Australias growing pains

Australia’s biggest box port wants to dredge its channels to 14 metres at most states of the tide, to handle the deepest draught box ships the Australian trades are ever likely to see. Trial dredging on the US$384m plus project has already begun, but the project – already under siege from the city’s greens and much of its media – has suffered from internal blows as well. The biggest came in April, when the Victorian state government essentially sent the port corporation back to do its environmental effects study (EES) on the project again, citing fundamental flaws in the way that the initial study had been done.

The revamped EES is now underway with a delay of perhaps six months, but with the state’s opposition parties now sniffing an exploitable issue, there are fears that a final decision on the deepening could be pushed past the next state election in 2006, with work likely to be complete in 2010 rather than the 2007 still thought achievable only recently.

But perhaps worse, there is no consensus inside the shipping industry on either the extent of the channel deepening or what port facilities should be at the end of the channel.

Vocal critics which include John Lines, chief executive of ANL, have questioned how well the current Swanson Dock facilities will handle the larger 4,000TEU class ships expected to become more common on the Australian trades once the Melbourne access is improved.

Lines believes that these ships will find it difficult to turn and pass each other in the upriver terminal facilities without crane booms having to be raised and cargo work stopped. The stevedores do not believe there is a serious problem, and indeed now believe that after a decade when the port authority spent its time trying to attract a third competing stevedore to build a new terminal, the port is now on the verge of allowing the stevedores to extend Swanson Dock.

An extension to create 1,000 metres of quay on each side of the dock, and a federal government-financed project to alter Footscray Road will enable P&O Ports and Patrick to automate and increase terminal capacity to 4m TEUs and connect their extensive port land banks to the nearby South Dynon rail yards in one enormous port precinct. “Any other port in the world would be handling up to 6m TEUs with these facilities” says Patrick Stevedores’ md Chris Corrigan, stating his belief that the Swanson Dock precinct still has at least another 30 years left in it.

But while the stevedores want this economy of scale and consolidation of their existing facilities, Lines and leading local consultant Richard Clarke want to see the port putting its efforts into developing Webb Dock at the mouth of the Yarra into an expanded terminal for larger ships.

Sand from the dredging could be used for the reclamation, and best of all the development of Webb Dock would avoid the hardest part of the dredging work, the final stretch up the River Yarra and the disposal of the contaminated spoil from its bed. The port has Webb Dock in its long range planning but clearly wants to fully develop Swanson first. A decision on the extension is expected this year.

SAME ARGUMENTS IN SYDNEY The same arguments over consolidation versus competition have been well-aired in Sydney this year too as it awaits a government decision to go ahead with an expansion of Port Botany to 3.5m TEUs. The present official “full” sign is around 1.5m to 1.8m TEUs, and is expected to be posted around 2010. However, Sydney has consistently run ahead of expectations and was already at 1.37m TEUs in the year ending last June.

An unexpected state ministerial reshuffle has delayed the decision amid fears that an independent commission of inquiry designed to satisfy green objections has been too inconclusive to base a decision upon.

The New South Wales government is also awaiting an inquiry into the road, rail, and intermodal facilities which the city will need to support the doubling of container throughput.

The need for three or four metro intermodal terminals is well understood, the likely sites are identified, and there is also federal funding to extend the port’s dedicated freight railway line down to the city’s industrial southwestern suburbs. But no political decisions have been taken. In an embarrassing aside, when the state refused planning permission for Patrick to develop an intermodal terminal in the southwest on grounds that it pre-empted the state’s master plan, an appeal court judge backed Patrick instead on grounds that the government had nothing so solid that could be considered a plan.

It was a big win for Patrick’s Chris Corrigan, who told the Port Botany inquiry that lack of rail capacity out of the terminals is the biggest problem facing the port. This is hotly disputed by Corrigan’s critics who believe that the biggest problem is in the port itself: the lack of terminal space and the desire of an uncompetitive stevedoring duopoly to keep it that way.

Neither Patrick nor P&O Ports actually oppose the expansion of Port Botany. The land will be needed eventually and the political and decisionmaking cycles are too drawn out not to grab at the opportunity of expansion when it’s on offer. But both have vigorously played their cards on technology and capacity, claiming that their existing facilities can be developed to handle the government’s 3.5m TEU target capacity, and that if they were allowed to consolidate the new land into their existing terminals they could drive throughput to between 6m and 8m TEUs – all the capacity that Sydney will ever need. And of course, without any need for a third competing stevedore to help them do it!

But one of the few things that the New South Wales government is sure about is that it would like a competing stevedore. It also has a likely candidate in the shape of Captain Richard Setchell, retired pioneer of P&O Ports’ international expansion in the 1980s, and once arch-defender of the Australian duopoly who has turned thorn in the side of Patrick and P&O Ports.

He is financially backed by mid-sized terminal developer ICTSI of Manila and says he has US$384m to slap down for any Australian port which wants to let him in to develop a third terminal. The problem is that until Sydney beckoned, he has not been able to find any takers.

He says that despite paying lip service to competition, state governments have been far too conservative in creating new port land (Brisbane is the exception that proves the rule) and in automatically rolling over the land leases of the existing duopoly players.

What has changed since his pro-duopoly days is rising volumes, giving Australia much greater scale in its container market and making the real danger one of under-capacity rather than the old bogey of over-capitalisation and low berth occupancy.

“It will take up to five years before a new terminal can handle its first ship. At today’s growth rates Australia might have traffic of 10m TEUs by then. No-one can tell me that is unsustainable. The duopoly will not go broke with a third player”, he says.

Setchell also believes that P&O Ports’ estimates of Australian terminal productivity and future capacity needs, based on 1,600 TEUs a year per metre of quay, are massively overstated despite being officially accepted in a report on Australian infrastructure for Prime Minister John Howard.

Setchell may yet have his way, at least in part. The best guess so far is that the state government will chose a compromise design for the Port Botany expansion called Option 8 which will allow P&O Ports and Patrick to directly extend their existing berths while creating 27 hectares which could go to a third player. “We do not want to deal ourselves out of competition in Port Botany, ” outgoing state infrastructure minister Craig Knowles said recently. Setchell believes that the 27ha compromise adds up to the worst of all worlds, but will be bidding for it anyway.

The other “third stevedore” is one emerging in Fremantle, where Patrick and MSC are discussing a joint venture to handle MSC’s throughput. Setchell sees a stevedore and shipping line locking up port land for themselves like this as even more regressive than the duopoly. But it is a strategy that Patrick could well bring to new facilities in Sydney or Melbourne as a way of keeping its biggest customer happy.