Andrew “Twiggy” Forrest’s Fortescue Metals Group will change their rostering system in an effort to drive down their wages bill.
It’s a move likely to be seen as good news by shareholders, and made as iron ore prices fall, demand for commodities softens, growth in China slows and as ratings agencies like Standard and Poor place big miners on ratings watch.
Under the changes, Fortescue’s fly-in, fly-out (FIFO) workers who previously worked eight days on, six days off will be shifted to a 14 days on, seven days off roster.
Understandably, unions representing mining workers are not happy about the change.
But the changes will save the company money, and may signal a trend across the whole industry that might have flow-on effects for regional economies.
Mining workforces are large and costly. Since the move away from establishing mining towns, most mining companies use fly-in, fly-out workers. In Western Australia, these workers are predominantly based in Perth, although some workers have their home base interstate or overseas, including Bali.
The old eight days on site, six days at home (8/6) roster is the most generous and costly of the FIFO rosters. Workers work for 26 weeks per year (fewer if they take holidays). They require 26 return flights per annum each.
The new roster would see workers work two weeks on site and one week at home (14/7). Workers on this roster work for 34 weeks per year and require 18 return flights per year each.
Changing from a 8/6 roster (26 return flights per annum) to a 14/7 roster (about 18 return flights per annum) should save eight return flights per worker per year. This might be sizeable given the size of the FIFO workforce at each mine and the number of iron ore mines owned by Fortescue.
However, there is probably more sick leave and attrition with a 14/7 roster compared with a 8/6 roster. So the flight savings would need to be adjusted by the increased cost of sick leave provision and the higher turnover.
Some workers offered the new roster may choose to leave the sector altogether – a concern flagged by the union.
New employees are costly – they need orientation, on the job training, and high vis gear. Companies would want to minimise staff turnover to save on these costs.
If the iron ore price stays low, and Fortescue cannot reduce costs by changing the FIFO shift roster or other labour on-costs, then returns to shareholders will continue to fall. This could mean mine closures and therefore worker redundancies.
Overall, a cost saving from a roster change allows Fortescue Metals Group to keep mines open and workers employed – surely a better option for the workers than being laid off altogether.
The future of the FIFO
Fortescue’s roster changes may signal a trend for the iron ore companies or other miners. Once they see profits being eroded through price or reduced demand, they too will be looking to reduce costs and this seems to be a simple way to do it.
Further weakening economic growth in China, down from 13% per annum prior to the GFC to under 7% per annum, lower prices and falling sales will squeeze profits unless firms - Fortescue and other companies that mine iron ore – can reduce costs.
The mining industry is not talking, at present, about the return to establishing mining towns – government subsidised outposts with schools and health services to allow workers and their families to live close to mines.
Asking for financial support from State governments today is unlikely to be fruitful, especially in Western Australia with the Barnett government closing remote Aboriginal communities (a potential source of drive-in, drive-out workers for the resource sector) and tightening the purse strings. Recent announcements of the downgrading of WA’s credit rating could exacerbate this belt tightening.
That suggests miners will, by and large, continue to rely on FIFO workers. But the era of cashed-up FIFO workers collecting six-figure salaries and generous perks may be drawing to a close.
Initially the 8/6 roster was part of a generous package designed to entice skilled tradesmen into the mining sector. But now the sector has more than enough skilled trades people queueing up to work at mines. We also have the 457 visas that allows skilled overseas workers to work these jobs.
The days of the phenomenally generous salaries for FIFO mine workers are probably gone. Salaries may be wound back. And as the FIFO workers on those generous packages leave and are replaced, the replacement workers may be offered lower salaries and less generous rosters. It’s a simple matter of healthy supply and weak demand.
The picture for regional economies is mixed.
On the one hand, it’s possible that workers on the new 14/7 roster will now find they have the opportunity to leave mine sites and drive into the local big town and spend money there. On an 8/6 roster, they would be less likely to do that. So there could be a bonus for regional communities.
But fewer flights would mean less spending at regional airports and less money going to regional carriers.
It’s premature to say we are seeing the end of the FIFO worker but it’s likely that the era of highly paid jobs in the mining industry is on the wane.