Industry welcomes ACCC involvement in stevedoring

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.”
 

What’s important on the waterfront

In view of the escalating costs experienced on the waterfront, Container Transport Alliance Australia (CTAA) has submitted container transport logistics-specific views to the Inquiry into National Freight and Supply Chain Priorities.
The CTAA Submission has highlighted to the inquiry:

  • The changing nature of the cost-base in the container logistics chain, with the implementation of broader and higher infrastructure surcharges levied by stevedores, competitive stevedoring rates for shipping lines through greater container terminal competition, yet no corresponding reduction in terminal handling charges (THC) levied by shipping lines on beneficial cargo owners. CTAA has recommended that the ‘disconnect’ between these various charges be investigated by the Productivity Commission.
  • The changing nature of the geographical location of container transport logistics activity, the mismatch of operating hours across the chain (and other aspects that impact on efficiencies and productivity); and the impact of urban encroachment and inner-city urban renewal leading to resident community / freight conflicts.
  • The impact of toll road fees in container freight costs that aren’t always matched with commensurate productivity savings.
  • A call for the National Strategy to recommend regulation to mandate the provision of EDI information by shipping lines to all parties in the chain, including to empty container parks.
  • The establishment of objective, independent monitoring of productivity measurements at key interfaces in the container transport logistics chain, including the stevedore and empty container park interfaces.
  • Road and rail productivity, connectivity and technology – increased access for higher productivity freight vehicles (HPFV); policies that promote synergies between road, rail and intermodal operations, not a ‘road vs. rail’ mentality; and the embracement of inventiveness within industry.
  • Road and rail access pricing structures that are fair and equitable.

A copy of the CTAA Submission can be downloaded here.
 

Maersk looking at on-land logistics in Australia

Shipping line Maersk is reportedly looking at opportunities to expand into on-land logistics operations as freight rates are dropping.
“We’ve got a vision to be the global integrator of container logistics,” Gerard Morrison, Managing Director – Oceania at Maersk told The Australian Financial Review (AFR).
“Shipping and logistics can be quite fragmented – multiple parties, multiple documents, multiple invoices – but we’re hoping to find ways to simplify that,” he added.
“At the moment, shipping is ‘shipping from port to port’ and the thought is, how can we help our customers deal with other parts of the supply chain?”
Morrison noted that in order to offer services such as container storage, customs clearance and trucking to the logistics sector in Australia, the liner may need to acquire other businesses – though there are no such plans in place at present. “If the right opportunity was there, we wouldn’t look away from it,” Morrison said.
Morrison reported that shipping volumes are improving worldwide, driven in part by the economies of Europe and Latin America. “Australia and New Zealand are doing very well, there’s very steady growth out of both markets,” he said. “Customers are asking us to carry more and more cargo.”

DP World announces fee hikes at Sydney, Melbourne ports

DP World Australia (DPWA) is increasing its port access fees at its Sydney and Melbourne facilities, Lloyd’s List Australia (LLA) reports.
In Sydney, transport operators will be charged $21.16 for each full container received or delivered via road or rail, previously there was no fee.
The charge to use DP World’s Melbourne terminal will increase from $3.45 to $32.50 per container.
The new fees are set to take effect on 3 April, though LLA notes that industry bodies such as the Freight and Trade Alliance and the Australian Peak Shippers are challenging the change.
Brian Gillespie, Chief Commercial Officer at DPWA, has released a statement attributing the new fees to increased property rates in Sydney and competition. Through changing the way the Sydney Terminal operated, DPWA had avoided passing on the costs until now, he explained.
“Since 2013, DPWA has incurred material increases in the costs of occupancy of more than 30 per cent, including the cost of council rates, land tax, rent and terminal infrastructure maintenance,” he said.
The cost of the company’s presence in Melbourne has also reportedly risen by more than 60 per cent since 2016.
“Despite DPWA’s continue efforts to offset higher fixed costs through efficiency improvements, these material step changes in costs cannot be offset,” Gillespie added.
“It is important to note that a substantial part of our Melbourne terminal, including our dedicated truck marshalling area, is devoted to servicing road transport, and that the cost of providing this specialist infrastructure has, like Melbourne terminal as a whole, been subject to the cost increases.”
Peter Anderson, CEO of the Victorian Transport Association (VTA) noted that the Infrastructure Surcharge will put further pressure on the country’s transport companies.
“Coming off the back of the up to 125% increase to tolls announced by CityLink operator Transurban, this increase will put additional pressure on operators to remain competitive,” he said.
“Operators will have no choice but to pass on the increase to their customers.”

