Mixed feelings

Australia’s march towards port privatisation has hit a couple of unforeseen bumps. The biggest blockage has come at Melbourne, where the State Government failed to get legislation leasing the Port of Melbourne through Parliament before the Southern Hemisphere summer holiday break.

The Victorian Government prefers a lease compared with a second port because the costs are expected to be lower than new port infrastructure and new landside connections.

However the Bill was reported back from its committee stage with concerns about commercial transparency, with many key provisions being reflected in contract terms rather than governed by legislation. The committee felt the State Government would be unable to provide certainty as to how key provisions of the lease will work.

It recommended a lease or licence be issued for no more than 50 years, with no extension; ongoing environmental monitoring of the bay; ensuring that “prices are fair and reasonable”; providing a mechanism for complaints over pricing to be heard; and preventing monopolies in terminals or stevedoring.

The debate will now resume in February but the long-term picture is unclear. Sandy Galbraith, director of Maritime Trade Intelligence Ltd, says a lack of bipartisanship on ports’ policy on the part of successive State Governments has seen policies pinball from one extreme to the other, producing an absence of long-term planning consistency.

“The net result is that the Port of Melbourne has been left in something of a limbo.

“Capacity issues are likely to arise in the next ten to 15 years as the existing port – in modern container terms a relatively-obsolete upriver port – struggles to maintain not only its relevance, but its ability to handle more cargo.”

There are divergent views on what precisely is the port’s capacity, ranging from 5m-8m teu. Current throughput is about 2.5m teu.

“My view is that capacity is somewhere around 5.5m teu if Webb Dock can be fully developed as a container terminal or terminals, far beyond the additional 1m teu that is currently envisaged with the new third terminal, to be known as the Victorian International Container Terminal (VICT) and operated by ICTSI.”

Mr Galbraith says another challenge for Melbourne is the bottleneck preventing the entry into the Australian market of the larger 8,500 teu containerships.

Swanson Dock is constrained by the depth of the River Yarra, the size of the turning basin at the mouth of Swanson Dock, and the clearance or air draft under the West Gate Bridge. Both it and the new Webb Dock development at the river mouth are in turn constrained by the depth of the entrance to Port Phillip Bay and the depth and breadth of shipping channels.

Currently, the largest vessels that can enter the heads are around 8,500 teu capacity but they cannot be fully laden and can only do so under certain tides.

Pricing concerns

The debate about port privatisation has drawn some pointed contributions. The Australian Competition and Consumer Commission (ACCC) is not against privatisation but has concerns if it maximises sale price at the expense of competition. It says Port Kembla and Port Botany were privatised in 2013 to the same owner, effectively removing any competition. Also the Port of Newcastle’s privatisation in 2014 was done without appropriate access or pricing controls.

Price increases subsequently effectively doubled the new owner’s profits, indicating insufficient regulatory oversight.

Monopolistic pricing came to the fore when ANL chief executive John Lines spoke out against rent hikes on DP World’s West Swanson Melbourne terminal from A$15 per square metre to A$120 per square metre. Mr Lines told Port Strategy it showed the potential for port operators to be out of step with the market.

“What business can sustain a massive price hike such as was proposed? At some stage a tipping point will be reached and other options will be found.

“In the case of ports this means cargo and ships moving away to other ports or being lost altogether. Port operators, both public and now more and more commonly private, need to understand that any price increases need to be justified, transparent and most importantly fair.”

Mr Galbraith conducted a study into privatised ports on the eastern seaboard of Australia – Brisbane, Newcastle, Sydney, Port Kembla – and South Australia ports including Adelaide.

He found that with pension funds playing a prominent role in the shareholding of the new private port companies, there was a view this leads to better long-term planning than state-owned ports, which can be subject to short-term political influences.

“In addition, private entities have access to funds from outside for essential infrastructure which [State] Governments may otherwise find difficult to finance.”

Pricing oversight was strongly recommended by port customers. “The so-called ‘light-touch approach’ by Queensland and New South Wales was criticised as creating the illusion of vigilance, but effectively providing no oversight at all, and in South Australia there were concerns that its oversight, while existing, was not particularly rigorous.

“The various State Governments have tended to eschew the involvement of the federal watchdog, the ACCC, but I suspect that in the future there will be pressure from within the states to ensure proper oversight from a federal body,” says Mr Galbraith.

“We are seeing an element of horizontal integration taking place in the privatised ports market and if left unfettered we could see serious problems developing in the future.”

Plans by the Port Authority of NSW to increase port charges this year have also aroused concerns from customers. The authority set increased prices for all vessels in the ports of Sydney Harbour, Port Botany, Port Kembla, Eden and Yamba, in general by 4.71%.

Genral support

Despite the issue of pricing concerns, port customers appear to be supportive of the general efforts of ports to plan for the future – with the exception of Melbourne.

The Australian Logistics Council (ALC) has congratulated NSW Ports on the release of its 30-Year Master Plan and Sustainability Plan, both of which are critical to positioning industry to prepare for Sydney’s future freight growth.

Michael Kilgariff, ALC’s managing director, says the strategic objectives NSW Ports has set to drive a more efficient port supply chain – improving road and rail connections, efficiently using port land, growing port capacity and protecting port assets from urban encroachment – are appropriate long-term actions.

“We also acknowledge NSW Ports’ long-term commitment to manage the asset sustainably and to consult with its neighbours on its future growth plans,” he says.

