The Port of Newcastle has developed the concept for a staged container terminal development at its Mayfield site, which the company says is the largest and best connected vacant port land site on the eastern seaboard of Australia. Together with direct water frontage and potential for deep water berthing, the Newcastle Container Terminal represents a once in a generation opportunity within the Port of Newcastle, the company says. The Mayfield site has the capacity for a 2 million TEU per annum container terminal, coupled with a shipping channel that can accommodate vessels up to 10,000 TEU, with the capability of even larger vessels with some ancillary channel modifications. Newcastle is an efficient option for importers and exporters in northern, western, north western and far western NSW. A Newcastle Container Terminal would deliver substantial cost savings for NSW exporters and importers, save the NSW government billions in infrastructure spending and help reduce Sydney road and rail congestion. Report quantifies benefits at $6 billion In a report released on 11 December 2018, economic consultants AlphaBeta quantified the potential economic benefits to the NSW economy of $6 billion by 2050 and 750,000 truck movements off Sydney roads. The report examined the economic impact of opening a container terminal at Port of Newcastle. It found the NCT would increase NSW Gross State Product (GSP) by $6 billion by 2050. Over half of the $6 billion in new economic value for the state would come from lower freight costs. Customers would save $2.8 billion in land transport costs in Port of Newcastle’s potential market by 2050 through shorter journeys and more efficient operations. The average land transport journey to port for northern NSW exporters (compared with Botany) would nearly halve. Meanwhile, customers served by Port Botany would save $1.2 billion in freight costs as competitive pressure leads to lower prices. Sydney would also benefit from less freight traffic on its roads. This would create $500 million in extra value from avoided infrastructure spending, and reduced congestion and pollution costs (see Exhibit 3.). Opening a container terminal in Newcastle would also have broader economic and social benefits, including stimulating exports and jobs in the Hunter Region and Northern NSW. Key sectors, such as agriculture, food processing and advanced manufacturing, would see exports grow in value by an extra $800 million by 2050. More than 4,600 jobs would be created in the Hunter Region and Northern NSW by 2050, in industries as diverse as transport, construction, agriculture, manufacturing and local services. Adding a container terminal to Port of Newcastle could generate $2.8 billion in freight savings to importers and exporters in the Newcastle, Hunter and Northern regions of NSW by 2050. Currently, importers and exporters are served by Port Botany in Sydney or Port of Brisbane. Both ports are hundreds of kilometres from the origin or destination points of freight in the Hunter Region and Northern NSW, an area responsible for about a sixth of imports and exports in NSW. Opening a container terminal in Newcastle would nearly halve the average overland freight journey in these areas, immediately reducing transportation costs for imports and exports. As Port of Newcastle will be home to a new, fully automated container terminal with an integrated intermodal terminal facility, it would also introduce productivity improvements in freight handling, generating further savings for Hunter Region and Northern NSW customers. If all freight customers in the potential addressable market switched to being served from Newcastle, the cumulative savings would be equivalent to $2.8 billion in additional GSP in NPV terms by 2050. Potential market for Port of Newcastle This study defines the potential market as NSW regions that are more cost-effectively served from Port of Newcastle than from alternative ports such as Port Botany, Port of Brisbane, and Port of Melbourne. Importantly, the report did not consider the potential benefits that could be gained by actively promoting the Newcastle container port to Sydney-based businesses.
The ACCC has instituted proceedings in the Federal Court against NSW Ports Operations Hold Co Pty Ltd and its subsidiaries Port Botany Operations Pty Ltd and Port Kembla Operations Pty Ltd for making agreements with the State of New South Wales that the ACCC alleges had an anti-competitive purpose and effect. “We are alleging that making these agreements containing provisions that would effectively compensate Port Kembla and Port Botany if the Port of Newcastle developed a container terminal, is anti-competitive and illegal,” ACCC Chair Rod Sims said. The NSW Government privatised Port Botany and Port Kembla in May 2013 and the agreements, known as Port Commitment Deeds, were entered into as part of the privatisation process, for a term of 50 years. The Botany and Kembla Port Commitment Deeds oblige the State of NSW to compensate the operators of Port Botany and Port Kembla if container traffic at the Port of Newcastle is above a minimal specified cap. The ACCC alleges that entering into each of the Botany and Kembla Port Commitment Deeds was likely to prevent or hinder the development of a container terminal at the Port of Newcastle, and had the purpose, or was likely to have the effect of, substantially lessening competition. Another 50-year deed, signed in May 2014 when the Port of Newcastle was privatised, requires the Port of Newcastle to reimburse the State of NSW for any compensation paid to operators of Port Botany and Port Kembla under the Botany and Kembla Port Commitment Deeds. The ACCC alleges that the reimbursement provision in the Port of Newcastle Deed is an anti-competitive consequence of the Botany and Kembla Port Commitment Deeds, and that it makes the development of a container terminal at Newcastle uneconomic. “The compensation and reimbursement provisions effectively mean that the Port of Newcastle would be financially punished for sending or receiving container cargo above a minimal level if Port Botany and Port Kembla have spare capacity. This makes development of a container terminal at the Port of Newcastle uneconomic,” Mr Sims said. “We are taking legal action to remove a barrier to competition in an important market, the supply of port services, which has significant implications for the cost of goods across the economy, not just in New South Wales. The impact of any lessening of competition is ultimately borne by