MUA---Here to Stay ...Today!

Not with a bang ...

Geoff Vazey

Those of us in New Zealand ports watched the developments in the Australian waterfront dispute earlier this year.

The dispute sparked a great deal of interest about how New Zealand went about the reform of its ports and waterfront, so that is the subject I will focus on today.

The Australian media, in particular, wanted to know what happened when the "big bang"---their words---happened in New Zealand.

The simple answer is that there wasn't a "big bang" in New Zealand. Unlike the experience that Australia has just had, the process of reforming the waterfront in New Zealand was evolutionary, rather than revolutionary. It happened fairly slowly, over time, and in several stages.

On the whole, it has been smoother. However, I would argue that the process is not over yet. We still have a long way to go in some essential areas.

 

The reform process

There were three important stages to port reform in New Zealand.

The first was the decision to abolish the harbour board structures that were elected as a part of local government. In each case, a port company was established and was given the single brief to operate the port as a successful business.

They have a normal company structure and shares were allocated to local or regional councils, some of which subsequently sold their shareholdings.

Each of these companies bought the land and assets which would form the backbone of the business.

At the same time, traditional centralised controls over port planning, employment and prices were removed. This gave port managers the freedom to make their own decisions and to develop a direct employment relationship with all their staff, an opportunity which was not available under the old system.

The third step in the reform process was the introduction of wide-ranging labour reform, with the Employment Contracts Act.

Many people believe that labour reform has been the biggest change that has occurred on the New Zealand waterfront, but I disagree.

In my view, labour practices, management practices and asset management are all imperative in achieving best practice on the waterfront. They are closely interrelated.

The most important single reform is in asset management, or the use of capital. We are only part way down that track.

 

Management

When Ports of Auckland was established, a decision was taken to employ 50% of managers from outside any of the former harbour boards in New Zealand.

That has led to an infusion of new ideas and the introduction of new ways of running the business.

Our new managers put the port on to a strictly commercial footing. The organisation was restructured and each division is now responsible for its own bottom line and achieving agreed budget and performance goals each year.

Ports of Auckland's Plant Services Division is a good example of how fresh ideas can improve a business.

When I joined the company, Plant Services was responsible for repairs. When a machine broke down, Plant Services mechanics came along to fix it.

They were rewarded when machines were broken down, whereas we wanted the machinery to be working as much as possible.

We saw a new way of doing things. Instead of being a fix-it department, it negotiated a contract to keep our machinery operational---to avoid breakdowns. It now gets paid for each hour the plant works and nothing when it is broken down.

Now Plant Services has the same goal as the company---efficient, well-run machinery, which doesn't break down. The fix was a management fix, not a labour fix.

 

Labour reforms

There is no doubt that labour reform had a massive impact on the productivity of New Zealand ports. The scale of the improvement partly reflects the extent to which the old system was restrictive and archaic.

With the abolition of the Waterfront Industry Commission and the later introduction of the Employment Contracts Act, we were able to negotiate directly with our own people. For the first time, we were able to focus on the working arrangements that we needed in Auckland to satisfy our clients needs.

As a result, we extended operating hours to 24 hours a day, 365 days a year. We introduced flexible working arrangements that fit with the peaks and troughs that our customers' schedules require. For the most part, we work on a flat rate of pay.

One of the most important elements of the Employment Contracts Act was the end of demarcation.

From a management view point, it stopped institutionalised overmanning.

From the employees' point of view, it means their jobs are much more varied, stimulating and meaningful than before.

Previously, a forklift driver came to work every day of the year, drove a forklift and did nothing else. Now, our forklift drivers can be working at a gatehouse, driving equipment or steering a pilot boat in any one day. They receive more training and learn a wider range of skills. Their working life is more interesting.

I have an absolute conviction that a more flexible working environment is more rewarding for staff.

The old system restricted their career development, just as it restricted the ability of managers to be more efficient.

The new system allows people to develop outside their traditional areas and learn new skills.

For our company, that has meant a considerable increase in the time and money spent on training. But I consider it to be an investment. As we improve our staff's ability to carry out their jobs, we also see their job satisfaction increasing.

I also have an absolute conviction that our managers must work more closely with our staff to allow their true potential to come through.

We work in an industry where people have long memories and there have been traditional union-boss barriers. We still have some way to go to overcome that.

But people like to succeed. If they are not allowed to voice ideas and bring about improvements to work practices, then they will put their energies into other things---whether it's dodging work or stirring up trouble.

Our challenge as managers is to engage the collective grey matter of the total staff.

My challenge as Chief Executive is to encourage and enable all of our managers to be leaders who communicate openly with their staff and to share a common business goal.

We are trying to create a workplace culture where our people know that the best job security they can have is to be a productive staff member of a profitable part of a profitable company.

The Employment Contracts Act has had a bad press in Australia. Those who oppose the Act have a very effective and vocal lobby.

