During the COVID-19 era, the debate continues in Melbourne about rising port costs but also sees positive news about future infrastructure developments. John Burgoyne reports.
It is a commercial reality that a fast-growing port like Melbourne, requiring regular upgrades and encumbered with high operating costs principally due to regulation and rigid union-backed labour practices, will see the port and its tenants continue to support revenue generating measures such as port infrastructure and wharfage charges. Bottom line, these are necessary to support annual increases in operational expenses and capital expenditure.
In March container terminal operator DP World (DPW) implemented another hike in its infrastructure surcharge. This charge is paid by the landside customers such as freight companies. This latest increase generated much negative publicity, coming as the COVID-19 crisis was rapidly unfolding.
DPW has regularly hiked these charges and its insistence on doing so in the COVID-19 era, even when drawing widespread criticism, shows that it believes its actions in this respect are reasonable and justified. DPW’s timing may have been “tone-deaf”, as described by one industry participant, but the fact remains its competitors Victoria International Container Terminal (VICT) and Patrick have in the recent past also increased these charges.
One of the main catalysts behind these charges is the recent strengthening of the bargaining power of the world’s global shipping lines which comes to the fore in terminal contract negotiations. This follows on from consolidation in the liner sector and the formation of ever larger operating alliances.
Today there are only a handful of shipping lines controlling the majority of container cargo moving to and from Australia. The lines involved use their buying power to push down Melbourne port costs by “shopping around” at Melbourne’s three container terminals.
As a result, the container terminals are compelled to look elsewhere to generate additional revenues to recover their costs and fund required investments. One avenue is to try to have the landside users of the port to pay a share of the port costs. Hence the infrastructure surcharge and other ancillary charges. DPW, Patrick and VICT have all successfully employed this tactic.
Summing up, it is reasonable to assume that total port costs find their natural level in a competitive environment - lower shipping line port costs are to an extent balanced by higher landside costs and the market finds its equilibrium.
INDEPENDENT ASSESSMENT
The State of Victoria, pressed by industry representative bodies such as the Freight Transport Association (FTA), commissioned a report by Deloitte into rising infrastructure charges and ancillary charges such as truck booking fees.
While its findings have not been released publicly it is known that it does not come out against such charges in an outright manner but instead highlights the need for increased transparency and monitoring as opposed to economic regulation. The underlying thinking appears to be that having three competitive container terminals in Melbourne will allow the market to arrive at competitive and efficient pricing for port services.
The idea of economic regulation has effectively been parked by the Victorian State Government with it stating that the earliest it would look at this again is following the completion of the Australian Competition and Consumer Commission’s (ACCC) review of Part X of the Competition and Consumer Act 2010 scheduled to be completed later this year.
RAIL ACCESS PLANS
The issue of increasing port charges is an important consideration in the context of port expansion plans. This is particularly true in cases where Port of Melbourne Corp (PoMC), the port’s management body, and the port’s container terminal operators are asked to take into account wider public concerns.
The city’s different stakeholders have many demands on how the port should be developed, particularly with the port sitting in close proximity to large urban areas. These will require funds to be carried out. This begs the question can the port increase its charges to meet these demands or will the government step in to contribute with subsidies in order to meet society’s wider objectives?
A case in point is the current focus on the issues of Melbourne’s traffic congestion, road safety and pollution. As a solution to these problems, the Victorian Government has long been promoting getting a proportion of trucks off the roads and placing more emphasis on rail cargo by modernising and expanding rail access to the port. It charged PoMC with improving rail access at the port and in response, PoMC developed a comprehensive strategy which delivered 12 actions points.
The first of these, which has now been formally approved, is the delivery of “new and upgraded on-dock and near dock rail solutions in the Swanson Precinct” – where two of Melbourne’s three terminals (DPW and Patrick) are located.
The second action point is to develop a rail connection to Webb Dock where the third terminal (VICT) is located and where future expansions of the port will primarily happen. PoMC will need to connect Webb Dock to meet the long-term challenge of reducing traffic congestion and environmental sustainability. However, the problem is that connecting Webb Dock by rail will also be much more expensive.
So how will this be financed? PoMC proposes that the new rail facility at Swanson Dock will be financed by levying an additional A$9.75 wharfage charge for each import container discharged in Melbourne.
The funding for Webb Dock rail link is unclear. Perhaps some funds from the wharfage increase will be allocated to the Webb Dock project but it is likely that further funds will be needed. Will this come from further port charge increases or might the Government subsidise a project with the explicit aim of tackling the wider public problems of congestion and pollution? For the time being it is watch this space on this score
