The Legacy of the Hungry Mile

Ports and Shipping Reform in New Zealand

David Trebeck

Introduction

My brief is to say a little about the NZ waterfront situation. I have just spent a week in NZ for the NZ Business Roundtable and Federated Farmers of NZ looking at the question of waterfront and shipping reform. The task was twofold: to have a general stocktake of the policy changes that have been occurring in recent years and to identify the remaining tasks for reform which in turn would provide the basis for further representations made by the organisations to the Government. Let me commence by quoting the New Zealand Minister for Transport. He is talking about NZ but, of course, what he says could apply equally to Australia and is rather an apt observation:

'We are like the farmer on the far side of the river who must work that much harder and rise that much earlier on market day to bring his wares to town.. We are not conveniently located at the crossroads of international trade, we are not on the mainstream of the global village'.

This is why the ports and shipping industries in NZ have to be competitive.

When I arrived in NZ I had no prior knowledge. I had done a little bit of reading, although much of the terminology was initially confusing. However, one didn't have to be there long to learn about all the same old rorts, all the same old inefficiencies, all the same old demarcation problems, all the same old cost plus mentality, all the same old employer weakness that exists in Australia and about which we have heard earlier today.

This is at the surface. Going a little deeper, one realises that, in fact, the comparison between Australia and New Zealand is very stark. New Zealand is actually doing something about its problems! It has had the odd inquiry or two, but it doesn't believe in inquiries as a way of life. Instead of having inquiries followed by task forces, followed by committees, followed by further reviews, let alone tripartite consensus and gradualism, New Zealand has actually made its decisions and is in the process of implementing them.

Pressure for Change in New Zealand is Greater than in Australia

Why is NZ going about this task so much more vigorously than we are? I think there are three reasons. One is, of course, consistency with the approach that the NZ Government has adopted to structural change throughout the economy---and we have its high priest with us today. I think there is an awareness, a recognition, an expectation that the NZ Government means what it says when it tackles these problems. Everyone knows roughly the direction in which it will go, and it now has an impressive track record to enhance credibility.

In this there is no Senate and no States to get in the way. The Government also has the political strength to see it through when the going gets a bit tough. By our standards the backlash, particularly from trade unions, is almost non existent. There are, of course, problems, the odd strike or two, but when you consider the actions that have been taken on so many fronts and observe the way in which those changes are being received by the trade union movement, it is really a breathtaking comparison to the situation here. So consistency and strength is the first point.

The second reason is that NZ is poorer than we are with a higher debt level and lower living standards. It follows that the pressure in New Zealand to tackle problems is that much greater. Thirdly, NZ is increasingly conscious of the hot breath of competitors like Chile. In industries like forest products and horticultural products, Chile is very much a competitor with NZ as it is with Australia. Chile has been solving many similar problems and NZ is experiencing greater competition in world markets as a result.

Let me give one brief example. Chile had an even more institutionalised waterfront than Australia with a metal badge providing a tangible sign of waterfront employment. That badge was the way in which the monopoly rents attaching to waterfront employment were able to be appropriated, and indeed passed on from generation to generation. The badge formed part of the estate of a deceased waterside worker, passing to his son. The 'watersider himself didn't do the work; he subcontracted it out to anyone who was around. However, he maintained the badge and drew the rent---rather analogous to taxi plates if you like.

Recently the Chilean Government bought out that system and did away with it completely. Productivity has increased by somewhere around 75% as a result and, in the words of the well-known Chilean economist Jose Perera, this has had the effect of Chile moving 5000 miles closer to its world markets. That is the sort of competition NZ is increasingly aware of.

Some NZ Waterfront Practices

NZ is not quite as container dependent as Australia is but neither does it have the large bulk trades over a wide range of bulk commodities. There are, for what is a small country and a small total trade, a large number of ports, something like thirteen. Four of those are container ports, two in the North Island and two in the South, and the rest are conventional ports, some of which are fairly seasonal operations for exports such as dairy products and fruit. Some of these conventional ports have become quite specialised and in many respects quite efficient. The overall scale is indicated by the fact that total NZ trade would be equivalent to the amount handled through the port of Sydney.

