Overview
7.1
This chapter outlines evidence received by the committee in relation to shipping infrastructure in Australia, including linkages between ports and other transport infrastructure. It further discusses services offered by ports in Australia, focussing particularly on fees and charges associated with port usage and how these affect freight supply chains.
Infrastructure
7.2
The committee heard a range of views on the current adequacy and future needs of infrastructure for commercial shipping in Australia. Concerns were raised both in relation to the key infrastructure at ports themselves, as well as intermodal infrastructure enabling freight to efficiently transfer between shipping and other transport modes.
Port infrastructure
7.3
There are over 60 ports in Australia which have been publicly gazetted by the Australian government. Of these, the Bureau of Infrastructure, Transport and Regional Economics (BITRE) has identified 17 nationally significant ports based on activity measures (namely ship calls or visits, throughput, and international sea trade values).
7.4
The Department of Infrastructure, Regional Development and Cities (the Department of Infrastructure) noted in its submission that Australian ports vary in their characteristics and scale of operation, and can be grouped into three types: specialised bulk ports, regional ports and mixed multicargo ports. The Department of Infrastructure explained these three port types as follows:
Specialised bulk ports generally focus on one or two export bulk commodity operations and transfer little cargo for the general community, and are more likely to be privately operated. These ports generally have specialist infrastructure dedicated to each bulk cargo type and are located close to agricultural production areas, mines or manufacturing facilities.
Regional seaports are typically state government owned and dominated by a number of bulk commodities, but also provide facilities for general cargo that may include containers and may provide services for fishing fleets or offshore oil and gas supply vessels. Due to their location, regional seaports may also be central to a region's tourism efforts by providing water-based recreational facilities such as marinas and cruise ship facilities.
Mixed multicargo ports tend to be capital or major city based and have high trade throughput, particularly in relation to containers and break bulk cargoes such as automotive vehicles and heavy machinery, although bulk commodities are also often handled. As they are usually managed as landlord ports, mixed multicargo ports offer a more diverse range of services and, as such, a broader mix of public and private investment exists.
7.5
The ports of Melbourne, Sydney and Brisbane are the primary entry points for Australia's container freight, which is then trucked interstate between major population centres throughout the country.
7.6
The 17 nationally significant ports identified by BITRE are outlined in Table 7.1 and Figure 7.1.
Table 7.1: Australia's significant ports by type
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Adelaide
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South Australia
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Dampier
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Western Australia
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Brisbane
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Queensland
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Gladstone
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Queensland
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Burnie
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Tasmania
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Hay Point
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Queensland
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Darwin
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Northern Territory
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Newcastle
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New South Wales
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Devonport
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Tasmania
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Port Hedland
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Western Australia
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Fremantle
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Western Australia
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Port Walcott
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Western Australia
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Geelong
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Victoria
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Melbourne
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Victoria
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Port Botany/ Sydney
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New South Wales
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Port Kembla
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New South Wales
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Townsville
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Queensland
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Source: Bureau of Infrastructure, Transport and Regional Economics, Ports: job generation in the context of regional development, September 2014, p. 6.
Ports management
7.7
Responsibility for the establishment, operation and regulation of ports in Australia rests with state and territory governments. Australian ports are generally managed by a port authority in which the relevant state or territory public authorities may or may not be a stakeholder. The Department of Infrastructure submitted that the core functions of the port authority can be broadly classified into three areas:
Regulatory functions: providing maritime services (e.g. harbour control and pilotage) and emergency pollution response; providing for customs and quarantine requirements; maintaining maritime safety; and promoting general efficiency of the port.
Landowner functions: providing port planning and development; navigational aids; breakwaters; entrance channels; and maintaining basic port infrastructure, such as wharves and berths.
Operator functions: providing cargo handling services and other value‑adding functions, such as warehousing, storage, and towage.
Privatisations and the 'landlord' model of port management
7.8
Australia's medium and large mixed use ports operate under the 'landlord' model of port management:
Under this model, the port authority may act as both regulatory body and landlord, while operational functions (especially cargo handling) are carried out by private companies. However, with increasing privatisation, governments typically retain the regulatory function and all other functions are managed by the private ‘landlord’ operator.
7.9
Recent significant port privatisations by state and territory governments in Australia include the Port of Brisbane in 2010; Port Botany and Port Kembla in 2013; Port of Newcastle in 2014; Port of Darwin in 2015; and Port of Melbourne in 2016.
7.10
The Department of Infrastructure noted that privatisation of Australia's ports 'remains an area of contention for a range of sectors within the business community'. It stated:
In most cases, the transfer of ownership of Australian ports has provided opportunities for improvement in economic efficiency and overall operational performance. However, ports display natural monopoly characteristics raising the need to maintain adequate regulatory frameworks to clarify service goals and protect consumer interests.
