Light on the Hill: Industrial Relations Reform in Australia
Trade Unions and the Grain Handling Industry
The Australian grain growing industry is one of this country's more efficient, low-cost export industries. It ranks with beef cattle and wool production as industries in which Australia has a particular comparative advantage.
In the efficient production of food, the Australian farmer ranks supreme. He (and she) produces enough food for 70 people. His North American counterpart produces food for 59 people and the West European farmer feeds 19. The Australian farmer is also good looking!
In the grains industry the picture changes dramatically once grain moves beyond the farm gate. The cost of moving a tonne of grain from farm gate to sea board is much higher in Australia than it is in countries against which we compete on the export market.
A comparative analysis of off-farm costs was done recently by some international grain traders and presented as evidence to the Royal Commission on Grains Storage, Handling and Transport in Australia. Having made some adjustments to standardise the length of time of storage and quality of storage, and assuming that grain was hauled over the same distance, the estimated cost of moving a tonne of wheat from farm gate to seaboard was calculated to be $43.50 in Australia; $30.40 in Canada; $19.40 on the US West Coast (Portland), and $39.10 in Argentina.
It can be seen from these figures that Australia suffers a $4 per tonne penalty compared with Argentina, a $13 per tonne penalty compared to Canada and a massive $24 per tonne penalty in competing with the United States.
Very obviously we are doing something terribly wrong. Why is it that Australia's bulk handling and transport system for grains performs so badly against our competitors?
The answer is to be found in the environment in which the system operates. There is nothing inherently wrong with the people who manage and work in Australia's bulk handling and transport system. But there is a lot wrong with the decision-making and operating environment in which those people are placed. Competition is virtually unheard of, and there is no clear link between performance and reward---public service pay scales apply whether the amount of grain loaded is zero, one or ten thousand tonnes.
The basic problem with the grains industry is that it is being suffocated by excessive regulation and lack of competition in the provision of infrastructure services. There are four key areas of activity controlled by governments.
First, marketing of wheat is subject to complementary Commonwealth and State legislation which compels growers to deliver all their marketable wheat (except for domestic stock feed and wheat under permit) to the Australian Wheat Board. The Australian Wheat Board has legislated monopoly marketing rights over the Australian wheat crop; other major grains are generally subject to State government marketing boards.
Second, returns to growers from the sale of wheat are subject to compulsory pooling in which revenue from domestic and export sales is equalised throughout Australia, subject to adjustment for quality. Borrowing charges (for advanced payments to growers) are also pooled on a per tonne basis, notwithstanding big differences in price between various categories of wheat and therefore big differences in individual borrowing costs.
Third, bulk handling of grain is strictly regulated by State government legislation. Each of the State-based bulk handling authorities is a sole authorised receiver for the Australian Wheat Board in its respective State. Indeed, the Australian Wheat Board is not permitted by law to seek out competitive bulk handling services. With some minor variations, charges for each bulk handling authority are pooled in each State on a per tonne basis, regardless of differences in the level of services as perceived by the growers who pay for them.
Fourth, transport of most grains is also regulated by State governments. In some States, legislation is used to restrict the movements of grain by road in competition with rail. In others, the lack of facilities to receive grain by road at port terminal gives rail an effective monopoly. Rail charges are heavily regulated and are based on distance, regardless of the cost of the haul, and with revenue-raising the overriding requirement. Charges for loading at port are pooled and are set by State government instrumentalities.
The ultimate effect of all of this regulation can be seen in the high costs of storing, handling and transporting grain in Australia compared with our major competitors. I mentioned earlier that Australian grain growers suffered a $13 per tonne cost penalty in relation to Canadian farmers and a $24 per tonne cost penalty in relation to Americans. I would also add that extensive research conducted by ACIL over recent months has revealed potential savings of at least $15 per tonne across the Australian grain crop if there were open competition in the provision of storage, handling and transport services to grain farmers, i.e. if the present monopoly powers were removed.