I won't list all the rorts and case studies that have been prevalent in the past but to give a little trans-Tasman flavour to the subject, here are two or three that highlight the innovative capacity of the NZ workforce, just as the examples that have been quoted earlier today and before do to their Australian counterparts.

There is a little rule called Saturday Afternoon Orders. Under this arrangement---condoned by employers---if the waterside workers can agree to complete loading by a Thursday afternoon then they are paid as if they are working up until Saturday afternoon and, of course, Saturday is on double time. That is one reason why the number of hours per week that NZ waterside workers are paid is much higher than the number of hours they actually work.

Another example concerns our well-known live sheep export industry. In one of the ports twelve people are required to load live sheep for export; in all other ports the figure is twenty-four. Federated Farmers estimates that three men and a dog would be quite adequate for the task.

The demarcation issue has been quite pronounced in NZ and there is a nice Gilbertian example of the operation of the NZ Labour Court, the equivalent of our IR Commission. When a demarcation issue between the waterside workers and the Harbour Board workers came up for hearing late last year in one particular port, the Judge opted for what in our petrol strike parlance would be referred to as the 'odds and evens' system. Each alternate day the employees of one union would have the work; the next day the other union would be involved and so on.

The final example concerns the experience of the petroleum industry. Petroleum companies are involved in the unloading of oil and petrol, which they do without the use of waterside workers, and also chemicals, for which they do have to use waterside workers. They have therefore been able to obtain a direct comparison on the relative costs involved. The figures indicate that it is somewhere between five and seven times more expensive when the waterside workers are used than when they are not.

Recent Government Policy Change

These then are the types of waterfront 'industrial realities' in New Zealand with which we in Australia are already familiar. In terms of recent policy changes enacted by the Government and their immediate effect, Mr Douglas will be covering that field in some detail during his address over dinner.

Very briefly, three things have been done. One, the Government has moved to put the operations of the ports onto a more commercial basis, separating commercial from non commercial tasks, giving a commercial charter to new port companies, and allowing up to 49% of the shares of those companies to be privatised. Second, it has legislated, with effect from 1 October 1989, to normalise waterfront employment. Hitherto there has been a national labour pool of waterside workers. It will end on 30 September and normal employment arrangements will commence. Third, the Government has adopted a consistent position of non interference in commercial and industrial matters around the waterfront. These changes are still working their way through and, in terms of normalisation of employment arrangements, have not yet taken effect but already a number of benefits have arisen. Again Mr Douglas will be giving a few of those examples this evening.

Enhanced Shipper Strength

There is one important reason why some of the early benefits have occurred and why I think things are looking good for NZ for the future. This is that the employer side of the equation has been 'taken over' by the shippers. On the employer side three elements are involved:

• the shippers, that is the owners of the product being exported;
• the stevedores, the companies who actually are the employers in a direct sense or who soon will be (after 1 October); and
• the shipowners.

At present, the stevedoring companies do the work they are paid by the shipowners, and the shipowners ultimately recover the costs from the shippers via the freight rate. To date stevedoring companies have been responsible or accountable to the shipowners. Shipowners are the ones who traditionally have had a costplus mentality. Ultimately they have been secure, being able to recover higher costs through the freight rate.

However, a meeting held on 25 April this year, which has become known as the 'Anzac Day Hijack', the shippers, that is the farmers, the dairy boards, the timber people, the steel people, decided they would take over the running for the negotiations leading to the new post 1 October waterfront arrangements. The stevedoring companies would conduct the negotiations, but they would be made accountable to the shippers and not the shipowners. That, I think, is really the way to go because, of course, it is the shippers who ultimately have the greater incentive to have costs minimised and efficiencies maximised.