7.11
The Australian Competition and Consumer Commission (ACCC) commented at length in its submission on the impact of privatisations at major Australian ports:
Governments have privatised much of Australia's critical freight infrastructure in the past decade… However, the privatisation of monopoly infrastructure in the absence of appropriate regulation has led to sub-optimal outcomes for consumers and the economy. For example, soon after privatisation, the new operators of the Port of Newcastle significantly increased access charges to users of the port.
The ACCC considers that, if implemented appropriately, the privatisation of state assets can realise economic benefits for the users of the asset and the general community. Private owners may develop operating efficiencies and adopt innovative ways of delivering services to customers. However, these efficiencies will only be realised where there is strong potential for competition. In the absence of competition due to monopoly or near monopoly characteristics, there needs to be an appropriate structure and/or sufficient regulatory oversight to ensure that competition in related markets is not hindered by the transaction. The privatisation process should therefore be focussed on achieving competitive and efficient outcomes to protect the long-term interests of users and consumers.
7.12
The ACCC submitted that tailored regulatory frameworks are required to address industry-specific access and pricing issues upfront during privatisation processes, and warned that when these issues are not addressed three particular problems can arise:
worsening or entrenching a market structure that is not sufficiently competitive, or impeding the development of a competitive market structure;
selling a monopoly or near monopoly asset to a bidder with existing or potential upstream or downstream interests in related markets, without ensuring that appropriate third party access arrangements will exist; and
selling monopoly or near monopoly assets without sufficient controls on pricing, to ensure that excess public monopoly returns are not merely transformed into private monopoly excess returns.
7.13
The ACCC stated further that where privatisation processes involve potentially anti-competitive contracts, arrangements or understandings, it will investigate and may take court action. In this regard the ACCC noted that it commenced court proceedings in late 2018 against companies in the NSW Ports group. These proceedings relate to contracts entered into as part of the 2013 privatisation of Port Botany and Port Kembla, which the ACCC alleges 'had the purpose, or were likely to have the effect of, substantially lessening competition in the market for the supply of port services for container cargo in New South Wales'.
Security and immigration arrangements at major ports
7.14
The Department of Home Affairs requires ports and port facilities to have a security assessment and security plan approved by the Secretary of the Department of Home Affairs. International ports are designated as such under relevant Commonwealth legislation so that Australian Border Force and other agencies can exercise powers relating to issues such as biosecurity, immigration, and customs at designated areas within port precincts.
7.15
The Department of Home Affairs noted in its submission that port operators seeking to introduce international services at a port where no border services are provided, or where there is a change to an existing business model that impacts on border services capabilities, need to apply to the department. The department then assesses proposals to determine whether they are in the national interest, and coordinates advice to the Australian government in consultation with other relevant agencies. Port operators are responsible for costs associated with relevant infrastructure and facilities required to support international services, including costs incurred by the Australian government for establishing a border services capability at the port.
Recent government initiatives and inquiries
7.16
Several government inquiries and processes in recent years have sought to improve the planning of ports and related infrastructure at a national level.
Long term planning and ports capacity
7.17
The need for long term planning and capacity building at Australia's ports was highlighted in evidence to the committee. Key issues raised included:
the need for better integration between the ports sector and planning systems at all levels of government;
congestion and encroachment issues arising from the environments in which major ports are situated; and
limitations in the vessels that can be received at Australian ports.
National Ports Strategy
7.18
Infrastructure Australia and the National Transport Commission developed Australia's first National Ports Strategy in 2011, which was endorsed by COAG in July 2012. The overarching purpose of the strategy was to drive the development of 'efficient, sustainable and safe ports and related freight logistics, that together balance the needs of a growing Australian community and economy, with the quality of life aspirations of the Australian people'. It identified four specific priorities:
planning for relevant ports (including integrated planning at all levels of government);
ensuring plans can be executed;
improving landside efficiency, reliability, security and safety of container ports; and
promoting clarity, transparency and accountability.
Inquiry into National Freight and Supply Chain Priorities
7.19
In 2017 the Australian government appointed an expert panel to lead an inquiry into National Freight and Supply Chain Priorities, for consideration by the COAG’s Transport and Infrastructure Council. The final report for the inquiry (Freight Inquiry report) was released in May 2018, and the Council announced at that time that it would use the priorities identified in the report as a starting point for the development of a 20 year National Freight and Supply Chain Strategy and Action Plan.
7.20
The Freight Inquiry report identified five critical action areas that must be addressed to lift freight productivity and efficiency for Australia:
a nation-wide, consistent and integrated approach to freight and supply chain issues;
measurement of freight performance;
planning for current and future needs by integrating the conduct of freight supply chains into land, sea and air use planning systems in states and territories;
clear action to deliver identified priorities; and
communication of the importance of freight.
7.21
The Department of Infrastructure noted that feedback received from Ports Australia during the Freight Inquiry concluded that 'terminal capacity at most ports across Australia can meet needs for the next 20 years with reasonable investment'.
