Project Auckland: Ports of Auckland turnaround gains speed
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Ports of Auckland chief executive Roger Gray. Photo / Dean Purcell
Boosted by the new Regaining our Mana strategy, Ports of Auckland’s turnaround is well under way, both operationally and financially.
“We had to rebuild the trust and respect of customers, shareholders, iwi, community, unions and our people, and that meant going back to the basics,” says Roger Gray, who took over as chief executive of Ports of Auckland in March last year, after leading the Port of Lyttelton.
The rebuild was mounted on all fronts. Ports of Auckland trimmed the staff in the head office by 30 and employed more stevedores and crane operators in the operations area.
The port company executive sat down and established a partnership with the Maritime Union on salaries, rostering and career opportunities.
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“My message to the business community is that the days of fighting with the unions are way behind us,” says Gray.
“The adversarial approach towards the union didn’t serve the port well, and there is a different attitude from the union leadership and board and management.
“We understand each other’s needs and it has improved the whole morale.”
In an industry first, the stevedores moved to a 40-hour salary instead of hourly wages and extended the current collective agreement to the next year, with an increase in pay in line with the consumer price index.
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“We found that stevedores couldn’t communicate to their banks what they actually earned,” says Gray.
“A salaried income provided stability of income for families at a time when the cost of living is pinching.”
Dynamic rostering was introduced to manage fatigue and create a better work-life balance.
“We are giving our people careers rather than jobs and the ability to participate in career progression programmes along the way.”
Ports of Auckland re-introduced berth windows, giving shipping lines fixed time slots for vessel calls.
The company has also worked with the ports of Tauranga, Napier and Lyttelton to provide a regular shipping service around the coast.
“The new focus on core business has seen us move 16,000 TEUs [20-foot equivalent containers] in a week. We could not have done that without the support of the union,” says Gray.
“That’s volume we haven’t seen in three years and we are getting back to pre-Covid throughput.”
Financially, the port company lifted net profit 40 per cent to £20.8 million for the six months ending December, compared with £14.8m for the previous corresponding period and a £10.275m loss for the 2022 financial year, which included a £63m write-off for the cancellation of the Fergusson Container Terminal automation project.
Ports of Auckland has forecast a full-year net profit of £42m-£45m, similar to the 2021 financial year and a 20-28 per cent increase on the 2023 budget of £35m. The company has committed to delivering a 2024 net profit of £52m in line with the Auckland Council’s budget request.
Ports of Auckland is paying an interim dividend of £15m to the council compared with £2.1m last year, and expects to deliver a full-year dividend of £30m, an increase of 111 per cent on the previous year’s £14.2m, while also reducing debt.
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In another Regaining our Mana move, Ports of Auckland linked up with the environmental group Protect Aotea/Great Barrier Island to establish the Te Moananui o Toi Restoration Trust to maintain the health of the Hauraki Gulf.
The trust is part of the settlement with Protect Aotea, which challenged the consents granted to the Ports of Auckland to deepen the shipping channel.
The port company is providing £100,000 annually over 15 years (a total of £1.5m) to the trust to support projects that enhance and restore the mauri of the harbour.
This includes two post-graduate scholarships.
The trust will also be involved with monitoring the disposal of materials, some two million cubic metres, at the Cuvier site, 50km out to sea, during the dredging programme which is expected to start within the next 12 months.
The shipping channel and berth pockets will be dredged a further one metre to a depth of 13.5m to cater for the bigger 8000 TEU container ships expected to call at the port over the next three to four years.
Despite all the noise about moving or giving up more of its land, Gray is adamant that the port has a critical role to play at its present site in the medium term (to 2035) and that’s what its new business plan is based on.
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For the long term, New Zealand needs a port strategy that includes investing in the road and rail network, coastal shipping (the blue highway) and new infrastructure.
Gray asks: “What is the priority for funding and alternate infrastructure? Where will the volumes go? When will the central government dual-lane the highway north and put in a rail spur to Marsden Point?
“I think eventually, within the next 50 years, there will be an alternate use and demand for land [at the present site].
Auckland and Hamilton will be effectively joined and there will be a significant demographic change.
