ACCC wants port shake-up to break stevedore dominance

High prices depsite low demands at Australia's ports cause ACCC to order shake up

ACCC wants port shake-up to break stevedore dominance
ACCC wants port shake-up to break stevedore dominance

By Michael House |
November 11, 2009

The ability of container stevedores to maintain high prices despite falling demand shows its time for a shake-up at Australia’s ports, according to the competition watchdog.

The announcement looks set to ignite any tensions between stevedores and truckies with the latter backing the call while the former remains formidably opposed to the idea.

The Australian Competition and Consumer Commission (ACCC) has used its latest annual monitoring report into Australian container ports to call for an end to Patrick and DP World’s dominance of the waterfront.

The report highlights a drop in container throughput, lower margins and a rise in labour costs due to the global economic downturn and new wage agreements.

However, ACCC Chairman Graeme Samuel says the duopoly maintained prices and achieved rates of return close to 18 percent when compared to nine percent for ASX200 companies.

"That the stevedores could achieve such results reinforces the ACCC’s concerns about the degree of competition in the industry," Samuel says.

He says the stevedores are not forced to compete, calling on governments and port managers to make "crucial" decisions when the economy recovers.

"We have seen in Brisbane and Sydney that there are other stevedores willing to take up the opportunity to compete against the Patrick-DP World duopoly when given the chance," Samuel says.

The report questions the incentive for stevedores to improve efficiency and respond to client needs, noting that most of the gains achieved in 2000 and 2001.

"This also has implications for incentives of the stevedores to invest in new capacity sufficient to win business away from each other," the report says.

"It is possible that increased levels of competition could provide the necessary impetus over the next decade for increased efficiency in the provision of quay-side stevedoring services."

According to the report, container throughput fell 2.7 percent due to the declining economy, while unit total costs rose by 6.9 percent to $137.41.

The report says most of the decline occurred between January and June this year, with unit total revenue falling one percent to $171.44.

Unit margins in stevedoring suffered their first substantial decline since 1999, the report says, falling 23.8 percent to $34.03.

Despite this, the ACCC expects stronger demand for services once the economy recovers.

Stevedore Resistance

Asciano owned Patrick however disagree with the ACCC and say that any new stevedores that enter the market would struggle from the word go due to a lack of volume and decreasing profits within the industry.

"Any new stevedore entering the Australian market will find it extremely difficult to commit over $1billion to invest in a market that is small by world standards," Asciano CEO Mark Rowsthorn says.

"This is exacerbated by the fact that in the past 12 months margins, revenues and return on assets have decreased whilst costs have increased for existing stevedores.

"The introduction of a third operator, before volumes can justify it, will lead to inefficiencies and lower productivity in each of the ports.

"The incentive to invest for existing stevedores has reduced significantly in light of the decisions made by port corporations to invest in capacity well ahead of demand."

Rowsthorn says the comparison of average stevedore earnings with ASX200 companies is unjust and that the ACCC has failed to take certain things into account.

"The exclusion of good will and amortisation in the Patrick related figures makes this comparing apples with oranges.

Trucking support

Despite the toy throwing from the stevedore it appears the ACCC does have support for the plan. The New South Wales trucking industry says it would support any plans to add another port operator into the state.

The Chairman of the Australian Trucking Association New South Wales (ATA NSW) Container Sector Mike Moylan says the breakage of the existing duopoly would create smoother running ports, sighting the current Sunday trading issue as prime example.

"I’d say the need to break the duopoly is evident by the Sunday storage issue that currently exists in Sydney," Moylan says.

"If their [a new operator] genuine about efficiency they will focus as much on the land side as they do on the ship side and we will see a better performance.

"It [the addition of a third operator] is long overdue- when there are only two players in the market they can get terribly comfortable."

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