ANL’s Mr Lines says that from a carrier perspective “we are positive overall that the ports in Australia are gearing up for larger vessels and that the East Coast ports of Brisbane/Sydney/Melbourne have or are in the process of adding capacity.

“We are however frustrated that in Melbourne, the port lease process … still fails to identify the way forward for long-term port capacity growth.”

In stevedoring too, changes are afoot. Although Hutchison Ports has encountered difficulties in its start up in Australia, this has not dissuaded investors.

Hutchison invested heavily setting up in Brisbane and Sydney but was unable to secure the third terminal rights at the port of Melbourne. That was a major blow to its national ambitions, with the award to ICTSI a surprise to many.

With Hutchison and ICTSI both being global players, Asciano (Patrick Ports) currently on the market and DP World also in the mix, Australia’s stevedoring sector is in a state of flux.

Nonetheless, the Brookfield consortium sees potential in the sector and has made a major play to take over Asciano. The ACCC has undertaken consultation to assess how the market views the proposed takeover. It anticipates making its final decision in February 2016.

While some Australian ports look to privatisation to boost development, others are pushing ahead with their own growth plans.

Abbot Point port’s expansion in north Queensland is going ahead with Federal Government approval for its final environmental impact statement. The project will make Abbot Point one of the largest coal terminals with export facilities needed for Adani’s proposed Carmichael Mine in the Galilee Basin. Adani must satisfy financial disclosure requirements before dredging can begin, with strict environmental conditions also being applied.

In the breakbulk and project cargo field, the Port of Townsville’s new 30,000-square-metre cargo laydown area has been targeted at the imported vehicle and heavy cargo niches. Townsville general manager of trade and property Claudia Brumme-Smith says that the resurfacing means that Townsville can now accommodate up to 800 cars at one time as well as project cargo that requires a sealed hardstand surface.

It is a significant upgrade to the port’s car storage capability, representing a tripling of the surfaced car storage capacity.

Across the water

Over in New Zealand, the ports battle is focused as much off the wharf as on. Numerous new inland port developments have been launched or expanded.

Having pioneered the concept with the launch of MetroPort Auckland in 1999, the Port of Tauranga has expanded the model into the South Island with the opening of its 15-hectare MetroPort Christchurch facility. The Rolleston hub provides South Island shippers with access to Tauranga’s container terminal at Timaru.

Responding to the competitive threat emerging in its hinterland, Lyttelton Port of Christchurch (LPC) is creating a 27-hectare MidlandPort facility, also in Rolleston.

Ports of Auckland (PoAL) has joined the fray, complementing development of its 15-hectare Wiri (South Auckland) freight hub with an inland port and logistics centre at Longburn (Palmerston North) in partnership with the Port of Napier and Icepak.

Adding to that is the plan to develop an intermodal freight hub in Mount Maunganui, on Tauranga’s doorstep. This is part of a strategy to create a network of regional intermodal freight hubs.

Into the mix too has come CentrePort Wellington which has embarked upon two inland port ventures – a container terminal partnership with Ali Arc Logistics in Whanganui and a 2.5-hectare regional hub in the Wairarapa in partnership with forestry exporters and KiwiRail.

The strategy is to pull cargo from businesses in central New Zealand into Wellington, preventing leakage to the larger ports of Tauranga, Auckland and Napier.

DOLLARS VERSUS LONG-TERM PLANNING

Criticisms by ANL chief executive John Lines of the political process surrounding the Port of Melbourne lease summarise the main concerns of critics.

He tells Port Strategy: “The whole issue revolves around the sell off of state infrastructure that is occurring across Australia … cash-strapped State Governments are shunning borrowings in favour of assets sales to fund major projects. The so-called asset recycling moves public assets into the private sector but at what long-term cost?

“These assets are generally monopolistic in nature i.e. ports, utilities, electricity distribution networks and were in public hands for good reason, they are natural monopolies. The new operators will no doubt seek to earn monopolistic super profits from the assets unless there are tight pricing controls.”

He says that does not suit State Governments with dollar signs in their eyes. “The private port operators’ duty is to their shareholders and they look to ‘sweat the assets’ whereas public operators look to invest in the port as a driver of economic activity.

“There can only be one outcome for the privatised ports – higher prices. These are then passed onto importers and exporters and then out through the community at large. They form in reality a tax on trade and a tax by stealth.”

Mr Lines says there needs to be effective price controls but this has not been the case so far.

FLYING START TO TIMARU CONTAINER PROJECT

The strategic alliance launched between the Port of Tauranga and PrimePort Timaru in late 2013, giving Tauranga a freight foothold in the South Island, has concluded its first full year of operation with Timaru Container Terminal showing a 251% rise in annual container throughput to 71,059 teu.

The terminal is now operated by the Port of Tauranga.

PrimePort chairperson Roger Gower describes the alliance as “pivotal” to his firm’s success and comes after a “long period of challenge”.

“The investment by Port of Tauranga is a game changer as it creates a more efficient and sustainable supply chain for exporters accessing global markets and businesses needing efficient import arrangements.”

Also having secured the major Holcim cement distribution business and experienced growth in other cargoes, PrimePort recorded a comparable 67% jump in after-tax profit to NZ$3.155m and 3.6% lift in operational revenue to NZ$13.1m.

There are also signs that PrimePort might be in line for inclusion in new container services. Maersk recently completed an ad hoc call with the 4,500 teu Lica Maersk, which is deployed on the Southern Star service.