21 December 2011

Time to Break Port Strike

The time has come to break the strike at the port of Auckland. The Maritime Union is negotiating in bad faith and is bent on doing maximum damage to importers, exporters and everyone else in Auckland.

The Importers Institute does not, for obvious reasons, like this strike. But we would like it even less is we lived in a country where people are not allowed to strike. That is why we have consistently urged the parties to resolve their differences and have not taken sides. Until now.

The Union is not striking for better conditions for its members. It is protesting that the Port gave even better conditions to people who do not belong to the Union. Quite simply, it wants to retain a total monopoly on stevedoring and snuff out any possibility of the Port becoming more flexible and productive.

This is not a strike to protect Port workers. It is a strike to save the jobs and influence of the old geezers who make a living as union officials.

Both sides have engaged in spin. Shipping company Maersk came out and said its decision to move a service to Tauranga was influenced by the current disruption. This is simply not true. Decisions on port rotations have to be made months in advance. Maersk's contribution, eagerly seized on by the Port, was union-bashing, pure and simple. The fact that this particular union may deserve to be bashed does not change that fact.

The Port made it plain the union members have salaries in excess of $90,000, enjoy premium medical insurance and get paid for reduced hours. So what? Driving those container-straddling machines is a very skilled job and they have to work round the clock shifts. The pay does not seem excessive to us.

The Union complained bitterly that the Port had the temerity of writing to the workers direct pointing out the obvious: unless the operation becomes more flexible and productive, there could be redundancies. The Union called the letters "filthy, reprehensible and repugnant". What bollocks. They are nothing of the kind. Read them here and judge for yourself (h/t Whaleoil).

The Port has now offered a 10% pay increase. The Union responded by giving notice of yet another strike. It is not clear what the Union actually wants, except to ensure that it retains a total monopoly of stevedoring.

So, how do we go about breaking this strike? One option would be to do what President Regan did to striking air traffic controllers in the US thirty years ago. Sack the lot of them and employ new people. Unfortunately, John Key is no Reagan. He could, however, promote a law change to have union officials, who act in bad faith, held personally liable for the damage that they cause to others. We already have provisions to outlaw sympathy strikes, so this would merely be an extension.

The best route, however, would be for the Port of Auckland to simply make all members of the Union redundant and, like Tauranga, put its stevedoring out for competitive tender by private operators. The Labour politicians in the Auckland Council won't like it a bit, but will not ultimately have the political courage to stand in the way of management. There will be a period of disruption, no doubt, but as Qantas discovered, that is far preferable to a slow death at the hands of self-serving unionists. The Port can count on our support.

13 October 2011

Fonterra Needs Historians, Not Lawyers

The New Zealand milk cooperative Fonterra wants to form an entity called Kotahi (Maori for "standing together as one") with Silver Fern Farms, a meat exporter, and possibly other exporters and importers, to collude against shipping companies and ports.

That collusion is quite possibly illegal, so Fonterra has applied for a dispensation from the Commerce Commission. Ironically, one of the parties against which they want to collude are cartels of shipping companies, who themselves are still exempt from our anti-competitive laws.

The effect of the proposal is simple: Kotahi will use Fonterra's buying powers, augmented by those of its chosen partners, to get freight discounts from shipping companies. It seems probable that the shipping companies would increase the freight rates they charge smaller exporters and importers to compensate.

So, is this just a scheme to increase the profits of Fonterra at the expense of almost everyone else? And if that is all there is to it, how on earth could anyone think that the Commerce Commission would allow that?

Fonterra says that their real objective is to promote a National Infrastructure Plan. They said, "While Kotahi Logistics will be seeking to drive ocean freight and other transport costs for its limited partners and customers [...] achieving costs savings for the benefit of individual firms is not the primary driver. Rather, the Kotahi proposal is aimed at creating a more efficient freight system for all New Zealand firms by promoting greater consistency and more integrated investment in the transport sector."

