The
productivity commission some months back asked a series of questions relating
to Port Ownership and port efficiency.
The Productivity Commission is a stalking horse for the “privatisation” of
public assets, their agenda appears to be driven by Dogma, it is most improbable
that true efficiency even comes to the hindmost parts of their consciousness when
contemplating these matters. The
questions raised by the Productivity Commission speak for themselves. As I hope do my responses to them.
Q1 Are there
important issues that may be overlooked as a result of adopting an economic
efficiency perspective for this inquiry?
1.
Ports
are “enabling” infrastructure, their existence allows other economic activities
to occur. The whole of system effect needs to be considered when considering the
“economic efficiency” of current services.
A simple example of this for is that without a port with log handling
facilities and without a log service whole log exports are uneconomic within
quite a short haul from a port. Rail or
road transport to another port do not appear to be viable economic
options. The profitability of the log
export market to the regional economy, with a port and bulk log carrier
services, is probably more significant than the profit on the port yet without
a port this sector of the economy is rendered unprofitable.
2.
Ports
are public infrastructure. In the short
term Ports can be run as stand alone enterprises with profit as the primary
motivation for the business activity but in the long term the business is there
to facilitate regional trade in the same manner that the road network does, not
to make a profit. There are times when
Port investment needs to consider the “whole of economy” value ahead of
profitability, and overall regional economic performance needs always to be
paramount. The original investment in
developing most of the Port
Infrastructure only occurred because they were constituted as local authorities
and could invest community money. On
pure direct economic returns the investment in the creation of port facilities
would unlikely ever have been viable, but the overall value to the economy of
the investment in port infrastructure and of the wide variety of businesses
that are now facilitated by that investment has made it more then a sound
investment, in each community the Port is an essential element.
3.
Ports
and airports removed from community control also lend themselves to “gate
keeper” or “highway robber” roles in the economy. They provide the owner control of an
essential monopoly with the power to tax the economy dependent on the services
of the Port. This highway robber effect
is evident with Auckland Airport.
Q2 Is the framework described in Section 3.2
appropriate for this inquiry and are there any important issues that might be missed?
1.
The
most important issue missing in this is that “economic efficiency” is not the
primary determinant of a viable economy. Infrastructure services have a “whole
of economy” effect that unlock potential or enable activity. Most of these
services are not necessarily possible to provide profitably while also
maximising the economic potential of the region, some of these services even
provided at least cost do not realise the full potential in the economy.
2.
The
consideration of third party costs is missing.
Much “economic efficiency” in the narrow “Neo Classical” sense is
actually a transfer of costs or a loss of economic opportunity onto a third
party dependent on a service. The cost
reduction provides a saving to the “efficient” infrastructure provider but a
cost to the infrastructure user. That is
why infrastructure is publicly owned, it is cheaper to aggregate costs to
minimise them through collective or public monopoly enterprise than it is to
undertake them individually. Road
networks are a classic example; telecommunications are another that should be.
3.
It
is possible to maximise the economic efficiency of all of the individual
components of the economy in isolation from one another while at the same time
reducing the scale or capacity of the whole system. New Zealand suffers badly from a lack of
realised potential through an inadequate investment in infrastructure and
through over pricing. This is primarily
because the narrowest of economic efficiency measures are applied to these
infrastructures where privately owned with investment decisions and because
existing infrastructures are increasingly being run for profit rather than for
realising the fullest economic potential from the broader economy.
4.
New
Zealand also suffers from a lack of strategic control over its supply
lines. The whole concept of dependency
on the investment whims of third party maritime freight service providers for
the provision of the most profoundly essential service to our trade dependent
economy seems unsound to put it mildly.
We are price takers in everything we do.
The country needs to break out of that mind set.
5.
In
most rural parts of New Zealand the community holds public ownership of these
assets in very high regard. The strong
ethic of community ownership recognises the significant indirect economic
values that this report fails to recognise.
Ports were built using community money, the fact that community
ownership is not as coherently represented in the market as private investment
is, does not mean that it holds any lesser rights. Council also owns its share as a majority
holding in a publicly listed entity.
Q3 Which
components and component interfaces warrant greater attention? What is the
evidence that they are inefficient? What contribution could changes make to an
improvement in the overall efficiency of the freight system?
1. Nationally we
need a vision that identifies the potentials within the economy and how these
might be realised. Particularly the
cross linkages and displacements
2. There is no
future proofing, no conceptualisation of trends and drivers for change in the
manner in which the economy will function in the face of fuel cost increases
and changes in technologies and changes in market place dynamics.
Q4 What environmental considerations should fall
within the scope of this inquiry? What issues are of particular importance?