consumers.” “If a competing container terminal cannot be developed at the Port of Newcastle, NSW Ports will remain the only major supplier of port services for container cargo in NSW for 50 years.” “I have long voiced concerns about the short-term thinking of state governments when privatising assets and making decisions primarily to boost sales proceeds, at the expense of creating a long-term competitive market,” Mr Sims said. “These anti-competitive decisions ultimately cost consumers in those states and impact the wider economy in the long term.” The ACCC is seeking declarations that the compensation provisions in the 2013 Port Commitment Deeds contravene the Competition and Consumer Act 2010 (CCA), injunctions restraining the operators of Port Botany and Port Kembla from seeking compensation under these provisions, pecuniary penalties and costs. The CCA only applies to the conduct of state governments in certain limited circumstances. The State of NSW is not currently a party to the ACCC’s proceedings and the ACCC is not seeking orders against the state. Background Port Botany Operations Pty Ltd is the operator of Port Botany. Port Kembla Operations Pty Ltd is the operator of Port Kembla. Both are subsidiaries of NSW Ports Operations Hold Co Pty Ltd. All are all entities within the NSW Ports group and all are parties to the 2013 Port Commitment Deeds. Port Botany is currently the only port in NSW with dedicated container terminal facilities. Port Botany had a container throughput of approximately 2.7 million twenty foot equivalent container units (TEU) for FY17/18. Port Kembla has handled approximately 1,600 TEU per year since it was privatised in 2013. The Port of Newcastle has handled approximately 10,000 TEU per year since it was privatised in 2014. Under the 2013 Port Commitment Deeds, it was agreed the State of New South Wales would pay compensation to the operators of Port Botany and Port Kembla if container traffic at the Port of Newcastle exceeded a cap of 30,000 TEU per annum (adjusted by an annual growth rate). The compensation to be paid by the State of New South Wales to the operators of Port Botany and Port Kembla is equivalent to the wharfage fee the port operators would receive if they handled the containers. Container traffic at the Port of Newcastle has not yet exceeded the specified cap, and therefore no payments have been made by the state under the 2013 Port Commitment Deeds. NSW Ports responds to the ACCC NSW Ports has issued the following statement: NSW Ports notes the ACCC announcement that it has instituted proceedings in the Federal Court in relation to the 2013 Port Commitment Deeds. NSW Ports firmly believes that the agreements (including provisions of the 2013 Port Commitment Deeds) signed with the NSW Government, to lease its assets at Port Botany and Port Kembla, operate in the best interests of all stakeholders, the economy and people of NSW. Having paid a consideration of $5.1 billion to the NSW Government in 2013 based on the full contractual terms contained in the agreements, NSW Ports will be vigorously defending the proceedings. NSW Ports is 80 per cent owned by Australian superannuation funds investing on behalf of more than six million individual Australians. The success of Port Botany and Port Kembla is in the national interest.
A NSW Parliamentary Inquiry into Port of Newcastle lease arrangements will lift years of secrecy. The NSW government made a secret deal with NSW Ports on 30 May 2013, covered under lease arrangements for Port Botany and Port Kembla. They agreed on a formula for charging the developer of a container terminal at the Port of Newcastle for container shipments. The purpose of their agreement is to limit or prevent the development of a container terminal at the Port of Newcastle. So far, they have succeeded. The Public Works Committee of the Legislative Council announced on November 20 it will “inquire into and report on the impact of Port of Newcastle sale arrangements on public works expenditure in New South Wales, including:
the Westconnex Gateway project
the Port Botany Rail Line duplication
intermodal terminals and rail road connections in southwest and western Sydney
other additional public road infrastructure requirements due to the additional road freight movements in Sydney under the existing port strategy.”
Until November 2013, the NSW government required Newcastle Stevedores Consortium to pay the Newcastle container fee as a condition of negotiating leasing the Port of Newcastle’s container terminal site from the government. On 5 November 2013, the NSW government decided to lease the Port of Newcastle. A lease condition is that the lessee is required to pay the government’s fee in respect of developing a container terminal. On 30 October 2018, the ACCC disclosed that an investigation is being conducted into whether the NSW government may have breached the “Commonwealth Competition and Consumer Act 2010” (Competition Act) in respect of the development of a container terminal at the Port of Newcastle. Since 7 June 2013, the ACCC has claimed that the NSW government stopped carrying on a business for the purposes of the Competition Act in respect of a container terminal development at the Port of Newcastle, because the government announced a policy decision on July 27 2012 that the state’s next container terminal will be developed at Port Kembla. The actual decision the NSW government took, but concealed, was to require the developer of a container terminal at the Port of Newcastle to pay the government a fee for container shipments, and to give this fee to a future lessee of Port Botany and Port Kembla. It is impossible for the NSW government to have a policy not to develop a container terminal at the Port of Newcastle when it is government policy to contractually require the developer of a container terminal at the Port of Newcastle to pay the government’s fee. The NSW government opposes a container terminal at the Port of Newcastle because it enables trucks to be replaced by trains for container transportation in NSW. A container terminal at Newcastle would justify building a rail freight bypass of Sydney, from Newcastle to Badgery’s Creek and Port Kembla. This bypass would be paid for with private funds by replacing Port Botany trucks with Newcastle trains. Additionally, it would enable trains to replace trucks for transporting the bulk of Sydney’s regional and interstate freight. More than one million container trucks travel through Port Botany each year. By 2040, there will be five