THE Productivity Commission’s draft report on Australia’s maritime logistics system has been received with varying degrees of satisfaction and disappointment.

Published on 9 September, Lifting productivity at Australia’s container ports: between water, wharf and warehouse is the draft to the body of work structured around an inquiry into the productivity of Australian ports.

It suggested from the outset that Australia’s major container ports are underperforming to the point of costing the national economy an estimated $605 million each year, but that increased productivity is within reach.

The Productivity Commission addressed the perceived lack of competition in some parts of the industry, the impact of workplace arrangements on productivity, investment in port infrastructure, adoption of technology and the establishment of a strategic fleet.

At 447 pages long, the draft report is still being digested by much of the industry, but the overwhelming response has been that the inquiry was necessary.

Terminal access charges, the prospect of a national fleet, infrastructure investment and repeal of Part X of the Competition and Consumer Act 2010 have so far emerged as areas of particular interest.

Shipping Australia said in a statement it was pleased the Productivity Commission had found ports could achieve much higher productivity, which would benefit the national economy as a whole.

“Australian port performance is substantially less than global competitors and that should now be regarded as a fact by everyone in the sector.”

Infrastructure needs

Ports Australia CEO Mike Gallacher told DCN he expects the draft report to dispel some of the “unfair scaremongering” and “finger pointing” the industry has seen over the past two years.

He was encouraged by the Productivity Commission’s recognition that infrastructure needs in the maritime and logistics industry are being addressed.

The draft report noted container port operators are investing to accommodate bigger ships, plans are in place to increase the share of freight moving to and from ports by rail, and all state governments have transport strategies in place that cover future port infrastructure needs.

“We’re confident that this is a realistic reflection in terms of the investment that has been made in ports,” Mr Gallacher said.

“Planning and discussions are underway to prepare our ports for the future, so it’s not as though our ports are static – they’ll continue to grow as the market grows and as demand grows.

“But at this early stage, despite criticism by some quarters, [the draft report] recognises the challenges we have in the sector, but it does so in a constructive way.”

Mr Gallacher said it is important to ensure mechanisms are in place to maintain community and industry support for further investments as ports plan for the future.

“There were a lot of people making wild claims about lack of investment, underinvestment – which was totally untrue – and this report does show that we’ll continue to make the investments,” he said.

“As the Australian economy grows, as the population grows, demand grows, we’ll continue to invest in our ports as we have done for many, many years.”

Terminal access charges

The Productivity Commission suggested in its draft report that lack of competition in some parts of the maritime logistics system means consumers are paying too much.

According to commissioners Stephen King and Julie Abramson, who are running the inquiry, transport operators “have no choice” about which terminal they use when picking up or dropping off a container, so must pay whatever price a terminal operator sets.

The report said recent rapid increases in terminal access charges have flowed through to cargo owners and consumers.

It argued terminal operators should only be able to levy fixed charges such as TACs on shipping lines, who can choose which terminal to use.

Paul Zalai, director of the Freight Trade Alliance and secretariat of the Australian Peak Shippers Association, told DCN he was “absolutely delighted” the Productivity Commission had heard the organisations’ concerns around terminal access charges.

“It’s something that we’ve been advocating now for several years and particularly during these periods of time with inflationary pressures, we see it’s an important step forward,” he said.

“Shipping lines are the only ones that can influence the service and price, whereas the road transport sector purely a price taker, so we believe that it should go back through the direct commercial lines as recommended by the productivity commission.”

But Shipping Australia said it disagreed with commission’s perceived suggestion that shipping lines “should be forced to pay the bills of trucking companies”.

“We can see no justifiable reason, nor is there any rationale expressed in the Productivity Commission’s report, explaining why it is appropriate for costs to be shifted from one party to the other,” Shipping Australia said.

“The comment that ‘shipping lines choose the terminal operator’ demonstrates a lack of understanding of industrial reality and, in any case, does not justify why shipping lines should be required to subsidise the revenues and profits of transport operators who are, after all, in business for their own commercial benefits.”

According to DP World, any proposal to change the current regulatory frameworks around terminal access fees would require detailed consideration and consultation with multiple parties across the supply chain.

Container detention fees

The draft report also noted transport operators and cargo owners are paying fees to shipping lines for the late return of containers even when the delay is due to empty container parks being full.

The commissioners believe the exemption for shipping contracts, which means the fees fall outside the scope of the Australian consumer law, should be removed.

“We also take issue with the comments relating to the ongoing hire of ocean shipping containers,” Shipping Australia said.

“Shipping companies invest substantial capital in the creation, repair, upgrading, logistics and management of ocean shipping containers. This investment needs to be recovered via commercial operations.

“Accordingly, it is reasonably necessary for shipping lines to require payment from customers for the ongoing hire of ocean shipping containers.”

According to Mr Zalai, container detention is costing importers hundreds of millions of dollars each year.

“We do believe that the Productivity Commission has made some very good observations, and we’ll be seeking further legal advice to follow their proposals around variation to contracts,” he said.

“Overall, we’re delighted to be heard by the Productivity Commission, and it’s the best piece of news that the international trade sector has heard since the start of the pandemic.”

Workplace arrangements

Shifting focus to workplace arrangements, the Productivity Commission responded to recent industrial action at Australia’s ports with the observation that disruptions during enterprise bargaining impose large costs on businesses dependent on maritime freight.

The draft report said workplace arrangements are lowing productivity and called for incremental changes to the Fair Work Act.

It said more effective remedies are needed to limit unreasonably protracted bargaining and industrial action, and limits should be placed on clauses in container terminal operators’ enterprise agreements that are “highly restrictive” and constrain the ways that workers and equipment can be deployed.