National Freight and Supply Chain Strategy
7.22
Following the delivery of the Freight Inquiry report, a National Freight and Supply Chain Strategy (the Strategy) was developed to deliver a nationally coordinated and well‑planned freight system for Australia. The Strategy was developed by all levels of government, with input from industry, and hopes to improve efficiency and international competitiveness; provide safe, secure, and sustainable operations; deliver a fit‑for‑purpose regulatory environment; promote innovative solutions to meet freight demand; build a skilled and adaptable workforce; and develop an informed understanding, and acceptance of, freight options.
7.23
The strategy hopes to achieve these goals by taking action across four critical areas:
smarter and targeted infrastructure;
enable improved supply chain efficiency;
better planning, coordination and regulation; and
better freight location and performance data.
Integration of ports into planning systems
7.24
The Department of Infrastructure stated in its submission to the inquiry that the sustainable development of the port sector 'depends to a large extent on the relationship and interaction between the sector and the planning system':
Ports, which in many cases may be in or near to major urban centres, generate large volumes of traffic, noise and emissions and are often located at a unique interface between sensitive land and marine environments. This can lead to the important role of ports in facilitating economic activity being overshadowed by the seemingly conflicting demands of a port’s development, the development of the city, and protecting the marine environment.
7.25
The Department of Infrastructure observed that the national ports policy encouraged the long‑term planning of all nationally significant ports, and that most port operators 'have now completed masterplans and sought to integrate them within the existing planning hierarchy to offer clarity to all stakeholders regarding the future development plans for each port'.
7.26
The Department of Infrastructure stated that despite this, 'progress has been difficult', and commented that a key outcome of the Freight Inquiry was 'the desire from industry for governments to better reflect future port requirements in local and regional planning systems'.
7.27
The South Australian Freight Council (SAFC) argued that protection of key transport facilities, such as ports and the corridors that lead to them, are an interlinked requirement for ongoing improvements in transport efficiency. It submitted that:
[P]lanning powers are held by state and local governments, which have competing pressures due to the high proportion of their revenue tied to property development and stamp duty.
There needs to be an increased focus on long term protection of ports and related freight corridors though planning systems in order to protect the operations of these vital economic assets for future generations. This will require national leadership—likely through COAG—and full implementation by all jurisdictions.
7.28
SAFC contended that planning around ports should be based on a 'principle of prior use', such that ports and related operations that have been using these areas for decades 'should not be impeded in continuing to operate by new entrants into these areas'.
7.29
The Chamber of Minerals and Energy of Western Australia (CME) submitted that 'long-term integrated planning is required to support efficient transport connections and intermodal hubs between port precincts with access by multiple users'. It stated further:
The Western Australian resources sector uses a combination of transport modes for both domestic and international trade. In master planning of port precincts, it is important there is consideration of new and emerging industries such as lithium. Unencumbered access between general cargo areas of ports, rail depots and highway road systems should not be overlooked in facilitating commodity movement from pit-to-port, reducing the likelihood of future bottlenecks and congestion caused by poor infrastructure design.
Strategic coordination, planning and design of competing land uses, landside and seaside infrastructure is therefore vital.
7.30
RDA Tasmania and the Tasmanian Logistics Committee noted that, in 2018, TasPorts released its long term masterplan which 'included a vision [for] improving the port infrastructure of Tasmania's major ports'. They noted that this plan aims to improve port access for the existing fleet of vessels; better accommodate the cruise ship market; improve freight movement efficiencies; and provide a platform for the adoption of new technologies into the future.
Alternate planning strategies for smaller ships and ports
7.31
Gilead Logistic Services, an Australian transportation and logistics consultancy, argued that rather than focussing on upgrading existing major port infrastructure, Australia should explore opportunities to develop smaller, automated ports as a means of increasing transport productivity:
Spending an infrastructure dollar on a small automated port has the possibility of offering far higher payback than spending on new high cost coastal rail alignments, coastal heavy axle road upgrades, and large/mega port feeder & development projects of any description where capacity requirements are downgraded after service displacement by more economically efficient direct services.
Infrastructure constraints at Australian ports
Congestion and encroachment on port land
7.32
The Department of Infrastructure submitted that increases in container throughput at Australian ports 'have contributed to high levels of traffic congestion in port‑linked road systems and amenity and road safety concerns for residents in adjacent communities'. It stated that the reasons for these outcomes are:
the management of peak demand for container pick up and drop off;
truck turnaround times at the port;
congestion at the port and in the areas around the port; and
the relatively low mode share of rail haulage of containers.
7.33
The SAFC submitted that congestion of transport links to ports is a rising problem for Australia's major container ports, with negative impacts both on businesses and the economy.
7.34
SAFC noted further concern with the growth in residential building being permitted in areas surrounding ports—both new residential developments in areas that were previously commercial or industrial precincts adjacent to ports, and higher residential densities in existing areas close to ports. It stated that these trends raise issues for port operators including:
Conflict with residents due to port operations externalities (light, noise, traffic etc.).
Conflict and additional cost due to increased congestion on key roads leading to and from ports.
Reduced land available for associated port activities such as logistics and warehousing. Industrial activities, while critical to port operations and economic growth, cannot compete with the rates for land developers are willing to pay.
