Report says port prices justifiable

By DANIEL RIORDAN transport writer

New Zealand ports compare favourably with their international counterparts in efficiency, price and service levels, says a Government-financed report.

Consultants Charles River Associates conclude that the industry is generally competitive, that a price inquiry is not needed, and that major changes to competition laws and industry-specific legislation are not necessary.

But the report identifies several areas where competition is limited and where customers are "captured" by a port, unable to go elsewhere.

The study was sparked by findings of the Shipping Industry Review, released in March last year, which said port companies had a prima facie case to answer on accusations that they were behaving like virtual monopolies in many areas, with non-contestable pricing making them cash cows for their shareholders.

The review recommended that the Commerce Commission investigate, but the Government waited for six months, then initiated this report.

Among the shipping review's recommendations were that the Government grant New Zealand shipping companies concessions to help them compete with foreign competitors who had state support.

It also called for the opening of New Zealand and Australian coasts to each other's shipping, but these issues were not part of the terms of reference of the Charles River report, which focused on ports' pricing behaviour.

Commerce Minister Paul Swain and Transport Minister Mark Gosche say they will respond to the report near the end of August.

Interested parties have until June 10 to express their views.

The report found a high level of competition between ports and says this is increasing, particularly between Auckland and Tauranga, and Lyttelton and Timaru.

Ports make vigorous efforts to attract shipping lines and cargo, it says.

Other sources of competitive tension are intra-port rivalry, competition from road and rail, and the threat of new entrants.

The countervailing power of certain classes of port customers, particularly major shipping lines and large exporters, also acts as an effective constraint on pricing.

Responding to concerns at the high level of vertical integration in New Zealand ports, the report concludes that where concerns exist about market power, there are generally compelling efficiency justifications for these arrangements.

But not all areas of ports' activities are competitive.

The report investigated four areas where customers claimed the ports exercised monopoly power:

* Excessive charges for services (the consultants looked at Wellington's Centrepoint and the shipping line Pacifica).

* Financial returns to port companies greater than those earned in other industries.

* Unwillingness by ports to negotiate in good faith on prices and a general lack of responsiveness to customer requirements (Methanex and Westgate).

* Cross-subsidisation of port services from captive to non-captive users related to a lack of transparency in pricing structures (Port Nelson).

The report says that in some cases there were mitigating circumstances that partly explained some of this behaviour.

But the problems represent a small share of the transactions between ports and their customers, and do not present a strong case for industry-wide remedies.

Pacifica managing director Rod Grout, who had yet to see the full report, was pleased that it had noted instances where customers, including Pacifica, might be captured by particular ports.

"That's something we've been complaining about for several years."

Pacifica intends making submissions on the report.

Port companies' spokesman Barrie Saunders said the fact that the consultants recommended against major change to competition law, and saw a price inquiry by the Commerce Commission as being unnecessary, was further confirmation of the durability of existing arrangements.

Port of Tauranga chief executive Jon Mayson welcomed the findings, and said that while specific issues between customers and ports had been identified, it was important "not to use sledgehammers to crack walnuts".

But he did not expect the findings to placate the ports' critics.

Charles River held 25 interviews with industry stakeholders and received 36 submissions in preparing the report.