million container truck movements. A rail freight bypass of Sydney will justify building the Maldon-Dombarton rail freight line to enable a container terminal at Port Kembla to operate interchangeably with Newcastle. The South Coast of NSW will benefit from direct access to a container port. By immediately building the section of the bypass line between Glenfield and Eastern Creek, containers can be railed between Port Botany and a new intermodal terminal in outer western Sydney, using the existing rail network. There would be no need for the intermodal terminal at Moorebank. The remainder of the line – from Badgery’s Creek to Newcastle – will take about 10 years to build. This allows ample time for an orderly transfer of operations from Port Botany to Newcastle and Port Kembla. Upon line completion, containers would be railed between Newcastle and intermodal terminals in outer western Sydney, where they would be de-consolidated at the intermodal terminals and the goods transported to their end destinations in Sydney. Export goods manufactured in Sydney would be consolidated into containers at the intermodal terminals and the containers then railed to Newcastle for export. Empty containers would be railed from Sydney to all regional areas of NSW to be filled with export goods and the containers then railed to Newcastle for export. All container trucks would be removed from Sydney’s roads. Freight currently entering Greater Sydney by road can be railed. There would be no need to build stages 2 and 3 of the $5 billion Northern Sydney Freight Corridor, to provide the equivalent of a dedicated rail freight line between Newcastle and Strathfield. There would be no need to build the $1 billion Western Sydney Freight Line, between Chullora and Eastern Creek. There would be no need to spend $400 million on upgrading the Port Botany rail freight line. There would be no need to connect Port Botany to WestConnex for the purpose of trucking containers. Freight would be removed from the Wollongong-Sydney rail line. All of Sydney’s current rail freight capacity would be used for passenger services to provide a higher economic return than freight. All of the current rail capacity between Newcastle and Sydney would be used for passengers. A second rail bridge would be built over the Hawkesbury River as part of the rail freight bypass. The short parallel runway at Sydney airport could even be extended from 2600 metres to 4000 metres after terminating container operations at Port Botany. Direct rail access to a container terminal is a pre-condition for regional economic development because more than 90 per cent of world trade in goods is conducted using containers. A rail freight bypass would enable Sydney firms to relocate to regional areas. The Committee will report on February 28 2019.
Appendix: the Inquiry’s Terms of Reference Legislative Council Public Works Committee Inquiry into the impact of Port of Newcastle sale arrangements on public works expenditure in New South Wales. Terms of reference
That the Public Works committee inquire into and report on the impact of Port of Newcastle sale arrangements on public works expenditure in New South Wales, including:
The extent to which limitations on container port operations currently in place following the sale of the Port of Newcastle contribute to increased pressure for transport and freight infrastructure in New South Wales, specifically:
the Westconnex Gateway project.
the Port Botany Rail Line duplication.
intermodal terminals and rail road connections in southwest and western Sydney.
other additional public road infrastructure requirements due to the additional road freight movements in Sydney under the existing port strategy.
The nature and status of the port commitment deeds, the extent to which they contain limitations on container port movements, and the terms and binding nature of any such commitments.
The extent to which container port limitations contribute to additional costs for NSW industries who are importing or exporting from New South Wales, especially in the Port of Newcastle catchment.
Any other related matters.
That the committee report by 28 February 2019.
Public Works Committee
The Hon Robert Brown MLC Shooters, Fishers and Famers, Chair – email@example.com
Mr Justin Field MLC* The Greens – firstname.lastname@example.org
The Hon John Graham MLC Australian Labor Party – email@example.com
The Hon Trevor Khan MLC The Nationals – firstname.lastname@example.org
The Hon Scot MacDonald MLC Liberal Party – email@example.com
The Hon Taylor Martin MLC Liberal Party – firstname.lastname@example.org
The Hon Lynda Voltz MLC Australian Labor Party – email@example.com
* Mr Justin Field MLC is substituting for Ms Cate Faehrmann MLC for the duration of the inquiry. Committee Secretariat Jenelle Moore, Director Committees, 92303750, Public.Works@parliament.nsw.gov.au
The ACCC is calling on state governments to regulate the stevedoring industry. A record 5.1 million containers were lifted at the monitored ports last financial year, but profit margins in the container stevedoring industry suffered (on charges collected from lines), according to the ACCC’s 20th annual container stevedoring monitoring report. In 2017–18 the average prices charged to shipping lines fell further, resulting in a drop in profit margins to a low of 4.5 per cent, while productivity remained largely unchanged. Meanwhile, stevedores increased ‘infrastructure charges’ that likely add costs to the supply chain. “The stevedoring industry has changed significantly over time, with large increases in productivity and reductions in costs since the ACCC started monitoring the industry 20 years ago, but challenges remain,” ACCC chairman Rod Sims said. Shipping lines have been able to negotiate cheaper rates because of growing competition between stevedores and consolidation in the shipping line industry, resulting in an 8.5 per cent fall in quayside revenue per lift for stevedores. Stevedores continued to rapidly increase ‘infrastructure charges’ applied to truck and rail companies delivering or collecting containers at port, which has led to strong criticism from transport operators and cargo owners. Stevedores have justified these charges with increases in operating costs and the need to invest in infrastructure to handle the increasingly large ships visiting Australian ports. It is not unreasonable for stevedores to recover some costs for investment in container terminal facilities. However, transport operators and cargo owners are limited in being able