Reduced options available for future port expansion needs—either due to the land not being available or to port developments not being permitted due to nearby new residential accommodation.
7.35
The Department of Infrastructure stated that efficient supply chains require operational flexibility. This allows for freight movements to occur at all times of the day and for operators to take advantage of reduced road congestion during off-peak times. Given this, the department submitted that industry is concerned with the extent of residential developments located near ports, such as that at Fishermans Bend near the Port of Melbourne, which may inhibit their ability to operate 24 hours a day, 7 days a week.
7.36
RDA Tasmania and the Tasmanian Logistics Committee highlighted that the geographic expansion of some Australian ports, such as the Port of Melbourne, will be limited in the future. They argued that long-term strategic planning between government, shippers, and port authorities is essential to anticipate these constraints and to develop contingencies to help mitigate them.
Dredging and requirements to cater for larger vessels
7.37
The Department of Infrastructure observed that increasing vessel size has been a trend in the global shipping industry since the introduction of containerisation, and commented that this poses an infrastructure challenge for Australian ports:
Australian ports and port operations may need to make significant adjustments and investment to accommodate future demand for larger ships. Larger ships require deeper waters and longer berths, as well as wider channels and fit-for-purpose loading and unloading facilities and handling capacity. This may place new demands for upgraded port infrastructure, such as cranes, and maintenance, such as dredging. Physical and geographic constraints at some ports may also not be able to accommodate the access requirements for larger ships.
7.38
The Department of Infrastructure noted that few Australian ports are naturally deep, and that a key service provided by ports is to dredge access channels and turning basins to provide appropriate water depths along waterside facilities. It commented that dredging activities have become increasingly problematic in recent years:
[C]ommunity opposition and efforts by authorities to protect coastal ecosystems have led to environmental controls on dredging operations to become more stringent, with the potential to increase costs particularly at ports where dredged materials must be now be disposed of on land as opposed to sea as has traditionally been the case.
7.39
Mr Brett Charlton, Chairman of the Tasmanian Logistics Committee, noted that in the Tasmanian context there are potential issues with ship size and harbour depth which will likely necessitate freight from Tasmania continuing to be transhipped via Melbourne rather than directly to international ports:
[T]he growth in the size of vessels and our port capacities for international ships dictates that we will require a coastal service to be able to feed into Melbourne as a hub…We can't get direct access to an international port out of Tasmania in the future, I believe.
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It's not deep enough. There have been some studies in the past where they've looked at it, and TasPorts's future plan certainly is still keen to look into that. My personal opinion is that, when you look at the size of the vessels from Panamax to Neopanamax and the amalgamation of shipping lines around the world, there seems to be a very big hub sort of model …
Lack of appropriate port facilities for roll-on roll-off coastal freight
7.40
Several submitters and witnesses commented that some Australian ports need to invest in infrastructure to cater for roll-on, roll-of (RORO) cargo if coastal shipping is to become viable around Australia.
7.41
Mr Chris Schultz, General Manager of Business Development and Inland Business for ANL Container Line, stated that a significant barrier to increased coastal shipping on Australia's east coast is the lack of appropriate ports infrastructure for coastal cargo:
Part of [the problem] is access to the ports; privatised ports now [need] to invest in coastal facilities [to] have a RORO—roll-on, roll-off—ramp, which is the most efficient type of loading for coastal cargo because you can load multiple containers at the same time. Those ramps don't exist anymore. I can't charter or buy a ship and get to a RORO ramp in Melbourne, Sydney or Brisbane right now.
7.42
Mr Steve Borg, Executive General Manager, Tasmania and Shipping at Toll Group, told the committee that when considering whether Toll could provide a freight shipping service from Brisbane to Northern Queensland, one key impediment was the need for port upgrades, including the capability for ports to take RORO freight.
Capacity for cruise ship berthing in Sydney
7.43
The Cruise Lines International Association (CLIA) submitted that while the cruise industry has experienced strong growth in Australia in recent years, future growth is threatened due to the limited availability of berthing facilities in Sydney. CLIA noted that the NSW government has committed to developing a strategic business case for the development of a third cruise terminal in Sydney, and urged the Australian government to partner with this initiative and contribute funding to the development of such a terminal as a national infrastructure priority.
Interaction with other modes of freight transport
7.44
Appropriate connectivity between different modes of transport is critical to the efficiency of freight movements in Australia. Ports Australia observed in its submission that the effective use of rail, road and shipping in this task 'can lead to optimal social and economic outcomes'.
7.45
The committee heard that each freight mode 'can be complementary as rail and shipping for example, will generally require road freight at either end of the supply chain'. As noted in previous chapters, however, domestic freight movement in Australia is heavily skewed towards road and rail transport.
7.46
Ports Australia advocated for 'a balance of all three transport modes', and observed that transport connectivity across the transport modes is a key part of Australia's ports. It stated that when such connectivity is lacking at ports, this can result in significant economic costs and unnecessary delays in the movement of goods.
