Port of Napier – A Working Model

Farming, forestry, food processing … 40% of the Hawke’s Bay economy (GDP). Where does it all go?

Most of it ships out through the Port of Napier – nearly 730,000 tonnes of logs, 200,000 tonnes of apples, 160,000 tonnes of meat (with 650,000 tonnes of stuff, including fertilizer and oil products, coming in). Altogether, almost 3 million tonnes of cargo and 50,000 cruise ship passengers per annum move through the Port these days, carried on roughly 570 vessels.

For its efforts, the Port generated revenue of $45 million in 2009, with a $9 million profit after taxes. From that, it paid $6.5 million in dividends to the HB Regional Council, which owns 91.7% of the Port’s shares, subsidizing expenditures you and I would otherwise pay for in our rates.

The Port itself employs about 155 staff, with another 160 or so people working at the facility (from stevedores to reps of exporters and transport firms operating at the Port). but that’s the tip of the iceberg. According to a report prepared last year for the HB Regional Council, with data reflecting 2007/08, the total economic impact of the Port and businesses directly depending on the Port was equivalent to maintaining 800 jobs annually, increasing the Bay’s GDP by $70 million annually. And when indirect and flow on effects were taken into account, the Port was considered to support around 20,900 jobs in the region, or about $1.38 billion of our GNP.

That sort of puts the airport in perspective!

By any standard, the Port is one of Hawke’s Bay’s most important strategic assets … perhaps the most important man-made asset, if you consider soil and water as natural “givens” (maybe Unison would dispute that, or in 5-10 years time, the broadband advocates).

Thank god the place works!

It moves the product.

It co-exists remarkably peacefully with the community, including the Seascape environmental group, considering the inherent noise and environmental risks associated with such an operation — three formal noise complaints in 2008 (and a new noise abatement program and subsidy negotiated with Napier City), and three environmental incidents (with Hardinge Road beach restoration almost complete).

And it makes money, which can be said of few Council-owned, sponsored or operated facilities in the region … and of course none of comparable scale. The Port’s 2009 after tax return on assets (6%) compares favorably with larger ports at Tauranga (5%) and Auckland (1%), and even another competitor port like Wellington (0%).

I’d suggest the Port works because its political owners stay out of the way!

The Port is governed by a seven-member Board chaired by Jim Scotland, and run day-to-day by Chief Executive Garth Cowie. The directors all have impressive “major league” business credentials and requisite skills; Cowie traded up for sun and scale after running South Port in Bluff. The Board, through Scotland, reports to the HBRC on a periodic basis, with Cowie relating to Regional Council CEO Andrew Newman as the occasion requires. No muss, no fuss, no political interference … the Board essentially renews itself, ensuring the experience it needs (which apparently it can only find amongst men).

The future

I spoke to Scotland and Cowie recently about the Port and their plans for its future.

The new No.4 Herrick Wharf, opened officially on November 13 by Transportation Minister Steven Joyce, is their immediate pre-occupation. The new wharf, completed under budget and ahead of schedule (a novelty for a public facility these days), represents a capital investment of $47 million and, importantly, provides the added capacity for the Port to handle two container vessels at the same time.

Presently, in peak months like March/April, the Port can handle 24,000 containers per month. With volumes down in “shoulder” months October-January, the Port handles about 165,000 containers per year. With the additional capacity – and assuming an increased supply of goods – the Port could handle 300,000 containers. And at that rate, total tonnage through the Port might increase to five million annually from the present three.

And what about that increased supply? Clearly, Scotland and colleagues spend a fair amount of energy pursuing new business. Recent developments speak well for the future. In some cases, a major business, like Ray McKimm’s Big Save, will decide to re-locate its distribution hub to Hawke’s Bay. Similarly, Fonterra has decided to use rail to bring more of its North Island product through fewer ports, with Napier selected as one of the few. And KiwiRail has indicated it hopes to bring growing volumes, including logs, from Gisborne.

I asked about the role of Venture Hawke’s Bay in supporting the Port and its growth. Jim Scotland believes that the Port team must front up itself for the Port with respect to business development. When persuading a shipper of the comparative advantage of the Port of Napier over other options, the devil is in the detail of comparative costs and operational intricacies. As he sees it, Venture HB can contribute to the “case” with data that establishes the Bay’s overall business dynamism, infrastructure support, and lifestyle attractiveness. But the Port team needs to find the ripe prospects and close the sale.

The interdependence of the Port with effective rail and road transport is a strategic issue that occupies Port management. The Port has an interest in seeing the southern extension to the Expressway completed, to facilitate movement of product from the south, including as far away as Wellington. And if the Regional Council ultimately proceeds with its CHB water harvesting and irrigation scheme, significantly more production from that part of the Bay would flow through the Port.

Rail will be of increasing importance, as the Gisborne forestry and Fonterra dairy product examples illustrate. Historically, only 15% of goods shipped from the Port have arrived via rail. Now, with increased use of rail by shippers like Wattie’s, rail has increased to 25% (and one-third of containers) … presumably good news from a sustainability standpoint, as well as to Napier drivers, cyclists and road-side residents.

Apart from increased supply (especially in shoulder months) and transportation access, other factors Scotland and Cowie mention that conceivably might constrain the Port’s growth are physical storage space at the Port itself, and skilled labour.

Storage might be addressed by holding goods at satellite locations outside the Port facility.

Labour – specifically, attracting and training young people into the skills required at the Port – sounds like a bigger issue for the long term. And the problem isn’t with salaries. Jobs at the Port are well-paying … operations jobs pay $40,000 up. A skilled crane operator – the guy who carefully ferries each container to its precise spot in the vessel – can earn in excess of $70,000 for adept use of a joystick. One of the issues noted by Cowie is the 24/7 schedule of the Port: “A ship can arrive at 10pm and need to be unloaded and re-loaded for a 6am departure the next morning. How many 25-year-olds want to work that shift?!”

Listening to Garth Cowie describe the intricacies involved in “packing” a ship that might contain 4,000 containers, with different off-loading destinations, different stacking limits, etc, the word that comes to mind is choreography … every step and movement is precise and calculated.

Listening to Jim Scotland anticipate future challenges, you get a similar impression … in a complex environment with many moving parts, things have been carefully thought through.

Whatever formula they and their team have, I say: “Bottle it!” It represents some of Hawke’s Bay’s best vintage. The Port of Napier is a model that works.

Tom Belford