COLUMN | Fighting over the pie: Shell, Svitzer and the Maritime Union of Australia, Solstad and DOF [Offshore Accounts]

In past columns we have looked at the battle of the subsea robots (here) and the struggle to win subsidies to fund future fuel initiatives (here). This week we look at fights over pie, not at the dinner table, but in the boardroom and the courts.

The economist Alex Edmans has argued that there are two ways to look at the business world. Pie-splitters see the value that a company creates as a fixed pie. It follows that any slice of the pie taken by the firm and its shareholders reduces the slice to everyone else. This locks the company’s management into a series of destructive zero-sum battles, where one party winning ultimately means the others lose.

Pie-growers, on the other hand, see that the pie is not fixed. By investing in its employees, treating customers and suppliers fairly, and protecting the environment, a company doesn’t have to reduce the size of the slice for shareholders, but it can grow the pie over time, ultimately benefiting all parties. The pie gets bigger, everyone gets more, even if their relative slice may be a smaller proportion. For employees, a pie-growing mindset may involve embracing new technology or trading off some of their traditional rights for flexibility, to enable their employer to grow and create more jobs and stronger career paths for them.

Sometimes, whole new pies are created, as we see happening in the development of marine technologies, such as battery-hybrid propulsion, which 69 platform supply vessels (PSVs) now use (here), to offshore electrical charging stations like Maersk Supply Service’s revolutionary Stillstrom buoy (here), and the development of floating offshore wind turbines. Nobody knows how big or successful these pies will become, but clearly some pie exists today in these exciting new areas, where none existed in the past.

Conversely, Edmans also points out that a company that concentrates exclusively on short‐run profit at the expense of the other stakeholders may end up shrinking the pie and destroying long-term value for everyone, the catastrophic double failure of the Scottish shipbuilder Ferguson Marine in 2014 and again in 2019 being a case in point (here). The Ferguson Marine pie went splat, and the Scottish taxpayer had to clean up the mess at great cost.

Viewed through the lens of pie-growing and pie-splitting, what is at stake in workplace conflicts in Australia and Scotland, and in a bitter shareholder dispute in Norway, is clearer.

Svitzer, Shell and the Australian unions: Pie-splitting pain

It took a couple of months, but in September, Shell and the Australian offshore unions finally reached an agreement over the wages and new terms for the crew of the floating LNG (FLNG) production vessel Prelude. Industrial action began on the troubled vessel in June after negotiations broke down, as we reported here, and lasted 76 days.

The union members’ action on board included refusing to work overtime, refusing to sign any permits to work, and refusing to restart any process compressors that tripped off. There was also a union ban on members unloading cargo from supply vessels at Prelude (other than food, water, or medical supplies), on union members assisting with helicopter operations, and on them assisting in the side-by-side mooring of tankers or any vessels except the supply vessels.

This action effectively made exporting LNG impossible, and so Shell halted the loading of cargoes on June 28 and shut in production of the gas field after threatening to prevent the union members from accessing the vessel. Production only restarted in September.

“If you don’t fight, you lose!”

On September 8, Offshore Alliance, the partnership between the Australian Workers Union and the Maritime Union of Australia (MUA), took to Facebook.

“Offshore Alliance and Electrical Trades Union members on the Prelude FLNG have voted 94 per cent in favour of the new Prelude Enterprise Bargain Agreement (EBA),” Offshore Alliance said. “An application for approval of the new EBA will now be made to the Fair Work Commission. This will close out the bargaining process after 76 days of industrial struggle. Great work by the Prelude FLNG crew! If you don’t fight, you lose!”

Great news for the 200 people employed on the vessel, but not so great for Shell’s customers who need a reliable supply at a time of record LNG prices, and not so great for anyone else looking to invest in offshore production in Australia that a small group of workers can hold millions of dollars of LNG cargoes hostage in order to secure themselves a pay raise.

This looks like a classic “pie-splitting” dispute, with Shell’s customers the victims of a game of chicken between the company and its employees. When they fight, everyone else loses – except Vladimir Putin, who must have been delighted to see Australian gas production reduced by a bitter industrial dispute affecting a few hundred already very well-paid workers.

