Operations have resumed to clear the backlog of more than 100,000 containers around Australia after industrial go-slow action on Sydney’s Port Botany wharf threatened major delays to supply chain during peak season.
Up to 90,000 containers at Port Botany in Sydney are stuck in limbo as industrial go-slow action on the wharf threatens major delays and disruption to national exports.
A reduction in empty container park capacity, larger numbers of containers being handled, and a high level of import empty container ‘re-directions’ by shipping lines, are causing significant additional empty container handling costs in Sydney.
CTAA director Neil Chambers said: “The empty container management situation in Sydney has been getting progressively worse over a number of months now.
“For many container transport operators, it has reached the stage where they cannot fully absorb the additional costs.
“A conservative estimate is that the additional costs being borne by transport operators in managing empty containers in Sydney are between $90 to $200 per container, depending on the level of delay and additional handling necessary.”
Staging of empty containers via transport yards: added costs
Gate capacity and available truck arrival slots are at a premium at some key Sydney empty container parks (ECP) given the numbers being directed to those facilities by shipping lines. This is amplified when the ECP do not operate regularly after hours or on weekends.
Therefore the vast majority of empty containers must be staged through transport yards to manage the task.
This results in additional costs:
- Container lift-on / lift off – container staging.
- Additional administration and yard planning.
- Additional truck kilometres and one-way truck travel with reduced opportunities to backload.
In many instances, transport operators are unable to book sufficient truck arrival slots at designated ECP in a timely manner, leading to de-hire delays and significant risks that empty containers might attract container detention fees from shipping lines for late return.
Empty container re-directions with little notice
“A significant contributor to the higher costs of empty container management in Sydney are the number and frequency of empty container ‘re-directions’ that are ordered at the discretion of the shipping lines with little notice.” observed Neil Chambers.
Port Botany is Australia’s empty container ‘re-direction capital’, with over 30 re-direction notices current every day, equating to hundreds of re-directions per month. By contrast, this is more than double the number of re-directions in Melbourne.
“Empty containers destined for one ECP, or for direct wharf de-hire, are suddenly re-directed to another location, causing significant planning difficulties for transport operators who must adjust their fleet and job allocations at the last minute.
“These re-directions are occurring solely to suit the shipping lines that want the empty containers sent to a specific location for their next use, including to meet regional rail export empty demands or for international empty repatriation, rather than the shipping line being responsible for the costs of repositioning the empty at a later date.
“That’s all well and good, but the lack of sufficient notice penalises others in the container logistics chain through higher import empty container handling and transport costs. To make matters worse, the lack of sufficient operational notice of these re-directions means that trucks with a valid ECP arrival notification, based on the original de-hire location specified by the shipping line, are being turned away because a re-direction has been put in place last minute.”
“This results in futile truck trips, added truck kilometres travelled, more one-way under-utilisation of trucks, the need to constantly rearrange empty containers stacked in transport yards, and de-hire time delays.”
Mr Chambers noted: “The lack of sufficient notice of re-directions, and the practice of not honouring original legitimate truck bookings at ECP because a re-direction has been ordered, is unacceptable to container transport operators.
“We are calling on all shipping lines and their ECP providers to give at least 24 hours’ notice of any empty container re-directions as well as a clear end-date for the re-direction.”
The administration of these re-direction notices is made more difficult where shipping lines do not provide electronic data to their ECP providers and through the Containerchain notification system, meaning that fleet allocators must manage and monitor re-direction notices manually.
This can result in futile truck trips to the wrong ECP if emailed re-direction notices are missed.
Unrealistic container detention timeframes & claims
Despite the increased delays in managing import empty container de-hires effectively, there is no incentive for shipping lines to extend container detention-free time to importers.
Container detention time restrictions are more likely to be exceeded as a result of the current delays and inefficiencies in Sydney.
“Shipping lines would be making an absolute killing at present with container detention revenue, some of which will have been incurred because of the strict policies of the shipping lines themselves leading to a lack of de-hire flexibility, last minute de-hire re-directions, and little cooperation with shippers on the extension of detention-free time.
“That is particularly perverse,” Mr Chambers noted. “Many transport operators apply business rules with their importer / forwarder customers requiring adequate business-day notification that import containers are ready for empty de-hire.
“In addition, however, transport companies are increasingly unwilling to accept container detention claims liability passed to them by their customers when the delays in de-hire are outside of their control. This is a matter for negotiation between transport operators and their direct customers.
“Transport operators aren’t a direct party to the Bill of Lading contract between the importer and shipping line on empty container detention terms and conditions.”
“So, it’s not up to the transport company to seek relief from container detention fees. And nor should it be up to the transport company to pay any container detention bills post the event when the delays in de-hire were beyond their control or not realistic in the timeframes imposed.”
“In the current circumstances in Sydney, made worse also by the fumigation delays caused by the widespread measures to address the Brown Marmorated Stink Bug (BMSB) biosecurity threat, it is not unrealistic for import containers to be taking more than 15 to 20 days from the date of discharge to be able to be returned empty.”
“Container detention claims prior to that are equally unrealistic.” concluded Neil Chambers.
“It is even more imperative that when delays threaten a breach of the shipping lines’ imposed container detention policies, importers and forwarders – the customers of the shipping lines – should be proactive in:
- Seeking an extension of the ‘free time’ from the shipping line for the return of the empty container; and/or
- Requesting that the shipping line allow the container to be de-hired into an ECP or wharf facility with more flexible de-hire arrangements and longer opening hours.
“There are several ECP in Sydney that open longer hours. Importers, forwarders and their transport providers should be more proactive in convincing shipping lines that they will direct the empty de-hires there, instead of suffering delays in trying to de-hire to nominated facilities that are congested or have limited opening hours.”
