All at sea - how bad is our port really?
Saturday, 19 October 2024
Poor profits, constant management changes, unhappy workers, bloated wages and salaries and a shocking safety record.
From the outside, the Lyttelton Port Company (LPC) looks like a basket case.
If true, it needs to improve quickly. An efficient port is vital to the Canterbury and South Island economy and its owner, the Christchurch City Council, needs healthier profits to help keep rates down.
But is the port really performing that badly? Perhaps it’s just doing its best in a struggling economy and in testing circumstances not of its own making.
There’s no shortage of reasons given for the disappointing performance of the port over several years. The port had to recover from the Canterbury earthquakes and then suffered the ravages of Covid-19. Currently, troubles in the Red Sea have again thrown ship schedules into disarray. In August only 16 per cent of ships turned up at the Port of Lyttelton on schedule.
The last year has been tough for anyone running a business and the port is no exception. Container movements are down and volumes of bulk materials like logs, coal and fuel have also dropped.
Nevertheless, according to the World Bank’s Global Container Port Performance Index, which ranks 405 global container ports for efficiency based on ship turnaround, LPC is one of the world’s worst operators.
In the doldrums
Last year Lyttelton ranked 385 out of 405 ports, just beating Port Sudan and Luanda in Angola. Ports in Oceania have never been star performers but Lyttelton still comes in as the region’s worst performing port. Next worse was Auckland at 353, Tauranga at 343, Port Chalmers, 296, Timaru, 274, and Bluff at 260. Wellington, which is tiny compared to Lyttelton, was the only New Zealand port in the top 100.
While Lyttelton has unique constraints and challenges outside of the index’s metrics, only five or six years ago it was in the top half of the index.
Comparisons with other ports are always dangerous but it’s hard to overlook the fact the Port of Tauranga in the last financial year made a profit of $90 million (21.5%) on revenue of $417m while Lyttelton turned a profit of $9.9m (5.1%) on a revenue of $193.8m. In addition Tauranga’s operating expenses were 52% of revenue compared to LPC’s 73%.
Tauranga is of course New Zealand’s largest port and situated at one corner of the golden triangle taking in Auckland and Hamilton. So it has advantages of scale and is also half owned by private shareholders and institutional investors who demand a sharper focus on profit and returns. The Port of Tauranga’s chief executive was paid about $1.5m in the last financial year and part of his salary has performance incentives.
LPC chief executive Graeme Sumner, who was appointed last September, does not have an incentive component to his annual salary of about $750,000.
Ostensibly, Port of Tauranga spends a lot less on staff. Its wages and salaries bill in the year to end of June was $57.8m for 279 staff compared to LPC’s $86m on 653 employees. It needs to be remembered that Port of Tauranga contracts out most of its cargo handling at a cost of about $95.7m a year but it still spends about 36% of revenue on staff and contractor remuneration while Lyttelton spends 44.5%.
Many critics point to LPC’s highly paid staff as the main driver of its low profits. LPC’s latest annual report (for the end of June financial year) shows that 409 staff earn over $100,000 with 381 bringing home between $100,000 and $200,000 and 28 earning between $200,000 and $600,000. According to LPC, about three quarters of the 409 earning over $100,000 are blue collar workers.
Benchmarking important
Sumner, whose father worked on the Auckland wharves for 35 years and was also a committed union delegate, has only been in the job for a year so can’t be blamed for the port’s woes. Not yet anyway.
He accepts the World Bank index is a fair reflection of the port’s performance and is “solid information” which the company will use to measure improvements. Latest figures show Lyttelton climbing up the index, he says.
Ministry of Transport figures showing LPC is one of the country’s best performers when it comes to several crane metrics are reason for optimism but “those individual components only matter if they end up in improved ship turnaround time”, he says.
Mark Wilson, a cargo handler at the port for 14 years and who is secretary of the Lyttelton branch of the Railway, Maritime and Transport Union (RMTU), says the port’s crane rates are comparable to similar ports around the world and ship turnaround times need to be viewed in the context of Lyttelton’s constraints such as the fact only one large vessel at a time can use the channel into the port.
