18 April 2012

Port of Auckland: What Happens Next

Some comment for importers wondering what happens next in the long running dispute between the Port of Auckland and about 200 members of the Maritime Union.

In most modern ports, stevedoring is done by contractors who compete with each other to load and unload vessels. The Port companies are in charge of planning, charging shipping companies and managing the contractors through KPIs. The contractors then employ stevedores.

In Auckland, however, a model developed where the Port itself employs the stevedores, who belong to a single union – MUNZ, or Maritime Union of New Zealand.

Until 2006, the Port was majority-owned by local government, but was also quoted in the stock exchange and was run as a commercial operation. In the previous decade, when it operated as profit-making organisation, the Port made substantial improvements in productivity and rose to the top of regional port performance league tables.

In 2006 the Council decided to buy out all the remaining private shareholders and become 100% owner. The purpose of this was to capture a high dividend stream in order to fund some rail and other deferred infrastructure projects. Soon after, the dividends became smaller, some would say in line with the removal of commercial disciplines. The Union became increasingly militant and extracted better and better conditions from management.

The average salary of a wharf worker in Auckland is over $90K and they work on average 26 hours for every 40 that they get paid. These figures were published by management and disputed by the Union, but were subsequently audited and confirmed by Ernst & Young. As you would expect, the stevedores don’t really enjoy much sympathy from the public for their ‘plight’.

The Council realised that they were not getting anything near their expectations and appointed a new management, with an instruction to double the return on investment (R.O.I.) to 12%. The new management came to the conclusion that the only way they could achieve this was by taking control of the roster and pay something like 40 hours for 40 hours worked. This was also needed to stem the flow of business lost to Tauranga.

The Union was in effect running the roster and doing the usual tricks - that’s how they managed to get paid 40 hours for 26 hours work. The Union bosses simply could not contemplate losing the power to run the roster for their own benefit, even though they were offered 160 guaranteed work hours every 4 weeks, rosters fixed one month in advance and a sweetener of a 10% pay rise. Each offer from the Port was met with an announcement of yet another strike, culminating in the last one that went on for five weeks.

At that stage, the Port decided that they couldn’t do business with this Union and moved to a sub-contracting model. The 200 Union members (from the original 300) who had not by then left the Union, were served with notices of redundancy.

The Union went to the Employment Court and got a stay of execution. The Port and the Union were ordered by the Court to go back into bargaining and to pursue a collective contract in ‘good faith’. The Port was ordered to stop work on appointing subcontractors during this period. The substantive issue of whether the Port can be allowed to sub-contract will be heard in May, unless an agreement is reached before that date.

Initial negotiations have not produced results. The parties have decided to refer the issue to a process of “facilitated mediation” overseen by senior Labour Department officials. Those officials do not have the power to make an award, but can publish their decisions which would have the effect of undermining the credibility of the losing party.

It is unlikely that the Court would make a decision that would in effect prevent a company from deciding on how it should run its business, i.e. by issuing an order that “you cannot subcontract, you must deal exclusively with MUNZ even though you can’t reach agreement with them”. It is therefore likely that a sub-contracting model, which is used by direct competitor Tauranga and most other ports in Australia, will prevail, sooner or later.

The Union’s best hope of preventing this is by accepting roster flexibility. They are coming into increasing pressure from their political supporters to do so, but you can never rule out the obstinacy of some people when they get into a die-in-the-ditch mode, where some of the ‘comrades’ in the Union appear to be.

There are, in our view, two likely scenarios:

(1) The Union will accept the offer from management, perhaps with an additional face-saver thrown in, and the Port will limp along as before. Shipping companies will continue to play off Auckland against Tauranga and Auckland will not reach its 12% R.O.I. target, but that will not affect importers that much.

(2) The Union will refuse all offers and the Court will authorise the Port to engage sub-contractors. The Unions will continue to protest for weeks or even months, but that will be largely ineffective as the law in both Australia and New Zealand prevents sympathy strikes. There will be a period of 4 to 6 weeks of further disruption while the new contractors are bedded in.

