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.

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