ISSUES around productivity and competition at Australia’s ports fuelled presentations from the Australian Competition and Consumer Commission and the Productivity Commission at an industry conference last week.

ACCC chair Gina Cass-Gottlieb and productivity commissioner Stephen King delivered back-to-back speeches at the Ports Australia Biennial Conference in Brisbane on 1 September.

Ms Cass-Gottlieb centred her address around competition in the ports sector, and in cases of natural monopolies, regulation as a substitute for competition.

She laid the groundwork by attributing major disruptions in 2020 and 2021 to port closures, reduced staff, government restrictions and the pandemic driving a surge in demand towards containerised cargo.

“As many in the audience will know from first-hand experience, this created a logistical nightmare for the industry,” Ms Cass-Gottlieb said to conference delegates.

She said once-efficient major overseas ports had become the source of congestion and delays, disrupting shipping line schedules.

“While shipping lines deployed their entire fleet, they were unable to fully utilise their capacity as vessels were trapped for long periods of time in port waiting queues.

“As a result, demand for shipping capacity massively outstripped supply. Shipping lines responded by increasingly omitting ports, rolling over cargo and cancelling bookings.

“This led to cargo owners around the world scrambling to book scarce capacity on vessels, significantly bidding up freight rates.”

Ms Cass-Gottlieb said it was worrying that container freight supply chains remain congested, and that the reliability of international shipping schedules has not improved materially since last year.

Trends in ports and freight sectors

However, she also pointed to a positive long-term trend observed over the past decade, that being the increase in competition between stevedores.

“Hutchison and VICT’s entry in the ports of Brisbane, Sydney and Melbourne has changed the competitive dynamics in these ports by generating stronger competition for shipping lines, lowering quayside prices, and increasing investment in equipment and infrastructure,” Ms Cass-Gottlieb said.

“Two new entrants and a material increase in the level of competition between stevedores is a positive development, and it probably hasn’t received the attention it deserves, particularly because the general direction in Australia’s economy over many years has been towards greater market concentration.”

A second trend the ACCC observed relates to governments privatising ports without putting adequate regulation in place.

“Since the ACCC’s monitoring regime started, Port Adelaide, Brisbane, Melbourne, and Botany have all been privatised, as well as two key bulk ports in Newcastle and Kembla,” Ms Cass-Gottlieb said.

She acknowledged the stated benefits of privatisation, including incentives for the port to achieve greater cost efficiencies and increased responsiveness to the needs of port users.

“However, Australia’s container ports are regional monopolies and in the absence of appropriate regulation, they can extract monopoly rents from users with no alternative.”

Another trend mentioned was that restrictive work practices and industrial actions over many years had disrupted and contributed to the “relatively poor” performance of Australian ports.

The final trend Ms Cass-Gottlieb discussed related to market structure.

“Shipping lines have increased their bargaining power over the last decade or so through consolidation and organisation into three large global alliances,” she said.

“While consolidation can bring benefits, namely economies of scale and co-ordination across a global network, increased concentration of the shipping industry combined with the exemptions provided by Part X of the Competition and Consumer Act could lead to artificially elevated freight rates.”

Ms Cass-Gottlieb said Part X, a legal anachronism, has been found outdated and unnecessary by multiple reviews of Australia’s competition laws, a view shared by the ACCC.

She then shifted focus to recent mergers and acquisitions that could have impacted the state of competition in waterfront, shipping and rail freight, and with consequences for the broader economy.

Among her examples were Aurizon’s recent acquisition of OneRail, completed in late July, and the proposed acquisition of GeelongPort by an investment consortium, which fell through at the end of August.

Concluding her presentation, Ms Cass-Gottlieb said the supply chain dynamics following two-and-a-half challenging years should be Australia’s motivation to address long-standing issues.

“At the heart of all these issues is competition,” she said. “Competitive markets lead to a stronger economy because competition drives innovation and productivity.

“And given that shipping and logistics touches almost every single part of our national economy, the benefits of increased competition in your sector can be far reaching.

“Proper regulation to compensate for a lack of competitive pressure on our container ports, addressing restrictive work practices to improve efficiency, and repealing Part X to increase competition between shipping lines on Australian trade routes would go some way to achieving this.

“Our economy now, perhaps more than ever, needs well-regulated ports and strong competition between port service providers.”

Background to maritime logistics system inquiry

Dr King of the Productivity Commission then took the floor to talk about what prompted the commission’s current inquiry into Australia’s maritime and logistics system.

Dr King is one of two commissioners leading the inquiry. The Productivity Commission expects to release its draft report on 9 September.

He stated from the outset his presentation was not indicative of what would appear in the forthcoming draft but would instead provide background as to why the inquiry was deemed necessary, and the concerns raised by participants.

According to Mr King, the inquiry is being underpinned by a series of reports released over the past two years such as the ACCC’s Container stevedoring monitoring report, and others which examined the productivity of container ports.

“We’ve seen an increase in competition by container terminal operators, the same time as we’ve seen shipping consolidation and vertical integration,” he said.

“Behind all of that, the [previous] government asked us to look at the maritime logistics, and because the issues were mainly in containers we focused … on the five major container ports.

“We’re looking at the performance of Australia’s ports, the impact on consumers, business and industry, because that’s really where the rubber hits the road.

“We’re interested in productivity of ports because we’re interested in how efficient goods are coming into Australia, leaving Australia, the benefits of that for Australian exporters and for Australian consumers.”

Dr King outlined some of the recent pressures on the logistics system, including lockdowns, lost air freight, congestion, household goods demand, online shopping and port closures.

He also highlighted issues around variable crane rates, truck turnaround times and poor data on labour and productivity, which he said has impacted the Productivity Commission’s analysis of port efficiency.