7.47
Ports Australia described specific issues that decrease transport connectivity at ports. In relation to roads connectivity, issues faced include: turning performance of freight vehicles; road space requirements; entry length onto main roads and highways; approach visibility; and vertical (overhead) clearance. Further:
An example of this lack of connectivity is illustrated when bulk grain goods are diverted from the Port of Gladstone through to the Port of Townsville as road trains are not able to enter the Port at Gladstone due to a lack of suitable road infrastructure. Synergy Economic Consulting estimates the increased transport costs of traversing an additional 900 kilometres (circa) to be around $3,000 per day for a typical road movement of a B Double road train between Gladstone and Townsville (this includes no adjustment for a backhaul movement).
7.48
In relation to rail connectivity, Ports Australia stated that the 'biggest concern is the underutilisation of the network for freight movement to and from the port, impacting the ability of shipping to be effective':
This has occurred for various reasons including, port-rail interface issues (e.g. a lack of adequate below-rail infrastructure, lack of flexibility in train windows and unreliable train departure and arrival times), conflicts with passenger movements on the same lines, inconsistent state and territory network regulations and operating conditions, and maintenance and investment costs that are not supported by required utilisation rates.
7.49
Ports Australia argued that it is critical to reform railway access to ports in order to maximise the network capacity:
Current access requirements add significant costs and impediments to railway operations. These impediments include high administrative and compliance costs, constraints on the infrastructure providers’ ability to deliver and price service efficiently, reduced incentives to invest in infrastructure facilities and inefficient investment in related markets.
7.50
SAFC contended that prioritising and developing rail connectivity to ports will help address congestion and other landside issues facing freight transport:
Rail—and in particular short haul rail with appropriately placed intermodal terminals—is one of the solutions available to ease the pressures outlined above. Rail transport reduces road congestion, and facilitates the efficient use of cheaper land distant from ports for warehousing and logistics activities. Government planning should encourage short haul rail activities, and protect both current and future rail corridors for 24hr operation.
Reforming funding arrangements for other transport modes
7.51
The ACCC commented on the way roads are funded and priced in Australia compared to other transport modes, such as rail. It argues that this has implications for the efficiency by which roads are provided, priced, and used, and also undermines confidence in the way that heavy vehicle road usage prices are determined. It notes that over the last decade, the argument for reform has only strengthened:
It has now been over ten years since the Productivity Commission called for reforms to the way that roads are funded, following its review of road and rail freight infrastructure pricing. During this time, the academic and policy arguments for reform have only strengthened with various publicly and privately-funded reports and inquiries advocating for change, most notably the 2015 final report of the Competition Policy Review.
7.52
As noted in chapter 3, the ACCC expressed support for implementing proposed reforms whereby road charges for heavy vehicles would be determined by an independent regulator instead of governments:
[This] would improve confidence that heavy vehicles are paying an appropriate price for the use of roads. In turn, it would also provide a more informed basis for the choice of efficient transport mode for moving freight within Australia.
Port services
7.53
The committee heard evidence relating to the services offered by Australian ports, with a particular focus on the impact of various fees and charges levied on ship owners and freight operators for utilising ports services and infrastructure.
Port fees and charges
7.54
The Department of Infrastructure explained that charges are incurred for all ships entering a port, based on tonnage and volume and the duration of time spent in port. These can be differentiated into ship-based charges (paid by ship owners for a port visit once the ship comes into harbour) and cargo-based charges, which are levied on the volume of cargo to be loaded. The Department of Infrastructure provided a breakdown of typical charges, shown in Table 7.2.
Table 7.2: Port Charges
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Conservancy / Navigation
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Navigation service charges levied by public authorities, which cover calls by a vessel at one or more ports over a specified period.
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Pilotage
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Paid per movement when using the services of a marine pilot in a pilotage area.
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Towage
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Levied by tug boat operators for tugs required for berthing, unberthing and shifting inside the harbour.
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Mooring/Unmooring (Line Handling)
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Charged to vessels using mooring and unmooring services when entering or leaving the port, or for movements in the port, levied by the port authority, stevedoring company or other providers.
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Tonnage
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Based on the gross tonnage of the vessel levied by the port authority to recover costs and resources associated with provision and maintenance of port and harbour facilities.
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Berth Hire / Site Occupation
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Charged to vessels that remain alongside a port berth, including time when not working cargo. May be included in stevedore charge.
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Security
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Recovery of cost of providing maritime security of common user and waterside areas.
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Wharfage
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Levied by the port authority on each unit of cargo for accommodation at wharf provided during loading or storage.
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Cargo storage
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Levied by port authority on goods remaining on the wharf, berth or separate from the port. May involve additional loading expenses.
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Port Access Charge / Harbour Dues
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Levied on specific commodities that have required investment in significant capital projects.
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Stevedoring
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Levied by stevedoring companies for handling cargo.
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Source: Department of Infrastructure, Regional Development and Cities, Submission 15, pp. 36–37.
