Stuck in the past
Strategic Marine Group’s Sandy Galbraith asks if port infrastructure charges are losing their identity
aWhat is an infrastructure charge as levied by a terminal operator? Looking outside of Australia, one of the first such charge to be introduced in the port sector was in the UK, in conjunction with the development of brand new port infrastructure or the interfacing infrastructure – road and/or rail – essential to such a project.
In 2007, the UK port of Felixstowe announced that the Secretary of State for Transport and the Deputy Prime Minister had granted consent for the Felixstowe South Reconfiguration. The port noted that: “The Government consent is subject to a number of conditions, the main one being that a legally binding commitment has to be given by the port to fund external road and rail upgrades, some more than 100 miles from the port, before construction at the port can begin.”
Following this, the port of Felixstowe released an open letter to customers advising that, “the port will have to introduce an Infrastructure Charge to cover these external road and rail costs.”
The charge set by the Port of Felixstowe was £5.50, which is still in place today. It did not, however, cover all categories of container handling; it was focused on loaded import containers, nevertheless a main category of container handling.
A 2010 infrastructure charge of £3.00 per container levied by Associated British Ports in conjunction with its then Southampton Container Terminal (SCT) was also very specific as to its purpose. “This charge,” it said, “will be levied to offset ABP’s investment when making the rail services from/to Southampton’s DP World Terminal clear for 9ft 6in High Cube containers.”
This £3.00 charge is also still in place today. DP World’s Southampton’s Web Site confirms this is “for the recovery of the private sector funding of the rail gauge upgrade from Southampton to Nuneaton to connect to the West Coast Main Line.”
This charge, like the Felixstowe charge, is also concentrated on laden import containers.
The general principle on which the application of infrastructure charges is based is the transfer from government to the private sector of the task of providing new frontline and back-up port infrastructure.
Additionally, such charges have linkage to the user-pays principle – of the type that was first applied in maritime ports in conjunction with port access channels or river tolls - like the tolls imposed for use of the River Plate which today, for example, are in excess of $100 per container for containers loaded in the port of Buenos Aires.
In such cases, like the early port infrastructure charges, there was clear linkage to a specific need.
Another relevant example can be found in the Channel Deepening Project (CDP) in Port Phillip Bay, providing access to the port of Melbourne, Australia’s largest volume container port. As the 2012 Audit Report undertaken by the Victorian State on the CDP explains:
“The CDP infrastructure fee was established to recover the costs incurred by the corporation for CDP by imposing a levy on each international container, given containerised shipping companies are the prime beneficiaries of CDP.
“The levy, which was introduced in April 2008, was to be adjusted annually for movements in the consumer price index. It was to be reviewed at five-year intervals and was expected to be in place for 25 years or until the project costs were recovered.”
The initial levy, the report states, for 2007-08 was set at A$31.50, excluding goods and services tax, per international container and for 2011-12 at A$34.10.
The statement assumes shipping companies are going to pay these infrastructure related charges and this is fundamentally wrong. While government agencies may assume this is the case what has typically happened is that liner companies have simply passed on the costs to the cargo owners/shippers.
Liner companies, generally speaking, remain untouched by infrastructure and similar charges. Freight owners/shippers, however, do not – they are unable to offset such costs and as result they do contribute to an uplift in overall transportation cost. Ironically, this flows against the tide of the fundamental objectives of privatisation which are to pursue reduced cargo handling and affiliated costs through achieving higher levels of efficiency and promoting greater competition.
Against this background, therefore, it is hardly surprising that freight interests tend to vigorously contest the imposition of such charges when they are applied.
This was certainly the case back in 2007 when the port of Felixstowe announced the introduction of its infrastructure charge.
The British International Freight Association (BIFA), at the behest of its members, took legal advice on the imposition of this charge and via its lawyers contested its application. It contested the charge on the basis of the Harbours Act 1964, EC/UK Competition Law and the European Community Treaty – provisions relating to the free movement of goods. In the final analysis, the port operator Hutchison Ports prevailed but not without a delay to the imposition of the charge and considerable debate within the industry as to its validity.
Two points of particular note that BIFA pointed out that continue to be sources of concern are that firstly, core customers of the terminals – shipping lines with their usually strong bargaining power – escape unscathed from the application of these charges. Terminals do not attempt to apply such charges to them but instead target the much more fragmented and basically easier to attack freight customer base. Secondly, there is potential for hidden profit, which BIFA acknowledged at the time could only be verified by independently audited accounts.
Now there is new unrest on the subject of infrastructure charges in Australia where DP World Australia (DPWA) has announced new infrastructure charges for its Melbourne and Sydney terminals.
There are two pertinent questions relevant to these proposed charges. Firstly, are the charges applied under the label of “Infrastructure Charge” being applied on a looser basis, i.e. less project-specific, and secondly, is the scale of such charges becoming excessive.
Let’s consider the case of the proposed new Infrastructure Charge for DPWA’s Melbourne terminal. Here DPWA states the basis of the increase is: “DPWA has incurred material increases in the costs of occupancy of more than 60% since 2016, including higher rent, land tax and council rates. DPWA is also investing in critical infrastructure to keep pace with expected growth, and greater peaks and troughs in cargo arrival patterns. This investment also includes increases in costs of terminal upkeep driven by higher use of the site by road and rail operators. Despite DPWA’s continued efforts to offset higher fixed costs through efficiency improvements, these material step changes in costs cannot be offset.”
However, the DPWA Melbourne terminal is a mature business – it is not a new project on the scale of the Felixstowe South Reconfiguration which consisted of developing a large scale new container terminal on the site of the old Landguard Terminal with the allied requirement for significant new offtake infrastructure for road and rail systems.
Is the scale of the works proposed at the Melbourne terminal that far above the level of investment that a terminal would normally undertake to maintain its market position that it warrants the source of funding being through an exceptional means such as an Infrastructure Charge? Keep in mind that it is widely acknowledged that the rental increase eventually agreed with the Port of Melbourne Corp was by no means punitive – and indeed seen by some as quite the opposite.
Equally important is the scale of the proposed increase in the Infrastructure Charge. This aims to increase the current charge from A$3.00 to A$32.60, a near 987% increase, which is ironic given DPWA’s loud protestations, comparatively recently, about the Port of Melbourne Corp’s attempts, when under state ownership, to lift its terminal rent by 750%. Does not the same logic apply, that such a scale increase is beyond justification?
This also raises a fear expressed a lot in the UK about the application of infrastructure charges, notably by BIFA, that such charges when applied at a high level can assist in keeping core terminal tariffs low, thus helping place the terminal in a strong position against its competitors or, to put it another way, distorting the balance of competition.
Has the basis on which infrastructure charges are applied today moved away from its roots to the point where it is no longer project-specific and where the charges applied are more excessive?
It is with such questions in mind that the Australian Peak Shippers Association (APSA) and the Freight & Trade Alliance (FTA) met recently with DPWA executives to discuss the proposed new Melbourne and Sydney Infrastructure Surcharges.
At this meeting, both groups clearly expressed their concerns to the terminal operator about the lack of consultation in deriving the cost recovery policy, the methodology of cost recovery, the quantum of the cost recovery, and the inequity of the cost recovery.
On a positive note, DPWA has given a commitment to engage with APSA and the FTA to explore alternative cost recovery and service level models. However, it should not go without notice that APSA and FTA had also lined up a meeting with the Australian Competition & Consumer Commission (ACCC).
Doubtless, we have not heard the last of this matter.
Sandy Galbraith is a director of Strategic Marine Group.
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