to respond to higher stevedore charges by taking their business elsewhere, unlike shipping lines. “The use of infrastructure charges means that stevedores can earn a greater proportion of their revenues in a market in which their market power is stronger relative to the more competitive market in which they provide services to shipping lines,” Mr Sims said. “We are concerned about the potential impact of these charges. If stevedores do not face a competitive constraint on their prices, it will leave consumers paying higher charges for goods and make exporters less competitive,” Mr Sims said The ACCC does not have the power to determine stevedoring charges as they are not a regulated asset. “State governments, which regulate stevedores and ports, may need to conduct further detailed examination and, if warranted, use their regulatory powers,” Mr Sims said. “We do not have sufficient information about the broader supply chain to conclusively determine if regulation would be appropriate. We note that the profitability of stevedores has continued to fall despite the increases in infrastructure charges.” Two stevedores, DP World and Flinders Adelaide, commenced extensive capital expenditure in 2017–18, with very little investment from other stevedores. In 2017–18, productivity performance remained mixed; while labour and multifactor productivity improved slightly, capital productivity fell slightly. Truck turnaround times continued to improve in Melbourne, but deteriorated slightly in Sydney. The ACCC’s report is available here. Background The ACCC has monitored the container stevedoring industry since 1998-99 under a direction from the Australian Government. Container stevedoring involves lifting containers on and off ships. The ACCC currently monitors the prices, costs and profits of container stevedores at five Australian container ports. Patrick and DP World operate at the four largest ports—Brisbane, Fremantle, Melbourne and Sydney. Hutchison operates in Brisbane and Sydney, while VICT commenced operations in Melbourne in early 2017. Flinders Adelaide is the sole terminal operator at the Port of Adelaide.
The ACCC is currently investigating “concerns that contractual restrictions may prevent the expansion of container throughput at certain ports”. It is speculation that these unspecified “concerns” include the anti-competitive Port of Newcastle container fee. It is fundamental that any ACCC investigation recognises the fee, its purpose and the date it became NSW government policy. The Hon Adam Searle’s question without notice to The Hon Duncan Gay on October 17 2013 [see below] uncovered the fact that the government decided in 2011 or early 2012 to cap the number of containers that could be shipped through the Port of Newcastle without incurring a fee. The fee charged per container is equal to the average fee charged for a container shipped through Port Botany (currently $150). As Mr Gay revealed in his answer, the fee was an instruction the government gave its financial adviser, Morgan Stanley, for conducting a scoping study into leasing Port Botany and Port Kembla. The government appointed Morgan Stanley on December 14 2011. Earlier, in 2009, the previous, Labor, NSW government decided to develop a container terminal at the Port of Newcastle by leasing the former Newcastle steelworks ‘Mayfield Site’ to the private sector. With the government acting as Newcastle Port Corporation (Corporation), a negotiation commenced, under contract, with Newcastle Stevedores Consortium (Consortium) in 2010. The Corporation changed its contractual requirements in 2013 to include the fee. This negotiation concluded on commercial terms in November 2013, without the site being leased. The ACCC claims that the Corporation ceased carrying on a business for the purposes of the “Commonwealth Competition and Consumer Act 2010” in 2012 because the government decided not to develop a container terminal at the Port of Newcastle. As shown by Mr Gay’s answer, the government made no such decision. The ACCC is wrong to claim that the government decided in 2012 not to develop a container terminal, as proven by the Corporation’s ongoing negotiation with the Consortium and the “Port Commitment – Port Botany and Port Kembla”, which was publicly disclosed by The Newcastle Herald on 28 July 2016. Not even the government supports the ACCC’s claim. It defies reality that the Corporation complied with the Competition Act by requiring the Consortium to pay the fee. The ACCC is obliged to acknowledge that the fee was an instruction the government gave Morgan Stanley for conducting a scoping study into leasing Port Botany and Port Kembla. It is incontrovertibly in the public interest for the government’s liability to be determined because of the many billions of dollars of public money at risk if a container terminal is built at the Port of Newcastle and the fee proves to be unlawful or unenforceable. For example, a container terminal operating at a modest 1 million TEU a year between 2023 and 2063, will require the NSW government to pay NSW Ports $6 billion at the rate of $150 million a year. Port Botany and Port Kembla were leased for $5.1 billion in 2013 for 99 years. LEGISLATIVE COUNCIL 17 OCTOBER 2013 The Hon. ADAM SEARLE: My question is directed to the Minister for Roads and Ports. How much compensation will be paid to the private operator of Port Botany if a new container terminal is developed at Newcastle Port? The Hon. DUNCAN GAY: The rules in the organisation that did the scoping study for Port Botany and Port Kembla and introduced guidelines there indicate that while general cargo is allowed there will not be an extension under the rules for the lease of Newcastle Port. So the short answer to the question is that we do not envisage that any compensation will need to be put in place. The Government has been clear on this all the way through the process, even before it indicated it would lease the port at the stage when Newcastle Port Corporation was in place. I have indicated in the House, as I have in Newcastle—indeed, I made a special visit to Newcastle to talk to the board, the chief executive officer and the local community—that part of the lease and the rationalisation was a cap on numbers there. I am not saying that there will be no containers into Newcastle. Certainly, a number of containers will come in under general cargo, but there will not be an extension. The only time an extension is allowed is when a specific number is reached and is tripped in Port Botany and Port Kembla.
