COMMENT: The topic of port rents is an interesting one – a subject that does not always get a public airing due to the confidential nature of concession and other lease/rental agreements, writes Mike Mundy.
Australia’s Essential Services Commission has, however, just released an interesting report into rents in the Port of Melbourne which addresses the period 1 November 2016 to 31 October 2019.
The Port of Melbourne is an interesting focus for such an exercise as the previous port administration – prior to the port’s privatisation – came under fire for first leading a charge to push up some port rents, notably in conjunction with DP World’s Swanson Dock container terminal by as much as 750 per cent and then backing down and giving DPW a deal which was viewed by many as a sweetheart deal amounting to a modest increase – said to be a rental of A$20 per square metre, up from around A$16-18 per square metre – as well as a much extended concession term to 2065.
The u-turn was interesting in itself but also the eventual result was seen as one that did little to achieve a good competitive balance with competing terminals. It has to be said that all this occurred just prior to the review period but it nevertheless provides an interesting backdrop to the review and without doubt it was a catalyst to it being undertaken.
The final report produced presents some interesting findings, the highlights of which are featured below and provide interesting food for thought:
- “The Port of Melbourne has power in setting and reviewing rents. While its power is not unconstrained, reflecting a mix of market characteristics and legislative and contractual arrangements, we consider the Port of Melbourne retains a significant degree of control in relation to setting and reviewing rents.
- “The requirements in the Port Concession Deed for rents to reflect a ‘reasonable market rent’ are not sufficient to constrain the Port of Melbourne from charging rents above an efficient level and its approach has contributed to significant rental inflation.
- “The Port of Melbourne’s exercise of its power has caused material detriment. Tenants are incurring inefficient rental costs and higher transaction costs, evidenced by examples of deferred investment, and uncertainty impacting tenants’ ability to lock in new customer contracts. These impacts have flowed through to consumers,” and “Remedial action is required to mitigate the Port of Melbourne’s ability to exercise its power and impacts. This includes an enhanced, independently oversighted negotiate-mediate-arbitrate framework.”
The message is clear – a fairer balance has to be struck to achieve a more competitive port platform that delivers a win: win between port management and tenant and thereby meets the needs of importers and exporters in the most efficient manner.