Frontline operations haven’t really changed in the last 10 years so he doesn’t understand how Lyttelton has slipped so drastically down the rankings, he says.
He worries LPC will use the index to promote the under-performance angle and to justify changes.
Trimming the sails
Sumner confesses he doesn’t know why Lyttelton’s performance has deteriorated so badly but his educated guess is that Covid forced the port to reorganise because no ship was on schedule and labour couldn’t be rostered in an efficient way.
Many ports became less efficient and Lyttelton took longer to recover, perhaps because of necessary management emphasis on health and safety, he says.
Wharfies, Bill Frost, Warren Ritchie and Brad Fletcher were killed in accidents at the port in 2013 and 2014. The latest fatality at the port was Don Grant in April, 2022.
“There’s nothing wrong [an emphasis on safety] with that but there was less emphasis on returning to operational efficiency,” Sumner says.
On the financial front, he’s reasonably confident he can deliver another $20m annually to the council within three years, saying action taken over costs and revenue will put LPC in the middle of the pack “for average margins for ports of our size”.
In the year to end of June, LPC paid a $10.6m dividend to the City Council compared to $6.6m in 2023 and $10m the previous year.
In Sumner’s first year in the job, the LPC staff roster has reduced by about 40 saving about $6m. The cuts, which were shared equally across administration and cargo handling positions, reflect the reduction in cargo volumes through the port, Sumner says. None of the staff let go were part of the two main unions on the wharves, the RMTU and the Maritime Union of New Zealand (MUNZ).
Sumner says the company has also sharpened its buying practices and raised charges such as for dry dock and inner city depot services.
“There are also efficiencies in how we do the work but less so than you might imagine because we have good evidence to know that pre-Covid we were operating at a reasonably efficient level and we’re kind of getting our muscle memory back.”
“It’s easier to get acceptance if people can see in the past that level of performance has been out there.”
High paid staff
He doesn’t see too much wrong with 409 staff in the port earning over $100,000. LPC pays rates that are pretty standard throughout the country and plenty of avenues for improvement exist “that don’t cut to the issue of the wage/salary band”, he says.
A continuing perception that wharfies are paid a lot for doing not much is unfortunate and, although that might have been true in the 1970s and 80s, the industry has moved on, he says.
Wilson says it’s true some cargo handlers take home some good money but they work the overtime hours to earn it.
“It’s a 24-hour job isn’t it. You get paid for what you work,” he says.
In a joint statement for this article, MUNZ and the RMTU unions say their numbers have stayed the same for decades, “whilst management costs have sky rocketed”.
The unions did not provide figures but in the 2019 financial year when container volumes were not much below present amounts, only 12 port staff earned more that $200,000.
Honesty and transparency
Sumner says he tries to have an open and honest relationship with the unions. He has monthly town hall meetings with frontline staff and says the meetings are useful in stopping rumours from snowballing.
About 38% of the workforce are members of MUNZ and about 30% are in the RMTU, traditionally the more stroppy of the two. The RMTU has passed two motions of no confidence in Sumner and port management, the last in July.
Sumner says the unions are a broad church and their public faces don’t necessarily reflect the true views of the “silent majority”.
Wilson, in response, says about 50% of his members came to the meetings that passed the no confidence votes but the votes were supported by all members.
An LPC staff engagement (whether staff feel positive and motivated) survey undertaken in February in which 69% of the workforce participated, showed a staff engagement level of 64% and elicited plenty of negative comments about leadership, the lowest scoring area.
The highest scoring area was health and safety and wellbeing. The survey revealed much about workplace culture.
“What I like about the place is that, as they say, they like to smash it out to achieve good productivity rates. There is a pride in productivity,” Sumner says.
He believes the workforce has a real sense of the opportunities that exist for improvement and is enthusiastic about “growth potential”.
“Then there are the subcultures, the sub groups who are not happy and we do our best to accommodate them but that’s a work on.”