The commercial practices of shipping lines and the performance of some empty container parks (ECP) in Sydney are causing significant cost increases in empty container management, according to transport advocacy group Container Transport Alliance Australia (CTAA). CTAA director Neil Chambers has warned: “These additional costs are causing major difficulties for container transport operators in Sydney, and need to be remedied soon.” Empty container park (ECP) capacity A focus of immediate attention are delays and a lack of operational capacity at DP World Logistics Australia Parks 1 & 2 in Botany Road, Port Botany. Large volumes of empty container returns are being directed to this facility by shipping lines, including to meet rail demand for empty export containers. “We are aware that DPW Logistics is recruiting, inducting and training more forklift and operational staff, but this will take several weeks to occur, Mr Chambers said. “A facility of its size should be achieving at least 30 container moves per half-hour truck arrival window. However, their current operational capacity constraints mean that they are only achieving around 10 to 15 moves regularly.” Transport operators are having to stage more and more empty containers via their yards prior to being able to gain suitable slots for de-hire. This adds significant costs to the transport task through:
Added truck travel to/from yards, then separate later trips to/from the ECP.
Container lift off/on costs.
Added administration in managing time delays, fleet allocation, de-hire notification processing, and container detention avoidance management.
Mr Chambers observed: “Transport operators have become ‘satellite’ container logistics staging facilities, even for empties. Without this, the container logistics chain in Sydney would be dysfunctional. But, this comes at a cost with commercial consequences.” Empty re-directions and limited alternatives Building on the pressures applied by intense competition for available truck arrival slots are the number of empty container ‘redirections’ made by shipping lines and a lack of alternative return options. Sydney is the ‘redirection capital’ of Australia, with an average of 85 redirection notices per month – double the number in Melbourne. “This occurs because shipping lines want empties returned to specific places, including to railhead facilities for export use and direct return to the wharf. This saves the shipping lines their own costs of handling empties through traditional empty container parks and being responsible for the cost of repositioning the boxes themselves,” Mr Chambers said. “The difficulties for transport operators arise because little notice of these redirections occurs, meaning that transport operational planning has become a lot harder, and futile truck trips can occur when containers are rejected from their original return location if the redirection notice is missed or is sent at the last minute.” Some shipping lines also don’t allow any alternative returning options, which can restrict truck utilisation efficiencies, add to truck kilometres travelled, and contribute to facility congestion and truck queuing. Lack of EDI flow of data An increase in the flow of electronic data between shipping lines, their ECP service providers and technology platforms such as Containerchain would greatly assist with information visibility in the container logistics chain, and would help to reduce landside costs. Unfortunately, only 61% of the empty container movements in Sydney have corresponding EDI data loaded into the technology platforms. This compares with over 90% in Fremantle and 80% in Melbourne, for example. When EDI data is lacking, allocators must process container return electronic information manually, truck drivers must be supplied with paper or electronic versions of the delivery order (DO), and ECP gate staff must process trucks and drivers manually. All of these issues lead to delays and added costs. “There are two major shipping lines that simply don’t provide any electronic information about empty containers – OOCL and Evergreen. Several others provide the information less than 40% of the time – COSCO (Five Star Shipping), Ocean Network Express (ONE), and Hyundai Merchant Marine. “We’d like to see a commitment from these shipping lines, and the others, to try to increase the EDI exchange of data on empty container return instructions in Sydney towards 100%.” Container detention liability The current delays and inefficiencies in Sydney mean that there is more risk of the import container detention policies of the shipping lines being breached. “Transport operators need to reinforce their business rules with customers about adequate notice of containers being ready for empty return (normally two working days), and should not accept any container detention claims caused by delays outside of their direct control. “Also, importers and forwarders should be proactive in seeking an extension of time from shipping lines for the return of empty containers when delays threaten a breach. “CTAA Alliance companies are seeking meetings with DPW Logistics, other ECP and with shipping lines through Shipping Australia Limited (SAL) to try to find sustainable solutions,” Mr Chambers said. “We also continue to liaise with NSW Ports and with the NSW Government about the current difficult situation.”
Pictured left to right: Philippe Herve, operations department manager (CMA CGM), Simon Moore, SVP Commercial (DP World Global), Noel Dent, general manager operations & logistics (ANL Container Line), Farid Salem, executive director (CMA CGM Group), Paul Scurrah, managing director & CEO (DP World Australia), Franck Magarian, vice president procurement terminals and ports (CMA CGM Group), Eric Mari, deputy vice president procurement terminals and ports (CMA CGM Group), Ben Moke, general manager commercial (DP World Australia), Xavier McDonald, legal manager contracts (CMA CGM), Maarten Voetelink, senior manager operations (CMA CGM).
