Ports of Auckland burns $20 million hole in council-owner’s budget

A management update on profit projections for the Ports of Auckland has thrown up a nasty surprise for cash-strapped owner Auckland Council.

Councillors have learned a comparison of new financials presented by the port against
“the recent annual budget 2022-2023 updates” shows net profit projections are around $20 million worse for the 2023-2024 and 2024-2025 financial years.

“Without other offsetting improvements from elsewhere in the council group, the lower profits will widen the council group’s existing operating budget gap by a further $20m for (those) financial years,” an agenda paper for the council-controlled organisation oversight committee said.

A council agenda paper recommended councillors ask the port company to look for increased revenue and cost reductions to ease the impact on the council’s budget.

The port, New Zealand’s main imports gateway, has been under fire in recent years for a grim health and safety track record, poor productivity and weak returns to the city’s ratepayers. Capping the reputation it’s gained for letting down the supply chain in Covid-fuelled shipping disruption and delays, the port recently abandoned a six-year, costly and fruitless effort to implement an automation project at its container terminal.

However, under new chief executive Roger Gray, whose new financial update revealed the profit projections gap (and who is credited with calling time on the automation failure) and a largely new board of directors, the port company is showing signs of turning a corner.

The agenda paper said the profit outlook dip was mainly due to the port having to revert to manual operations, resulting in higher staff costs. (The decision to quit automation resulted in a $66m write-off, mostly attributed to software costs, but more costs around modifying machines are ahead).

But Gray told the Herald there was more to the higher staffing costs than that.

“I can’t comment on previous SCI (statement of corporate intentions) done by previous management. I can’t say how they got to those numbers.

“What I can say is that the numbers presented to council now … are what we believe to be realistic in the current environment and the environment going forward.”

Gray agreed with the Herald it was safe to assume the previous management’s budget projections were based on container terminal automation – even though at the time implementation was subject to glitches and problems that eventually stalled it completely.

“Ours are based on not automating and also on the way we see projections for the economy, (the projections) of shipping lines, cargo owners, basically what we believe is deliverable.”

Gray said higher staffing costs were due to more than the failure of automation.

As part of changes introduced after worker deaths at the port, hours worked in a week had been reduced from 60 to 48 hours.

That meant the loss of 12 hours of productivity per individual so staff numbers had to increase, he said.

“They can volunteer to do some overtime but predominantly we need more people to do the same amount of work because the structure has changed … but it’s nothing to do with automation.

“The second thing we did after a request from staff, which was a very reasonable one, is to pair their [two] days off. In the past they weren’t able to. So you get some inefficiencies in the roster and the result has been an increase in [staff] numbers.

“The third thing is we are staffing up to match the demand coming through the port. We are starting to see more demand and volumes growing. We need to return to berthing windows (ship timetables) and the trigger for that is to be able to process 10,000 containers a week. Last week we did 9500.

“These three things contribute to higher staffing costs. There had also been a shrinking lid on recruitment with the plan for automation so we’ve had to refill that.”

Asked by the Herald how the port company planned to meet the council’s request to make up the $20m hole, Gray said it would try to bring on more services “and continue to review our costs and stay frugal”.

“But there’s no magic bullet. We will review our prices but we are in a competitive market, we can’t just put prices up.”

However Gray said there was “much more vigour” coming into the business.

“I now run monthly budget reviews with all my direct reports and we go through their budgets and look for opportunities to save money. When you start to look at things, people become much more focused, just like a household.

“But we have no plans to radically cut things.”