The many thousands of New Zealand workers who are happy with their individual contracts don't need to have a lobby. They are just getting on with the job.

The reality is that once the ECA was introduced, productivity jumped up---not only in ports but across much of the economy. That meant New Zealand exports got to world markets at more competitive prices. That meant more demand for New Zealand exports and that meant more jobs---real jobs, jobs that would last.

The ECA does not mean the end of unions. Unions are a part of life on the waterfront, as they are a part of many large industries, and they have a valid role to play.

In my company, we are very comfortable about working with unions. About two thirds of our operational staff are members of a union and about one third have an individual contract. Some of those who have individual contracts are also union members.

We would expect and hope that unions will eventually be able to share our vision for our combined future.

Unions themselves must be prepared to adapt to the rapidly changing business environment, or they will be left behind---by their members as well as employers.

We see competition as an important management tool. We have made a strategic decision not to monopolise the supply of labour in the port. Independent stevedoring companies compete with us on our patch and we welcome it. We charge them nothing to use our facilities.

The competition gives us an incentive to lift our performance and that pays dividends for our customers through price and performance benefits---and for us via increased tonnages through the port.

Our belief is that if you have market share only because you monopolise a service, you won't retain that market share for long. Sooner or later, the market will side step you.

 

Economic environment

The general economic environment in New Zealand also contributed to the success of port reform.

Although the changes were radical, they came against a background of a country that was economically broke. A wide cross-section of citizens knew that there had to be a lot of belt-tightening.

Economic crisis is a great incentive for reform, but one I am sure you would rather not share.

Australia has not had to stare down an economic abyss in the way New Zealand did in 1984. Few countries have.

Everyone in New Zealand suffered.

Everyone recognised that the only way out of our economic morass was through exporting.

Everyone, unions included, recognised that ports could no longer be a burden on producers and exporters. Ports simply had to become efficient and cut out cost.

While Government reforms in many sectors of the economy were fast and furious, the pace of change on the waterfront was much more measured.

The Government went through a very extensive period of consultation, including port users and unions, before it decided what path it should take.

Most of the large cuts to staff numbers were done in the early stages and they were done with a lot of careful planning and consultation. We looked for voluntary redundancies first, developed good systems for filling other internal vacancies and provided support for those who took redundancy.

In Auckland, shipping lines and port users agreed to a special levy for one year to contribute to a special redundancy fund---such was their commitment to achieving improvement.

From a high of 1600 under the Auckland Harbour Board, staff numbers at Ports of Auckland reduced to a low of 450 in about 1994. Since then, we have created additional jobs and our staff numbers have reached 580. These are new, real and productive jobs with a future.

 

Asset management

In New Zealand changes to port structures and labour laws brought quick fixes and very fast returns.

Today, Ports of Auckland handles twice the volume of ships and cargo than in the Auckland Harbour Board days. This is done essentially with the same land and wharves that we had before, and with half the staff.

But over the long run, the biggest commercial gains will be made from the next step in the reform process---better asset management.

In my view, the ownership structure and financial environment are the keys to unlocking these gains.

About 75% of the investment in a port is in the infrastructure---the land and the wharves. Making that infrastructure work harder---generating more throughput and more profit out of the same assets---is the key to extracting maximum value.

In Auckland, the harbour board had planned to have two new berths and backup areas completed by now to handle the forecast growth in volume. These projects would have involved high-cost reclamation. The bill would have been in the order of $250 million and local ratepayers would have been asked to foot it.

We have increased volumes and market share without that investment by being more innovative in how we use our space. Instead of looking to reclaim land and doing more the same way, we concentrated on doing more with the same land.

We are now planning our first major expansion---a $100 million project which we will fund ourselves from retained earnings and borrowings.

Each time we make an investment, we do a full cost-benefit analysis from the seabed up---not just on the part that you can see move. We also require our managers to report their profit per square metre of land or wharf space and to compare their performance with neighbouring business uses and return on investment.

These financial disciplines force managers to focus on what is the minimum land or wharf space they need to get the job done. It was amazing how much land which was previously deemed "essential" was freed up as a result of this change.

 

Results

The benefits of the changes to our operations are very clear.

The average time it takes for a container vessel to be turned around at Fergusson Container Terminal has dropped from more than 38 hours in 1989 to 14.9 hours last year and 15.5 hours today. And today we are handling double the number of containers per ship within those hours.

Some of the big leaps in productivity stemmed from the introduction of 24 hour operation and flexible work practices in the early 1990s. But we are still managing to achieve good gains in productivity each year.

Crane rates at Fergusson have continued to improve between 6% and 8% over the past two years.

Unlike many ports, that is measured on a warts and all basis---from the time the ship is alongside the berth until it is ready to sail, including any down time from breaks, disruptions or broken machinery.

With a three-crane operation, we are regularly achieving our 100 moves per hour on a ship.