“But right now, there is a compelling argument for the port to continue operating where we are. Sixty per cent of our trade is consumed within 40km of the port. Once a container box hits the wharf, it is in the shed for two days and then into Wiri (inland port) within hours.
“That’s the power of the port and why it is so resilient.
If you are running a just-in-time supply chain model – it is coming back very quickly – then the reliability and consistency is really important for industry.”
Gray says the port was closed for three days during Cyclone Gabrielle, not because of the sea swell but the wind.
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“There was no physical damage and if it wasn’t for the wind we would have worked right through. The port is protected by the islands [in the Hauraki Gulf], even from a tsunami,” he says.
“We were pleasantly surprised how the port stood up in the cyclone. It reinforced how resilient the place is and this is important for the nation.
We can keep trading and move goods even in extreme weather.”
Gray says there is a myth that the port is full and it has no room to grow. “That is not true and we have enough space to service Auckland through to 2035.”
Ports of Auckland is transitioning to stacking containers four high instead of three, thus freeing up a third more space and capacity. The stacking will be completed by manual rather than automated straddle carriers.
The 27 automated straddles brought in to stack four-high will be converted to manual over the next two years by placing a cab in each of them. The port has bought five new ones and will finish up with a straddles fleet of 35-40.
“We want to increase our roll on-roll off and bulk cargo operations,” says Gray.
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“We bring in steel, heavy equipment, wind turbines, and commodities such as gypsum and wheat.
“The roll on-roll off operation including vehicles [Auckland has 66 per cent share of these imports] is very important to the city and retaining that trade is critical.
Over the last 25 years, the port company has handed back 125ha of land and we are now operating on 77ha.
“We are relaxed about working in partnership with the governing body over the future of port land. The process needs to be done in a planned and measured way. My concern is to work the footprint we have more efficiently and effectively.”
In his Letter of Expectation for Ports of Auckland, Auckland Mayor Wayne Brown noted the port company’s declining financial performance, particularly since 2014 – with the returns on assets and equity at the bottom end of the New Zealand port sector.
Brown said dividends paid to the council in recent years have been much lower than historic levels, and by international measures Ports of Auckland is also seriously underperforming.
The port company’s debt relative to earnings is the highest in the New Zealand port sector – an unenviably-indebted position driven by declining earnings and arguable capital over-spend on the failed automation project and construction of the multi-storey car handling building on Bledisloe Wharf.
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Brown pointed to the World Bank Container Port Performance index (CPPI), reflecting productivity and congestion.
In 2021 Ports of Auckland achieved the lowest ranking of 18 ports in Oceania. “That is, the Ports of Auckland is the least efficient container port in Oceania.”
Brown called for a return on assets of at least 10 per cent in the short term – it is presently around 3 per cent – and to deliver free cashflow and dividends to the council as shareholders.
Ports of Auckland chair Jan Dawson responded by saying the board and management are very aware the performance of the port from a safety and financial perspective over the past four years has not been satisfactory. “We have committed to a transformational strategy to reverse this trend.”
She said over the past seven years, the port company’s return on equity had dropped from 13.29 per cent to 2.5 per cent. “The average underlying return on equity over the last four years has been 3.16 per cent and we recognise this is an unacceptable performance.
“The board and management are now focused on returning this to 5-6 per cent over the next three years, and then with further increases beyond this timeframe.”
Gray says Ports of Auckland can quickly produce an annual dividend of £52m. “That’s £1m a week to the ratepayers and we can do it in the next two to three years. We can grow net profit to £70m – that’s about 7 per cent on equity or a little over.
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“I’m confident I will close the gap and deliver significant improvement in profitability and contribute to the council’s £295m fiscal hole.”
Asked if the port company would be better off under mixed ownership, Gray says “that’s a question you will have to ask the owners. It makes no difference for me”.
“I have a board that is independent and they challenge me the same as if it was a listed company.
The board has clear objectives and I live and die by them.
“I’m doing a shareholder briefing to the council as if it’s a listed entity, and I don’t think the ownership model hampers the ability to perform.
“Both at Lyttelton and Auckland, there have been significant turnarounds in the ports’ performance and return on capital when you start to focus commercially and concentrate on the core business,” Gray says.
- Ports of Auckland is an advertising sponsor of the Herald’s Project Auckland report
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