Given that the present on-farm price for wheat is about $100 per tonne (with large variations from that amount to reflect quality differences and location), the average farmer could expect at least a 15 per cent increase in his farm gate return. From a national view, it would add something of the order of $300m to Australia's income.
At this stage it is appropriate to reflect on the role of the grains industry in the Australian economy. Notwithstanding recent price collapses, the industry still makes a significant contribution to our economic well-being and has the capacity to add significantly to export returns if (and when) the removal of monopoly control of its output allows it to perform more efficiently.
This year we can expect Australia to produce about 26 million tonnes of grain, of which 16-17m tonnes will be wheat.
The total value of grain produced in Australia is about $5 billion, of which about half ($2.5 billion) is accounted for by wheat. That makes grain about a third of all rural production and therefore wheat about 16 per cent of all rural production. The percentage has dropped in recent years as the value of wheat has dropped. About 3 years ago wheat accounted for closer to 24 per cent of rural production, compared with 16 per cent today.
On average, about 80 per cent of all grain produced in Australia is exported and that, of course, makes the Australian grains industry extremely dependent on---and indeed vulnerable to---the world market situation. To put the scene in perspective, rural products in total account for about 37 per cent of total exports from Australia and of those exports about one-third is grain. That means that grain accounts for about 10 per cent of all Australia's exports.
Putting dollar values on those percentages, grain exports amount to about $4 billion a year, and wheat exports to about $2.2 billion, down from $3 billion a couple of years ago.
The market situation can only be described as disastrous. Falling revenue from international markets has been the major cause of low returns. Over the last 6 or 7 years, wheat stocks have risen by 75 per cent and US prices have plunged by 45 per cent; world grain prices have reached their lowest levels in real terms for at least 50 years. Total grain stocks in the United States have risen and are now at a level equivalent to around 2 years' total world trade.
There was a rapid growth in the world grains industry during the 1970s, but following that decade of expansion total world imports of grain have come to a virtual standstill in the 1980s.
Demand is down due to a number of factors, the main ones being international economic recession, mounting foreign debt, drives for self-sufficiency and protectionist policies.
In the years 1984-85 to 1985-86, trade in coarse grains dropped from 100 to 81m tonnes and over the same period trade in wheat dropped from 104 to 85m tonnes. Of the 19m tonne reduction in traded wheat, the USSR accounted for 11.6m and Brazil and Africa about 3m tonnes each. Hence, the above three factors accounted for most of the collapse in world wheat trade.
Not only are world stocks of around 170m tonnes at a record level, but the ratio of stocks to consumption is very high at 34 per cent. The simple---but essential-proposition is that the level of stocks has to fall to an equilibrium level of about 130m tonnes (which is about 26 per cent of use) before there can be any significant and sustainable increase in prices. That is, there has to be a reduction in stocks of some 40m tonnes, or just under half the level of world trade, to sustain an upturn in prices.
Because Australia only accounts for about 2 per cent of total world grain production and about 8 per cent of world grain trade, it has very little influence over the stocks and prices on the world scene. Indeed, not only is Australia a price-taker on the side of product sales, it is also a price-taker on the purchase of most farm inputs such as labour, capital funds, plant, equipment, fuel, etc. Two important consequences arise from that. First, Australia is not able to pass on to its customers the cost of producing, handling and transporting its grain; and secondly, any savings which Australia is able to make in input usage and productivity gains are reflected almost dollar for dollar in increased international competitiveness. By either count, the future for the Australian grains industry therefore depends on being able to improve its international competitiveness. We live in a world market and our future survival and indeed prosperity stands or falls on how we compete in that world market.
The recent drop in grain prices and corresponding drop in farm incomes have caused growers to focus increasing attention on areas where costs can be cut and gains in efficiency introduced. The area of costs over which farmers can have the greatest amount of influence is on their own farms where by international standards, productivity is very high. Farmers have far less control over domestic off-farm costs, particularly grain storage, bulk handling and transport, which by international standards are very high.
