Improving the bargaining power of New Zealand’s container ports

28 March 2018

Container ports play a crucial role in improving the efficiency and effectiveness of a country’s transport system. Ports are even more important for a trading nation that is far away from its international market like New Zealand, especially when international trade makes up around 60% of the country’s total economic activity each year and two out of three New Zealand jobs are dependent on export and import.

According to Auckland Regional Holdings the current New Zealand port returns are unsustainable and insufficient to justify future investment due to intense competition between the country’s container ports. Additionally, New Zealand ports in the future are expected to face more difficulties due to the rising trend of mergers and alliances among international shipping companies. In 2017, the top five shipping lines control more than 60% of the worldwide shipping market, which provides them with tremendous bargaining power in relation to New Zealand port operators. As a result New Zealand ports are heavily dependent on international shipping lines. For example the decision of Maersk Line in 2012 to replace Auckland with Tauranga as a port of call for its Southern Star service resulted in an estimated loss of nearly NZ$20 million annually for Ports of Auckland.

To increase the bargaining power of New Zealand ports and reduce the level of dependence of the ports on international shipping lines two possible solutions can be considered. The first one is to use the same strategy that shipping lines have used, which is mergers and alliances between New Zealand ports. This idea was proposed a decade ago between Ports of Auckland and Port of Tauranga. However, the merger proposal between the two ports failed. The second solution is to adopt the co-opetition strategy. Co-opetition means that two or more companies can compete and cooperate with one another simultaneously. Through collaborating with competitors a port can improve its operational efficiency and reduce investment risks such as investment in equipment and infrastructure. Co-opetition strategy can also help related ports to strengthen their bargaining powers and to become less dependent on shipping lines.

Various international cases of port co-opetition have shown that this form of cooperation is promising to improve the performance of New Zealand ports. Two typical examples are the case of the joint investment between the ports of Rotterdam and Flushing and the case of the collective marketing strategy of the Northwest Terminal Operators Association in the US.

Nevertheless there is only a fine line between co-opetition and monopoly. Although the benefit of co-opetition in ports’ efficiency improvement is undeniable it may lead to the formation of a cartel to some extent. Therefore proper measures and regulations should be devised to maximise the benefits and minimise any downside of the mergers and acquisitions or co-opetition strategy.

Minh Duc Do
Masters student, ISOM, University of Auckland