Wednesday, September 10, 2008

Finding new futures for NZ ports

One of the most interesting questions a CEO ask of me recently was do I think NZ ports should be sold to foreign investors. To be honest, the nationalistic side of me says, “no way” – ports like airlines, railways and telecommunications are strategic assets to be guarded like a prized lottery. But my position changes by the day. At the moment, I think the answer I have is “I don’t know”.

I grew up in a port town. Five miles from home used to be a dilapidated smelly harbour for fishermen. Then the port grew, and grew. Today, the place I used to know is beyond recognition. It is a modern, very happening port by world standards. A port can lend much life to its surroundings. Industries grow around in – like a motherload, the port attracts migrants, workers, traders and supporting services. Life grows around, feeding on the ports' vibrancy; or life becomes a drag, when the port's lifelessness cast its paleness around its inhabitants.

The big boys
Today, my old home town’s largest port – North Port -- can handle over 4 million TEUs (twenty foot equivalent container) and can berth super container vessels carrying 8,000 TEUS. In Auckland, handling vessels of that size is something that is achievable only within the next three to five years if dredging of the local harbour goes according to plan.

How the world is changing.

One set of statistics I picked up from the web show global operators are dominating not only the shipping but port operation scene. If the forecasts are to be believed, a handful of global port operators will by 2011 own about 60% of the global market in the port business. This is not surprising given that in New Zealand about a handful of global shipping lines already control about 60% of NZ's container market. A tide whose direction is unlikely to turn.

Who are these big boys?

These big boys are Hutchison Port Holdings (HK); PSA International (Singapore); Dubai Ports World (UAE); AP Moeller –Maersk Container Terminals (Denmark-based) and COSCO (China).
Together they have left their stamp in most ports around the world. AP Moller-Maersk has port operations in 50 locations globally. Hutschison operates five of the worlds' top seven container ports, accounting for 11% of the world's container traffice, according to what I found on the web.
Singapore's PSA International PSA has over 20 port projects in 16 countries. Dubai Port World operates over 45 terminals across 29 countries.

What is certain
Here is the certainty. Globally, the trend is for global players to have as many links as possible in a wide network of port companies, shipping companies (read the logistics business) around the world. It has to do with how the port operators feed into or fit into the wider world of moving cargo around.

The buzzword is efficient supply chain, which in ordinary people’s language means how goods get produced and eventually how they get distributed and everything in between that supports the process of delivering the goods or services produced.

Efficient supply chains is an imperative in today’s business world. Scales give size to greater efficiencies which in turn, hopefully, translates into cheaper goods/services.

NZ looks decisively small in the port universe. We have about 11 port operators all wanting be in the business of running ports – never mind that the industry has had negative cashflow as port operators, according to investment bank Rockpoint. Expect to pay if you want to read the whole report.

For so long, the message from the sages in the local port industry is this scene is not sustainable. But why hasn’t the rationalization of NZ ports happened? I take rationalization to mean 'Hey let’s revamp our business, or sell, or move in with enemies or allies to make something workable of this asset that needs demands huge dollars to keep healthy and productive.'

NZ ports are owned mainly by rate payers – read local councils, regional councils and its ilks. They all find it hard to let go of their prized assets. Everyone is worried selling out equates to losing control or seeing their city left to be picked by vultures (read overseas owners/operators/or other councils).

Recently Port of Tauranga and Ports of Auckland tip-toed around the topic of a possible sale/merger/ of their container operations. An uninformed person like me would read the situation as this: since the issue was raised by Ports of Auckland, Tauranga isn’t going to let go easily to its closest rival and competitor.

They are a match made in heaven, these two ports. But like a stubborn bride and a stubborn groom, they see little point in giving in. It is all about ego and ownership. Sigh. Imagine an import port (read Ports of Auckland) and an export port (Port of Tauranga) working as a unit rather than in competition. Is there a reason why they shouldn’t at least try to resume the process after Auckland called off merger talks after having cold feet a few years ago?

Alternative futures
What about the alternative of selling NZ’s port assets to the really big boys to run since they have the technology (read expertise); the muscle (they have widespread operations globally); and they have been at the hard end of the business and have proven track record. In 2006, Christchurch City tried unsuccessfully to sell to Hutchison Whampoa. Once again, pressure from local politics/citizens over the fear of losing control or losing jobs.

Which brings me back to the question I have been asked? Should we sell our ports to foreigners?

No: The logic for NO is this - Aren’t they our prized assets – ports, airlines, railway, banks? Look at other disasters after we have sold.

Leasing: How about leasing out the ports? Here the logic isn’t that persuasive unless you are believer in the concept of being a pure “a landlord” rather than operator. I take landlord to mean, ‘I collect the rent and don’t do much else but take my rentals.’ I take operator to mean, ‘my vision is to make this business the best and workable, using my ingenuity and hopefully gain ability to do the same elsewhere.’

Something in between: What about the alternative – having a mechanism in place/in legislation which allows foreign operators to own part of the assets but not for them to own the way we earn our living? Isn’t being part of something bigger better? Or is small just as beautiful?

Or something like this...Setting up a port operator holding company to own the business around the country. The councils get their share according to their interest in these port companies. Float the mega port holding company on the NZX. The mega port operator company then sells part of the stake to a foreign operator, like AP Moeller-Maersk (the best fit, culturally I think?). The possibilities can be beautiful.

Our options are to go with the tide or stay sheltered under the tower of nationalism and local concerns.

I walked away from goggling on this subject with this thought – NZ is being swept by global tides beyond our control. Swim we must. Find a place in all the madness and tempest we must.

The question remains: how to do so without drowning in the process, and having some ability to steer part of the course in the future.

Useful sites to visit
Hutschison Port Holdings
PSA (Singapore)
Dubai Ports World


  1. Interesting thing about this type of continuous corporate repositioning is that it ultimately boils down to maximising service and enhancing profits, given the ever changing business environment.

    So unique the business market is facing at the moment in Malaysia is that a company was initially set up as a private limited entity has turned into a big corporate giant and becoming public listed but is now restructuring to becoming a private entity instead, yet again.

    In short, I need the resources I offer my shares to you, I make more and now I don't need you and I want my company back.

    Maybe NZ ports would consider the above model, well, it worked for some.

  2. Sadly, that is the ethics in Malaysia. Companies can be put off and on the KLSE or restructured at will. Ports of Auckland got taken private (via share buy back). Now funded by ratepayers...Be interesting to see if they will reflog at some later stag.

  3. Hi mummy your blog posts are so long


Hi, I welcome your say on the matter!