To illustrate the problem faced by Australian grain growers, the throughput at typical North American grain terminals is about 100,000 tonnes per man per year. This compares with a throughput at the Sydney and Newcastle port terminals of about 20,000 tonnes per man per year. Although we are competing on the same markets, North America's performance in grain handling is 5 times better. Further evidence of poor performance is found in the conclusions of a number of independent economic evaluations conducted by bodies such as the BAE and the IAC and the ACIL study of Australian grain marketing for the Australian Institute of Public Policy in 1986.
These reports have highlighted the high costs being borne by the grains industry from the absence of competition in the provision of services. Government intervention, ostensibly on behalf of growers, has resulted in:
- lack of incentive to innovate and perform efficiently;
- high cost of administration and compliance with government rules and regulations;
- the pursuit of objectives which reduce efficiency, such as politically inspired investment decisions (of which the Port Kembla terminal would be a good example);
- the appropriation of monopoly rents;
- the vulnerability of monopolised institutions to industrial action; and
- wrong economic signals arising from the pooling of costs and charges.
The high cost of the outcome is largely hidden and therefore difficult to quantify. Nonetheless, growers (who pay for the services) perceive that the costs are indeed very high, and those growers are becoming more confident in their perceptions as they look at international comparisons like those mentioned earlier. They also observe what other growers are doing with non-statutory grains.
Bulk handling and storage charges in Australia are in the range of $13-17 per tonne (leaving aside charges for carry-over, wharfage and two-port loading) and are determined on a State-by-State basis by each of the State-based bulk handling authorities. There are, however, some private bulk storages which operate for grains not covered by statutory arrangements or for wheat covered by special arrangements such as under the permit scheme, and the cost of these storages is typically in the range of $3-5 a tonne. It also appears that the cost of port terminals is in the range of $3-4 a tonne, so it can be seen that instead of the combined charge being $13-17 it should be more like $7-8 a tonne. Being very conservative it is relatively easy to see why, on an Australia-wide basis, savings of at least $5 per tonne would be easily obtainable if the monopoly of the bulk handling authorities were removed and if they were required to compete against private sector operators in providing grain storage and bulk handling services.
A similar situation exists with transport. Costs are unnecessarily high because:
- railways in most States are protected from competition;
- charges are pooled, so resources are wasted (excessive use of high-cost services and under-utilisation of low-cost services);
- grain is prevented from moving from farm to point of destination along the least-cost path because of State regulations and practices which inhibit competition and choice;
- the practice of the Australian Wheat Board deducting growers' rail freight charges on a fixed basis as advised by each rail authority removes the opportunity for an individual grower to negotiate lower freight rates; and
- uneconomic work practices have flourished in an environment of non-contestability and feather-bedding.
The extent of savings available from opening up grain transport to competition depends very much on a grower's location and business circumstances; however, it is clear from evidence presented to the current Royal Commission that savings of the order of at least $6 per tonne are available on a wide scale. Further savings could be made with improvements in productivity which would arise from dynamic gains in a contestable market and through the use of new technology which is presently being denied to the grains industry by regulatory bodies such as the Australian Transport Advisory Council and by State Ministries of Transport.
Finally, at the ports, which are monopolised by State governments, there is little or no choice and costs are very high. Apart from wharfage, which is pooled on a State basis, the cost of grain ports is pooled nationally even though there are large differences in costs from port to port. Considerable gains in efficiency would be made if the full cost of exporting through each port was reflected in the f.o.b. price for grain. That means that the Wheat Board and other marketers should quote a different f.o.b. price at each port instead of simply quoting one standard pooled price for all ports.
