Asciano's automated docks defence
In the wake of its protracted industrial relations woes this year, Asciano has opted for automation as it seeks to right the ship with the spectre of increased competition in the wind.
It is hard to escape the conclusion, however, that the dispute has had some influence over Asciano’s decision to convert the facility to an automated straddle carrier terminal, with the loss of 270 jobs.
The perverse aspect of that dispute was that Asciano had, during negotiations over more than a year and a half, reached an agreement with the MUA and even paid back-pay to its workers when it was confronted with another six months of industrial action that ended in April with an agreement on the same terms that had been originally agreed.
It is an open secret that Asciano believes that the culture at the Port Botany terminal in particular is horrendous and entrenched, leading to massive losses of productivity and characterised by chronic absenteeism, poor work practices and unacceptable injury rates. The dispute with the MUA underscored how intractable the workplace issues are.
Despite some improvement in productivity since the dispute with the MUA was settled, much of the productivity gains won during the bitter waterfront dispute in 1998 have been dissipated, although that is as much a management issue as it is about the MUA reasserting itself.
Asciano has a model for what a modern container terminal can look like in its Brisbane operations, where the introduction of automated straddle carriers has transformed the productivity of the terminal and its workplace culture.
The foundations for today’s decision were laid in May, when Asciano and Sydney Port Corporation signed an agreement that cleared the way for an expansion of subsidiary Patrick’s terminal at Port Botany, with an increase in its footprint at the port of nearly 40 per cent and the potential to more than double its container handling capacity in the long term.
Today’s announcement means the facility will be big on technology and light on people – the AutoStrads, as they are called, are unmanned. It also means Asciano should have a much bigger and more efficient facility that its existing competitor, DP World, and the terminal being built by the new port operator in NSW, Hutchison. The AutoStrad technology was developed by Patrick and, while it has sold the intellectual property rights, it has exclusive access to the technology within this market.
While Asciano doesn’t envisage it will be required for a decade, it could lift capacity further by introducing more automation in the form of auto-stacking cranes. It says that could add 75 per cent to the terminal’s capacity. The current plan sees throughput capacity initially increasing by about 39 per cent.
The investment in redeveloping its Port Botany facility will be spread over three years and is expected to generate returns well above Asciano’s weighted average cost of capital. Included in the costs will be redundancies and incentive payments of about $41 million as the group sheds employees while trying to maintain productivity during the redevelopment.
At present the port's operations don’t recover their cost of capital but Asciano is hopeful that once the project has been completed in 2015 it will be within sight of that objective. It has also been investing in new cranes for its Melbourne, Fremantle and Brisbane terminals.
The major commitment Asciano has made to upgrading and expanding its Port Botany facilities, as well as the continuing investments in its other ports, is a bold decision given the entry of Hutchison to Sydney and Brisbane and the potential for a third operator to be given access to Melbourne.
If the existence of three operators at the key east coast ports generates too much capacity Asciano presumably believes its scale and, after Port Botany has been redeveloped, its operating cost profile, will protect its position in the event of any rationalisation.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free