We have talked earlier today about the Australian Association of Waterside Employers. Paul Houlihan or Peter Barnard was suggesting that reform on the waterfront in Australia could mean that that organisation becomes redundant. The equivalent organisation in New Zealand is in the process of becoming redundant because not only has there been the change in accountability, but the NZ Association of Waterside Employers has not even been asked to coordinate the negotiations. That task has been given to the Employers Federation, the general employer organisation.

Future Ports Reforms and Commercial Developments

After these changes come into effect on the 1 October and the new system has settled down, there will be quite a number of issues which still need to be tackled. The main responsibility lies with the industry although there are some remaining legislative changes that the Government should make.

First, when the Government formed the new port companies, it stipulated that they must be at least 51% owned by the relevant local authorities. Initially the entire shareholding was vested in the local authorities and so far no outside entity has purchased shares. There are quite a number of groups interested in doing so. They are reluctant, not because they necessarily want total control or total ownership, but because while at least 51% remains with what could be seen as parochial local interests, genuinely commercial decisions may not be taken. Therefore there is an immediate requirement for the 51% rule to be relaxed.

Once that is done some quite exciting consortia are likely to emerge to own ports, either in whole or part. Most will be combinations of shipper interests. The Dairy Board has indicated a desire to buy equity in at least two ports. The timber industry and some of the fruit organisations are similarly interested. If there is a direct ownership of the ports by the commodity that is the principal user of those ports, the chances of those ports acting contrary to the interests of the commodity---or shippers generally---will be greatly reduced.

The direct parallels between NZ and Australia in this may not be very close because NZ is more compact geographically, and there is, in certain regions, a greater degree of commodity specialisation at particular ports. Australia's major ports are more general purpose. Nevertheless, the principle is obviously clear, and its extension to Australia would, if it could be achieved, desirable.

Similarly, there are quite a number of groups looking at establishing new stevedoring ventures to give the existing stevedoring companies some competition. Several existing stevedoring companies are joint ventures between the Union Shipping Company---which is the main NZ shipping group, and a subsidiary of TNT---and the waterside workers union itself. It is heartening seeing competition in stevedoring emerging. In the long run, I don't think it is likely for a joint venture stevedoring company involving a trade union to be successful in the face of genuine competition provided no 'monkey business' is involved.

A further requirement, if the benefits of reform are to be maximised, is for all costs, as far as possible, to be expressed, measured and paid for on an individual port basis, rather than pooled nationally. In Australia we have had some experience of this in both the wool and the meat industry where changes over the past few years have seen a substantial element of landbased costs removed from the (pan Australia) freight rate, to be charged directly to the shippers, on a port by port basis. Once again, such changes are conducive to greater efficiency and productivity. If land-based costs can be paid up-front by shippers, rather than built into an overall freight rate

• competition for and transport services is more likely;
• shippers will realise where the bumps and the opportunities are, and will demand appropriate improvements; and
• greater competition between ports will occur, thus lessening the chances of monopoly rents being re-appropriated.

I see no reason why in time virtually all of the port operations cannot be paid directly by the shippers rather than being paid by shipowners and ultimately recovered via the freight rate. On the industrial relations side, the NZ Labour Relations Act, the equivalent of our Conciliation and Arbitration Act, has still a number of features in it which results in an uneven playing field. NZ has, for instance, a provision that the minimum number of members that can belong to a union is 1,000. As a result quite a number of small unions are being forced to amalgamate to reach the threshold. This seems to be quite inimical to the interests of decentralisation and, of course, some rather odd and non rational amalgamations are taking place. A statistic which I came across when in NZ, and I think is a rather telling one, is that in Japan there are 70,000 unions, the average membership of which is 170. Small unions have not caused too many problems to Japan, or Japanese workers, over the years. Also in the Labour Relations Act, the question of union coverage is very much tilted in favour of the status quo. If a particular group of workers want to change the union they belong to it is extremely difficult under the Act for them to achieve that change even if it is both sensible and virtually everyone wants to do so. Similarly, the question of disaggregation of awards from a national down to a regional level is very heavily biased against disaggregation. National union secretaries understandably are the fiercest defenders of the national award system because regional awards threaten their power base quite explicitly. Unionism is compulsory in NZ, at least under the Act. While the question of compulsory unionism appears to be one of the more sacred political cows in NZ, the issue should be put back on the agenda for debate. I found it quite ironic that in one particular port, where there is about three or four hours work per day to be done by the watersiders, the same people spend the afternoon unloading fishing vessels as non unionised labour. NZ watersiders are supposedly just as fervently pro-union as they are in this country but, given some choice, people will vote for choice rather than dogma.