Melbourne Port increases rent 750 per cent

One of the world’s biggest stevedoring companies has been hit
with a massive rent increase which will make the Port of Melbourne the most
expensive port in the world.

DP World managing director Paul Scurrah said the rent
increase was around 750 per cent.

“I thought there was a decimal point missing when I saw
the rent increase for the first time, and there needs to be common sense
prevailing around any increase in rental,” he said.

“We have had rental increases before and there is
provision in the contract to negotiate rental fees every two years, but an
increase of this size will cause job losses and may see shipping companies
avoid using the Port.

The rental increases at the Port of Melbourne have caused
concerns to be raised by The Australian Logistics Council (ALC), the peak
industry body for freight logistics industry.

Managing director Michael Kilgariff said ALC was generally
supportive of the Port’s long term lease as a way of unlocking much needed
funds for logistics infrastructure in Victoria, but that rental increases would
undermine supply chain efficiency by affecting the ability of industry to make
long-term commercial decisions about their operations at the port.

“Any proposed rental increase, particularly of this
magnitude must be visible and transparent, and we are concerned that proposed
new rents at the Port of Melbourne appear to be linked to rents allegedly paid
by new entrants to the stevedore market,” he said.

“The reported price paid by Melbourne’s third stevedore to
secure port space should not directly impact on the price asked of legacy stevedores
to operate at the port.

“This issue has been raised repeatedly by senior members of
the logistics industry.

“This matter highlights the need for the
logistics industry to be engaged in all consultations with government on the
future lease of the Port of Melbourne, including arrangements for pricing,
lease structure and proposed regulatory frameworks.

“Too often in the past when these processes have commenced,
the logistics industry has been locked out of discussions on the grounds of
‘probity’.

“The Victorian
Government has committed to involving the logistics industry in this process
and this matter reinforces how important it is for that to occur.”

Kilgariff said the focus needs to be on the efficiency of
the entire supply chain for Melbourne to maintain its claim of being
Australia’s freight and logistics capital.

“As ALC said in its submission to the Senate Inquiry into
asset recycling, the need for a published business case in relation to proposed
infrastructure projects is paramount to building community support for them,”
he said.

Kilgariff said the issue would feature at the upcoming ALC
Forum 2015 on March 11, when senior logistics executives will discuss
regulatory and investment issues relating to the port, rail and intermodal
sectors of the industry.   

MUA rallies against business groups over safety

The Martime Union of Australia and thousands of its members will rally outside the offices of the Australian Chamber of Commerce and Industry to call on the business community to cease its campaign against waterfront safety reforms.

The union says the ACCI has intervened in the development of the National Stevedoring Code of Practice (NSCOP), which the MUA says seeks to create a uniform national set of safety guidelines for stevedoring.

“Wharfies are fourteen times more likely to die at work than the average Australian worker,” MUA assistant national secretary Warren Smith said.

 “The development of the Code of Practice has been underway for several years through a collaborative effort between Safe Work Australia, the state regulators, the MUA and industry representatives.

“However, the day after the death of wharfie Greg Fitzgibbon at Newcastle Port last year, the big stevedoring companies and the representative of foreign shippers, Shipping Australia, tried to bomb the code.

 “To its credit, Safe Work Australia maintained the key protections in the code, but now ACCI has weighed in, delaying the code’s progress by making factually incorrect, misleading claims about the cost of implementation to industry.

 “Any stevedore that is obeying current laws won’t experience any problems or additional costs implementing the Code of Practice. 

Smith said the safety of workers was the most important aspect of implementing the code.

 “Every worker deserves to come home from work alive and unhurt. It is disgraceful for ACCI to misrepresent any impact on a company’s bottom line when it comes to protecting the safety of workers.

 “This nineteenth century way of viewing industrial relations is at odds with community standards and indeed international safety standards.