Pie fight round two: Svitzer and its tug crews versus the rest of Australia

No sooner was production restarted at Prelude than the next Australian maritime labour dispute kicked off. This one has even bigger stakes than “just” a few hundreds of millions of dollars of LNG. The dispute pits harbour and terminal towage operator Svitzer, owned by Danish shipping giant Maersk, against its entire marine workforce in Australia, represented by three maritime unions, including the MUA.

Three years of arguing ends in lock out

The conflict has been brewing for some time, as negotiations over a new EBA for Svitzer’s tug crews broke down after three years of wrangling. Pay raises have been frozen during the negotiations. In January, we reported that Svitzer had applied to cancel its EBA, saying that the legacy provisions agreed 22 years ago were harmful to its business (here).

Last week, Svitzer escalated the dispute by giving notice to all 582 of its harbour towage employees at seventeen ports across Australia that it was imposing an indefinite lockout on them. The union members, from tug masters and chief engineers to deck hands and ratings, would not be allowed on board their tugs, the company said. Svitzer announced that starting on Friday at noon local time, no merchant ships would be towed in or out of port by Svitzer tugs.

Since Svitzer Australia handles vessels responsible for over 75 per cent of Australian trade, according to the International Transport Workers’ Federation, this would have a serious impact on all Australians and on all Australian businesses.

Lots of talk, no results

Svitzer said its bargaining efforts with the union had been exhaustive, and included 75 meetings, with 20 of them as conciliation proposed by the Fair Work Commission or with an independent mediator recommended by the unions.

“There has been rolling protected industrial action by the unions for weeks,” the company told the Australian press (here). “New actions have been notified on an almost daily basis providing significant uncertainty across port operations. This is no longer sustainable.”

Svitzer argued that rolling over restrictive legacy provisions of the current EBA was no longer competitive, as the historic EBA gave the MUA excessive power in managerial decision-making in the company, even down to nominating and interviewing job applicants. Svitzer claimed that on board its tugs, the EBA terms meant that maintenance work couldn’t be done on weekends, public holidays, or outside daytime hours, even when crew members were on board, at work, and available.

The Australian Financial Review has highlighted that Svitzer’s ratings earn US$114,000 per year for 26 weeks of work, a fact that sets the struggle in context compared to other union disputes elsewhere in the world.

Structural vulnerability when two monopolies collide

Harbour towage is often a natural monopoly or duopoly at best. The increased vertical integration of the giant container shipping lines into the port and terminal business has also seen them step up their efforts to “capture value” by buying up harbour tug companies themselves, or expanding their own harbour towage services to ports where they operate – exactly what Maersk has done with Svitzer in Australia.

Only last month, Maersk’s rival Mediterranean Shipping Company (MSC) announced (here) that it had agreed to acquire Rimorchiatori Mediterranei, an international towage operator active in Italy, Malta, Singapore, Malaysia, Norway, Greece and Colombia. The acquisition also covered its fleet of over one hundred tugs.

Unfortunately, the dominance of the giant sea carriers and the expansion of their harbour towage wings in multiple ports creates vulnerability across the maritime value chain. Monopolies can create large profits, but they also create large problems when they hit problems.

In the case of Svitzer, a near monopoly over Australian harbour towage (and thus most container imports and exports) has collided with a near monopoly over maritime labour via the MUA.

Pots calling kettles black

I want to avoid getting bogged down in the details of the Svitzer dispute, which leaves neither of its protagonists in a favourable light, and I am not here to take sides nor to outline the long and drawn-out process that led to Svitzer “going nuclear” last week. You have Google for that.

Fundamentally, this is a pie-splitting dispute. However, it is worthwhile to note MUA National Secretary Paddy Crumlin’s statement on the decision to declare a lock out (in full here):

“We have seen Svitzer’s international bosses stuff a ransom note in the mail flap of the Australian community on the cusp of Christmas, to shake down the entire nation under threat of economic and social chaos for no greater purpose than their own profiteering,” Crumlin said. “This company’s social licence to operate should now be in doubt, and an inquiry into how a multinational Danish-owned company can be allowed to hold an entire country to ransom through this campaign of employer-led industrial militancy must be held so we never again find ourselves vulnerable to this corporate piracy.”

