TOR for Port Plans Review

Rumour has it that various players in Ports of Auckland and Council's Investment entity expect to be given the job of reviewing their own plans after Auckland Council's decision this week that Port of Auckland's Expansion Plans should be reviewed.

Like many others I welcome this decision as an appropriate spanner in the works. I imagine that many in Council see it more as a kick for touch, and merely a mid-course adjustment. That is why it is important that the Terms of Reference for the review, as well decisions about the Political Steering Group for the review, and the decision about what organisation actually writes the review are themselves made properly.

There is a fair dose of wishful thinking in the words used in Auckland Council's review motion. For example:

...there will need to be integrated and coordinated capacity development across the Upper North Island to meet future freight demand and avoid a shortfall in port infrastructure capacity...

These words were supported by comments to the effect that Ports of Auckland need to form "partnerships" with other entities like Ports of Tauranga or Northport. However that really is wishful thinking. As Cllr Mike Lee noted in his comments at the meeting, such relationships which might be construed as collusion, are essentially against the law in New Zealand whose legislative environment pits Port against Port, and requires individual Ports to invest heavily and offer discount deals to attract container custom from shipping companies.

Needless to say, Auckland is not the first city to review its port expansion plans. For example Dublin reviewed its port plans in 2007.

The Terms of Reference for this study involved an examination of the role of Dublin Port and its future. The study was in particular tasked to examine the costs and benefits of various scenarios relating to Dublin Port, including:

i. Relocating all or part of Dublin Port’s existing activities to an alternative location(s);
ii. Existing port activities continuing to expand with demand; and
iii. Port activities continuing at current levels with growth being catered for at alternative location(s).

The policy context in Dublin is not the same as Auckland, but it's not a lot different as this summary shows:

In relation to ports policy, the Department of Transport’s Statement of Strategy 2008-2010 summarises the key tenets of ports policy which is “to ensure investment in ports meets port capacity requirements and to facilitate the availability of commercial port services which are effective, competitive and cost efficient”.
The National Development Plan emphasises that the State-owned commercial port companies should fund their operations and infrastructural requirements without recourse to the Exchequer, either from their own resources or by other avenues such as efficiencies, increased charges, disposal of non-core assets, borrowing or private sector investment. The present ports policy is essentially market led and does not attempt to implement an interventionist planned approach.

Interestingly, one of the triggers for the Dublin review was a proposal that the Port of Dublin be expanded through a further reclamation of 21 hectares. The review compares net present values, and present cost-benefit assessments of alternative approaches to creating that extra freight handling capacity. Among the scenarios considered was:

Dublin Port would be retained but capacity would be capped at current levels with other ports developing to meet capacity requirements....

I won't spoil your fun by telling you what was advised because these stories never have quick and tidy endings.

In 2007 the City of Melbourne reviewed its port planning. A Government Commission was required to:

...undertake a review of the impact of port planning on competition in the provision of container stevedoring and related services in Victorian ports.
This follows from the Commonwealth of Australian Governments entering into the Competition and Infrastructure Reform Agreement (CIRA), which, among other things, requires each jurisdiction to undertake a review of port competition and regulation.

I came across a number of similar reviews. The common factor is the issue of competition - the extent it delivers economic efficiency for freight movements - and planning - the extent to which it undermines competition. The Melbourne review covers:

• the Port of Melbourne and, in relation to potential new container service providers, the Port of Hastings.
• container stevedoring, container handling and storage, container transport (road and rail) and intermodal services.

The Commission has been asked to:
• examine whether there are any restrictions on entry or other barriers to competition in the provision of stevedoring and related services in current port planning frameworks
• if it finds that there are restrictions to competitive entry, make an assessment of the costs and benefits of such restrictions
• assess whether the market structure for stevedoring services impacts on competition and the efficiency of container handling, storage, transport and intermodal services, and how the market structure for container stevedoring and related services impacts on: the achievement of the Government’s objectives, particularly the target for rail to have a 30% share of port freight; land-side interface efficiency; and achievement of the Government’s other relevant objectives.

This was a Government triggered review. You can see its emphasis on the theory of competition. It asks questions about how easy it is for a "new entrant" to come into the industry and establish a competing service. You can see that it was also essentially about "stevedoring" which is the loading and unloading of cargo. It appears that at the port of Melbourne there are two major operators: Patrick (Asciano) and DP World, presumably competing with each other. There is only one operator in Auckland's Port. There is no competition there. You can think of stevedoring as just the act of putting a container on a ship, and taking it off, or you can go wider and think in a broader freight logistics sense - and consider freight movement end to end.

This broader sort of thinking is what is needed in Auckland's review. A whole of North Island look - rather than the sort of narrow Ports of Auckland look that could be expected if POAL or its owner - Council Investments Ltd - did the review. It's the big picture review that Auckland needs. Not some head of the pin analysis of wharf side stevedoring.

The review now underway in West Australia is a better example for Auckland I would suggest, based on a quick look. That review is being conducted because: "the State is now entering an environment of rapid economic growth and burgeoning demand for port services, particularly relating to the resources sector it is timely to review the current port governance arrangements....". The review examines:

• the respective roles and responsibilities of Government agencies including the Department of Transport, Department of Treasury and Finance and the Port Authorities to ensure ports are able to deliver effective and efficient outcomes for the State;
• provide recommendations for structural or legislative changes desirable to improve the effectiveness of ports in ensuring that key Government objectives and outcomes are achieved;
• provide guidance in relation to the current processes for port planning and investment including examining the process for capital works approvals, funding models and competition between ports for freight;

Those to be consulting for the review include: All Port Authorities; Ports WA; Department of State Development; Department of Treasury and Finance; Department of Premier and Cabinet; Minister of Transport; and Key industry representatives and stakeholders (which include: Port User Groups; Councils at port sites; Dept Environment & Conservation).

This sort of review would look at the fundamentals. Central Governmment must be aware that port competition is not delivering economic efficiencies. What we are witnessing is market failure on a grand scale. Arguably port infrastructure in New Zealand is as important as road infrastructure. But because we are a small country, with small ports, each port has only one operator, and in reality there is no competition for wharfside stevedoring. Port competition in New Zealand is an ideological construct, it's a myth, that is why we need a fundamental review, with the Ministry of Transport at the table.