Fonterra is New Zealand's biggest exporter. Can't they just use their muscle to achieve those objectives? Apparently not: "Even Fonterra - whose usage of containerised freight services currently dwarfs that of any other users - standing alone cannot expect to drive the necessary change", they said.

The cooperative is itself the product of a dispensation from our anti-competitive laws. They enjoy a virtual monopoly on the export of dairy products from New Zealand. Chinese consumers are desperate for infant milk formula packed in New Zealand - they don't trust local sources after a former Fonterra joint venture there was caught poisoning babies with adulterated milk powder. Some entrepreneurial traders are going around buying infant formula from retailers in New Zealand and shipping it to China. It won’t last. The authorities here will do whatever it takes to preserve Fonterra's monopoly.

The Importers Institute shares some of Fonterra's concerns about the lack of rationality in infra-structure investment. Port companies, like Auckland for example, are regarded as little more than cash cows by the local politicians who 'own' them. The usual business accountabilities are absent, because those companies are not businesses, they are extensions of local government.

The solution is not more bureaucratic control or five-year plans drawn up by technicians employed by central, local or corporate bureaucracies. The solution is to ensure that those assets are sold to the highest bidder and operated as competitive businesses - with no dispensations for anti-competitive behaviour. If, for example, Auckland fails to invest in gear to handle larger ships, they will lose that trade to a competitor who does, say Tauranga or Melbourne.

Fonterra must have spent a few million dollars on this proposal - the corporate litigation specialists of Chapman Tripp and the economists from NERA don't come cheap. They should have consulted less with lawyers and more with historians. Without exception, every economy that has ever attempted to replace markets with central plans devised by experts has ended up in total failure. The 'obvious' efficiencies of central planning never materialised, only shortages, privations and the growth in a class of corrupt planners. As someone said, if you introduce central planning to the desert, nothing much will happen at first, but after a while there will be a shortage of sand.

The Importers Institute urges the Commerce Commission to decline this proposal. We urge the government to take steps to free up our economy (including the break-up of export monopolies), instead of tying it up in the red tape of planning committees staffed by would-be experts. We would expect our largest corporation to share these aims. Sadly, Fonterra has failed to exercise business leadership, in this case.

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UPDATE: 19 Dec 2011. The Commerce Commission declined Kotahi's application for immunity from prosecution under the Commerce Act. If their future activities become anti-competitive, Fonterra and its partners can be prosecuted. The Importers Institute applauds this decision.

12 August 2011

Forwarders Get Just Desserts

Abba Logistics, a subsidiary of Chinese forwarder Amass Freight, charged an importer for fabricated and inflated destination charges. The Disputes Tribunal has now ordered Abba to refund all charges - fabricated, inflated and real.

Abba charged the importer a total of $6,535.07 over four shipments. The charges included a port service charge of $100 per cubic metre, a delivery order fee of $55 per shipment and an assortment of fabricated destination fees variously described as 'carrier security fee', 'document fee', 'port security fee', 'handling fee' and 'MAF handling fee'.

Abba also charged the importer US$25 per m3 for 'origin terminal handling charges' on two of the shipments. The terms were CFR (Cost and Freight), with all freight costs to be paid by the exporter.

The importer took the issue to the Disputes Tribunal and submitted that the only charges that Abba was entitled to collect were the delivery order fee of $55 per shipment plus a destination terminal handling charge of $65 per m3. It claimed for the return of the difference of $3,676.79.

Abba came up with two main lines of defence. The first was that when the freight was prepaid by the exporter, they would charge freight of US$25 and destination charges of NZ$100, but when the freight was payable by the importer, then they would charge US$85/NZ$65. They attempted to explain this by saying that "The market seafreight rates are always combined with a reflection ratio of destination port charges rates".