The Maritime Union of Australia argued the Productivity Commission had been tasked by the former Liberal government with “blaming Australia’s supply chain crisis on the hard-working members of the MUA who work on the Australian waterfront”.

MUA national secretary Paddy Crumlin described the inquiry as an attack on the union, a tactic to provide a smokescreen for the government’s “long-term failures and neglect of Australia’s strategic and commercial interests”.

“Our maritime logistics system is hampered by long-term failures to invest in transport infrastructure beyond our seaports and by international shipping cartels’ rampant price gouging and timetable manipulation,” Mr Crumlin said.

“Businesses and consumers are paying twice for the failures of the former Liberal government; through spiralling freight prices and massive delays caused by infrastructure congestion that has nothing to do with stevedoring workers at our ports.

“The impact of waterfront workers demanding fair pay, safety at work and job security is inconsequential compared to international shipping price rises of up to 1000% and almost a decade of underinvestment in road and rail infrastructure connecting our seaports with Australian domestic supply chains.”

The strategic fleet

Another contested point raised by the Productivity Commission was the view that concerns around domestic shipping capacity and training may be better resolved by means other than a strategic fleet.

The draft report observed capacity could be acquired as needed from the international market without the costs involved in supporting a national strategic fleet.

It argued Australian-flagged vessels are not a prerequisite to meeting maritime skill requirements; that cadetships and skilled migration “appear to be working well” in meeting needs for blue-water experience.

“Shipping Australia has long opposed the concept of a national fleet,” the industry group said.

“We note and agree with the Productivity Commission that an Australian national fleet would have a limited ability to mitigate the supply chain issues of recent years, and that a national fleet would find it difficult to compete on a commercial basis.

“We also support the comments that neither a cabotage regime nor a national fleet is necessary to meet the requirements to develop a maritime fleet.”

But Angela Gillham, CEO of Maritime Industry Australia (MIAL), rejected the Productivity Commission’s findings.

“The exceedingly narrow lens through which the draft report views the benefits to the nation that would be derived from increasing Australia’s maritime capability is disappointing to say the least,” she told DCN.

“The analysis relating to the alternative options available to secure our supply chains, besides increasing our own sovereign maritime capability, is shallow at best.”

Ms Gillham said the proposition that cadetships and skilled migration are “working well” was a major source of concern for the organisation.

“This is completely at odds with the experience of Australian maritime businesses and broad end users of maritime skills in Australia.”

Ms Gillham noted both sides of politics are aware that overseas interests “cannot and should not” be completely relied upon to secure critical supply lines, and immigration and current training capacity should also not be relied on to meet growing demand for maritime skills across the Australian economy.

“The training, skills and experience obtained while working at sea are utilised in a range of industries and government services across the Australian economy, including in port operations, the resources industry, maritime compliance, and maritime educators and trainers.”

She said the decline in Australian ships has seen a corresponding decline in training opportunities, and the supply of highly skilled Australian seafarers has “all but dried up”.

“Compounding the issue is the fact that many end users of maritime skills, with a few exceptions, cannot and do not train or contribute to training and skills development for current and future needs.

“We are at crisis point with respect to skills and to claim that this demand will be met by the existing trickle of cadetships and immigration, in the face of global high demand for these skills, is short sighted and myopic at best.

“It is very difficult to understand how the Productivity Commission came to this conclusion.”

Market power and regulation

According to the draft report, ports have some market power, but further regulation is not needed.

The Productivity Commission observed Australia’s five largest container ports has (but not necessarily exercising) market power in their relationships with shipping lines.

It said if a shipping line wants to engage with cargo owners in a particular part of Australia, it must operate through the local port and there is little if any scope for shipping lines to substitute between container ports.

Import cargo destinations are overwhelmingly local to each port and landside transport costs mean that moving cargo between cities to access an alternative port would be uneconomic. Shipping lines cannot credibly threaten to move their business elsewhere.

“Port privatisation processes have entrenched this power in Sydney by combining the ownership of Port Botany and Port Kembla and penalising any development of container capacity at the Port of Newcastle,” the report says.

Port of Newcastle CEO Craig Carmody told DCN farmers in northern New South Wales have been transporting their products to Port of Melbourne by truck for export rather than to Port Botany by rail.

He explained Port of Newcastle is has a rail freight connection with the regions in the state’s north, but the farmers are unable to export through Newcastle because of the policy that prevents the port from competing with Botany.

“What the state government needs to do is undo this dodgy deal that they did back in 2014 when they sold the port of Botany and Port Kembla and said port of Newcastle would be penalised if it competed,” he said.

“The outcome that is needed for the farmers of NSW and ultimately for the economy of NSW, is that the state government needs to allow all the ports of NSW – particularly the largest on the east coast of Australia and the second largest port in Australia itself – to be able to handle containers, instead of their policy which says only one place is allowed to do containers, and it happens to be the one where the farmers of NSW can’t even get their product to.”

According to Mr Carmody, the policy restricting Port of Newcastle’s ability to handle containers is in place until the year 2065.

“Just to put it into context, it’s not just the farmers of northern NSW who have to wait for another 43 years – remember, the port of Newcastle is the world’s largest coal port. That is our number one business.

“What we’ve always been about … is [diversifying] our business. And one of the big ways to do that is to start handling containers. In 43 years, I think it’s fair to say coal will not be what it is today. The world’s largest coal port will certainly not be moving coal.”

Mr Carmody said the state government had effectively locked Newcastle into a future in which it will lose its business without being able to establish a new one.

“We are the largest regional economy in Australia, and the state government policy is there is no plan for Newcastle and the Hunter. That’s what they’ve done with this policy. They don’t even see what they’ve done.”

Following the release of the draft report, the Productivity Commission is inviting industry to supply further information and feedback, due 14 October this year.

The final inquiry report is scheduled to be handed to the Australian government by the end of December.