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.

One Big Port?

Auckland Container Terminal

The Ports of Auckland Company has revived the idea of a merger between itself and the Port of Tauranga in the Bay of Plenty. It’s opening gambit came in a comment by Jens Madsen, its managing director, that a takeover by Auckland of Tauranga’s container business would improve New Zealand’s supply chain, permitting ports to engage in new investment in port infrastructure.

About half of New Zealand’s exports by value are shipped through the two ports authorities, with Tauranga gaining a slight edge in 2007 (24.9 percent). On the import side, Auckland handles almost 50 percent of merchandise entering New Zealand. Together, based on 2007 data, a combined Auckland-Tauranga ports company would handle almost 57 percent of all international trade.

Port consolidation is being driven by pressure on port companies from large shipping lines such as Maersk, to counter rising costs with increased productivity generated by operating hub ports in the two or three major ports. Maersk carries about 60 per cent of New Zealand's container trade. Fonterra, New Zealand’s dairy cooperative multinational, which exports the bulk of dairy produce is one of Maersk’s top ten global customers. Maersk has been rumoured to be seeking an ownership stake in New Zealand ports in recent years.

In the South Island, the Ports of Lyttelton and Otago have held negotiations in recent years on possible takeover or merger deals. These were seen as defensive moves to counter Maersk’s perceived intent to select either one or the other port as its South Island hub. Smaller ports in both major islands would either serve as feeder ports to the hub ports, or lose significant traffic.

While concerns are being raised in New Zealand over the impact of an Auckland-Tauranga ports merger or takeover on competition, there seems to be little discussion of the role of a foreign-owned shipping conglomerate pressuring New Zealand port companies to engage in anti-competitive practices with consequences for both exporters, importers, and ultimately the average citizen. This is unremarkable, perhaps, given the historical context in which the shipping conference lines that carried the bulk of New Zealand’s exports in the past century acted as a cartel in setting shipping rates. More of the same (cosy deal), you might say.

Lyttelton - Container Cranes in far distance, inter-island coastal shipping,
Pacifica's Spirit of Competition roll-on, roll-off vessel in foreground.