Over the past year, the introduction and escalation of port-related pricing and infrastructure surcharges has dominated the Australian port sector. Price increases were an initial reaction by stevedores to port privatisation and increasing rental charges; however, these charges are now reflecting a structural realignment of cost recovery by stevedores.
In 2019, the Victorian Government engaged Deloitte to review stevedore pricing, the outcomes of which were released to industry stakeholders last month. Initial indications of the findings of the Deloitte report (yet to be released) will likely leave many in the industry feeling short-changed.
In the same week that the Deloitte report briefing took place, the Port of Melbourne announced that it would be levying a perpetual $9.75/TEU charge on import containers to fund a rail transformation project. It is widely accepted that port/rail interfaces need improvement and the required capital investments may need to be subsidised in some form, though the timing of the announcement was perhaps unfortunate.
It is impossible to dissect the evidence or the methodology used by Deloitte as the report has not been released. Notwithstanding, from the recent industry Round Table facilitated by Minister Horne, it became clear that Deloitte have largely absolved stevedores from unjustifiably increasing charges and have instead blamed shipping lines for the most significant cost increase impacts. This likely shifts regulatory responsibility from the States and into the federal arena.
In response, industry is calling for regulators to intervene to redirect stevedore price increases via shipping lines rather than trucking companies. This is because shippers have a better negotiating position with shipping lines who operate in a more competitive market, which ought to deliver some price-stabilising competitive tension. The diagram below shows the mismatch between negotiation power and commercial transactions from a shipper’s perspective. Stevedores hold the greatest amount of power in respect of commercial transactions, while shipping lines hold the greatest negotiation power.
The impact of the proposed realignment for regulators to redirect stevedore price increases via shipping lines is shown in the second diagram. The proposed reform would reduce the commercial transaction power of stevedores and better align it with the negotiating powers of shipping lines. This is likely to result in an overall net benefit by way of increasing competition, reducing prices in real terms and allowing for a better exchange of information between end users (shippers) and service providers.
The Deloitte report should be released to give industry an opportunity to respond to the various claims and findings. Understanding stakeholder views is also paramount in implementing meaningful change in the industry to improve the efficiency and productivity of Australia’s import/export markets.
This article was first published be Freight Trade Australia - Australia’s leading representative body for the international supply chain sector.
GHD Advisory provide port development, land-side optimisation, pricing, and access services to ports internationally. The authors’ offer what is intended to be a ‘neutral’ view of the issues and possible responses to a recent report onto stevedore pricing.
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