DP World Australia has signed a long-term partnership extension over the servicing of CMA CGM Group vessels by DP World Australia at its terminals in Brisbane, Sydney, Melbourne and Fremantle. This partnership extension brings the two big players in the Australian port logistics sector closer together. CMA CGM Group’s shipping services, which include ANL and APL, will leverage DP World Australia’s container terminal and intermodal footprint. DP World Australia’s CEO and managing director Paul Scurrah said the partnership extension provides the two organisations with a strong platform for future growth in the Australian market. “We are delighted to be selected by the CMA CGM Group as its major stevedoring provider in Australia. In an exceedingly competitive market, locally and globally, securing the partnership with CMA CGM Group reinforces our position within our industry as a leading and responsive trade enabler.” ANL’s incoming managing director Xavier Eiglier said: “This contract extension is strategically important for the CMA CGM Group and ANL, its major operator in Australia, as it gives us certainty of access to quality stevedoring operations around Australia. “Shipping is a very competitive environment, our customers count on us for timely shipment and arrival of their goods, so we in turn rely heavily on the performance of our chosen stevedores. We look forward to working closely with DP World Australia to continuously improve performance so as to maintain the quality of our customers’ supply chains.” DP World Australia claims to be Australia’s biggest port and supply chain operator providing stevedoring and port supply chain services. CMA CGM Group, comprising of CMA CGM, ANL, APL and ANL Sofrana, is said to be the largest shipping group in Australia providing international and coastal shipping, container logistics and container hire and sales services.
In what the CTAA calls a further ‘cash grab’ directed at the landside container logistics sector, Victoria International Container Terminal (VICT) at Webb Dock in the Port of Melbourne has followed the larger stevedore companies Patrick Terminals and DP World Australia in announcing the introduction of an Infrastructure Surcharge of $48.00 per full import or export container commencing from 27 March 2018. Citing “a review of market conditions”, VICT lists its commitment to landside efficiency as a reason of implementing the Infrastructure Surcharge. However, landside logistics operators would ask: “what’s changed since the terminal was built?” “If we cut though the BS, the real reason for the announcement is that VICT needs to prepare itself to offer lower stevedoring rates to foreign shipping lines to stay competitive in bid processes against the other stevedores. And in what is now considered a ‘free-for-all’ in an unregulated market, all they need to do is collect their lost revenue projections from the transport operators (and ultimately importers and exporters) on a ‘take it or leave it basis’,” observed CTAA director Neil Chambers. “This gives the term ‘Me Too’ a whole new meaning!” In 2014, VICT won a competitive bid process to build and operate the new container terminal at Webb Dock. VICT built the facility in the full knowledge of the costs involved, the landside capacity of the terminal and the technology they have implemented. “To now claim that they need to be rewarded for landside efficiencies and good truck turnaround times is laughable,” Neil Chambers said. “The fact is that while VICT does have consistent truck turnaround times, they still cause inefficiencies in landside logistics operations due to their limited truck entry operating hours. “The larger container transport operators would prefer VICT to open during night shift when a large bulk of container movements to/from container terminals occurs in the Port of Melbourne.” “By only operating mostly during daylight hours, transport operators are forced to use additional trucks to meet the import/export task. That’s more trucks on the road during the day, including peak hours, than there needs to be, at added costs for transport operators. “Also, while CTAA advocated strongly for, and welcome from VICT, the increase in their payment terms to 30 days (from the date of the invoice), there is still a considerable lag between when transport operators need to pay these exorbitant Infrastructure Surcharges (or face a ban from the terminal is they don’t) and the time taken to collect those fees from their customers – importers & exporters. “The cash-flow implications for transport operators have yet again been stretched. “As we did when DP World increased its infrastructure surcharges and Patrick Terminals followed suit recently, we again call on the Federal Government to investigate whether there is now sufficient ‘market failure’ in container logistics pricing through Australian ports to warrant regulatory intervention. “All shipping lines charge shippers (importers and exporters) a terminal handling charge (THC), traditionally covering the cost of handling containers at the container terminal, including to/from the stack and landside movements. “We haven’t seen evidence of shipping lines decreasing their THC in line with lower negotiated stevedore rates. So the question has to be asked whether shippers (importers / exporters) are paying twice for the same service? “The situation now exists where overseas owned and controlled shipping lines are profiting from this cost shifting, at the expense of Australia’s import & export competitiveness. “We now have a new Federal Transport & Infrastructure Minister – the third in so many months. We’d hope that Mr McCormack takes action to investigate the impact of the current unregulated nature of container logistics landside infrastructure pricing, as well as the quantum of the terminal handling charges levied by the shipping lines.” The notice from VICT is reproduced beow in full: Victoria International Container Terminal (VICT) – Notice to Customers – 27 February 2018 Following a review of our terminal charges and market conditions, VICT has decided to implement an Infrastructure Surcharge of $48.00. Customers are advised that the charge will commence as of 27th March 2018. Following a review of market conditions, we consider that it is appropriate to introduce an Infrastructure Surcharge. The Infrastructure Surcharge allows VICT to remain competitive in the market as a viable alternative container terminal. Since commencing operations in 2017, VICT has committed to having landside efficiency at the forefront of our innovation, which we have done and continue to do. This has optimised our Truck Turnaround Times, increased utilisation of trucks and improved safety conditions. VICT remains dedicated to continuous improvement in providing leading landside services. The Infrastructure Surcharge will be applied to all standard import and export full containers (R&D via road). Road transport operators will be invoiced electronically through existing weekly invoices. The $10 Chain Of Responsibility charge per container will no longer be an additional charge, and will instead be absorbed into the Infrastructure Surcharge from 27th March 2018. We are aware of customer feedback regarding the introduction of infrastructure surcharges more generally in the market. Having listened to customer feedback on cash flow concerns around additional charges, we will extend our payment terms from 7 to 30 days from invoice issue date and we are also looking to implement EFTPOS payment facilities soon. We will make further announcements on this shortly. VICT carrier access agreement will be updated accordingly and facility access will be conditional on payment of these charges as per our terms and conditions from 27th March onwards. Please contact VICT’s Landside Team on 03 8547 9700 if you require any further clarification with regard to this surcharge.
