Dr Greig Taylor has been studying the privatisation of ports in Australia and the failed reform attempts by governments. ATN sat down with Dr. Taylor to ask him what went wrong and what needs to change to successfully reform ports in Australia.
Dr Greig Taylor says his research into the ports situation in Australia started out of a personal interest. Not coming from an academic background in economics or governance himself, Taylor, and a colleague of his to spent two and a half years researching the history of government policy around port privatisation.
After a while it was clear a broad picture was emerging that showed a series of government policy failures in relation to port reform in Australia as well as a disregard of traditional economic thinking.
“Privatisation of the port authority is usually not advisable,” says Taylor.
Through his research Taylor was able to identify a series of clear policy failures that led to the situation we find ourselves in today, these include: the privatisation of port authorities in the first place, the attempt to increase competition between stevedores, and the government’s emphasis on productivity improvements – recently through automation.
Taylor says Australia now has a high level of involvement from private entities who have purchased the lease to port authorities, in turn renting space out to stevedores. Privatisation of ports, generally, is a contentious area for economists — of public assets generally.
The justification for privatising public assets historically has been that it can improve competition and productivity, but the problem with privatising ports, Taylor says, is that they are what economists call a natural monopoly. So, there is no way to encourage competition once they have been privatised.
“There are also economic arguments that natural monopolies should never be privatised as it could lead to profiteering and that there should always be a level of government control over ports,” says Taylor.
Taylor points out that ports are a particular type of public asset that has broader economic and security importance for a country – especially for an island nation such as Australia.
“Ports are strategically important nodes for countries, the example of a Darwin port’s sale to a Chinese company highlight the security threat privatised ports can potentially pose”.
Privatisation of ports is not unprecedented around the world. Indeed, Australia could have looked to the UK, which privatised their own ports before Australia did, to understand the longer-term implication of port privatisation. Taylor says hedge funds have now taken control of some of the ports in the UK, entities who only have an interest in profits. The result has largely been negative, and it can be argued that port privatisation does not offer any benefits to a country and its economy.
The World Bank offers a matrix for understanding port privatisation on a spectrum of purely private and public arrangements. With an in between situation where the port authority is public, but the handling operations are privatised. Very few countries completely privatise their major ports – which is essentially the situation in Australia today bar one port in Fremantle. Taylor argues this privatisation of ports is not beneficial to the economy.
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“I don’t think anyone gains from port privatisation except for the companies who buy the ports”.
One of the groups most affected by the port arrangements in Australia have been trucking and haulage companies that must pay the often exorbitant access fees stevedores demand.
As part of his research Taylor spoke with landside stakeholders like these companies and says they were universally upset with the escalation of charges. The stevedores, however, Taylor points out, are also under a series of pressures including rent rises from port authorities, leverage from quayside customers, increased competition, and pressure from their own shareholders, that force them to raise their charges.
“Eight to ten years ago supplementary stevedore charges were around $4 a box, we’re now up to over $120 a box,” says Taylor.
Taylor says the trucking industry generally understand the pressures on stevedores and doesn’t argue with the principal of access charges, however they want to see some transparency on what the extra revenue from raised prices is being used for. The perception is that there has been no clear improvement in service or productivity after access charges have risen.
“The transport industry is pushing back hard against rising access charges from stevedores. Trucking companies see no improvement in services from their side”.
Australia’s privatisation situation is slightly different to other parts of the world such as UK, in that most of the ports are leased to private companies and not sold.
“In theory, after the port lease expires the ownership transfers back to the state. For all intents and purposes, however, the leasing situation is akin to a sale because of the lengths of the lease (50-99 years),” says Taylor.
When asked if it is possible Australia could reverse some of its port arrangements with private companies Taylor said it was unlikely.
“These actions are very hard to undo. The only answer is some sort of regulation over the port ownership”
Taylor argues that rent rises for stevedores by port authorities need to be overseen by a government body and a limit set on how high and how often they can rise. He also argues a minimum cost per box for shipping lines needs to be introduced to stop shipping companies from forcing prices down.
“The federal government needs to step up and say enough is enough”
Taylor says the situation has become dire enough that the only option now is for the state and federal governments to step in and investigate the entire industry to address the issues this situation is now having on the economy and the cost of living and bring some central coordination to the situation with states and port privatisation.
It can be argued port privatisation creates a vicious cycle in which the unfair monopoly it has created contributes to inflation.
“The authorities raise rents, stevedores raise access charges, trucking companies pass those charges on to importers and exporters which are then passed onto customers in the form of higher prices.
“These charges are flowing down the supply chain and ending up costing Australians more,” says Taylor.
On a spectrum between complete public ownership and complete privatisation Taylor says that a stage two might be the ideal stage for port ownership. Where the government owns the port authority and private companies run the cargo handling.
“If you look at the most productive ports in the world, most of the time the port authority is owned by the state and run in the interest of that state’s economy and not in the interest of private companies,” says Taylor.