1. The cost of
fuel and the introduction of a carbon cost is going to enhance the value of
coastal shipping as the most fuel efficient form of bulk transport.
Q5 To
what extent is there effective competition for customers between New Zealand
ports? Has this led to lower prices and incentives for productivity
improvements?
1.
The small ports and national rail freight capacity do
seem to be used by the major customers of the country’s ports to effectively
develop competitive freight arrangements.
However non-freight cost components do seem to play a significant role
in port users’ freight decisions.
Particularly space for port related facilities such warehousing and bulk
storage and regional business opportunities seem to drive port freight
flows. The report does not seem to
contemplate “whole of journey” costs.
2.
Most major commercial relationships relating to port
activity appear to be negotiated by parties with reasonably equal market power
and that would indicate that the outcomes are likely to be fair and competitive. The service decisions of the individual
shipping companies seem to have a far greater influence on service levels and
costs than the cost of port operations.
Q’s 6 – 12
Relating to Port productivity
1.
Most of the measures of port productivity are spurious
for the greater proportion of NZ’s ports.
Many NZ ports are still based on infrastructure that was built prior to
containerisation. Substantial parts of
the asset base are either fully depreciated or have a minimal residual or
salvage value. Most of the smaller ports
have less sophisticated freight handling capacities but also have lesser
overheads and most have intermittent services than these being mentioned in the
benchmarking measures.
2.
Profitability is also a misleading measure. The residual value or current value of port
company assets is unlikely to bear any resemblance to their replacement
value. The key measure is the level of
service provided to the regional economy.
A satisfaction survey would be the most effective means of achieving this.
Q 14 Does New
Zealand have too many ports for a small country? If so, what barriers are
inhibiting rationalisation?
1.
Given that each port appears to be economically viable
the answer is clearly no. The existing
port assets are “stranded”, even if fully depreciated and run at a minimum of
reinvestment they are clearly providing sufficient operating surplus to justify
their existence. The fact that ships
still visit and freight still passes through them and given that there is no
constraint on road or rail freight to other ports and that there is a clear
cost advantage in the existing coastal freight network indicates quite clearly
that we do not have too many ports.
2.
If there were too many ports freight forwarders and
shipping services would sort that out rapidly as there would be cost savings in
freight aggregation at fewer larger ports.
If anything the smaller ports are keeping the bigger ones honest. It is also important in this discussion to
remember that a number of regional industries are port dependent.
3.
The removal of elements of the coastal trade from a port
may only result in higher overheads for the residual industry dependent port
activity. If Bluff was only operating to service Tiwai and the fishing fleet it
would still need nearly the same operating assets as it does with container and
break bulk trade. It would still need
channel maintenance, pilots, tugs and an administration but it would have less
than half the vessel berthings to carry the over head.
Q15 Has local-authority ownership of majority
stakes in New Zealand’s commercial ports inhibited, enhanced or been neutral
for the development of a more efficient and productive port sector?
1.
Most Ports are run on a day to day basis, on a commercial
model at arms length from their local government owners. An independent Board of Directors is likely
to be the most important aspect of governance and ownership.
2.
Local government as owner is important for the same
reason as the local government ownership of roads is important. There is a greater strategic purpose to
ownership that warrants for public ownership of the asset. This does not mean that substantial elements
of the commercial function of a Port cannot be conducted by private enterprise
either as owner or contractor but ownership and determination of levels of
service needs to be determined by the community for the community’s greater
interest. The asset also needs to be
administered in a way that maximises the hole of community benefit from the
infrastructure.
Q16 What changes in governance, regulations or
ownership would offer the best means to improve port performance for exporters
and importers?
1.
Elected members and staff of the owning authority need to
be excluded from membership of the board of the port operating company. Port companies need professional boards
otherwise there do not appear to be any significant issue around port ownership
other than that there needs to be regional infrastructure plans that tie port
investment into long term strategic objectives for regional infrastructure.
Q 29 The objective of a port company under the
Port Companies Act is to ‘operate as a successful business’. Should airport
companies owned by local authorities have the same single objective rather than
the multiple objectives specified in the Local Government Act?
1.
