DP World signs off on Melbourne lease deal

'Multi-dimensional' negotiations end in a 50-year arrangement

DP World signs off on Melbourne lease deal
DP World CEO Paul Scurrah has welcomed the 50-year deal with the Port of Melbourne


DP World and the Port of Melbourne have settled their long-running dispute over the lease terms of West Swanston dock, with the stevedore emerging as the overwhelming victor.

It has negotiated a 50-year lease ahead of the planned privatisation for a term of the same length.

Rent rates will increase over that time, but to agreed levels for at least the first eight years.

Starting from the estimated $17 per square metre currently paid, the first two increases in 2015 and 2016 will be in line with inflation.

They will be followed by set yearly increases that will see DP World paying $45 per square metre in 2023.

"Agreed escalations" will continue until 2028, after which five-yearly market rental reviews will take place.

While an estimated 165 per cent increase over eight years may seem high, it represents a significant concession from the Port of Melbourne Corporation, which DP World had said was asking for an increase of 767 per cent this year alone.

DP World CEO Paul Scurrah says the resolution of the lease arrangements provides a win for both parties, as well as other levels of the supply chain.

"Our customers, service providers and the Victorian freight industry will benefit from long-term lease and price certainty, which comes with DP World Australia's commitment to operating in the Port of Melbourne," Scurrah says.

A Port of Melbourne spokesperson says the negotiations involved multiple dimensions beyond price and term length.

They represented an opportunity to "modernise" the lease agreement to ensure the port remained competitive with other terminals around the country.

In this way, CEO Nick Easy says is pleased the 50-year lease deal also features efficiency incentives and key performance indicators for both sides: "The longevity of the lease tenure represents a strong vote of confidence in the Port of Melbourne by an important tenant and ensures it remains competitive with respect to estimated rent costs at other Australian ports."

Organisations further down the supply chain have also welcomed the deal.

Victorian Transport Association (VTA) CEO Peter Anderson says it will mean greater certainty for other port users.

"The VTA always opposed those exorbitant rent increases because the inevitable flow on costs to other users of the port would have been unbearable," Anderson says.

In Tasmania, where almost all container traffic goes via the Port of Melbourne, there has been praise for what Treasurer Peter Gutwein says is a "step in the right direction".  

"[This] bodes well for Bass Strait shipping companies that are also seeking to conclude terminal lease agreements before the Port is privatised," Gutwein notes.

Still, there are worries that the deal between the still-government-run Port of Melbourne corporation and a stevedore the size of DP World may not translate into similarly priced arrangements between a privately run port and smaller transport operators.

Tasmanian logistics chairman Steve Henty says that is a particular concern for Tasmanian-based transporters and their customers.

"The Tasmanian operators don't have that sort of weight and don't have other interests in other ports," Henty tells the ABC.

Anderson says Victorian operators are concerned the deal will cloud over debate about other aspects of the privatisation deal that spell bad news for trucking businesses in the state.

"The DP World deal should not be seen as a green light for the legislation to proceed as is," he says.

"Many questions remain about regulatory conditions, protections for un-prescribed cost hikes at the port, and whether operational improvements will even be a by-product of privatisation."

He reiterates the VTA's call, along with that of other port users, for significant amendments to the current legislation.

"As the lease deliberations sharpen, we urge all parties to continue to carefully and methodically approach them because the economic ramifications for freight operators and generators, and ultimately consumers, are too important to get wrong."

You can also follow our updates by joining our LinkedIn group or liking us on Facebook