Sumner believes management has changed the narrative around safety and the port company’s annual report lists a number of initiatives to improve communication, recognising the importance of people and aligning “the organisational culture” with LPC’s values.
New medical checks
One thing that has upset the unions is a change in the way management involves them in decision making.
Sumner has stepped back from the high-engagement, high-performance consensus model favoured by previous chief executives Roger Gray and Kirstie Gardener, to a more standard consultation model.
The result, say the unions, is that they have no meaningful influence on workplace practices and a workplace climate of “uncertainty and mistrust”.
“There’s been a lot of change at LPC in quite a short period of time, and a lot has occurred without engagement with the unions. We have a new CEO and new rhetoric. We’ve changed from being a service to a business focused on profit,” he says.
Recently MUNZ won a case in the Employment Relations Authority which found LPC could not impose some new health checks (blood pressure, heart rate, blood glucose, strength, balance and mobility) on MUNZ members unless they had been agreed under the collective agreement.
RMTU’s collective contract was, however, wide enough to allow the new health check regime and Wilson says some of his members will fail the tests when the tests start on Monday. If that happens, the union has a plan which he would not share with The Press.
The union is concerned that port workers who have been doing the job for years without issue will suddenly face the risk of losing their jobs without an exit package, he says.
His union was not averse to mandatory health testing but the extension of the testing was a major change and an example of what happened under the new engagement policy.
“The high engagement model is based on all the relevant people being at the table and having an equal say in the decision. A problem is put on the table and we talk about a solution. Under the new model we get a proposal on which we give feedback. It’s all about the spirit and intent,” he says.
Fair weather ahead
There appear to be more workplace changes in the pipeline.
“I’m well aware of how wharves have worked around the place. All I can say is that we have modern standards of expectations around employment. It’s fair to say we are addressing a number of customary practices and activities,” Sumner says.
“There are a lot of winks and nods to rorts that may have gone on in the past but we are really clear about what we expect and there will be some further evolution of that over the next year I would say.”
Sumner says his town hall meetings are useful to dispel rumours and conspiracy theories but clearly he has some work to do.
The port’s expansion plans underlie some of the uncertainty. LPC hopes to begin the first stage of further expansion to the east next year. This involves a 6ha reclamation and the design of a new large ship berth.
Sumner reckons the new berth and infrastructure and equipment will cost close to $800 million, a sum that it can’t borrow. A capital injection will be needed.
He doesn’t know where that would come from and says it will be a question “we will put to council down the track”.
“It’s up to us to make the case and then we will be going to council and saying ‘look we think this is what you need for Canterbury and the South Island. It’s a critical piece of infrastructure and we are going to have to have some conversations about how it can be financed.”
Interested parties
The fact the company has been talking to DP World, an international port and logistics company owned by the Dubai Government in the United Arab Emirates is the worst kept secret in town, he says.
LPC has had plenty of meetings and discussions with DP World and others but not about leasing or buying the port.
“We have no mandate for that,” he says. DP World had a broad range of interests which “they liberally share with everybody”.
The discussions with DP World and the others are just part of normal commercial “hurley burley“, he says.
“They know down the track we need capital. They want to see what sticks. We’ve had no specific commercial discussions with them but it’s fair to say there is a lot of interest in the logistics environment in New Zealand and a lot of people are prepared to invest.”
Another rumour is that he has been hired to secretly run LPC into the ground so in the end the council has no choice but to sell or lease.
Sumner finds it laughable.
“That’s a good one. Thanks for sharing that with me. My job is to make the port look good,” he says.
Wilson says DP World’s industrial track record would make it an unwelcome stakeholder in the port.
“We are concerned about the city losing control of a vital piece of infrastructure. We’d much prefer to be owned by our city.”
Ratepayers watching closely
On first sight a working port at close quarters is an awe-inspiring and machinery dominated place. Everything that moves, except the humans, is huge. But humans call the shots and the balance between an efficient port and happy workers is difficult to achieve and maintain.
Christchurch ratepayers will be watching very closely to see if the balance returns and profits start flowing again.