Container stevedoring in flux: Report

Accept third player gracefully, stop industrial disputes and join forces to solve landside issues or face more hits to productivity, ACCC warns

Container stevedoring in flux: Report
Container stevedoring in flux: Report

By Anna Game-Lopata | November 1, 2012

Despite gains made by Australian container stevedoring reform since 1998 Australia's Conpetition and Consumer Commission (ACCC) says the industry still faces significant challenges including declining productivity.

The ACCC’s 14th annual Container Stevedoring Monitoring Report into stevedoring industry competition, released today, warns sustained high profits and increasing labour costs suggest the need for further reform.

The report confirms Australian container stevedoring has strongly improved its game since 1998, a result which reflects well on both terminal operators and their workforces given the need to handle rapidly increasing demand while lowering real costs and prices.

1998–99, the average elapsed labour rate was 22.4 containers per hour. In 2011–12, this increased to 39.6, among the highest levels achieved in the course of the ACCC’s monitoring program.

However, despite improvements in profitability, revenues and capital investment, unit costs continue to rise and productivity fell in the 2011-12 financial year.

The report argues the industry is currently in a state of transition, facing key challenges including the commencement of a new entrant, ongoing
industrial relations disputes and complex issues around landside connections to the terminals.

In 2011–12, labour productivity deteriorated from long-term trends, falling from 41.4 containers per hour in 2010–11 to 39.6 coinciding with a period of prolonged industrial disputation between the stevedores and their workforces.

"Industrial disputes, if they were to become more frequent and widespread, could undermine past and future gains from investment in a more productive service" the report says.

"It is likely that labour workplace arrangements, particularly at Port Botany, will continue to have a significant bearing on the degree to which further productivity gains materialise in Australian stevedoring over the next few years.

"If industrial disputes become more frequent and widespread in Australian stevedoring, this could undermine investment in additional capacity and greater competition."

The report adds two recent studies
comparing Australia’s container stevedoring performance with international examples indicate our productivity levels are broadly in line with overseas ports.

"This is despite other information which indicates the existence of higher industry profits and stevedoring wage levels in Australia compared with overseas," the report says.

"These results, when taken together, suggest there may be further scope to increase the extent to which the benefits of improved stevedoring performance are shared with service users.

"This could occur through lower prices for existing services and/or investment in providing a superior service."

With the entrance to the stevedoring industry of Hutchison Port Holdings (HPH) as a third terminal at the Port of Brisbane and Port Botany due in 2013, the ACCC says the new industry structure, with quay-line capacity expansion almost complete at several ports, should benefit users by increasing competition overall.

But it reiterates concerns operational performance on the waterfront may deteriorate before improving, especially if incumbent stevedores attempt retaliatory responses towards shipping lines considering switching their business and if industrial disputes threaten investment opportunities.

"When an incumbent operator has a presence at multiple locations, it may be possible for that operator to use its position of strength at a location where competition is limited to unfairly hinder a new entrant from establishing itself at a more contestable location in the market," the report states.

"Where there is evidence of such behaviour, the ACCC has powers under the Competition and Consumer Act 2010 (CCA) to investigate anti-competitive conduct and if necessary take enforcement action through the courts."

The report also reveals in 2011–12, land-side performance varied at Australia’s largest ports.

Significantly truck turnaround times have improved markedly at Port Botany, historically, Australia’s most congested port, since the Port Botany Landside Improvement Strategy (PBLIS) was implemented in February 2011.

Average truck turnaround times of 45.5 minutes were recorded in the December quarter 2010, but by the March quarter 2012, turnaround times had reached their lowest ever level at 30.2 minutes.

This contrasts with outcomes in Melbourne where average truck turnaround times have deteriorated. Prior to September 2011, Melbourne generally recorded the lowest average times of any of the monitored ports.

In the March quarter 2011, average truck turnaround times were at their lowest recorded level of 25.4 minutes.

However, since then, turnaround times have increased, peaking at 34.6 minutes in the December quarter 2011, and now exceed those observed in Sydney.

"Expected growth in container volumes, capacity expansion and new entry are positive developments in Australian stevedoring," the report states.

"However, these industry developments will most likely lead to more complex land-side arrangements.

"For some ports, more intensive use of trucks and trains should result in less congestion at and around port precincts. However, further complementary measures may be required for those ports with significant land-side congestion."

The ACCC argues a growing freight task requires all supply chain participants to play a part in establishing seamless, well-organised land-side connections to ports.

"Ongoing commitments by governments and port managers to national port strategies and national freight land strategies will be increasingly important as the demand for stevedoring services continues to grow, new terminals are added and the land-side infrastructure challenge intensifies.

"If Australia is to meet its growing freight task, recent quay-side capacity expansion will need to be complemented by further investment in land-side infrastructure to ensure that infrastructure bottlenecks do not emerge."

The report shows container throughput across all ports increased by 4.2 per cent in 2011–12.

Rates of return on total industry tangible assets increased from 24.2 per cent in 2010–11 to 29.2 per cent in 2011–12, the highest level in the history of the ACCC’s monitoring program.

Industry profitability remains significantly above the average for the ASX top 200 companies and almost all comparable overseas container operators.

Investment occurred at most of the monitored ports during 2011–12, albeit at reduced levels compared with previous years.

Despite this investment, the industry asset base fell by 12.2 per cent in 2011–12, due to a write-down by Patrick of the value of some assets in June 2011.

In real terms, unit costs increased by 1.0 per cent to $94.30/TEU. This was entirely driven by higher nominal unit labour costs, which increased by 7.5 per cent during 2011–12.

This increase in unit labour costs represents the highest annual percentage rise in the history of the ACCC’s monitoring program and corresponds with enterprise bargaining agreements (EBAs) being finalised across several terminals.

In real terms, unit revenues (a proxy for prices) increased by 1.0 per cent to $121.50/TEU, reflecting mainly higher unit revenues from non-stevedoring activities.

Capital productivity (as measured by the five-port average net crane rate) fell slightly from 29.2 containers per hour in 2010–11 to 29.1 in 2011–12.

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