The only precaution that importers can take at this stage is to allow for a longer transit time in their planning, for the period between mid-May and the end of June. They may also wish to make a provision for some additional container relocation costs during that period. If the disruption increases, they could then look at other plans such as diversions to airfreight – but we do not believe it will get to that.

In the long term, we believe that Auckland will continue to be the main seafreight gateway into New Zealand and will operate at a level of efficiency comparable with other ports here and in Australia.

30 March 2012

Port Update

The latest twist in this long saga is that the Port will allow the strikers to return to work next week and continue to go through a mediation process for a few more weeks, until the middle of May.

The Union has not made any public commitment to abandon its wish to keep restrictive work practises and the Port has not abandoned the intention to move to the competitive model used by efficient ports.

There are three scenarios for importers to consider:

1. Shipping companies may not be interested in returning to Auckland until they have assurances that their ships will not be delayed by more industrial action. We expect that they will hold off for a while before making firm commitments.

2. The Union may come to its senses under pressure from political supporters and its own members (who have now lost more than one month’s wages) and agree to the conditions offered earlier by the Port. If that happens, the Port’s plans to move to a competitive model may go on hold for a while and normal service could be resumed.

3. On the other hand, the Union could well continue to do what it does best, which is to push ahead with strikes and hope for support from sympathetic politicians (this Government’s inaction is pretty much a given). If that happens, by mid-May we will be precisely where we are now.

Our main concern is that, after four weeks on strike, other ports in New Zealand are coming to their cargo handling limits, as is our sub-standard road and rail infrastructure. We are perilously close to ships bypassing New Zealand altogether.

Within the next week or two, we expect to have more clarity. We will need to keep an eye on which ships will come back to Auckland. The best source for that information is here.

10 March 2012

Port of Auckland - Background

The Maritime Union drove a group of its members to redundancy and appears determined to continue the heroic struggle to preserve work practises that the rest of us left behind in the Seventies. How did it come to this?

The Productivity Commission is conducting an in-depth review of the transport sector. Their report noted, “New Zealand’s transport and storage industry experienced strong productivity growth in the 1990s, but virtually no productivity growth in the 2000s.” That’s the problem with lost decades. They come with hefty bills.

Back in 2005, Ports of Auckland was majority-owned by the Auckland Regional Council. The elected chairman of that body at the time, Mike Lee, justified a decision to buy out the private shareholders by saying, ”The Ports of Auckland will be a prized legacy for future generations and the wealth generated will be vital for funding Auckland’s infrastructure for years to come.”

This is what actually happened: the cost of buying out the 20% then owned by other shareholders was $170 million; that transaction effectively valued the whole company at $850 million; but the book value of the company shown in the Auckland Council transition documents in 2010 was just $394 million.

Even after allowing for inflation and differences in valuation methods, $456 million is an awful lot of money to disappear in just five years. We probably haven’t seen destruction of shareholders’ wealth on this scale since Hugh Fletcher. Mr Lee’s vision of the port as a cash cow to fund local government projects appears to have turned very sour, very quickly.

The Productivity Commission seems to understand only too well where the problem lies: “Publicly-owned organisations are also, in effect, spending other [people's] money [and] are not well placed or sufficiently incentivised to monitor performance of such investments.” The Commission went on to say, “To manage conflicts of interest, elected representatives and council staff should be precluded from being a director of port and airport companies.”

The main issue is that ports are an important part of our infrastructure and we can't afford the risk of having their management overseen by local body politicians and town clerks. The Commission said, "To improve the efficiency of ports, councils should consider increasing the degree of private ownership in them. Councils should evaluate whether they can still achieve important community aims with lower ownership stakes." Perhaps, just perhaps, had Auckland had not made the decision to go for 100% ownership in 2005, we would not now be in this predicament.