 “The fact that we even need to be having this argument about the primacy of workers’ lives over profit in 2013 is an absolute disgrace.”

Image: heraldsun.com

Can Australian docks support a third stevedore?

The arrival of Hutchison Port Holdings Australia as a third stevedore onto Australia’s waterfront is designed to provide increased competition but raises the vexed issue of whether three may be too many.

HPH will begin operating from its $250 million Brisbane facility in early 2013 and Sydney early 2014.

At the same time, the Port of Melbourne Corporation (PoMC) aims to have a third operator commence operations in 2016 as part of its new terminal development at Webb Dock.

The increased competition comes at the same time as incumbent stevedores Patrick (owned by Asciano) and DP World Australia announced they are introducing new technology and equipment that will increase the capacity at their container terminals.

Historically there have been a large number of stevedores operating in Australia. However since the introduction of containers (in the late 1960s) the stevedoring business has become more capital intensive, due to the need for dedicated and expensive equipment, resulting in a consolidation into just two stevedores (the incumbents, albeit under different names and ownership) in the late 1990s /early 2000s.

The Maritime Union of Australia (MUA) under the leadership of national secretary Paddy Crumlin has been opposed to the introduction of a third stevedore. Crumlin has been quoted as saying that they prefer the status quo to remain as the union is not convinced that the economic argument for a third stevedore stands up. On the other hand, the MUA has been dealing with HPH, which has been prepared to employ their members.

Annual container growth rates have been 6% to 7 % over the years. However, they seemed to have slowed recently (certainly on the eastern seaboard) reflecting the current state of the Australian economy and the high Australian dollar.

Port of Brisbane CEO Russell Smith commented recently on the viability of three stevedores at the Port of Brisbane given the total throughput is just over one million TEUs. It is generally accepted that to have a viable modern container terminal operation in an OECD country, volumes upwards of 500,000 TEUs are required.

In June 2012 Asciano’s CEO John Mullen indicated that having three competitive stevedores in Australia is unlikely to work in the long run. If you consider the large capital investment that is required upfront (before one revenue-earning container is lifted) you will need to take a very long-term view.

For instance, HPH Australia will not get much change out of $250 million for their terminal set up costs at Fisherman Islands in Brisbane. At the same time DP World in Brisbane is resurfacing Berth 7 to prepare for the introduction of Automated Stacking Cranes (which will increase their capacity but comes at a substantial cost) and Patrick has already spent a large amount of money in automating its terminal in Brisbane.

The situation in Sydney is similar with HPH again required to invest a large amount of money upfront for the set-up of their new terminal at Port Botany (as well as the Intermodal Logistics Centre at Enfield) and Patrick announcing that they will be investing up to $350 Million over the next three years in automating and expanding their Port Botany terminal.

Admittedly the total Sydney container throughput volume is twice that at the Port of Brisbane, but still not large by international standards and not growing as fast as previously forecasted.

In the meantime the shareholders and Chief Financial Officers of HPH, Asciano and Citi Infrastructure Investors (75% owners of DP World Australia) are demanding a reasonable return on investment.

Could the impact of this be that in the not too distant future we will see another consolidation of container operators in Australia with a rationalisation of terminal developments? The Australian Competition and Consumer Commission (ACCC) certainly hopes not given their long held view that there is not enough competition on the Australian waterfront and the current operators are making too much money.

Or will there be a reversal of roles? A decade or so ago HPH put in a bid for Chris Corrigan’s Patrick Corporation (which Mr Corrigan rejected as being too low). Will QUBE Holdings (of which Mr Corrigan is chairman) now put in a bid for HPH Australia or even DP World Australia or the Patrick Terminals and Logistics division?

Only time will tell.

Peter van Duyn

Maritime Logistics Expert at the Institute for Supply Chain and Logistics at Victoria University

Peter van Duyn does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The ConversationThis article was originally published at The Conversation. Read the original article.

 

 

Agility to provide logistics support for Australia’s largest single-resource project

Leading global logistics provider, Agility, has won a two-year Australian contract worth $238 million to provide logistics support for one of the world’s largest natural gas projects.

The Gorgon natural gas project will have Agility providing logistics, stevedoring, and related services in support of the Marine Loading Facility in Henderson, Perth.

