It was a warning to Bullock, saying too many Australian companies do not have management capable of handling the combination of strong unions, a left-wing government and an economy which remains buoyant in many areas.
She warned higher interest rates remained on the agenda. In the case of DP World and its owners, the Dubai royal family, it was a textbook case of how not to conduct an enterprise agreement, albeit the waterfront is a difficult industry.
The royal family will pay for their mistakes, but importers of goods from China may not suffer markedly because DP World’s costs are among the highest on the waterfront, so will be hard to pass in.
Plus, the word from China is that, thanks to its spare capacity plus low cost energy costs, China could be exporting deflation in coming years.
In the interests of helping others, here is my catalogue of 10 mistakes DP World made in negotiating new pay deals in Australia.
1. Returns from stevedoring in Australia have not matched many other DP centres around the world, so the royal family has been reluctant to invest and has often seen Australia as a “cash cow”.
Many Australian enterprises have also cut back on their investment, but with labour shortages continuing, are finally now looking to invest to improve productivity. DP World will have to follow them to be competitive in Australia.
2. Waterfront enterprise agreements are always tense affairs in Australia. Accordingly, if corporations want to change chief executives, they should do so well in advance.
DP changed CEOs too close to when negotiations were due to start and chose a person whose recent experience was in the troubled tugboat industry.
3. Before employers start negotiations, they need to work out clearly the productivity gains they want to achieve as a result of those negotiations.
On the waterfront this was particularly important because DP World’s rival, Patrick Corp, had a much better enterprise agreement than DP.
When there is need for substantial changes to improve productivity, a clear set of aims is usually required to discover what needs to be paid to achieve those aims. The cost might be too great and achievement might be impossible, but at least employers know.
4. In the case of DP World, their main opponent, Patrick Corp, was paying its employees in the vicinity of 17 per cent more than DP World.
This is because in earlier enterprise agreements, Patrick discovered the price of better productivity and so paid it.
In the public arena, DP started with an offer of around 2.5 per cent rather than a set of productivity aims.
5. We don’t know the details of the agreement, but the unions claim to have negotiated a 23.5 per cent pay rise over four years without making any substantial concessions on productivity.
If DP World had improved productivity significantly, it would be telling customers the high pay rise would translate into better service and performance.
6. Assess the cost of a long strike. DP World lost considerable market share in the strike, and it looks like Patrick Corp now has around 45 per cent of the stevedoring market across Brisbane, Sydney, Melbourne and Fremantle.
DP World has somewhere in the 30 to 35 per cent vicinity, which is well below what it was in earlier times.
7. Enterprises which have a worker agreement that is not as good as the market leader and are saddled with higher costs are usually between a rock and a hard place.
If they cut prices to restore market share, their bottom line is savaged and their opponents have the choice of matching. If they try to recover the wage rises by higher prices, then again their opponents can lift their own returns by allowing prices to rise or increase market share using a lower price.
It’s not a good position to be in.
8. Because the DP World dispute ran for such a long time, relations between managers and workers will be strained despite the big pay rises. Relationships will need to be rebuilt, but the union power created by such a victory will make significant investment decisions to save labour difficult to achieve.
9. Employment minister Tony Burke visited DP World and told them to resume talking, clearly indicating a big pay rise was required.
Given the views of the government and its close link with unions, had DP World gone to Fair Work for arbitration the pay rise might have been even greater. As Multiplex WA shows, the DP World situation is not unique
10. The bottom line is the royal family in Dubai need to do whatever is required to modernise their operation so it can match their rivals in productivity, but many opportunities have been lost so it will not be easy.
They might be better to sell.
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