to the port, economic stimulation for Auckland and Tauranga and jobs for union and non-union workers alike. Shame about politics huh? Especially the left.

To this point, selling down a minority stake of say 49% share in POA and re-listing it on the NZX  (as will be done with New Zealand's state electricity monopolies) will help make politicians more honest and businesslike in what they do rather than political and move the port ahead competitively. A hybrid ownership structure is the best model to achieve this with a ratepayer/taxpayer owed business entity and has been done quite successfully with Air New Zealand Ltd [AIR.NZX] Auckland International Airport Ltd [AIA.NZX] and of course POT itself which has been a stunning success under hybrid ownership.

The Productivity Commission came out with a report last week not only critical of unions and their role in the ports demise but also recommended a part sale of New Zealand ports to help logistics and competition in this area move into the 21st century rather than stuck in the time warp of the 1951 port strike that was only resolved when the military moved in.

I have some sympathy with critics - including some a few comments in the Productivity Commission's report mentioned above - who say management share blame over this employment dispute, and I would have to agree, but only in terms of the length of time this dispute has drawn on - 11 months and counting. Management should have taken a tougher stance with the inflexible union and its head months ago and so they can, in this respect only, be held partly responsible for losing valuable customers like Fonterra and shipping line Maersk.

Because of the delays in resolving this bitter dispute, jobs have and will be lost directly within the port and in related industry and reputations tarnished.

It is important that this situation be resolved as quickly as possible for all the reasons outlined above and more. In a way, perhaps the stubborn, implacable union stance has been positive in a way as it has brought the dispute to a head. The port will be able to restructure in a way that will protect its long-term future. For the Port of Auckland to remain status quo in terms of its employment and business structure will mean that eventually it will become irrelevant and the Port of Tauranga will be the first port of call for importers and exporters.

Unions must keep this in mind, this is not 1951 when we had full employment, guaranteed markets and  a very rosy economic outlook. The 1951 Strike had 22,000 (compared to just few thousand today) wharfies striking for a 15% pay rise when they were offered a very generous 9% and the militant union held New Zealand to ransom for almost 6 months.

In 2012 there is no place for similar militancy and intransigence on the part of the Maritime Union. Like 1951 it is and was a turning point for unions in this country. It was the first major blow to its power in 1951 and in subsequent years unions have negotiated their way to less than 10% of employees who remain in a union.

As in 2012 the majority of the public were opposed to the 1951 strike. On public support alone we need to sort this dispute out and do it quickly but of course you cannot ignore the economic opportunities that will arise if striking workers are just a little bit more flexible in their attitudes to their employer and ultimately NZ Inc.

This is no time for self protection and grandstanding by Gary Parsloe and the Maritime Union, the country and its economic future are at stake.

POT @ Share Investor

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