As noted in chapter 3, the provision of a full range of cargo services at ports consists of three elements – marshalling, stevedoring and cargo receiving and delivery.
At the margin, it is conceivable that there could be some substitution between these activities such that, for example, marshallers could undertake stevedoring and vice versa. However, we understand from our investigations that this is generally not the case and that these activities should be seen as separate complimentary elements of port operations. The use of different (specialised) equipment, work practices and skill sets are key differences between stevedoring, marshalling, and receiving and delivery. Even within marshalling and stevedoring there may be further specialisation depending upon the product and packaging in question. A stevedore’s skill in efficiently positioning logs into a ship’s hull of asymmetric shape may offer little indication of his ability to operate the heavy machinery required for marshalling.
4.4.1. Marshalling
Marshalling (at port) is the movement of cargo, either direct from other transport modes or from storage areas, to the ship’s side so that it can be stevedored.
Marshalling can also involve the stockpiling, assembling and sorting of cargo. In the case of log marshalling, for example, this also involves the selection of logs for specific shipments in accordance with shippers’ instructions, and the logging and tracking of those shipments.30 Container marshalling involves the movement and preparation of containers for loading using specialised equipment such as straddle cranes and forklifts, and the tracking of individual containers via specialised IT applications.31
In product markets, we take marshalling to be a separate activity from stevedoring with further specialisations depending on the type of export goods being marshalled.
The Commerce Commission recently considered this issue in clearing the acquisition of Owens Services (a company with substantial log marshalling interests) by Port of Tauranga, and their comments on market definition for log marshalling and stevedoring are instructive:
All parties interviewed accepted that stevedoring and marshalling are quite different activities, with the former in particular being quite special-ised. The efficient loading of logs into an irregularly shaped vessel hull requires specific expertise in order to be able to maximise stowage rates.
30 Ibid, page 7.
31 Ibid, page 10.
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In addition, the capital requirements are quite different. Log marshalling requires capital-intensive heavy loaders. For example, the Commission understands that the three main brands of loaders – Komatsu, Wagner, and Caterpillar – each cost up to $1.5 million per unit. However, in rela-tion to logs, stevedores operate cranes affixed to the ship.32
Given the need for proximity to port infrastructure, the geographic market for marshalling is confined to the port in question.
In conclusion, we view marshalling as a distinct upstream activity from stevedoring, which, like stevedoring, has a localised geographic dimension.
4.4.2. Stevedoring
Along the product dimension stevedoring encompasses the task of moving cargo from the ship’s side into the hold of the ship and stowing it. Stevedores may be hired by shipping lines or shippers to move cargo between dockside and the ship, and vice versa, and to ensure that stowage of cargo is efficient.
The extent of demand-side substitutability is limited to a choice of competing stevedoring firms at the location of the port infrastructure. Larger ports in New Zealand typically have three or more competing stevedoring firms available for port users, often including a port-owned or sponsored stevedoring operation.33 On the demand side, no alternative port activity can be said to substitute for the physical loading and unloading of cargo between dockside and ship’s hull – this is an essential and distinct port activity.
On the supply-side, stevedoring is a labour intensive activity with reasonably limited costs of entry, especially where equipment (cranes, etc.) are the ships own or where access is available through multi-user arrangements. In discussions with major port users it has been suggested that entry into stevedoring is a feasible option for them in situations where the performance of existing stevedores is unsatisfactory. Ports themselves are either involved in stevedoring directly or can enter relatively easily and quickly if necessary (this applies also for marshalling and cargo receiving and delivery).
On the geographic dimension, the key question is to what extent can stevedoring services from another port be thought of as substitutes?
32 See Commerce Commission, Decision 453: Port of Tauranga Limited and Owens Services BOP Limited (8 February 2002), page 11.
33 By sponsored entry we refer to a firm at one functional level (e.g. a shipping line) inducing or backing a firm at another functional level (e.g. a stevedoring company) to enter into the provision of port services by making conditions more conducive to entry. For example, a shipping company may enter into a long-term contract with the sponsored stevedoring company to exclusively use their services for a set time period, inducing the stevedore to enter the market. Sponsorship usually occurs where the sponsor is dissatisfied with the current level of pricing or service in the market and is an alternative to vertical integration by the sponsor itself.
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Since stevedoring is one of a number of complementary activities carried out by ports at a particular infrastructure locality, it is unlikely that a five percent increase in stevedoring charges (ssnip) would lead to substitution between ports. As a matter of common sense, the relatively minor increase in total costs most port users would face from an increase in stevedoring charges would be unlikely to induce a switch to an alternative port. For this reason we conclude substitution between stevedores does not generally take place along the geographic dimension, and is localised to the port infrastructure in question.34
We conclude that stevedoring is a distinct product market consisting of the efficient loading and unloading of ships onto the dockside at the port. The geographic dimension is confined generally to be at or near the port infrastructure location.
4.4.3. Receiving and Delivery
Receiving and delivery involves the loading and unloading of cargo to or from road and rail vehicles, counting and recording of cargo moved, provision of bulk warehousing and storage facilities (for dried or perishable goods) at or near the port infrastructure, along with distribution services and container loading. In a vertical sense this is one stage prior to marshalling for exports of goods moving onto the docks. Cool storage facilities are particularly important for highly perishable products such as dairy or fruit exports that require a cold storage chain from farm gate to supermarket shelf.
In the product dimension, receiving and delivery is made distinct from other labour-intensive port operations by the need for specific technology to count stock moving into and out of the port. These systems are generally customised for the port and sufficiently specialised to inhibit substitution of labour on the supply side. Despite this, stevedoring companies are involved in receiving and delivery in some ports, for example Ports of Auckland. Most ports companies carry out receiving and delivery, some in competition with third party providers.
Receiving and delivery is one of a number of complementary activities in ports.
Like marshalling, it comprises a small share of the total costs port users face. We do not consider that a small but significant price increase in receiving and delivery would, on its own, induce a port’s customers to move to another port. We consider the geographic market for receiving and delivery is limited to the port in question.
34 It should be noted that key port customers have flown in stevedores from one port to another from time-to-time, especially to smaller ports. We understand from our investigations that the key motivation for this was either to load a specific shipment in the face of capacity constraints on stevedoring operations at the smaller port or to fully utilise stevedoring labour that was otherwise under-utilised at their home port, rather than changes in stevedoring costs at the smaller port.
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In conclusion, a distinct market for receiving and delivery at each port is decided on the basis that it is a specialised activity requiring dedicated systems, and because of its localised geographic market.