In order to provide competition at ports, the monopoly of the bulk handling authorities should be removed. Alternative facilities which have been proposed indicate that very substantial cost savings could be made not only in the task of loading ships but also in reorganising the flow of grain from farm to port terminal. Leaving aside savings from improving the efficiency of the flow in grain, it appears that the potential cost savings per tonne at the ports amount to over $4, made up of
- stevedoring $0.50
- improvement in loading rates $1.50
- improved ship programming $4.00
- reduced industrial disruption $0.50
It is, of course, very difficult to quantify these savings, because we are talking about something which doesn't yet exist. But the above figures are representative of those that are currently allowed by the charter and shipping companies to account for identifiable costs incurred in coming to Australia. It can therefore be seen by adding together the cost savings that have already been identified, that the industry could easily save $15 per tonne in its infrastructure costs: that is, at least $4 from improved bulk handling, $6 from improved transport and $4 from improved performance at our ports. Not only is that identifiable cost saving remarkably close to the penalty which Australia carries in relation to our major grain export competitors; it can also be regarded as a minimum, because in the event that the grains industry services sector were made more open and competitive, there would be large additional dynamic gains from improved productivity which have not yet been identified.
In examining why costs are so high in Australia, it is immediately apparent that institutional arrangements and practices are not conducive to economic efficiency. The highly monopolised environment invites poor performance. To understand why the grains industry got itself into this mess, it is instructive to have a brief look at its history.
A common theme throughout the history of the grains industry, particularly bulk handling, transport and marketing, has been the pursuit of broad political, price stabilisation and equity objectives through government regulations.
During the interwar period when the foundations for the present grain handling and marketing systems were put in place, the emphasis of grains industry policy was on:
- 'stabilisation'---a pseudonym for raising prices above the low market levels of the depression;
- 'equity' (i.e. horizontal equity)---seen as preventing merchants from dragging down the price of all grain to the level of the weakest seller; and
- the desire of growers and their organisations to capture what they perceive to be the excessive margins enjoyed by middlemen.
These objectives, which were political in that their attainment required government control to favour one group at the expense of another through fixing prices and excluding competitors, constituted reasons (whether justifiable or not) for government intervention in the grains industry.
Whilst there was a lot of rhetoric at the time---much of which is still heard today about exploitation by middlemen, it seems that there was very little or no economic analysis of the value and cost of marketing services; nor was there any analysis of the extent of market failure in the provision of those services, ways of overcoming such market failure if it existed, or the economic cost of government intervention.
Over the years governments have dispensed patronage to grain growers in the form of guaranteed market outlets, granting of land, provision of railways, provision of bulk handling services, and statutory marketing schemes ostensibly to stabilise prices and provide assistance. Generally at the request of growers, governments have built up a huge range of regulations in an attempt to inhibit or mask the operations of the market place. But in seeking political solutions to economic problems, grain growers have allowed themselves to be captured by governments and the regulators. Instead of encouraging new ideas, innovations and cost savings through competition, industry leaders have sought to suppress competition by setting up monopoly boards to handle and market their crops, and have sought for themselves the economic rents created by various boards, authorities and related advisory committees.
Growers originally supported the introduction of bulk handling because of its potential for cost savings and the opportunity to control storages and hence ensure competition amongst buyers for their grains. But the outcome has been that State governments or their instrumentalities now control the storage, handling and transport of grain. Today, the control of State governments over most of the grains industry extends to using 'orderly marketing' schemes not to raise growers' incomes but to protect the State government authorities at the expense of the growers.
It should come as no surprise that one of the inevitable results of this huge amount of government intervention has been the creation and appropriation of extensive monopoly rents. In any monopolised environment which has been created by regulation, where the positions held by individuals and firms are not contestable, potential cost savings from improvements in management and the adoption of new technology usually accrue to the 'system' in the form of more favourable terms and conditions of employment such as overmanning, inefficient work practices, over-generous superannuation schemes and so on, rather than being passed on as lower charges to the users of the service.
You might well ask why it is that when the cost of the bulk handling and transport system in Australia is so manifestly high and when the operation is so inefficient, growers have not forced changes. Fundamentally, the explanation is in the appropriation of monopoly rents by their leaders. As pointed out earlier, the genesis of most rural boards was in the desire of growers to gain control of their product in order to prevent exploitation at the hands of the middlemen and to appropriate profits from the operations of a board. Accordingly, growers sought, and were generally granted, majority representation on boards; but once established, the boards have taken on a life of their own and have grown from being servants to masters of farmers.
