The Auditor-General has released a first of its kind report examining the trends, performance and challenges facing the 12 port companies throughout New Zealand.
The report, Results of our 2019/20 audits of port companies, was presented to the House of Representatives on Wednesday.
Controller and Auditor-General John Ryan says port companies face some major challenges, including their need to:
- make major capital investments when the financial returns from those investments are uncertain;
- continue to respond to international trends in freight and logistics; and
- balance the potentially conflicting objectives of shareholders and other stakeholders.
“I encourage port companies to consistently apply fair value in the valuation of property, plant, and equipment.
“This will help provide up-to-date relevant financial information to shareholders and enable better comparison and transparency of port company financial performance,” Ryan says.
Some port companies’ previous investment strategies have not delivered as expected and this was most notable for Lyttelton Port Company which was used as an example to illustrate the loss of shareholder value that can come from investing for growth that does not occur.
The company had $290m of assets written down over the last five years, in part because the expected revenue associated with the new investment did not eventuate.
“As port companies look to the future, many are considering significant new investments.
“These might be to remain sustainable given international shipping trends or to cater for anticipated growth.
“There is considerable risk in these investments. Port companies need robust and realistic business cases to ensure that these investments deliver the benefits expected of them,” Ryan says.
“There is also a risk that, without a comprehensive supply chain strategy for the freight logistics sector, port companies will anticipate growth that competing port companies might have also factored into their business cases.
“Stranded assets, underperforming capital, and low returns or further asset write-downs are a likely consequence of this.
“I encourage port company boards – and, where appropriate, their shareholders – to robustly assess the merits of significant capital investments before approving those investments.
“This is to ensure that the assumptions these investments are based on are realistic and are the best use of shareholder capital,” Ryan says.
In previous years, the Auditor-General reported findings in other reports such as local government reports, or in letters to chief executives and chairpersons of port companies.
However, Ryan says the port sector had enough significant matters in 2019/20 for its own report.
The report also recommends for a level of national co-ordination in the sector given ports are public assets and majority owned by councils or community interests.
“Therefore, there is a significant risk that, without a level of national co-ordination, the collective investment of the port sector will not generate the returns anticipated.
“In our view, the lack of a comprehensive supply chain strategy for the wider freight logistics sector heightens the risk of excess investment by port companies,” the report says.
The Ministry of Transport indicated in its briefing to the incoming minister that it is considering preparing a supply chain strategy for New Zealand.
The Ministry recently received approval from the Minister of Transport to initiate a freight and supply chain strategy in the second half of 2021, with the intention of delivering the strategy in the next 12-18 months, it says.
The report is also accompanied by an interactive map showing import and export data, and financial data for each port.