7.55
The Department of Infrastructure stated that port operators may also earn income from leasing land and facilities to port tenants including terminal operators, stevedoring firms, cargo handling companies, tugboat operators and mooring service providers, who in turn charge users on a fee for service basis.
7.56
Primary responsibility for economic regulation of charges at ports rests with state and territory governments, which generally prefer price monitoring and transparency regimes rather than economic regulation of prices. In addition to state and territory regulation, the ACCC has responsibilities for:
monitoring the prices, costs and profits of container terminal operator companies at the ports of Adelaide, Brisbane, Burnie, Fremantle, Melbourne and Sydney (Botany) through a direction from the federal Treasurer under Part VIIA of the Competition and Consumer Act 2010 (CC Act); and
monitoring and enforcing the Port Terminal Access (Bulk Wheat) Code of Conduct, a mandatory Code prescribed under the CC Act which regulates the conduct of bulk wheat port terminal operators.
General comments on appropriateness of ports charges in Australia
7.57
The Centre for Supply Chain and Logistics at Deakin University commented on the necessity of having fair and appropriate pricing arrangements in place at Australia's ports:
[P]orts need to act responsibly in their pricing and charging policies. A number of ports in Australia have recently been privatised and there seems to be little oversight of their pricing mechanisms since privatisation. This has resulted in recent steep increases in charges levied by port companies and other port users operating in this environment. Most ports operate as a monopoly and to ensure they do not abuse this position, oversight by the responsible government agency is required.
As ports are natural monopolies, CME is supportive of ongoing reforms to increase the governance and transparency of how ports operate. An increase in fees and charges levied at ports should be determined by considering taxation principles such as willingness to pay and benefits‑received, etc. This will provide port users with increased certainty on how fees are set on an ongoing basis.
Container and stevedore charges
7.59
Container stevedores are responsible for lifting containerised cargo on and off container ships at ports, and play a crucial role in the supply chain for seaborne cargo.
7.60
Stevedore firms compete for contracts to supply their services to shipping lines. In the Australian industry, shipping lines generally negotiate service agreements with stevedoring companies for a two or three year term, and use the same stevedore for the same service in all Australian ports. The Department of Infrastructure submitted that this preference is 'due to the favourable rates offered for volume as well as a view that this model allows the lines to gain better berthing windows'.
7.61
The Department of Infrastructure observed further that 'in the absence of considerable dissatisfaction or a compelling alternative', shipping lines tend to re-sign rather than change stevedore; moreover, there tends to be limited variation in price for similar commercial conditions across stevedoring companies.
7.62
Two stevedoring firms, DP World and Patrick, accounted for approximately 86 per cent of the national share of stevedoring crane lifts in 2017–18. This share has declined in recent years due to the entry of new stevedoring companies on the eastern seaboard, namely: Hutchison, which commenced operations in 2013 and now operates terminals in Sydney and Brisbane; and VICT, which entered in 2017 and operates a terminal at Melbourne's Webb Dock.
Introduction of 'infrastructure access charges' imposed by stevedores
7.63
A number of submitters and witnesses expressed concern at the level of charges imposed by stevedoring companies operating at Australian ports, and increases to those charges in recent years.
7.64
The committee heard that in recent years, stevedore companies have changed how they structure their fees. The Department of Infrastructure submitted that traditionally, the costs charged by stevedores to shipping lines under their service agreements were recovered by the shipping lines through commercial arrangements with the shipping cargo owners (that is, importing and exporting companies). Since 2010, however, stevedores have begun rebalancing their charges towards recovering an increased proportion of revenue from infrastructure surcharges, which are levied on land-side transport operators when they pick up or drop off cargo containers at ports.
7.65
The ACCC noted that while in 2013 only stevedores in Brisbane applied an infrastructure charge, since 1 July 2018, all stevedores in Adelaide, Brisbane, Fremantle, Sydney and Melbourne have applied an infrastructure charge. It stated:
The significant increases in the infrastructure charges have been led by stevedore DP World, with other stevedores generally being quick to follow. The increase in charges has been most notable in Melbourne, where DP World's charge has increased from $3.45 per container in April 2017 to $85.30 from 1 January 2019.
7.66
A summary of recent increases to stevedore infrastructure charges (now known also as terminal access charges) at major Australian ports was reported by the ACCC in October 2020, and is shown in Figure 7.2.
7.67
Submitters and witnesses pointed to several cost pressures that had underpinned stevedores' efforts to recover more revenue from land‑side infrastructure charges, namely:
falling prices negotiated by stevedores in their service agreements with shipping lines, due to:
increasing competition between stevedores (primarily as a result of the introduction of new stevedores VICT and Hutchison into the market in recent years); and
increased bargaining power of shipping lines resulting from consolidation within that sector;
increased operating costs for stevedores, including rents charged by recently privatised ports, and increased council rates and land taxes.
Impact of stevedore infrastructure charges on the supply chain
7.68
The committee heard that land transport operators are passing on the costs of stevedore infrastructure charges to cargo owners, generally with an administrative fee.
