Ports of Auckland Ltd (POAL) operates a substantial general cargo port and container terminal on the edge of Auckland’s CBD. It occupies a critical site adjacent to commercial, recreational, and residential zones. Its future development will have a major impact on the city centre by way of land use options, traffic flows, harbour and harbour-side-based recreation and tourism, and the quality of central city life.
Rob Campbell’s concerns
It was disturbing, then, to read recently resigned Board member Rob Campbell’s view of the port’s future on Bob Dey’s Property Report website, especially in light of controversies about port operations and plans.
As I read it, Campbell is saying that corporate plans for the port are really about more of the same – a harbour edge transport operation which does little to recognise the value of the site or consider how the company might increase efficiencies and returns by greater specialisation. He calls for radical change: incremental gains in productivity are not enough.
He argues that POAL is not pursuing the gains that might come from exploring the use of surplus or lower cost capacity elsewhere. This would take a quantum shift in thinking, though, including a willingness to cooperate with other northern ports (Tauranga and Northland).
The sector is due for a major shakeup in New Zealand if for no other reason than the uncertainty that substantial long term increase in fuel prices create around future trade and shipping arrangements. Our ports have to be able to respond. Not only that; our economy and the economies of our trading partners are undergoing transformations which are bound to impact on trade flows in ways that are difficult to predict.
The Productivity Commission’s focus: governance issues
Against this background of uncertainty the Productivity Commission in its International Freight Services Inquiry highlighted the difficulties in port management and development arising from current governance arrangements. Local council control confuses purpose and direction, and prejudices governance in a commercial environment through the presence and expectations of elected representatives.
This effect has been seen in Auckland where a prolonged industrial dispute has seen councillors taking partisan stands and where one of the most contentious issues in the Auckland Council’s Draft Spatial Plan was the proposed inclusion of a planned a 250m extension of reclamation by the port, since removed.
Revolutionary change – saving sectors
I have been involved in two sectors that underwent revolutionary changes to stay above water. Both involved new players moving the ground from under conservative (and dominant) incumbents.
The New Zealand slaughtering and meat processing industry had to experience plant closures and company collapses to move from being a highly seasonal, over-capitalised, and non-viable industry to one that could compete internationally. Long-standing work practises, fixed management thinking, and remote ownership prejudiced its ability to respond to the trade upheavals that followed Britain’s move into the EEC in the 1970s. It took new entrants with new ways of doing things to save it from crippling rigidities built on past success and current complacency.
In aviation, the beliefs of major western airlines that they were as streamlined and integrated as they could be and of airlines in emerging nations that they could compete using the same management model but paying lower wages were turned over by a new breed of low cost carriers. Southwest pioneered the model in the US in the 1970s but it was not until the last 15 years that the LCC has really taken off. RyanAir and easyJet led the way in Europe in the 1990s. Air Asia has changed thinking about how airlines should operate in the developing world since then.
These and their emulators re-invented the operational, management, and capital structures of aviation, forcing change on those traditional carriers that survived. They have changed the way the public travels and have managed to restore a semblance of profitability to a sector in which that has been all too rare.
The Ports of Auckland Plan: back to the future?
The port industry in New Zealand may need a similar revolution. I looked for signs of revolutionary thinking in the POAL 2009 Development Plan. All I could see is a commitment to more of the same.
The analysis of future demand is central to any understanding of what the port expects to be doing, and how it might be doing it in the future. But there is no such analysis. Instead, there is an extrapolation of TEU (20 foot container equivalent units) throughput and a conversion of this projection into capacity requirement. A compounding 8% growth rate in TEUs handled from 1989 to 2007 was adjusted down to 5% as “a slightly more conservative long term growth rate” and used to project demand from 2008 to 2040.
This is anything but conservative
When I looked at tonnage growth using the Statistics NZ Infoshare cargo figures from 1989 to 2010 I actually got a 4% growth rate, which raises a question over which figures to use. However, anomalies in the historical figures fade into the background when we consider the impact of 5% compounding growth over thirty years: a four to five fold gain in container throughput.
This raw projection begs a lot of questions about New Zealand’s changing trade profile. That’s not the immediate subject of this blog. Suffice to say, few commentators or policy makers are likely to see a fulfilling future as one built on exponential growth in trade volumes.
Ports of Auckland Vision for its Future
So why such a conservative response?
POAL does acknowledge uncertainty around the projections which inform its assessment of expansion options. But none of the options canvassed (see pages 11 -13 in the Plan) envisage relocation of component trades or operations, although inland ports will no doubt play a significant role in the streamlining envisaged. Instead a combination of progressive reclamation and new stacking operations is proposed. The need to deal with larger vessels is also acknowledged in new berth design parameters and a channel deepening programme.
No doubt efficiencies can be imposed at the margins through investment in new equipment and changing working conditions. But what will this achieve in the long-term? And how relevant will it be to New Zealand’s – and Auckland’s – economy in 2030 or 2040?
POAL is proposing to cement in a development plan which imposes a singular and historical view of its place in New Zealand trade, and in the central Auckland cityscape. If we are to go with Rob Campbell’s analysis, productivity will be diminished because a relatively low cost activity will be expanded over high cost (reclaimed) land.
Its hard to understand how such a conservative approach to development can be founded on such a bullish vision of the future. Unless we actually suspend our belief in the projection, which seems like a sensible idea.
Time for a rethink
I’m not sure that this path is one that the country or the city can afford, at least not on such an apparently thin analysis of future demand.
So it’s a wise move by the Council to omit the planned reclamation from Auckland’s Spatial Plan. This is something that we need to think long and hard about. We need to expand our thinking about the physical options facing trade in the northern North Island, for a start, rethink the role of the port in downtown Auckland, and perhaps heed the Productivity Commission’s advice regarding ownership and governance of the port industry.