Union activity is undermining competition and productivity at New Zealand's ports and the Government should review legislation to tackle the problem, the Productivity Commission said in a report released today.

As the Ports of Auckland industrial dispute drags on, the Productivity Commission, a body set up as part of National's confidence and supply agreement with ACT last term, released its draft report into New Zealand's International Freight Services sector.

The report, which covered air and sea transport systems, focused on their accessibility and efficiency and the degree of competition within them.

See commission chairman Murray Sherwin discuss the report here.

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In its section on employment relations at ports, the commission said it had heard that "the risk of labour-related disputes can, in itself introduce significant costs by blocking, discouraging or delaying productivity enhancing investments or other operational changes".

It went on to say that "impediments to competition in the provision of port services can reduce the efficiency and long term viability of New Zealand ports, and undermine broader competition policies and legislation".

"The Commission recommends the Government reviews whether existing legislation is sufficient to effectively regulate barriers to competition that arise as a result of union activity."

The Commission also said the governance of both ports themselves and unions were likely to be factors in why the relationships between ports' management and their workforce, "persistently fall short of those required for effective and efficient operation of port services".

It recommended improvements to the governance framework for council-controlled ports and airports by applying the same statutory objectives currently in place for for state-owned enterprises, and by disallowing councillors and council staff from serving as directors on their boards.

Sherwin said the governance arrangements for publicly owned companies, which dominated parts of the transport sector, needed to be particularly strong "because such companies are, in effect, spending the public's money and face fewer performance disciplines than comparable privately-owned firms".

Sherwin said trade mattered a great deal for New Zealand's standard of living and freight costs were built into the prices New Zealanders pay for everyday imported goods and the returns exporters receive for their goods.

In total, New Zealand paid about $5 billion a year for freight costs or about 2.7 per cent of GDP.

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While freight costs as a percentage of the value of the goods transported had fallen in the 20 years to 2009, they were beginning to rise again.

"New Zealand's international freight services have scope for improvement which would help lift New Zealand's living standards," Sherwin said.


Productivity Commission chair Murray Sherwin on its new international freight report: [Supplied]