Patrick Terminals has advised its landside customers that the company will raised its infrastructure surcharges effective 12 March 2018. Until recently, terminal operators Patrick and DP World collected their revenues from shipping lines, who had the (limited) opportunity to negotiate and take their business across the port to the other provider. Exporters and importers, however, must pick up their containers from the terminal where they are offloaded from the ship, effectively being held to ransom by the stevedores. Patrick says it has completed a review of its Terminal Infrastructure Surcharges, which are said to be designed to recover a portion of the costs that relate to:
The capital investments already made on dedicated infrastructure that services our landside interface operations.
Excess charges over CPI that relate to our property and property related costs (including rent, land tax and council rates). These costs continue to increase considerably across Patrick’s terminals.
Maintenance and operational costs associated with providing our landside interface operations.
“The surcharges recover a portion of the full costs associated with providing these essential landside operations, to continue to provide our customers with superior and efficient landside service levels,” Patrick’s advice states. From 12 March 2018 the following infrastructure surcharges on full containers that enter and leave the terminals will apply:
Sydney $41.10 per full container.
Fremantle $7.50 per full container.
Fisherman Islands $38.25 per full container.
East Swanson Dock $47.50 per full container.
The infrastructure surcharge will be applied to both road and rail transport operators for all full container movements, both import and export, made at the terminals. Road operators will be invoiced electronically via 1-Stop, while rail operators will have the surcharge separately itemised on their rail invoice. Patrick took the opportunity to “remind customers that ongoing access to the terminals is conditional upon prompt payment in accordance with Patrick’s standard terms and conditions” – i.e. no containers will be accepted or allowed to leave without payment. Patrick also advised other ancillary charges will be subject to an annual review with any price change to apply from 1 July 2018. The shippers’ response Director of the Freight & Trade Alliance (FTA) Paul Zalai said: “Effective 12 March, Patrick will increase its ‘Infrastructure Surcharge’ adding enormous costs to Australia’s international trade sector. If this is not bad enough, of much greater concern is that there appears to be no commercial mechanism or desire from any regulator to control pricing administered by our stevedores. “Following the 2017 introduction of the Infrastructure Surcharge and a second increase by DP World earlier this year, it comes as no surprise that Patrick has again replicated the approach of its main competitor. While there is no suggestion of collusion between the stevedores, it appears to be another case of ‘follow the leader’ and an easy way to attract a significant quantum of income without affecting contracted shipping line customers. “What a wonderful world to live in to be able to turn on the money tap whenever required. “The Australian Peak Shippers Association (APSA) and Freight & Trade Alliance (FTA) have led the case to the Australian Competition and Consumer Commission (ACCC) requesting a formal investigation of the DP World and Patrick charging regime. We will now supply further evidence of our concerns and remain hopeful that our engagement next week with the ACCC chairman, Rod Sims, will give us clarity on a way forward to protect our sector from a spate of uncontrolled surcharges and unregulated price increases.” The Container Transport Alliance (CTAA) is equally unimpressed: “CTAA reiterates that the real reason for these increases is the stevedore ‘rates war’, and the ability of the stevedores in an unregulated market to shift their cost recovery to the landside stakeholders. “The foreign shipping lines are laughing all the way to the bank because there has been no corresponding reduction in the charges they levy on shippers (importers / exporters / freight forwarders) for terminal handling. “Foreign-owned shipping lines are financially benefiting from lower stevedoring rates charged by the stevedores, while maintaining high Terminal Handling Charges (THC), at the expense of Australia’s containerised supply chain competitiveness. The CTAA has written to Commonwealth and state ministers expressing this concern and calling on them to investigate the relationship between:
Stevedore and terminal rates to shipping lines.
Terminal Handling Charges (THCs) applied by shipping lines to shippers.
The implementation and quantum of the infrastructure surcharges levied by the stevedores on transport operators, which are consequently passed onto shippers.
“Meanwhile, CTAA believes that shippers (importers / exporters) need to take up the commercial fight to the shipping lines and seek reductions in THCs to account for the cost shifting that is occurring,” the CTAA statement said. We will keep you posted.
Industry groups CTAA and RFNSW have welcomed the ACCC’s Container Stevedoring Monitoring Report 2016-2017 on the stevedoring industry. CTAA The ACCC is required by the Federal Government to monitor prices, costs and profits of the container stevedores at all Australian container ports. The ACCC Report provides information about the operating performance of the container stevedores, as well as the level of competition, investment and productivity in the industry. It also explores issues affecting the broader supply chain, including road and rail connections to container terminals. Notable observations:
On average across the stevedores, total revenue per TEU fell by 2%, due to increased stevedoring competition on the east coast; the increasing use of 40′ containers rather than 20′ containers; and greater bargaining power of consolidated shipping lines.
However, the combined operating profit margin (EBITA/revenue) of the stevedores rose 4% in 2016-17 to 17.1% (with the profitability of DP World, Patrick and Flinders Adelaide being significantly higher than Hutchison).
Unit stevedoring revenue fell by 4.5% to $138.8 per TEU. This decline was offset by a 2% increase in non-stevedoring revenue which now accounts for some 18% of overall revenue.
