Container terminals benefit at the expense of trucking companies, regulator reveals

Huge payday for terminal operators… funded by fees on truckers

The ACCC has concluded that the stevedoring industry has generated A$166.6 million in revenues from infrastructure charges in the 2018-2019 financial year (which runs from July to June in Australia), an increase of 63% compared to the previous financial year.

“Infrastructure charges now account for 12.2% of stevedores’ revenues,” the ACCC says, adding that “stevedores have sought to continue to rebalance their cost recovery away from quayside users (shipping lines) and towards land transport operators through significant increases in infrastructure charges.”

Stevedore justifications

The ACCC summed up the stevedore’s justification for the charges. Firstly, stevedores cannot charge international shipping lines as much as they did previously both because shipping lines have consolidated (thereby improving their bargaining position) and because there is now greater competition in the Australian stevedoring industry.

Secondly, the stevedores claim to have sustained significant increases in their property-related costs, and thirdly, the stevedores claim to need “adequate returns to recover past investments and justify future investments in quayside and landside terminal facilities.”

ACCC has few powers in this area

Although the ACCC report states that the “continued increases in infrastructure charges are of concern and worthy of consideration by policy makers,” it notes that it basically cannot get involved as it does not have a legal mandate to intervene in pricing disputes of this nature. 

While there are certain tightly defined areas in which the ACCC can get involved in pricing disputes, this situation is not one of them. In the normal run of matters, the ACCC can usually only take action if there is a substantial lessening of competition, which, in this case, there is not.

A not-so-subtle warning

The regulator also has a not-so-subtle warning for the stevedores if they feel tempted to favor their own vertically affiliated land transport or intermediary logistics businesses by waiving or reducing fees.

“While multiple stevedores are vertically integrated, there is currently no evidence to suggest that this conduct is occurring. However, the ACCC could take enforcement action should such conduct be detected and it occurs with the purpose or effect of substantially lessening competition in a market,” the ACCC warned.

So no joy for the trucking industry or for shippers from the regulator.

Costly fees equal crippling impact

All of these hikes in surcharges can be really costly. Infrastructure surcharges increased from less than a couple of dollars a few years ago to about A$85 in Melbourne and A$77 in Sydney. And that price is about to be hiked again to A$98 in Melbourne and $91 in Sydney as of January 1, 2020.

The effects on high volume/low value exporters are extreme.

Paul Zalai, the founder of industry association Freight & Trade Alliance (FTA) describes the fees as having a “crippling impact on exporters.”

By way of example, Fletcher International Exports of Outback New South Wales, comments that the “situation deeply concerns our business.”

Roger Fletcher comments that his company “has been a consistent exporter of high and low value Australian products for almost 50 years… Port Botany’s [Sydney] average Infrastructure levy from Jan. 2020 will be over $77.20 per laden box without any further rises from Patrick’s port factored in. This equates to $3.15/metric ton of grain packed by FIE in a container, putting FIE at a significant disadvantage to bulk vessels, forcing the business to consider bulk alternatives. This reduction in margin is inevitably passed back down the supply chain to the farmer through lower paddock prices for their grain. For FIE’s NSW business alone the infrastructure levey equates to a whopping $1,775,600 paid annually… To extrapolate these costs across Port Botany entirely there are approximately 1.8 million full containers moved through the port annually, which is $138,960,000 in infrastructure levies paid by importers / exporters in Sydney, NSW, alone.”

Opposition is growing

Opposition to the access fee/infrastructure surcharge hikes appears to be growing across the local supply chain.

Late in September this year, the FTA wrote to Fremantle Ports complaining of the escalating infrastructure charges. Fremantle Ports is a state-owned facility but it operates a landlord container terminal model. DP World Australia is one of the lease-holding container terminal operators. It also hiked its Infrastructure Surcharge from A$8.22 to A$45 per container effective as of January this year. And that price hike doesn’t even include the national 10% sales tax.

FTA sought the intervention of the port operator, Fremantle Ports, which is in negotiation with the container terminal operators over lease renewals.

Fremantle Ports CEO Chris Leatt-Hayter wrote back, “DP World’s action is disappointing, given the substantial effort both parties have made to reach agreement on the new lease arrangements over the past months. It also confirms Fremantle Ports’ concerns about the level of future infrastructure surcharges that may eventuate if no agreed approach is in place under the new lease. Fremantle Ports is currently considering its position with regard to longer-term lease arrangements at Fremantle. It will continue to strive for fair and reasonable commercial arrangements that are in the interests of all port stakeholders.”  

State government reviews price hikes

Although ACCC cannot do anything, the local state governments can. And in the state of Victoria, the state government is carrying out a review of port pricing and access charges following extensive lobbying by industry associations.

The review is instructed by the terms of reference, to “recommend regulatory or other options to improve the efficiency of pricing/charges at, and access arrangements to and from, the Port of Melbourne.” 

A final report from the Victorian review is due soon.