This is the same rhetoric that was deployed by the union in the Shell dispute. It’s unhelpful, and it is framed in zero-sum terms.

Simply substitute “union” for “international,” “company” and “employer” in the above paragraph and you would have the exact feelings of most shipowners and port operators towards the MUA.

The loathing is mutual. Where we stand today, this is a zero-sum game.

Lockout suspended

The threat of the lockout saw all the parties rush to court. The parties included the Australian government, which recognised the great harm to both Australian businesses and consumers that either a strike or a lockout would cause. Perhaps if competition law had prevented one company controlling over half of the market for harbour towage, the problem could have been avoided?

The Fair Work Commission ruled on Thursday that it was blocking the planned lockout, and it suspended the strike for six months, saying it would “endanger the welfare of the Australian population,” and that it “threatens to cause significant damage to the Australian economy.”

This merely gives more time for the unions and Maersk to reach an agreement, rather than providing a route to end the conflict conclusively. This is a court-enforced truce, not a peace settlement.

But until Australian unions are ready to embrace Professor Edmans’ pie-growing mentality, I fear any solution is simply a temporary cease-fire in a battle that is highly destructive for Australia as a whole.

Only a few crumbs remain of Australia’s maritime pie

The Australian maritime sector is in crisis, as indicated by a pie that has shrunk and shrunk over the years.

Don’t take my word for it. Paddy Crumlin himself admits it.

“Since the coalition government was elected in 2013, we’ve lost half our remaining fleet of Australian cargo vessels, taking with them the jobs of more than 500 Australian seafarers,” Crumlin said while demonstrating outside Parliament in Canberra in 2021 (here).

The MUA highlighted that while 98 per cent of Australia’s imports and exports arrive by sea, only twelve Australian-flagged and -crewed cargo ships still operate. The organisers of the demonstration pointed out that there are no longer any Australian-flagged oil tankers working commercially, whereas thirty years ago there was a commercial fleet of over 100 Australian-flagged vessels in service across all sectors.

Sorry to say, but that’s what happens when you fight over a shrinking pie. The MUA may or may not win in its struggle with Svitzer, but the Australian maritime industry has already lost. Only crumbs remain. The pie has gone, and the MUA must take its share of the blame.

Only a radical reset of the mindset of the entire industry in Australia, right across the board, from the oil and mining companies to the vessel owners, and especially the unions, can change that.

Solstad takes away the pie in Scotland

Lest you think that I am a lackey of corporate interests, I also draw your attention to the shocking tale of Solstad in the North Sea (here), where the company hired 36 predominantly British seafarers to work on the 142-metre LOA Norwegian International-registered construction vessel Normand Navigator (specifications here). This is literally a case of a company snatching away the pie at the last minute. Solstad had chartered the 2015-built vessel to work on the huge US$2 billion Neart Na Gaoithe offshore wind farm project in Scottish waters.

Having hired a mainly British crew to work on the ship, the company suddenly fired them all before they were due to start and paid them just three days of salary. The decision came after the British government extended the Offshore Wind Workers Concession (OWWC) at no notice. This is a legal provision that permits non-British seafarers to work on windfarm projects in UK waters provided they are paid the UK minimum wage of around US$10 per hour.

The seafarers were informed of the termination verbally three days ahead of their receiving written seven days’ notice from their recruitment agency, ERSG. Solstad said it was more convenient to keep the Filipino crew on the ship if the government didn’t force them to hire Brits, obviously.

ERSG informed the crew that under a contract for services they had signed, there was no obligation to provide them with any work, and because the contract had not yet started, there was also no obligation to provide them with any payment, yet Solstad eventually agreed to pay three days of salary. Wow. You might expect more from a Norwegian company with a family heritage and following the letter of the law if not the same as treating people properly, as FIFA is discovering in Qatar.

The OWWC was originally introduced in 2017 as a temporary measure in the UK, but successive ministers have repeatedly extended it, often at very short notice. Indeed, in 2021, the measures were even extended on the day after they expired, with the government giving no warning of the extension ahead of time.