CTAA Alliance companies are discussing the current delays and inefficiencies with the ECP in Sydney, shipping lines, NSW Ports, Transport for NSW and the NSW Government.
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.
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.
Building an extensive container port at Newcastle would have many roll-on benefits for Sydney, writes Greg Cameron.
A container terminal at Newcastle would justify building a rail freight bypass of Sydney between Newcastle, Badgery’s Creek and Port Kembla. This bypass would be paid for by replacing Port Botany’s container trucks with Newcastle’s container trains.
It would enable trains to replace trucks for transporting the bulk of Sydney’s regional and interstate freight.
Port Botany relies on trucks for transporting containers. There were one million container trucks that moved through Port Botany in 2014. By 2040, there will be six million.
An intermodal terminal is being built at Moorebank. This terminal requires all of Sydney’s available rail freight capacity. If Moorebank reaches capacity, there will still be 4.9 million container truck movements through Port Botany by 2040.
With the Moorebank intermodal terminal operating at capacity, the economic disbenefits of trucking containers will increase five-fold – from one million per year to five million per year – by 2040.
A rail freight bypass of Sydney will justify building the Maldon-Dombarton rail freight line to enable building a container terminal at Port Kembla to operate interchangeably with the Port of Newcastle.
The South Coast of NSW will be served by container ports at both Port Kembla and Port of Newcastle.
By building the section of the bypass line between Glenfield and Eastern Creek as the top priority, containers can be railed between Port Botany and a new intermodal terminal in outer western Sydney. The remainder of the line to Newcastle will take about 10 years to build. But there would be no intermodal terminal built at Moorebank.
Upon line completion, containers railed between Newcastle and intermodal terminals in outer western Sydney 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, to enable containers to be railed between Port Botany and outer western Sydney.
There would be no need to spend $400 million on upgrading the Port Botany rail freight line.
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.
The Southern Sydney Freight Line could be used for express passenger services from southwestern Sydney growth areas, including Badgery’s Creek Airport.
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 be extended from 2,600 metres to 4,000 metres by terminating container operations at Port Botany.
A rail freight bypass would enable Sydney firms to relocate to regional areas.
It is appropriate and necessary for the state to examine the implications to NSW of removing the state’s anti-competitive fee for containers shipped through the Port of Newcastle.
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 Australian Logistics Council (ALC) has welcomed an announcement that next week’s Federal Budget will contain $300 million to duplicate the freight rail line from Port Botany to Enfield as a major step forward for enhanced supply chain efficiency.
The funding forms part of an intergovernmental agreement signed in Parkes, NSW, between Ministers representing the Federal and NSW Governments. The agreement is a seminal moment in the progress of the Inland Rail Project that will form the backbone of the nation’s supply chains in the years ahead.
“ALC has been calling for the duplication of the freight rail line at Port Botany, as part of the Inland Rail Project, for a significant period of time. It was again identified as an urgent priority in ALC’s 2018-19 Commonwealth Budget Submission, and it is very pleasing that the Federal Government has now come to the party,” said ALC managing director Michael Kilgariff.
“Improving freight rail links into Australia’s major ports and boosting the use of short-haul rail from ports to intermodal terminals is essential in the drive to enhanced supply chain efficiency and safety, as outlined in Freight Doesn’t Vote, ALC’s major submission to the Inquiry Into National Freight and Supply Chain Priorities.”
“Currently, around 444,000 TEU per year moves to and from Port Botany by rail, and this continues to grow. Duplicating the freight rail line at Port Botany will allow NSW Ports to realise its objective of moving 3 million TEU annually by rail over the long term.”
“Ensuring efficient freight rail linkages to our ports and intermodal terminals is another critical piece of the Inland Rail puzzle, if we are to reap the full economic and efficiency benefits from the substantial public investment being made in the project,” Mr Kilgariff said.
Is it worth doing?
Ardent critic of the project Greg Cameron is not convinced, believing neither the Port Botany duplication nor the whole of the Inland Rail Project are worth continuing.
“If Botany is a commercially viable container port, why does the NSW government charge a fee of $150 per container at the Port of Newcastle, which it pays to Port Botany lessee, NSW Ports?” Mr Cameron said.
“A competing container terminal at Newcastle also makes the Inland Rail Line commercially unviable, because it will win container business from northern NSW. This explains why state and federal governments decline to acknowledge that the Newcastle container fee is anti-competitive.”
A report produced by the Australian Competition and Consumer Commission (ACCC) on the country’s stevedores has suggested that Port Botany has overtaken the Port of Melbourne for container trade due to constraints at the Victorian port, as first reported by The Age.
In 2016/17, Port Botany handled 34 per cent of Australia’s container movements, with 33 per cent going through the Port of Melbourne – down from 36 per cent in 2015/16.
While the report did not directly link the Port of Melbourne’s reduced volume to the increasing size of container ships, it noted that it is the most likely port to put limits on the size of ships visiting the country.
The Age noted that the biggest ship to visit Australia, the 347-metre Susan Maersk that docked at the Port of Brisbane in October, would have been unable to travel up the mouth of the Yarra River to Swanson Dock, and its 10,000 TEU (twenty-foot equivalent unit) load may or may not have managed to fit underneath the West Gate Bridge.
In a recent newsletter, industry body Shipping Australia wrote that with only one terminal able to take the larger ships – Webb Dock, with Swanson Dock out of reach – “Melbourne is already the limiting factor for the size of ships coming to Australia’s east coast ports and is preventing Australians benefiting from the efficiencies of larger ship operations.”
“The risk is that shipping lines may consider by-passing Melbourne for Adelaide or Sydney and use rail, or a smaller ship feeder service (possibly from New Zealand) to make the connection,” it added.
“This would ultimately cost the Victorian consumer, the Port of Melbourne and the state economy.”