33: Out of the dock
Passing sentence on poor port performance
The problem: clogged arteries
Ports are the arteries of a maritime nation, allowing the flow of heavy goods in and out of the country. But ports do not always run well. Having been nationalized after the Second World War, ports in the United Kingdom were afflicted by bad labour relations, incessant strikes and other disruptions, massive over-employment, and a raft of collective agreements that preserved jobs but only at the cost of huge inefficiency. The state-owned British Transport Docks Board was heavily dependent on subsidies, and capital investment was severely limited by what the Treasury could afford.
The result was a staggering level of poor productivity. Consequently, many shipping companies shunned the UK and concentrated on trading with the major continental ports such as Rotterdam and Hamburg or the small clutch of independent ports such as Felixstowe that had managed to avoid nationalization.
The idea: competition and freedom
Faced with these problems, Margaret Thatcher's government decided in the 1980s to create a new company, Associated British Ports (ABP), which would take over the assets of the old British Transport Docks Board including the ports of Southampton, Hull, Cardiff and Port Talbot. This 'corporatized' entity would subsequently be sold by stock offer, involving workers and the public.
Example: changing fortunes
ABP, with its 23 ports, was privatized in April 1983, partly on a fixed price basis and partly on a tender basis (see the chapter Love Me Tender). The balance of 48.5 % of ABP shares was offered for sale in April 1984. Through consultation and negotiation, ABP's management had been able to cut out much of the excess over-manning and make far more efficient use of its asset base, so that at the point of privatization it had become a business with bright prospects.
But ABP was not the only privatization of UK ports. There were also a number of so-called Trust ports that were run by independent, self-governing local trusts established by acts of parliament in the nineteenth century. However, property rights to these ports were inadequately defined, which led to a great deal of confusion, indecision, and under-investment. In 1991, therefore, the Ports Act gave the Government powers to privatize all Trust ports with an annual turnover of £5 million or more. Several Trust ports including Tees & Hartlepool, Clyde, Forth and Tilbury opted for voluntary privatization. Others such as Tyne and Dover were less willing.
Assessment: harbouring success
Privatization transformed Britain's ports. Industrial relations - the most significant headache in the days of public ownership - improved beyond all recognition. In the years before privatization, for example, ABP lost an average of 20,000 man-shifts per year in strikes, leaving aside other forms of industrial action such as work to rule (where employees follow the union rulebook to the letter and use it to create opportunities to slow down the work) and overtime bans. But since 1989 there have been no industrial stoppages at ABP ports.
Losses have been stemmed too. Under ABP, Britain's loss-making ports have been made consistently profitable (apart from an exceptional dip in the early 1990s, due to general economic recession). Thus in 2000, the group's underlying operating profit was nearly £170 million, of which the specifically ports and transport operations generated over £135 million.
Privatization enabled management to manage. Employees were offered innovative new types of motivational packages: pay was based on individual performance; collective bargaining was replaced by personal contracts; and all staff were offered the opportunity to acquire shares in the company - all measures that have proved highly popular.
Many more activities are now contracted out. ABP deliberately withdrew from cargo handling and now concentrates on its landlord role providing a range of infrastructure facilities to attract business. Core staff numbers fell from a total of 9,978 in 1981 to 2,613 in 1998, but stand at about 3,000 today.
The company has also sought to create the maximum value from its extensive areas of land located at ports which are no longer suitable for commercial activities. Under state ownership these vast areas of derelict land were largely neglected. Like many other companies, ABP sustained losses from its property business in the early 1990s, but it has since gone on to generate considerable profits. Its flagship development is at Cardiff Bay, which has been entirely transformed by a tidal barrage. This long neglected portside area is now attracting businesses and new residents, and seems set to become one of the most sought-after places to live and work in Wales (see the chapter Not Just for the Birds).
New capital investment has led to vast improvements in facilities. Prior to privatization, it took three days and around one hundred men to unload a general cargo vessel of 30,000 tonnes. The same work can now be done by thirty people in less than 24 hours, using new equipment and systems.
ABP handles about a quarter of the UK's seaborne trade, and it has expanded into other transport and trading operations in other countries too. For example, it now has a large property development business, developing, managing and renting out business units on land that is no longer required for port services. In June 1998 it acquired American Port Services which operates a number of auto-processing terminals at ports throughout the United States, where the group also provides airport management and aviation-support services. The group now has operations in several important American centres such as New Haven, Atlantic City, Baltimore, and Jacksonville. Closer to home, it recently opened a joint-venture terminal at Zeebrugge in the Netherlands.
Commenting on the remarkable improvement in labour productivity Sir Keith Stuart, ABP's chairman, points out the important of employee share ownership: "I always felt that if we could just get our people to think in terms of being part owners of the business, we could be some way towards changing attitudes, and that has proved to be the case".
Trust ports too have performed far more successfully in the private sector: so much so that the Labour government elected in 1997 has encouraged the remaining trust ports to involve the private sector.
For further information:
- Find the Associated British Ports report & accounts on ABP's website at www.abports.co.uk.
- Boyfield, Keith (1997) Privatization: A Prize worth Pursuing? European Policy Forum.
- Stuart, Sir Keith (1988) 'Making the Ports Private' in Eamonn Butler (ed) The Mechanics of Privatization: Adam Smith Institute www.adamsmith.org.
Copyright 2002: Adam Smith Institute
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