For many of the so-called farm leaders who sit on these boards, the boards have become a source of privilege, apparent influence and a pleasant lifestyle---it sure beats farming!
Or as Hugh Morgan remarked to a meeting of farmers:
'It is my melancholy duty to have to inform you that it doesn't matter how many representatives of growers there are on these government bodies. Middlemen have always kept, and will always keep, their margins for themselves. In the case where government controlled organisations perform middlemen functions, these margins are called 'salaries' and 'superannuation packages' instead of profits.
There is no administrative technique, no method of grower representation, which can eliminate monopoly rents. The part time, honorary, grower representative, no matter how dedicated, no matter how able, can never compete with a full time professional bureaucratic monopoly rent defender and collector'.
An example of the pervasive effect of monopoly rent can be seen in the positions of power created by the wheat marketing legislation. Under the marketing arrangements, the States cede to the Australian Wheat Board the right to sell and price wheat on the domestic market. This requires complementary legislation to be passed by State governments. The quid pro quo is that in return for giving up their pricing powers over wheat, State governments dictate that monopoly rights must be granted to the State based bulk handling authorities. That is why the Wheat Marketing Acts in each State compel the Australian Wheat Board to use only the authorised receiver, i.e. the State bulk handling authorities.
The power of State governments to refuse to pass complementary legislation---and therefore bring to an end the monopoly of the Australian Wheat Board on the Australian market-puts the bulk~handling authorities, and in some States the rail authorities, in a very dominant position in relation to the captive users of the services. It can be seen that the bulk handling authorities and the railways are extracting large monopoly rents from government regulation of the wheat industry.
It needs to be emphasised, however, that the rent-seekers are acting rationally in response to the signals, pressures and incentives which they receive in the environment created by the monopoly. It is the non-competitive market which creates the economic rents.
This whole system is a 'sitting duck' for industrial disruption. It is easy to blame trade unions for the problems, but to do so is to make the classic error of mistaking the symptoms for the cause of the problem.
The cause of the problem starts with the proposition that single suppliers of services such as the bulk handling authorities and the State railways and indeed the Australian Wheat Board are extremely vulnerable to industrial action. With a single employer, it is easy for unionists to take industrial action to stop the entire handling transport system. Where the single employer operates in a non-contestable environment and the managers of the monopoly do not have their personal incomes affected by decisions which increase costs, it is understandable why these managers accede to union demands. In the grains industry the costs, of course, are passed back to growers and ultimately the competitive position of Australian grain on world markets is jeopardised.
By contrast, where services are supplied by a large number of smaller, decentralised and independent operators, staff are more likely to be employed on a site-by-site basis and are likely to be paid according to their performance. The small-sized unit is generally characterised by greater flexibility, enthusiasm, joint decisions, productivity. sharing arrangements and a clear understanding of---and commitment to---the goals, of the firm. In those circumstances industrial action which reduces productivity is very unlikely to be used because everyone in the firm suffers. That contrasts with the big monopolised grain handling and marketing institutions where staff are paid a salary at a standard rate regardless of performance and have little interest in the outcome of the operations of that institution.
Work practices such as low productivity, overmanning, lack of integration of shirts, absenteeism, labour rigidities (such as 'last on---first off') highlight an industrial situation in the grains industry which reflects appallingly on both management and unions, but is fundamentally an outcome of a totally inappropriate operating environment. Fundamentally, it is the environment in which people make decisions and work that is wrong, rather than the people themselves. Where there are work practices which reduce or retard the efficiency of the industry, it is wrong to blame solely the employees or the union; rather that behaviour is a manifestation of the failure of management to manage the industry and governments to require---or demand-proper management, and to create an environment which is conducive to enthusiasm, commitment to the task and productivity advance. Inherent in the general malaise of the industry is the obvious influence of the series of monopoly authorities which have consistently chosen the path of least resistance in their dealings with unions and have decided time and time again that it is easier, simpler, and even better to concede union claims---and increase the cost to users---rather than face further industrial un rest and disruption. The cost-plus approach of these monopolised institutions has adversely affected efficiency in the grain service sector.
