Is private enterprise input and increased stevedoring competition the way to drive port efficiency?
That seems to be the thinking dominating the Australian port scene. Certainly, as far as the major container ports are concerned, privatisation and competition are the buzz words of port owners.
In New South Wales, legislation has already been passed that will allow the privatisation of Port Botany and Port Kembla. The state government favours 99-year leases to private investors that will allow funds to be gathered and recycled into critical infrastructure projects such as highways and bridges.
NSW Minister for Roads and Ports, Duncan Gray, says that this will also allow “private-sector capital to drive efficiency” in the ports sector. However, Shipping Australia has its concerns, fearful that the legislation does not contain enough safeguards against predatory pricing by the new port operator.
Follow the lead
A possible precedent is the system used at Flinders Ports, privatised in 2001, whose pricing levels are monitored in relation to the consumer price index to try and avoid any unfair pricing strategies.
Flinders Ports, indeed, showed it had the appetite for increasing its stake in port operations by exercising a right in the agreement it had with DP World in the Adelaide terminal, forcing DPW to sell its 60% shareholding in the joint venture for a cost determined by independent valuation.
In Victoria, the state government is pursuing a similar philosophy of private investment generating efficiency, but its strategy is being played out by calling for expressions of interest in operating a new container terminal, automotive terminal and pre-delivery inspection system at Melbourne’s Webb Dock.
Melbourne needs to prepare for future growth in container volumes and Webb Dock is a major part of that plan. Introducing a third stevedore is assumed to be the means to generate competitive efficiencies. The government’s stance is backed by strong lobby groups such as the Australian Competition and Consumer Commission and the Freight and Trade Alliance, representing a cross-section of international freight, logistics and import/export trade entities.
The leading contender is expected to be Hutchison Port Holdings so that HPH can offer multi-port packages across Fisherman Islands (Brisbane), Port Botany (Sydney) and Webb Dock.
Too many cooks
However, not all observers share the belief that the more stevedores, the merrier the health of port service levels. The Port of Brisbane was a front runner in introducing three container stevedores but new chief executive Russell Smith, who was not involved when the decision was made to select Hutchison to work alongside Asciano/Patrick and DP World, said that he had some concerns about excess capacity in the stevedoring sector.
While he felt Melbourne could sustain a third stevedore with throughput approaching three million teu, Brisbane which is only approaching just over a million teu was not such a clear case.
Asciano has also previously-expressed concerns that the market is simply too small for three container stevedores to achieve long-term viability. Chief executive John Mullen says the chances of three full-scale stevedores co-existing and competing with equal market shares in ten years’ time is “pretty slim”, given the level of the capital investment needed.
With this emphasis on efficiency improvements, is this being reflected by service levels on the wharf?
No happy returns
Not according to a report by economic researcher Castalia which suggests productivity at Adelaide, Brisbane, Fremantle, Melbourne and Sydney is not keeping pace with wage increases. The report ‘The Effect of Wages on Australian Port Costs and their Competitiveness in an International Context’, suggests Australia has comparatively high labour costs and low efficiency.
Another worrying finding by Deloitte is that a number of major Australian ports have a lower return on assets than counterparts internationally. Its report says that the return on assets of eight Australian ports studied was 2.1% compared with 5.2% for the seven comparison ports which included Singapore, Auckland and Vancouver. Port Kembla and Newcastle were best with 3.8% and 2.8%.
This worries Ports Australia, which represents port and marine authorities. It also fears a rise in industrial disruptions at a time when productivity is falling.
“We can’t coast on the back of the oil, gas and mining sectors forever. Unlike in previous decades, maritime unions have failed to take a long-term view of their industry and realise that unreasonable claims … will make Australia’s trades uncompetitive,” says Ports Australia chief executive David Anderson.
Bulk aid
On the bulk and breakbulk side, private enterprise is also being sought to help fund the infrastructure needed for the huge mineral and energy projects, but it can be a troubled pathway.
Japanese company Mitsubishi indefinitely mothballed a plan to develop an iron ore port and rail link at Oakajee in Western Australia after failing to find suitable partners to further the project.
That project has now been handed a lifeline, after WA’s environment watchdog extended the time needed to begin construction of the deepwater channel segment near Geraldton until February 2018.
The landside port and rail segments of the project have a deadline of March 2016 to begin construction, but in the meantime the search for private funding continues.
New private equity also looks set to flow in Port Hedland. Fortescue Metals has signalled it is ready to release its minority interest in its port and rail assets through its subsidiary The Pilbara Infrastructure (TPI), which has three berths at Port Hedland.
Fortescue says it has received “strong interest” from strategic and financial partners, and financial advisors have been appointed to oversee the sale.
Lumsden Point near Port Hedland is the focus of further new development, having been chosen by the state government as the site for a major port facility to service the oil and gas, resources, defence, housing and construction industries. Its revenue streams appear guaranteed given massive energy projects such as Gorgon, Wheatstone and Browse have a lifespan of more than 30 years.
Strike setback
On the other side of the Tasman, much attention has focused on the damage done to the supply chain by the marathon industrial dispute between Ports of Auckland and the Maritime Union of New Zealand.
The dispute ignited with strike action and a retaliatory lock out at the end of 2011, which came after a year’s informal and formal discussions over a new Collective Employment Agreement.
That industrial action spilled through the first quarter of 2012, severely disrupting imports and exports. The potential for further industrial action if facilitation talks fail, is very real.
Quite how the dispute will be resolved waits to be seen. The port company is striving to introduce modern flexibility in work practices – as has been so successfully implemented by its competitor, Tauranga – while MUNZ is stoutly defending what it considers are fundamental worker rights and conditions.
Another multi-layered discussion which simmers in the background relates to the regulation and future make up of the port sector, and whether the Government should develop a national ports strategy.
Go large
Related to this debate is the ongoing call for ports to secure the country’s supply chain to ensure it advances preparations to cater for the next-generation of containerships.
Organisations such as the New Zealand Shippers’ Council are arguing that vessels in the 7,000 teu range will deliver serious economies of scale and drive down overall costs, by offering a lower average container slot cost.
However, it warns that with the largest current callers only at 4,500 teu capacity, significant planning and investment is required throughout the supply chain to eliminate bottlenecks, lift productivity and reap potential efficiency gains.
Traditionally considered a difficult country for lines to service, given its multiplicity of ports and regional export production centres, New Zealand is expected to ultimately configure into only one or two major container ports in either island. Various studies have been produced in recent times on the subject and the likes of Auckland, Tauranga and Port Otago in particular have advanced development plans in preparation, inclusive of dredging.
However, the current global economic downturn appears to have put a dampener on the expected timeline for the next-generation of containership callers. While additional capacity has been added by lines in recent times, this has predominantly been through the deployment of smaller-sized vessels.
Moreover, the world’s largest container line has reinforced this position, with Maersk Asia-Pacific chief executive Thomas Knudsen recently stating the New Zealand market is currently better served by smaller vessels and adding there was no rush to move towards the larger capacity.