On the land side, we are also lifting productivity. Nearly all of our performance figures show continuing improvement.

The costs of operating the port have plummeted. In its last year of operation in 1988, harbour board port costs amounted to $100 million and it handled 6.2 million tonnes of cargo. Last financial year, running costs at Auckland were $85 million and we handled 11.3 million tonnes of cargo.

Of course, the one question that is most important to our client shipping lines and port users is the price to customers.

Since 1989, the average cost of moving a container through Fergusson Container Terminal has reduced about 27%, contributing to a significant drop in terminal charges for major shipping companies.

As well as improved performance for our clients, our productivity gains have also translated into vastly improved financial performance for our shareholders.

Since the company was established we have returned $219 million to shareholders in dividends and capital repayments and we have contributed $145 million to local and central Government in taxes and rates. Our predecessor made no profit, paid no tax, paid no dividends.

 

Next steps in reform

While the record speaks for itself, the future is not so certain. In my view, there are a number of potential barriers to continuing improvements in New Zealand's ports. These include:

  • The risk of sliding back into protectionism;
  • High domestic transport costs;
  • External costs, such as border control costs.

A special challenge for New Zealand ports is the need for further rationalisation. Our ports are over-capitalised compared to our total volume of trade.

Across New Zealand, the utilisation of container cranes is about 50%. The rate of utilisation of port infrastructure in total is about 60%.

Yet every North Island port except for Wellington has announced plans to build more berths and backup space over the next five years. Our national growth rate cannot justify that level of investment.

The question of rationalisation goes back to ownership.

Five New Zealand ports are now listed on the Stock Exchange, although in each case a controlling interest is held by a branch of regional or local Government. Ports of Auckland is 20% listed.

Being a partly listed company brings major benefits in terms of financial performance and discipline. The public reporting requirements force us to focus on operational efficiency and to account for investment decisions.

They also enable outside analysts to compare the performance of competing port companies. I look forward to the day when all New Zealand port companies are at least partly listed, because we will then have a level playing field. That will be a major driver for the rationalisation that is required.

 

Future industry trends

As for the future, there is no doubt that ports must be flexible and fast-moving to deal with the changes that are ahead.

We are confronted with massive shifts in the global shipping and transport scene. These present us with a number of opportunities to improve our performance---and a number of risks if we don't:

  • International shipping lines are using larger ships in order to achieve efficiencies of scale;
  • With larger ships, we are getting bigger container exchanges;
  • We are getting more 40 foot and high cube containers as new cargoes are containerised;
  • Rather than having multiple port calls, shipping lines want to hub on one major port;
  • They are developing fixed day schedules, so they need prebooked berths and services. First come, first serve is no longer good enough;
  • Hub lines require rapid transfer of containers onto domestic modes of transport. This puts extra demand on our container tracking and management systems, document transfer and information flows.

We have seen these international trends at work in our own backyard over the past two years.

Until recently, the trans-Tasman has been dominated by New Zealand and Australian lines operating under a closed market regime. Now, much of that business has moved to international operators who can carry it much more cheaply because they are filling otherwise empty slots.

In simplistic terms, the developments in international shipping are changing port operations from a labour intensive to capital and technology intensive business. Our old concepts of the waterfront have to change if we are to survive this brave new world.

What this means for both New Zealand and Australia is that we must maintain our drive for efficiency, we must look for the next stage of improvement in our management practices and structure. If we are not continuing to improve, we will inevitably be left behind.

For ports, the changes taking place in international shipping means that we must become more specialised. There will be fewer international general cargo ports, particularly in the regions. Instead we should expect to see ports with highly specialised container facilities or special purpose bulk handling facilities.

At Ports of Auckland, we have made a clear decision to focus a major part of our business on the technology of container handling. We recently launched a separate container division under its own brand, Axis Intermodal, to spearhead the development of our container handling business.

This reflects our view that Auckland is the logical hub port for New Zealand. About a third of the container volumes through Auckland are now on lines which hub on us. We are building strong domestic transport links to support this trend.

We are developing our technology and information systems for optimum cargo handling and extending connections with transporters and producers.

Our ultimate aim is to provide a paperless gateway for New Zealand producers to send their products to world markets.

For port users, the development will mean more frequent service with faster transit times, at an overall lower cost across the entire transport chain.

 

Conclusion

If I have a simple message, it's this: the real value of reform is that it brings an injection of fresh minds and new ideas. Managers who are leading their organisations through major change need to be prepared to listen to everyone and question everything.

This includes changing the way we work with labour on the waterfront.

In a modern container port, labour issues are not about muscle and brawn, but brains and technology.

Managers must find new ways to unleash the creative abilities of their employees. It's no longer about industrial conflict, but winning hearts and minds.

That is easy to say, but hard to do.

However, avoiding this change is not an option---we can be a part of it, even lead it, or we can have it forced upon us. Any port that lags behind those changes will soon be out of the race.



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