This year, the arrangements were due to lapse on October 31, and on that very day, the British government extended them further on a temporary basis until April 30, 2023.

Again, this is another zero-sum game where Solstad’s win only damages the interests of shipowners in the longer term. If you wanted to create a bad image for an industry, militant unionism, and a regulatory backlash, behaviour like this is the best way to do it.

After the P&O Ferries scandal in the English Channel, have shipowners in the UK learnt nothing? Grow the pie and don’t take it away because it saves you money in the short term. Lars Pedder Solstad should be doing the right thing, not what is expedient.

There is no pie left in Norway at DOF, either

Whilst Svitzer and the unions in Australia have been playing chicken over the entire import and exports of Australia, a group of rebel shareholders in offshore support vessel (OSV) owner DOF has set a new low in terms of pie-splitting in Norway.

We observed in May how DOF seemed to have finally reached an agreement with its creditors to set the company on a viable path by restructuring its nearly US$2 billion of debt (here). The company’s creditors and bondholders had agreed to a deal that would have left the current shareholders with just four per cent of the shares in the restructured entity. Bondholders would own around 53 per cent of DOF going forward, while the secured lenders would hold around 43 per cent of the company.

Hurray. That would save the jobs of all DOF’s offshore crew on its fleet of around 50 owned vessels or working with its 73 remotely operated vehicles (ROV), and set the company on a sound path to recovery, its debts wiped out, just as Tidewater, Bourbon and Solstad resolved their insolvencies.

DOF Minoritetsgruppen plays hardball

Unfortunately, hopes of an orderly restructuring were dashed at the shareholders’ meeting last week, when a minority group of shareholders blocked the plan. This group calling itself DOF Minoritetsgruppen holds around 30 per cent of the votes in the company, enough to block the restructuring but too few to enforce a new plan. Instead, this group proposed that DOF should recapitalise itself by raising fresh equity funds rather than handing control of the company to its creditors.

The creditors retaliated by threatening to liquidate the company, which would cause chaos and threaten both the livelihood of its staff and the continuity of service to its customers. You can read the creditors’ letter here. DOF Minoritetsgruppen has now called for an urgent shareholder’s meeting to appoint its choice of chairman and to compel the board to change the terms of the restructuring.

I have little sympathy for the minority shareholders. DOF’s shares have been worthless for years, and the company, in its stock exchange announcements, has repeatedly warned that “the equity is gone” and that the value of its shares was “uncertain”.

This is a zero-sum game for DOF’s creditors and employees. By all means, the company can be recapitalised with fresh cash after the restructuring, but this should occur after the existing debt has been turned to equity, like what every other rig and offshore vessel owner has done.

Playing chicken with the jobs of hundreds of seafarers is not fair, and not right. The minority shareholders should put more effort into building a better DOF after restructuring rather than trying to use threats to elbow their way to a larger share in the current bankrupt entity.

DOF’s minority shareholders give capitalism a bad name. I say enough of fighting over an empty plate.

Professor Edmans has his work cut out for him trying to change the pie-splitting mentalities that dominate the current marine industry in Norway and Australia. The marine industry needs to embrace a collaborative approach where different stakeholders work together for the common good.

How naïve do I sound to you?

Background Reading

A great Ted Talk by Alex Edmans explaining his ideas on growing the pie is here.

ABC coverage of the Prelude FLNG dispute is here.

The Sydney Morning Herald‘s coverage of the Svitzer dispute is here.

The Australian Financial Review’s excellent coverage of the MUA and Svitzer row is here.

Nationalise the pie for the people! For the World Socialist take on the Svitzer union dispute, click here: “The Svitzer dispute is a demonstration of the growing intransigence of workers,” it said. “Despite a pay freeze of almost four years, and the efforts of the maritime unions to grind them down by restricting them to sporadic, isolated and limited industrial action, Svitzer workers have refused to accept a rotten agreement…”

Bonus: Miss Minny’s recipe for chocolate pie from the film The Help is here. The author claims that this recipe is the actual one used for the chocolate pies made in the film. Enjoy.