The second line of defence was that Abba was merely an agent for Amass and, if the importer had a problem with the charges it should take the matter up with Amass direct. We have since established that Abba is a New Zealand company, member of CBAFF (Freight Forwarders Federation) and based in Auckland. It has one sole director: Ms Emily SHIH. It has three shareholders, Messrs Shang Gen GE, Rong LING and Zheng Yi WU who all share the same address: 248 Yangshupu Road, Shanghai. That address is also the head office of Amass Freight International.

Nevertheless, the Tribunal took Abba at its word. It found that there was no contractual relationship between the importer and Abba. It ordered Abba to refund the total amount that it had received from the importer within ten days. It will now be up to Amass of Shanghai to pursue any proper destination charges directly with the importer.

The Importers Institute continues to receive a steady stream of complaints against forwarders who fabricate and inflate destination charges. In addition to Abba, an outfit called POTA Global Freight has come to our attention on several occasions. Our advice to importers is that they have no option but to pay the extortionate amounts demanded (or face demurrage charges) but should then refer the matter to the Disputes Tribunal.

Unlike Abba, POTA have refunded importers for the overcharges, when threatened with Court action. The Importers Institute sent a courtesy email to POTA's head office in Australia helpfully pointing out in the subject line that the "New Zealand Office of POTA is disgrace to your company's name". We said we "can't believe that a company with the history and international reputation of P&O has lent its name to [...]". We were surprised to receive an email from a Mr Steven Hussey saying "You rude asshole. I look forward to meeting you face to face real soon!"

Mr Hussey of Melbourne calls himself "Director - International" of POTA Global Management Pty Ltd (a division of P&O Trans Australia). We suspected that there was some sort of cultural misunderstanding so decided to consult with a specialist in these matters. We have now been assured that Mr Hussey's response is considered to be perfectly acceptable business etiquette in some parts of the docks in Melbourne.

The Importers Institute believes that it is high time that the Commerce Commission had a closer look at the totally unregulated forwarding sector. Importers should not have to put up with these rip-offs.
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UPDATE: 17 Aug 2011. Abba Logistics have appealed to the District Court against the decision of the Disputes Tribunal. We will report on the outcome.

UPDATE 2: 19 Dec 2011. The District Court cancelled the Disputes Tribunal decision and ordered the matter to the District Court for a new hearing.

UPDATE 3: Abba and the importer settled. There will be no hearing in the District Court.

15 June 2011

Forwarders Fined Millions

The High Court of New Zealand approved a set of fines on price-fixing forwarders:

* Schenkers (a German State-owned company): $1.1m
* BAX (now a division of Schenkers): $1.4m
* Panalpina (a Swiss company): $2.7m

Settlements had already been reached for similar conduct with EGL and Geologistics International and the total cartel penalties imposed to date by the courts is $8.85m.

Kuehne & Nagel is still to have its day in Court.

The forwarders got together and conspired to charge agreed amounts for security costs imposed by US and UK authorities and to introduce a currency adjustment factor following a decision by the People’s Bank of China to stop pegging the local currency to the US dollar.

Justice Allan commented that the surcharge agreements were “part of a sustained course of conduct involving covert meetings and communications.” He also noted that the conduct occurred in “a market of fundamental importance to New Zealand.”

Schenkers has spent more than US$55 million worldwide dealing with regulatory authorities and created a mandatory web-based training facility for its employees globally. The Importers Institute hopes that the message will get through and congratulates the Commerce Commission on these successful prosecutions.

11 January 2011

Import Insurance

Do you insure your import shipments? Some importers choose not to (in effect, they self-insure) while others are happy to leave that task to their suppliers overseas.

We recommend that importers should look after their own insurance, preferably by getting an open policy with a local company. There are only a handful of specialists in this area, so it is relatively easy to compare their products.

One that caught our eye recently is a product called Cargo Plus, from QBE Insurance. They have a plain English policy that, unlike many others, gives cover for loss of profits. They have also decided to forego that perennial excuse for not paying out on claims: "insufficient packaging".

For more information, contact Neil Cousins at QBE, Tel (09) 308 8612, ncousins@qbe.co.nz.