Non-stevedoring revenue has become an increasingly important source of income for the stevedores – increasing by 14.9% per TEU in the past ten years, in contrast to a 25.2% decline in unit stevedoring revenue over the same period.
VBS revenue increased by 12.2% in 2016-17 / Storage revenue rose 16.9% in 2016-17.
Revenue from non-stevedoring activities is likely to rise dramatically with the implementation of new and increased Infrastructure Charges by DP World and Patrick in Melbourne, Sydney, Brisbane & Fremantle.
It is estimated that the new Infrastructure Charges will gross DP World and Patrick some $70 million per annum, which is equivalent to a 5% to 6% increase in unit revenues.
Whilst a justification by the stevedores for the implementation / increase in Infrastructure Charges was increasing costs, the ACCC has noted that overall unit costs for DP World and Patrick are stable. The ACCC has noted however that the stevedores have faced, or are anticipated to face, higher property prices, government taxes and rates.
The ACCC has noted that it would appear that the stevedores are restructuring their revenues away from the shipping lines and towards to transport sector.
The ACCC has expressed concern that transport operators are “limited in being able to switch stevedores in response to higher prices.”
Shipping lines may now be receiving subsidised stevedoring services as a result of the Infrastructure Charges, with the ACCC noting that “it is possible that the revenues being collected from the transport operators are simply replacing revenues that used to be collected from shipping lines.”
The ACCC has indicated that it will fully examine the impact of the Infrastructure Charges in future monitoring Reports, and will be interested to see whether the stevedores will be able to demonstrate clear infrastructure improvements for transport operators above and beyond business-as-usual capital works.
The lion’s share of identified future terminal investment by DP World and Patrick in 2017-18 are for quay cranes, which will benefit the waterside, rather than landside operations.
Comments: The ACCC report notes that CTAA, together with Freight & Trade Alliance (FTA), the Australian Peak Shippers Association (APSA) and other organisations, opposed the implementation of the new and increased Infrastructure Charges by Patrick and DP World (page 9). The CTAA disagrees with the ACCC conclusion that “most of the concerns (expressed) were that the price increases were excessive.” A main thrust of CTAA’s concerns was that the stevedores were forcing payment of the Infrastructure Charges by transport operators via “take it or leave it” contracts governing terminal access. Transport operators have no say in the payment of the infrastructure charges, no say in the quantum of the charges, and no say in the expenditure of the revenue. If they were to refuse to pay the Charges, their access to terminals may be denied. In layman’s terms, CTAA maintains that this constitutes ‘unfair contract terms’. Despite claims to the contrary, transport operators have experienced difficulty in passing on the infrastructure charges to customers (freight forwarders, and/or importers & exporters) in full or in part. Additionally, despite Patrick listening to the views of transport operators regarding the cash-flow implications of the charges impost and extending their payment terms to 30 days, DP World has flatly refused to do so. If the ACCC estimates are accurate, the transport industry will be ‘underwriting’ the collection of $70 million per annum, and suffering the cost of cash involved in the payment of the charges ahead of being able to recoup the revenue from customers. Transport operators rarely enjoy a profit margin above 17%, and aren’t in a position to impose a general market price rise that increases revenue by 5% to 6% in one go. The landside container logistics market is vastly more competitive than the stevedoring market. CTAA alliance companies welcome the ACCC intention to closely monitor the collection and expenditure of the stevedore infrastructure charges. CTAA also continues to call on the Federal Government, through the National Freight Strategy, and individual state governments through their own freight improvement planning processes, to implement independent monitoring of key stevedore performance indicators, including:
Accurate and independent Truck Turnaround Time (TTT) and Container Turn Time (CTT) measurement in all ports;
VBS slot capacities per time zone;
Truck utilisation rates, and stevedore practices that limit ‘two-way running’ opportunities;
Stevedore infrastructure expenditure that improves landside logistics interface performance.
RFNSW welcomes ACCC examination of new port taxes Road Freight NSW (RFNSW) has welcomed the ACCC’s acknowledgment that infrastructure taxes imposed by DP World and Patrick “raise a number of issues for the port supply chain”, leaving transport carriers with higher operating charges and the inability to switch to other stevedores. Releasing its 2016-17 Container Stevedore Monitoring Report yesterday, the ACCC said the taxes “could earn DP World and Patrick a combined $70 million in revenues, which would be equivalent to a 5 to 6 per cent increase in unit revenues.” According to the report: “It is concerning that truck and rail operators face these higher charges but are limited in their ability to take their business elsewhere.” The stevedores announced the new taxes earlier this year without consulting RFNSW or other industry groups. The stevedores tried to justify the charges by claiming increases in rent, land tax and rates were a “cost burden” they could not absorb and that the new surcharges would be used to fund new infrastructure. But the ACCC noted: “However, overall unit costs for both stevedores remain stable. The ACCC will be interested to see whether these infrastructure charges are used to improve landside facilities beyond business as usual levels.” After reviewing the report, RFNSW general manager Simon O’Hara said he welcomed the ACCC’s acknowledgment that the port taxes were any issue for hard-working transport carriers. “We are pleased that the ACCC has listened to concerns raised by RFNSW about the effect port taxes are having on our RFNSW members,” Mr O’Hara said. “It’s encouraging that the ACCC has acknowledged the taxes are an issue for the port supply chain and that it will fully examine the impact of the charges in its 2017-18 stevedore report.”