Duopoly to maintain power despite capacity constraints

By: Graham Gardiner

Forecast capacity constraints at the Port of Melbourne mean the further development of the Swanson and Webb docks may need

Forecast capacity constraints at the Port of Melbourne mean the further development of the Swanson and Webb docks may need to commence this year, according to a report released by the Essential Services Commission (ESC) of Victoria.

The report, which examines the impact of port planning on competition in Victorian ports, also highlights a number of economic barriers and competitive restrictions which have the potential to adversely impact port operations.

Despite this, the current stevedoring duopoly of Asciano and DP World will not be challenged anytime soon, with the report finding a third stevedore "may" only be able to begin operations by 2015.

"The scale of the market at the present time is unlikely to be able to support three terminals at minimum efficient scale," the report says.

Using the planning criteria established by the Port of Melbourne Corporation (PoMC), the ESC report states there will be capacity constraints in 2010-11 and in 2014-15. The Commission’s findings were also based on the assumption "Asciano and DP World invest in additional capacity as forecast".

As such, the report recommends looking at developing new container stevedoring facilities this financial year.

"The timing of new terminal capacity additional to Swanson Dock may need to be brought forward," the report says.

"With project lead times of six years, this suggests the possibility that commencement of the Webb Dock development may need to start as early as 2008-09."

The report also found the State Planning Policy Framework (SPPF) has the potential to restrict new entries at the Port of Hastings once the Port of Melbourne reaches capacity.

"The port objectives in the SPPF relate to access terminal and depot areas, protection of land resources adjacent to ports, buffers between port and urban areas, and environmental quality," the report says.

"This consideration could potentially restrict new entry at that port."

Doubts were also raised over the effectiveness of the Victorian Ports Strategic Framework (VPSF), which sets out the sequence for future port developments such as the Swanson and Webb docks.

"It is not clear whether the sequential development approach has prevented commercially viable entry by new operators or whether previous development proposals failed for other reasons," the report says.

The report recommends less reliance on sequential developments, saying it would be more beneficial to rely more on market opportunities and for specific terminal developments "to be directly assessed against one another in the context of detailed feasibility assessments and commercial processes".

The report also lists long-term leases held by current stevedoring companies as an economic barrier to new players wanting to enter the market.

It says short-term expansion on the part of current operators may also deter competition.

"The capacity of existing terminal operators to expand throughout in the short run may also represent an economic barrier to entry as it will be relatively more difficult for a new terminal operator to achieve an efficient scale of operation," the report says.

The report also examined efficiency constraints in the road and rail networks used to carry goods to and from the ports. It recommends improvements to rail connections in order to boost productivity.

Freight train path availability would experience "significant constraints" without more investment in rail infrastructure, according to the report.

"Improving the rail connections and removing bottlenecks in and around the port to the port could help improve rail share," the report states.

And while road transport continues to be a competitive and contestable market in and around the ports, Asciano looks set to maintain its rail dominance, as the report found a new operator would be unable to obtain enough freight in order to compete.

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