Looking at the transport sector, the combination of a long period of non-contestability and being regarded by State governments as social instruments have made railways very vulnerable to trade union demands. Work practices which developed decades ago have become entrenched and it is only very recently when faced with the threat of real grower protest---and I might add the imminence of the present Royal Commission---that action has been taken to overcome some of the deep-seated problems.
It is of course, not possible to substantiate all of the anecdotal evidence of high-cost work practices but many of the claims are made with sufficient confidence and corroborated from such a large number of sources to give grounds for serious concern at the damage being done to the competitiveness of the grains industry by low productivity in rail transport.
For instance, it seems that the NSW State Rail Authority still changes the crews of its modern diesel electric locomotives at the same times and places as it did for long-gone steam engines, i.e. at the points of taking on coal and water. The effect of this is a quite unnecessary reduction in the effective operational hours of trains and a corresponding loss of productivity.
There are reports of crews having been paid for 7 hour shirts although the train only operated for one-and-a-half to two hours. This loss is compounded by the enormous cost of ferrying crews around the country in taxis to change shift at points which, in some cases, are at the turnaround point for the train journey. Apart from the problem of breaking with entrenched union attitudes to outmoded work practices, it should be relatively easy to schedule train journeys and crew shifts to maximise labour productivity, provided management wants and is allowed to exercise flexibility. If crews could be paid according to hours worked or tonnes of grain hauled, then it is clear that they could be rostered to work on a per journey basis. With such a change the utilisation of locomotives and rolling stock would also be higher.
Railway maintenance practices is another area where substantial cost savings could be made. The threat of industrial action combined with complaint and generally unaccountable management have kept in place the outmoded and very labour-intensive practices of rebuilding equipment instead of scrapping and replacing it. The railways have continued with maintenance practices such as lubrication on a time basis derived from the steam era instead of according to hours of service. If maintenance practices were updated to those now being used in the aircraft industry---which are, in fact, appropriate to current railway technology---reductions of the order of 35 per cent could be made in the number of staff at railway workshops with no lowering of the quality of maintenance. Rather, adoption of currently available servicing technology would improve the productivity and safety of locomotives and rolling stock. It has been indicated by senior Transport Ministry officials that the above changes have a combined potential saving to the Australian railway system of well over $150 million annually.
Is it any wonder that the cost of labour accounts for 70 per cent of the total cost of State Rail Authority operations compared with 40 per cent of rail costs in North America?
The crucial point that emerges is that there is clearly considerable scope for reducing rail transport costs. But the potential is not being achieved because of entrenched industrial practices and an historical unwillingness on the part of both labour and management to move away from highly inflexible and institutionalised arrangements which are unresponsive to changing demands and values. It must be said, however, that proposals for cost savings announced within the last year indicate the capacity of the railways to respond if the pressure is great enough. There is every indication that the railways would respond on an open, competitive transport market by reducing their charges and would therefore be forced to pay greater attention to overcoming high-cost work practices.
Work practices in the storage, handling and transportation of grain differ greatly at each stage, from State to State and location to location. Levels of manning and other work practices are sometimes set down in awards; more often than not, however, they are contained in industrial agreements or are merely an arrangement.
Let me give you some examples of restrictive work practices which significantly diminish the productivity of grain handling operations.
The grain terminal at Albany (WA) only works for an effective six-and-a-half hours per day, even though it is capable of operating for 24 hours if required. If half an hour of overtime is worked, the men receive two hours pay at overtime rates.
O.D. Transport (a WA road haulage company) estimates that the reluctance of Co-operative Bulk Handling Ltd (CBH) to work overtime requires an additional 15-20 per cent in the number of trucks used. This arises because O.D. Transport is not able to complete 2 hauls per day from most of its collection points in the allotted time, but instead is forced to wait idle for full trucks. In order to meet CBH's requirement to deliver 800 tonnes per day, O.D. Transport has to put on more trucks than would otherwise be the case. O.D. Transport considers that if CBH were prepared to work another 1.25 hours per day, most trucks could be scheduled to do 2 complete trips. It should be possible to keep the terminal open for 10-11 hours on 2 rostered shirts---and even longer if justified by the volume of grain to be handled. The basic requirement is for more flexibility in hours of operation to get the best utilisation of equipment.