Furthermore, Agility was granted a two-year extension of its existing contract to support supply base operations and transportation services, in which the stevedoring services have been added.  The extended contract has commenced and will run through to 28 April 2014.

"The renewal of the Gorgon contract underscores Agility's reputation for efficient, effective and highly dependable performance on complex logistics assignments,” said Mick Turnbull, CEO of Agility Australasia.

"The additional services and extension of our contract is a testimony to the hard work and commitment that our team has shown. We are committed to working safely even in the most challenging environments, and look forward to continuing our successful partnership for some time to come.”

Patrick Stevedoring was appointed by Agility as the prime subcontractor for the stevedoring services.

“We are pleased to be working with Agility on these additional services to offer support to the Marine Loading Facility in Perth and are confident that we can play an important part in this project,” said Philip Tonks, general manager of the Patrick Stevedoring Division.

Operated by Chevron, the Gorgon project is said to be the largest single-resource project in Australia’s history. It is a joint venture of the Australian subsidiaries of Chevron, ExxonMobil, Shell, Osaka Gas, Tokyo Gas and Chubu Electric Power.

Stevedores warned of duopoly

The Port of Melbourne.

The Port of Melbourne…warned.

The Australian Competition and Consumer Commission (ACCC) has warned a lack of competition in the stevedoring sector would get in the way of future growth.

According to the ACCC’s latest annual monitoring report of container stevedoring, throughput volumes recorded an increase of 10.7 per cent in 2007-08, with productivity levels jumping almost 47 per cent over the last decade.

ACCC chairman Graeme Samuel said the report showed decade-old waterfront reforms have significantly boosted the stevedoring sector, but a lack of competition in the industry was worrying. 

“During this time, demand for stevedoring services has doubled. The cost of using stevedoring services has fallen in real terms.

“In turn, the stevedoring businesses have become more productive and profitable, even during a period when significant expenditure on assets was made,” Mr Samuel said.

“However, as the ACCC has noted in previous reports, questions remain about the extent to which the stevedores actually compete to win each other’s business. This is important when we look forward ten years and consider the high rates of demand that are forecast to continue.”

Mr Samuel said while the ports of Sydney and Brisbane were well progressed in testing the market for new competitors, the Port of Melbourne was lagging behind with a third container terminal not set to open until 2017.

He said the delayed development at Australia’s largest port would make its two incumbents, Patrick and DP World, settle for the convenience of the current duopoly.

“Any unnecessary delays in establishing additional container terminal facilities could result in lost opportunities for greater competition.

“More intense levels of competition can not only improve efficiency but may also result in a greater share of the benefits being passed on to users and the wider community that reply on the movement of goods into and out of Australian ports,” he said.

Five shortlisted for the third terminal at Port Botany

Port Botany.

Five stevedoring groups have entered a bidding war over the third container terminal at Port Botany.

Sydney Ports Corporation has announced that five stevedoring companies have been invited to tender to operate the third container terminal at Port Botany.

The company’s CEO Grant Gilfillan said the invitation was the second part of a two-stage process for choosing the terminal operator for the Port Botany expansion project.

A total of 13 groups expressed interest in operating the terminal, responding to the call for expressions of interest due on September 1.

“The healthy response indicates there is strong industry confidence in the long-term commercial viability of Sydney’s container port,” Mr Gilfillan said.

The company asked the applicants to provide information concerning their financial and resource capacity, container terminal expertise and experience, as well as capacity to resource and manage the new terminal.

Ports Minister Joe Tripodi said bids would entail fixed and variable rental elements, and a level of investment and intended work volumes.

Mr Gilfillan said the shortlisted groups included domestic and international operators, without revealing their names.

“We regard the process as commercially confidential and will not be announcing the names of those who have been invited to tender.

“We expect the stevedore to be chosen by mid-2009, with the first berths available for trade from 2012,” he said.

It is speculated among the contenders were Patrick, DP World, Hong Kong-based Hutchison Port Holdings and the Singapore Ports Authority. Former Patrick chief Chris Corrigan was also reported to have expressed interest.

It is expected the selected operator will inject around $350 million into new facilities, with initial expenditure on gantries of about $150 million.

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