The Productivity Commission also understands very well the origins of the archaic work practises that the Union is fighting to retain, and management to overcome: "Many of these work practices stem from past management decisions that were pragmatic and relevant to the working of ports before the advent of widespread containerisation and bulk material handling." In the Seventies, that was.

07 March 2012

Importers Support Port Decision

The Importers Institute supports the decision of Ports of Auckland to outsource stevedoring services. This decision means that about 300 Maritime Union members will be made redundant. Some of them will get jobs with the new contractors, others will move their heavy machinery driving skills to Australian mines and a few will have lots of time to reflect on the consequences of mindless militancy.

This dispute was never about terms and conditions. When the workers demand 2% and the bosses counter by offering 10%, to which the workers respond by going on strike, you could be excused for thinking this was a scene from The Life of Brian. No, the dispute was always about who runs the port. Was it to be management acting for the owners (the City) or the Union?

Importers have already had to bear enormous costs trying to cope with the effects of the strikes. They have had to, at their cost, move containers discharged at other ports around the country. Shipments have been diverted to airfreight. Consumers will ultimately pay for these significant costs, in the form of higher prices.

There will be a period of disruption for several more weeks, until the new contractors are up and running. We expect the Union to try to be as disruptive as possible. Expect to see the 'Occupy Auckland' hippies morph into 'Occupy the Port' protestors. The Maritime Union has not hesitated to deliberately engage in illegal sympathy strikes in Tauranga and Wellington. They cynically forced those ports to go to Court to obtain injunctions before going back to work. All this was taking place as the Union was announcing yet another illegal strike in Christchurch.

This dispute has been prolonged by the absurd requirements for lengthy periods of formal consultations. These requirements are part of the 'good faith' fiction enacted by Margaret Wilson of the last Labour Government. We say it is a fiction, because the Union has never displayed even a trace of good faith. They have lied about the average salaries (over $90,000) and made untrue claims about casualization. They responded to every proposal with a further notice of strike.

The current government does not see the need to amend the industrial legislation that it has inherited from Labour. Except when the victims are Wellington creative types, it seems. In fact, the only Labour excess that they have rectified in the last four years was to reintroduce Sirs and Dames (but not the Privy Council). Not good enough, Mr Key.

23 February 2012

Importers Ask Government to Break Strike

The Importers Institute has today asked the government to pass urgent legislation empowering the Port of Auckland to dismiss striking port workers and contract out the work to private operators.

The Union today threatened to extend a two-week strike into three weeks. During that period, importers and exporters will have to spend many millions of dollars diverting cargo to other ports and airfreight, to keep shops and industry supplied. The exodus of shipping services from Auckland to other ports will accelerate.

This is not a genuine labour dispute for better pay and conditions. What the Union is demanding is quite simply a monopoly on wharf work, usurping the right of management to manage the Port. In effect, they are striking for the right to run the Port for the benefit of the Union. Their members will get nothing from this action, except for one month's lost wages and most probably redundancy.

The Importers Institute asked the Port management what the cost would be of moving the work over to private contractors without delay. We were told that is not possible. Under current legislation, a Court would probably force the Port to take back the striking workers. This is apparently something to do with the 'good faith' nonsense legislated by Margaret Wilson a few years ago.

We call it nonsense because the Union has been guilty of the utmost bad faith. They have lied through their teeth concerning the average remuneration of their members (over $90,000) as well as pretty much about everything else concerning this dispute.

The current government has had plenty of time to reverse the legislative excesses of the last government, but chose instead to smile and wave. The time has now come for the government to assume its responsibilities and prevent a bunch of industrial thugs from holding New Zealand to ransom.

We already have legislation that prohibits some forms of industrial action, for example sympathy strikes. That has not stopped the managers of the Union from going off to Sydney to ask their comrades in other countries to boycott New Zealand. The government's obligation is clear and urgent.