If country silos and port terminals were in the hands of private operators, every effort would be made to increase throughput and there would be a much greater incentive to overcome current restrictive work practices.
The labour force employed at grain loading ports around Australia varies considerably. It appears to reflect a combination of historical practice and the capacity of waterfront unions to extract 'rents' from employers.
Within the port terminals there is evidence of gross overmanning and feather-bedding. For instance, a member of the Grain Handling Authority of New South Wales has conceded unofficially that the Sydney terminal could be run with 40 employees per shift instead of the current 110.
The number of men actually required to load bulk ships depends very much on the age of the ship and the state of its technology. There are ships available today which do not require any labour to load and can be monitored by one supervisor. Nonetheless, regardless of the requirement for labour, there are established levels of manning which appear not to have been challenged by stevedores or grain marketers. One reason for the acceptance of this situation is that the cost of waterfront labour is hidden in the freight rate so that shipowners (who pay for the cost of stevedoring) are able to pass it on to growers (who are unaware of what they are paying) via the reduced f.o.b. price for grain. If all waterfront costs were publicised and reflected in the cost of each port, the pressure of accountability and loss of business would act as a brake on the amount of feather-bedding on the wharves.
In the view of several marketers, there are many instances where stevedoring costs could be halved if work practices reflected the way that similar loading equipment is manned at export terminals in competitive countries. For instance, at Kwinana a gang of 11 is required for grain loading from two spouts, yet in the opinion of marketers no more than 6 men are called for.
Similarly, the manning arrangement at Geelong is that when a ship is loading, 2 men are required for each spout (4 spouts at Geelong), and there are 2 foremen and one supervisor. So 11 men are employed plus extra labour for trimming. However, only one man is needed per spout plus one foreman and supervisor, so no more than 6 men are required. Indeed, there have been a number of occasions when the men have tossed a coin to decide which four work the spouts and which go home-the latter, of course, still on full pay.
According to the shipping companies and charterers, stevedoring costs in Australia range from 30 cents to $2.00 per tonne for wheat, with a significant proportion of the variation being due to additional charges for overtime, unscheduled delays, trimming and payments to various funds. The shipping companies and charterers generally build an 'insurance margin' of about 50 cents per tonne into their freight rates to cover the risk of additional stevedoring charges, and the risk of being directed to load at a port with high stevedoring charges.
One of the major complaints of shipowners and charterers about stevedoring costs in Australia is that the final bill may be far higher than the original quote because of the unforeseen additional costs, some of which are difficult to relate to the stevedoring task and others which are blatantly bogus items. A ship charterer from Western Australia, for example, has advised that he was recently charged $17,000 for stevedoring, of which $7,000 was for stevedoring labour and the balance of $10,000 was for 'special debits' and payments to various 'funds'.
An effective way of putting downward pressure on stevedoring charges generally would be to have them paid by the shipper (grain marketer) instead of the charterer, as part of the loading charge. That would then facilitate the identification and publication of the cost of stevedoring at each individual terminal as a means of creating public pressure to reduce charges and remove the risk premium from the freight rate, which at present diminishes returns to all growers regardless of the port from which their grain is shipped.
The view of a number of shipowners and charterers is that there is potential to save about 50 cents per tonne in stevedoring costs by reducing manning levels to those required to utilise equipment efficiently and by making the shipper responsible for stevedoring and therefore removing from the shipping company the risk of being directed to a port with high stevedoring costs.
Lack of integration of the hours of operation causes unnecessary lost time and under-utilisation of facilities.