7.69
The ACCC explained that land transport operators and cargo owners have very little control over the infrastructure charges they are paying:
In the supply chain, shipping lines choose the stevedore that will service the ship. Land transport operators do not have a choice and must go to the stevedore to which they are directed. Land transport operators therefore cannot choose a stevedore that has a lower infrastructure charge. Cargo owners have a choice of which shipping line and land transport operator to use, but not the stevedore.
7.70
Mr Travis Brooks-Garrett of the Australian Peak Shippers Association (APSA) commented:
[A]s a shipper or as a transport operator, you don't get to pick which terminal you pick your box up at. What's happened is that it's an incentive for a shipping line to use a terminal where there's a higher infrastructure charge, because those costs have been passed to the land side. If you're an importer—if you're a Woolworths or a Target—the shipping line will say, 'You're picking your box up from this place,' and then you just have to incur whatever the gate fee is. If you're an exporter, it's the same thing if you want to drop your box off. Market dynamics don't get a run.
7.71
The ACCC submitted that increasing infrastructure charges mean that stevedores are able to 'earn a growing proportion of their revenues in a market which their market power is stronger relative to the more competitive market in which they provide services to shipping lines', and concluded:
Given this, there is an incentive for stevedores to increase the charges. Without constraint, they may be able to set the charges at levels greater than necessary to recover costs and earn an adequate rate of return. The outcome may be that land transport operators bear the additional cost if they cannot pass them on, or where they do, that importers and exporters will pay higher charges than otherwise. It may be only the shipping lines that benefit from the increased competition between stevedores at the east coast ports.
Impact of increasing infrastructure charges on Australian businesses
7.72
Freight and Trade Alliance (FTA) and the APSA described recent increased stevedore infrastructure charges as 'a disaster for Australian exporters'. Mr Brooks-Garrett outlined the impacts on some specific businesses:
For one major Australian exporter of flour, starch, gluten and stockfeed, shipping 22,140 containers in 2018, these new charges have cost them $833,571 in extra costs. With the infrastructure charges increasing again [in March 2019] this will increase the annual impact on just these charges on their business to $1,595,000 in 2019. For one major Australian exporter of paper and recyclables, shipping 42,122 containers in 2018, these new charges cost them $1,585,893; that number will increase to $3,062,400 in 2019… For one major Australian exporter of grain and meat in regional New South Wales, one of this area's largest employers, shipping 18,016 containers in 2018, these new charges cost them $678,302 per annum. At a time of drought, even with their softer export volumes this year, with a soft grain season, their 2019 increase will still see them paying $893,200 in extra charges. It is a crisis for Australian exporters[.]
7.73
FTA and APSA argued that the burden of increased infrastructure charges is being exacerbated by shipping lines refusing to pass on concomitant savings to shippers:
[S]hipping lines have increased the Terminal Handling Charges that they are charging shippers, at a time when Australian shippers are now also paying the stevedores for the same in‑terminal services via landside "infrastructure charges". Shippers are paying twice for the same services, and both of those prices are increasing. It is unsustainable, it is without international parallel, and it requires the urgent intervention of the Australian Government.
7.74
RDA Tasmania and the Tasmanian Logistics Committee submitted that increased infrastructure charges from stevedores leave Tasmanian exporters particularly disadvantaged:
Left without any contractual or regulatory oversight, these [increased infrastructure] charges have left Tasmania increasing susceptible to loss in market share and poorer economic outcomes due to an inability to remain competitive in overseas markets.
7.75
Their submission argued that without swift and direct action to address this issue, 'Australian economic performance will suffer and this in turn could potentially lead to job losses in major industry sectors and loss of market share internationally'. It recommended that legislative and regulatory action be taken to protect against any unreasonable cost increases by port operators.
7.76
The Tasmanian government submitted similarly that increased infrastructure charges 'will likely impact supply chain costs for Tasmanian businesses who tranship containerised goods through the Port of Melbourne', and noted that it had made various representations on this issue and would 'continue to work with all parties to ensure that supply chains remain cost effective'.
7.77
Given the concerns about the direct impacts of these charges on Australian businesses, and the broader potential impacts on the freight supply chain in Australia, some submitters called for stevedore infrastructure charges to be directly regulated.
7.78
The ACCC noted that regulatory responsibility for the economic regulation of stevedores and ports rests with state governments, and suggested a detailed examination of increased stevedore infrastructure charges by state governments 'and if warranted, a regulatory response'.
Port delays, container management and demurrage practices
7.79
The committee heard concerns relating to industry practices around the detention of shipping containers and related delays at Australian ports.
7.80
CSL Australia submitted that congestion at berths and ports around Australia 'can lead to delays of up to 20 days or more' for coastal vessels, with congestion attributable to demand spikes, vessel schedules, weather events and other unforeseen factors. The cost of port delays is borne by the cargo owner, whereby they must pay demurrage and/or detention fees to the shipping line when contractual timeframes for loading and unloading containers are exceeded.