The final issue needing change in NZ is in the area of civil remedies. This is one field where Australia is ahead in terms of experience and I suspect also in terms of the robustness of the legal provisions. There is certainly nowhere near the body of case law in NZ as there is here with common law or section 45D actions. Whenever I raised these issues there was a lot of interest in what had been done here and what might be possible in NZ. There is not a great deal of awareness within business of even what the options might be. It is quite clear that, as in this country, the watersiders are not going to give up all the privileges they have enjoyed over the years, without a fight. It follows that civil remedies will play a very important part as they have done in Australia in ensuring that employers can embark on sensible action designed to improve competitiveness with a degree of equality before the law.

Shipping Reform

Let me briefly make some comments on the shipping side, a secondary part of my brief in NZ. Coastal shipping provides a similar picture as in Australia---effective cabotage, a declining economic role and, of course, the necessity for some inter-island traffic. The Government has announced an inquiry which the Minister has insisted is not a trojan horse to get rid of cabotage. Nevertheless, unless that issue is effectively addressed, genuinely contestable markets will never be produced

Indeed, partial deregulation can actually make the situation worse. For example, in the case of the grain industry in NZ where grain grown in the South Island is processed into cereal products in the North Island, South Island farmers have utilised for many years a coastal shipping service to Auckland. When the Government deregulated the wheat industry about two years ago, abolished the Wheat Board and allowed processors to buy wheat from anywhere they liked, not only did it make Australia's job more difficult in maintaining its virtual 100% share of the import component (because of the high costs of trans-Tasman freight versus international freight rates), it also had the perverse effect of making life more difficult for the South Island grain producers. They were forced to compete for market share in the face of a very costly coastal shipping situation whereas their customers could purchase wheat from third markets more cheaply.

So much so that a number of farmers switched to barley rather than wheat because barley could be exported using an international shipping service to Japan. In tun the Union Shipping Company, which was providing the coastal service, found that the quantities of wheat were no longer large enough to make the service viable, so it was withdrawn. Now there is the ridiculous situation of wheat from the South Island being shipped to the North Island in containers by rail at a freight cost of somewhere over $NZ100 per tonne. The frustration of the grain farmers at the way in which partial deregulation works and the lack of action in the coastal shipping area, can be well imagined. It is heartening that they see further deregulation as the solution, not re-regulation of wheat purchasing.

As to the trans-Tasman trade I think there is a pretty fair understanding in New Zealand of the situation, in common with the Australian perspective. The obvious solution either by government or commercial action is to repudiate the maritime 'accord' which exists across the two countries and to encourage cross-traders to offer competitive services. I don't see any wild enthusiasm in NZ to take the lead publicly in such action, although many people are supportive of confronting the maritime unions. Perhaps, it will need to be triggered from the Australian side where the incentive for change is greater.

Finally there is the question of NZ's involvement in state-owned shipping. The Shipping Corporation of NZ, which has been owned for a number of years, has recently been sold. The total cost of NZ's investment over a number of years was $170m, whereas sale proceeds were not more than $40m; the investment never paid a dividend; a few minor benefits were obtained; but the Minister in announcing the completion of the sale stated it could only be considered 'an appallingly bad investment'.

He might equally have been speaking of the Australian National Line.