For instance, at Geelong the day shift for the wharf labourers is from 8.00 am to 3.00 pm and the twilight shift is from 3.00 pm to 10.00 pm. There is a 'smoko' of 20 minutes every 2 hours, with a lunch break between 12 noon and 12.25 pm. However, the terminal operating hours for the first shift run from 8.00 am-5.00 pm with a lunch break from 12.00-1.00 pm, so 35 minutes of loading is lost in the middle of the day. For the terminal operators the second shift runs from 6.00 pm-10.00 pm. From 5.00 pm-6.00 pm, therefore, the wharf labourers are on full pay but do nothing, though from 5.00 pm-5.20 pm is 'smoko'. As a result, a minimum of 75 minutes is lost per day, plus the time taken for the men actually to reach their stations following the start of each shift.
At Portland, by comparison, the hours of work for both silo operators and wharf labourers are integrated so there is no lost time in the scheduling of labour.
Continuous running grain loading facilities were introduced at the Sydney terminal in May 1986 and are estimated to have increased productivity at the terminal by 35 per cent. Indeed, through better integration of operating hours, the terminal exported in one month (350,000 tonnes) as much grain as had traditionally been shipped from both Sydney and Newcastle per month, and in doing so cast serious doubts on the necessity for the new terminal being built at Port Kembla. However, the success of continuous running at Sydney was short lived because it reduced the amount of overtime required. Continuous running was discontinued in July 1986.
Determination of the hours of operation is essentially a matter between employers and employees. Considerable scope for productivity improvement exists from better utilisation of storage and loading equipment and faster turnaround time for ships. Indeed shipowners and private grain marketers emphasise the necessity for 24 hour loading when ships are available.
Another area of impact on the costs of terminal operation is the level of absenteeism of employees. At the Sydney Terminal, for example, the average level of absenteeism in March 1987 was 37 out of 180 employees, i.e. over 20 per cent of the workforce was away every day in March. The Grain Handling Authority includes in those figures employees absent on sick and recreation leave and workers' compensation. These figures do not, of course, include sick periods. Also during March, 20 shifts were lost because of AWU and PSA strikes. January 1987 was even worse, with 48 men away each day or nearly 27 per cent of the workforce.
This type of information is generally closely guarded by bulk handling authorities for the obvious reason that growers would be incensed if they realised that they were paying for this level of absenteeism. The Grain Handling Authority admits that this level of absenteeism is 'outrageous', that it is evidence of overmanning, poor management practices and staff morale, and that it contributes to excessive costs.
There is no doubt that the level of absenteeism is outrageous. Attempts are being made to 'tighten up' the sick leave procedures, but they don't go nearly far enough. After two years' service, employees will still be entitled to 30 days' sick leave, with a medical certificate being required for each day of sick leave after 10 days. The past performance of the Sydney Terminal has shown that employees will take everything they can possibly get.
The cost of overmanning and limited hours of operation is reflected in the very low throughput per man at Australian grain terminals compared with those of our competitors. As mentioned earlier, the number of tonnes loaded per employee in North American terminals is about 5 times higher than at Sydney and Newcastle.
The poor performance at Australian terminals is also illustrated by the fact that over the past four years unauthorised strikes and stoppages have cost the nation the opportunity to load and ship 6m tonnes of grain. Half of the lost opportunities (accounting for 3.055m tonnes) occurred at the ports of Sydney and Newcastle.
There is no doubt that poor industrial relations in the grain storage handling and transport system have been a major item of cost and have severely damaged the international competitiveness of one of Australia's principal export industries.
There is also no doubt that the highly institutionalised system of monopoly boards and State government authorities has created monopoly rents which have gone to those who can apply the most leverage. It is hardly surprising that the trade unions have picked the bulk handling authorities, railways and ports as easy targets and have milked massive rents out of the system.
The solution, therefore, is to change the operating environment so that economic rents are minimised and so, accordingly, is the scope for trade union abuse of power.
The action required to achieve this is relatively
simple: remove the regulations which prevent new entrants
to the broadly defined marketing system from providing
competitive services. That requires political decision
and actions. The contestable environment would stimulate
entrepreneurship, innovation and productivity advance,
and therefore result in lower real costs. The presence,
or even the prospect, of competition would eliminate
the source of industrial problems.