7.81
As mentioned in chapter 3, CSL Australia highlighted there is a significant disparity in the demurrage fees charged by foreign vessels chartered to ship cargo to Australia, and those charged by Australian vessels, with fees for Australian vessels significantly higher due to the need to recover operating costs. It argued that establishing Australian vessel priority at Australian ports would benefit Australian cargo owners by increasing the stability of freight costs and supply chains.
7.82
FTA and APSA commented that container detention and demurrage practices are becoming an increasing issue in Australia and other parts of the world. They argued that while shipping lines 'have every right to be recompensed for extended equipment use, shippers should not be forced to pay for events that are outside of their control'. FTA and APSA gave some examples of recent practices in Australia that give cause for concern, namely:
Australian shippers being charged container detention fees by some shipping lines for the duration of an industrial dispute at Melbourne's Webb Dock, during which time it was impossible for shippers to collect their containers from the port;
some shipping lines continuing to charge demurrage and detention fees to Australian shippers for containers held at ports on Christmas Day, despite there being limited ability for shippers to collect containers on that day; and
shipping lines charging detention fees for late container de-hire in cases where the Australian Border Force has initiated "border holds" for specific containers or containers are being inspected at the Container Examination Facility.
7.83
FTA and APSA noted further that there is a lack of clarity in how shipping lines' detention and demurrage policies are applied and how disputes are settled, with several shipping lines 'having no written policy on how to handle disputed invoices and no clear policy or process in how they should be managed'.
7.84
It was noted that regulators in the United States have begun proactively responding to concerns in this area by opening an investigation into conditions and practices relating to detention, demurrage, and free time in international ocean borne commerce. FTA and APSA stated 'Australian shippers strongly believe that regulators should follow the lead of the U.S. to develop standard and transparent industry practices'.
Passenger fees at Australian ports
7.85
CLIA submitted that, relative to many other global cruise destinations, 'Australia is a high cost jurisdiction for cruise operators', noting port fees in particular:
Port fees in the key gateway port of Sydney are currently around $40 per passenger per port visit, meaning that a ship such as Ovation of the Seas (at maximum passenger capacity of 4,900 passengers) is required to pay a base berthing fee of almost A$200,000 per visit. This level of fees then tends to be seen as a benchmark by other key Australian ports. Homeporting a cruise ship in Australia therefore carries an enormous cost, since cruise ships carry out continual itinerary cycles to and from the port, usually returning to the base port every 7-14 days.
7.86
CLIA noted further that the rate of Australia's Passenger Movement Charge is among the highest in the world, and expressed concern at 'the high level of cost being imposed on cruise operators and the threat this poses to the competitiveness of Australia as both a location for ships to be homeported and as a destination'.
Committee view and recommendations
7.87
The committee notes the significant port privatisations that have occurred over the last decade, and is concerned that this transfer of ownership to the private sector has not been accompanied by adequate regulation. Although the committee recognises the potential economic benefits that can result from the privatisation of government assets, it is the committee’s strong view that those assets representing natural monopolies, such as port infrastructure, be adequately regulated to promote optimal outcomes for the Australian economy.
7.88
The committee recommends that the Australian government reviews the regulatory arrangements for Australia’s privatised ports to ensure that they are fit-for-purpose and achieve optimal outcomes for the broader economy.
7.89
The need for long-term planning and capacity building at Australian ports is essential. Although the committee notes the extensive work already progressed to deliver a nationally coordinated freight and supply chain, it is obvious that there is an ongoing need to better integrate the ports sector and planning systems across governments.
7.90
The committee notes that this issue is particularly acute where residential developments have progressed in areas surrounding key port infrastructure. As highlighted by inquiry participants, this commonly results in conflicts between port operators and local residents; increased congestion on shared infrastructure, such as roads; and reduced land available for existing port activities and expansion into the future.
7.91
The committee recommends that the Australian government works with state and territory governments to review land usage around Australia’s key ports, with the aim of reducing congestion and ensuring adequate land is available for future port expansion.
7.92
The committee recommends that the Australian government works with state and territory governments to review the National Ports Strategy to ensure that there is a nationally consistent approach to managing and regulating port infrastructure and port services in ways that support the development of Australian shipping.
7.93
The committee notes the widespread concern of shippers regarding container detention and demurrage practices in Australia and overseas. The committee highlights evidence indicating that there is a complete lack of clarity on how container detention and demurrage practices are applied and how disputes are settled.
7.94
The committee is very concerned about the market power of stevedoring companies and the increasing prevalence of infrastructure charges imposed by them at Australian ports. As emphasised by inquiry participants, these charges have had an adverse impact on Australian exporters, and the committee acknowledges calls for them to be appropriately regulated by state governments.
7.95
The committee recommends that the Australian government works with state and territory governments to investigate the increased use of infrastructure charges by stevedoring companies at Australian ports and to assess whether they should be regulated.
Senator Glenn Sterle
Chair