Friday, October 31, 2008

Ports of Lyttelton and Otago in Early Merger Talks

Port Lyttelton from the cemetery, 2007

The Ports of Lyttelton and Otago (Port Chalmers) in the South Island have announced they are in the early stage of merger talks.

Between them the two ports handled 22.5 percent of New Zealand's total exports in the June year ending 2007 (Otago, 13.6 percent; Lyttelton, 8.7 percent).

Combined they handled 9.4 percent of New Zealand's imports in 2007 (Otago 1.1 percent, Lyttelton 8.3 percent).

These export and import flows reflect the relative importance of the ports as shippers of South Island exports as well as the lower population density in the South Island hence the lower share of imports moving through the two ports.

The two ports are local government trading enterprises: Lyttelton Port of Christchurch, LPC, is majority-owned by the Christchurch City Council's investment arm, Christchurch City Holdings. Port Otago is owned by the Otago regional council.

New Zealand ports are under pressure from shipping lines to rationalize by reducing the number of ports handling international trade to boost productivity in order to reduce freight rates. See earlier post here on merger talks between Ports of Auckland and Tauranga in the North Island.

The two port companies were at loggerheads two years ago when Lyttelton attempted a deal with a Hong Kong-based ports operator but Otago moved to block the deal by buying a strategic bloc of shares in Lyttelton Port to stall the deal.

These were seen as defensive moves to counter the perceived intent the Maersk shipping line, which handles 60 percent of New Zealand's container trade, to force a re-organization of New Zealand ports into a hub-spokes system in which hub ports in the two or three major ports would carry the bulk of the international shipping trade.

In the South Island this would translate into either Lyttelton or Otago becoming the hub port, but not both. One would be relegated to a feeder port status, serving as a feeder port to the hub ports or lose significant traffic.

Now it seems the ports have patched up their differences to try a new attempt to secure a merger between the two main southern ports, perhaps as a strategic defensive move to countervail pressures from shipping companies to force the elimination of one or the other port from hub status.

The benefits claimed from integration of the two ports operations are reduced duplication of capital - and one would assume labour, a touchy subject on the waterfront, environmental benefits from better road and rail transport to and from the ports, increased productivity, and the joint development of new services.

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