The concept of these infrastructures as strategic asset
is as valid as it ever was. Airports
function as significant community gateways and air services have a much greater
import to the community they serve than the direct value to the airline
operator. Air services are essential to
business viability in provincial New Zealand and to the entire domestic and
international tourism industry. Airports
are the entry point to the regional and national economy. The most “commercial” of the nation’s
airports do not operate for the benefit of the broader economy and exercise
significant gate-keeper power and act as revenue collectors rather than service
providers.
s5 Interpretation Local Government Act 2002
Strategic
asset, in relation to the assets held by a local authority, means an asset or
group of assets that the local authority needs to retain if the local authority
is to maintain the local authority's capacity to achieve or promote any outcome
that the local authority determines to be important to the current or future
well-being of the community; and includes—
(a) any asset or group of assets listed in accordance with section
90(2) by the local authority; and
(b) any land or building owned by the local authority and required to
maintain the local authority's capacity to provide affordable housing as part
of its social policy; and
(c) any equity securities held by the local authority in—
(i) a port company within the
meaning of the Port
Companies Act 1988:
(ii) an airport company within
the meaning of the Airport
Authorities Act 1966
Q31 Should the future size and shape of New
Zealand air freight services be left to market forces and individual airport
owners, or do lumpiness and interdependence (including with investments in
connecting parts of the overall supply chain) call for a more deliberately
coordinated approach?
1.
Certainty of freight service is essential to investment
in export-based industries.
Airfreight-dependent Horticulture and manufacturing in particular needs
to be assured of certainty of access to export markets for years into the
future before an investment decision can be made. Some services may also be seasonal. International freight via regional centres, a
number of which are international flight capable or could be made so with a
modest investment would create opportunities for much higher value crops to be
grown on land that traditionally the highest value use has been pastoral
agriculture or dairying.
Q57 Should decisions on investments in ports and in
the associated infrastructure links to ports be left to the judgements of the
individual suppliers of the separate components? Or would some sort of overall
strategic plan provide useful guidance and some assurance that complementary
investments will happen?
1.
Strategic infrastructure planning is essential. This should be conducted at both regional and
national levels and be integrated across all infrastructures.
Q58 What is the scope for greater consolidation
of ports, greater vertical integration of ports with domestic transport
operators, or more use of long-term agreements between shippers and port
companies, as possible means to overcome coordination problems and achieve more
efficient international supply chains?
1.
At a national level it may be of benefit to negotiate
multi year shipping service agreements however these could interfere with
existing good working relationships between port companies and shipping lines
and exporters. These could disappear
with little reference to the regional economic impact of their loss. This lack of self determination as to levels
of services is a root cause problem.
2.
If hub ports are to be used it is probably more logical
to use existing hubs in Australia or Asia as tends to happen anyway.
Q64 Are import and export opportunities excluded
or constrained by the lack of access to international freight transport
services? Are there changes in institutions, policies or regulations that could
lead to better outcomes?
1.
The lack of reliable airfreight particularly between the regional
airports and markets in the eastern seaboard of Australia is considered to be
preventing or limiting the development of horticulture. This is an example of the enabling potential
of infrastructure. Without a reliable
airfreight service from the South to potential markets the horticulture industry
cannot develop and there will not be a freight service while there is no
industry. A very substantial potential
for export of high yielding crops is left unrealised because there is no
mechanism for establishing the freight links necessary for growers to establish
businesses.
2.
This is the classic infrastructure issue; without the
necessary infrastructure there can be no businesses and without the businesses
there is no demand for the infrastructure.
This is where political leadership, public investment and strategic
vision come into play. It is these
components that seem to be missing from the picture. Efficiency isn’t the problem it is the lack
of strategic leadership and strategic investment that are the problem.
Q68 Are import and export opportunities excluded
or constrained by the lack of access to international freight transport
services? Are there changes in institutions, policies or regulations that could
lead to better outcomes?
1.
A number of export activities are dependent on specific
freight services being available regionally.
Bulk log exports are a simple example.
A broader issue is the unrealised potentials issues that come from there
being no regional airfreight and the effects that has on the horticultural
potential of the region. The only way
this could be realised is for a government funded development strategy with
guarantees of freight services being established. The market left unaided would
not initiate this. Certainty of access to international markets is not possible
under the present arrangements.
Q74 What factors would favour the choice of
decentralised vs. centralised strategic planning?
1. Integrated
infrastructure plans are required at both regional and national levels. The regional level is the primary level for
integrated “whole of economy” planning.
Q78 Has this issues paper covered the key issues?
What other questions need to be asked?
1. The paper has
failed to consider the whole of economy value and the whole of economy function
of freight infrastructure focussing instead on the narrowest measure of value.
Q79 What are the most important issues for the
Commission to focus on to achieve the greatest improvements in the efficiency
and productivity of New Zealand’s international freight transport services?
§ Invest in
freight infrastructure for its whole of economy value
§ Freight
infrastructure must be publicly owned at least at the extent of the serviced
community determining service levels.
§ Plan for
freight infrastructure as a set or system of interrelated economic functions at
both the regional national level.
