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[sharechat] NZ ports

From: Marilyn Munroe <>
Date: Mon, 24 May 2004 21:13:13 +1200

Several hints have been dropped that I should dive into the current ports
discussion thread. Well here goes.

The factors which weigh most heavily on port performance are geography and 

Geography: What would be the point of establishing a port with Auckland's 
level of infrastructure (container cranes, straddle carriers) in say 
Westport? The answer is none. The geographical hinterland of Westport 
contains neither the population base nor the level of economic activity 
required to sustain such infrastructure.
Geography & ports rules of thumb                                

                Large population in hinterland == good
                High levels of economic activity == even better

Economics: Imagine this hypothetical scenario. There are two port users. One 
is an importer who has a container of high value electronic equipment about 
to cross the wharf. The other is an exporter of unsawn logs to be shipped 
overseas. Suddenly the hypothetical port company doubles its charges. The 
importer of the electronics in the container will probably grumble but pay 
up. The exporter of logs will probably have consider whether it is worthwhile 
for him to continue. This is because port charges in each of these examples 
take up very different portions of the economic value of the cargo.

                 Economics & ports rule of thumb

                High cargo values == greater price elasticity

Let us now go on a pub crawl of some NZ ports.

Auckland: The jewel in the crown. A large population base and high levels of 
economic activity in the hinterland. Because it serves NZ's largest city it 
has an even balance between outbound and inbound cargo which is favoured by 
shipping companies.

It also benefits from a hub effect. Because of the greater number of vessels 
and shipping lines using Auckland it is easier to tranship containers from 
one vessel to another. There is trend toward larger container vessels. To 
extract the maximum value from these larger vessels shipping companies want 
to visit fewer ports but load and unload greater numbers of containers at 
these ports. Because Auckland is NZ's busiest port it benefits from this 

Management of this port appears to competent realising and playing to their 
companies strengths.

Someone on the forum expressed doubt as to the wisdom of Ports of Auckland 
(POA) disposing of the Westhaven Marina. Being a land bank is not a core 
function of POA. Given that the sale seems to have inspired a rush of blood 
to the heads of local body politicians and the Labour Government I reckon the 
price obtained was good. It also fits into Marilyn's 1st rule of investments 
which is 'take the money and run'.

Tauranga: I don't rate Port of Tauranga (POT) and this opinion has cost me 

Let me explain. Tauranga has a large portion of its business tied up in bulk 
commodities such as paper products and unsawn logs. As explained above this 
type of business has a limited ability to pay high port fees, and is also 
more buffeted by the vagaries of commodity markets and international trade.

With containers I was of the opinion that the Sulphur Point container terminal 
development was a facility that was a 'build it and hope they will come' type 
of investment. For a while I was correct but now am wrong.

I was also of the opinion that their inland port in South Auckland was a 
mistake. Someone in the business guesstimated for me that POT was paying the 
railways $500 a container to cart from this inland terminal to the actual 
port. This seemed to be buying business. Bad idea I thought.

This low opinion of POT has been confounded by profits and the share price, 

Lyttelton: Oh dear.

The Port of Lyttelton (LPC) is adjacent to Christchurch the largest population 
and manufacturing centre in the South Island. It is also handily placed to 
handle the agricultural exports of the fertile Canterbury Plains.

The policy of Fonterra to ship its products from the nearest port to its 
factory has drawn Maersk shipping away from Lyttelton to Timaru. Why Fonterra 
mandates this policy is unknown. I would have thought that Fonterra would 
have taken a more holistic approach some thing along the lines 'there is a 
container to be picked up from our factory to go wherever, we don't care 
about the route it takes to get there', which if Fonterra had not dictated 
the port may well have been through the South Island hub at Lyttelton .

The decision of P & O Nedllyod to make the sole South Island call for their 
big container vessels at Port Chalmers was perceived as a body blow for LPC.
Union intransigence at Lyttelton was the reason cited for the decision. I 
suspect that this was just an excuse. P & O probably played hard ball with 
port charges and had their bluff (sic) called. An informant told me the 
decision to call at Port Chalmers has been problematic for P & O.

The Rail & Maritime Transport Union is a smooth operator. Paul Corliss the 
branch secretary and Ross Wilson the former national secretary before being 
kicked upstairs to the Federation of Labour (or whatever it is called these 
days) made a very effective team of advocates.  The union leadership enjoys 
the support of members. While not implacable opponents of change I doubt that 
the Union will give way on its members interest easily.

The bigest problem facing LPC is in my opinion corporate governace. The loss 
of former chairman Brent Layton and and managing director David Viles is a 
blow from which LPC has yet to recover. Why the major shareholder 
Christchurch City Holdings engineered their departure is a mystery surrounded 
by a riddle and wrapped in an enigma.

Brent Laytons value to LPC was his focus on the money. I gained the impression 
that any expenditure proposals had to meet very rigorous criteria, which 
amounts to careful stewardship of shareholder assets.

David Viles could be a little astringent, there was however no doubt that he 
shared Mr Laytons focus on shareholder interests.

I have the impression that the current directors are light weight. This may be 
an erroneous impression. I invite the directors to prove me wrong.

The influence of major shareholder Christchurch City Holdings is of concern. 
Their putch against Layton & Viles for example. The fact that a senior 
Christchurch solicitor who has been the subject of unfavourable judicial 
comment has been appointed director of Christchurch City Holdings can only 
add to concern about the holding co's. influence.

To sumarise, i believe that LPC is fundamentally a good business which could 
be returned to its former position with a few adjustments.

Boop-boop-de-do Marilyn

Disclosure: Hold LPC POA

Anthony 'Tony' Soprano Sr.: Sil, break it down for 'em. What two business have 
traditionally been recession-proof since time immemorial? 
Silvio Dante: Certain aspects of show business and our thing. 

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