DP World dispute exacerbates Australia's "abysmal" port productivity as shortages loom

DP World dispute exacerbates Australia's "abysmal" port productivity as shortages loom

Photo: Port of Brisbane, via Facebook.

"It feels like you only get a little bit of a breather where there isn't a dispute," says Sean Crook, co-founder and director of freight forwarder Neolink.

The ongoing dispute between Emirati-owned DP World and the Maritime Union of Australia (MUA) is exacerbating an already challenging shipping environment for exporters and importers, where the productivity and competitiveness of the country's ports have lost significant ground over more than a decade.

Australian businesses are paying the price - $84 million per week according to a DP World-commissioned report, but also through terminal access charge increases in Sydney, Melbourne and Brisbane from 1 February ranging from hikes of 21.22 per cent to 52.52 per cent.

And that's not to mention a 10-day delay.

"We’re seeing some vessels taking 10 days to even offload and for us to get cargo out of the terminals; it takes 10 days to get the cargo from China to Australia," says Sean Crook, co-founder and director of freight forwarder Neolink.

"A lot of people can't afford that time in their supply chain, and that’s where you’ve got the knock-on effects where people are running fairly lean supply chains because of what’s been going on with inflation.

"As of today, we're actually paying more money to get the container out of the port than what it cost to freight it from China to Australia at the beginning of last year. That’s how bad it’s gotten in terms of how expensive and how inefficient the ports have become in the space of a few years."

Challenges add to woeful inefficiency by global standards

That slump in inefficiency was laid bare in the World Bank Trading Across Borders report, with a result that would likely be headline news if it related to sport.

"In the decade to 2020 we dropped in world rankings from 25th to 106th. If we had that kind of drop in world rankings in education, health or dare I say a national sporting team, there would be an outcry," says Paul Zalai, director of the Freight & Trade Alliance (FTA) and secretariat of the Australian Peak Shippers Association (APSA).

Zalai says the current industrial dispute is having devastating financial impacts on exporters and importers, but he also believes DP World's price increases aren't helping.

"Rubbing salt into the wounds of our trade sector, DP World without any level of consultation, has announced another surge in landside fees including exorbitant increases in terminal access charges from 1 February 2024," he says.

"Rather than negotiating increased fees with their contracted client being foreign-owned shipping lines, it is a whole lot easier to hold road and rail transport operators to ransom and force them to pay increased fees for access to the terminals.

"We have pleaded with DP World to waive these charges as a form of relief until the industrial action is resolved – this was declined, as too was a request to at least consider a deferment of the increase to a later date."

Zalai believes many retailers will end up being short on stock for certain products in the coming weeks, and shifted strategies from importers to hold more stock on-shore to adapt to instability and a 'lack of confidence in just-in-time inventories'.

"We’ve got lot of data now of a lot of the scheduled vessels which are cancelled. A lot of the scheduled vessels out of Asia, China won't be coming," he says.

"Those that are coming are going to be bypassing congested ports to try to keep to some type of international schedule. That adds more costs for importers, because if they had goods that they were expecting in Sydney but that gets discharged in Melbourne, they're going to have to arrange to transport that back to Sydney.

"That's going to have a longer-term impact on costs, because warehousing is at a premium at the moment now, and there’ll be more and more demand for it."

This comes amidst troubles for global shipping more broadly, from conflict in the Red Sea to a drought in the Panama Canal that is causing congestion, among other factors.

"That's adding extra delays and uncertainty, and in the mix of everything else, we’re getting reports from members that a lot of cargo that's getting trans-shipped through Singapore and other ports in Asia destined for Australia, cargo’s been stranded there for up to two months just waiting for available vessels to take cargo on forward to Australia," Zalai explains.

"It’s even worse for the exporters because a lot of them are in regional centres and reliant on rail to get their produce in containers to the port.

"The problem is at the moment it’s a moving target. Vessels are making very late decisions whether they actually come to a nominated port or not, and even those that do are often doing what we call a 'cut and run' – they’re discharging the imports but moving on before they accept the exports because of that pressure to meet international schedules."

Looking further ahead on inflation and other terminal contracts

Sean Crook from Neolink emphasises Australia is already a low-margin trade lane compared to other, much larger Western markets like Europe. So if the ports can't turn around vessels quickly enough, many will be redirected.

"We’re not really an attractive destination at the moment for the shipping lines," he says.

"Our efficiency on a global scale is abysmal. It's really poor, so we've got a lot of work to do."

Crook adds that the increases in charges could also have lagging effects on inflation, which has been easing lately. Whilst there are numerous factors that contribute to inflation, Crook highlights that lower freight costs in the first half of 2023 would have had some impact.

Against this backdrop, the blame for the situation in Australia's ports cannot be squarely placed on this one particular industrial action. Crook notes that because there are three major international players (the other two being Patrick and Hutchison) that dominate Australia's terminals 'it feels like it almost continuously rolls on'.

"It feels like you only get a little bit of a breather where there isn't a dispute," he says.

"What people are concerned about in the industry is that all of the collective bargaining agreements with all the terminals could potentially line up to 2025," he says.

"So if this does get sorted out, if it is only a two-year deal with DP World, then all of a sudden all of the three terminals will expire around the same time, and that's potentially going to be a big red flag."

Trade rep urges adoption of Productivity Commission recommendations

The current industrial relations conflict is heating up after a comprehensive, 489-page Productivity Commission report into Australia's maritime logistics system was released to the public last week, claiming inefficiencies at the country's major container ports were costing the national economy about $600 million a year.

"If the government would adopt a lot of the key recommendations, they’ve got a really good opportunity to improve the situation," says Paul Zalai of the Freight & Trade Alliance.

"We’re dealing with entities that are predominantly foreign owned who are profit driven, with Australia’s national interest as very much secondary.

"It’s really the wild west out there, and yes this industrial action is really bad now, but the increase in the fees by DP World is just an example of the care factor for Australian trade."

The report concludes that higher productivity is achievable and will deliver significant benefits, although international ports with the fastest turnaround times have 'considerably more capital than they need to efficiently handle current throughput'.

"Use of more capital in Australia would reduce turnaround times but raise costs; the outcome would not necessarily be efficient. Faster turnarounds are good, but not at any cost," the report states.

The report advocates for incremental changes to the Fair Work Act as current workplace arrangements lower productivity.

"The Government has amended the Fair Work Act to seek to limit intractable bargaining, but more effective remedies are needed to reduce industrial action that harms consumers, importers and exporters," the report states.

"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."

In a recommendation that relates more closely to Zalai's argument, the report also determines that a lack of competition in some parts of the logistics system means consumers are paying too much.

"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. Recent rapid increases in terminal access charges (TACs) have flowed through to cargo owners (and consumers). Voluntary protocols to address terminal operators' abuse of market power should be strengthened," the report states.

"Transport operators and cargo owners are paying fees to shipping lines for the late return of containers even where the delay is because empty container parks are full. The exemption for shipping contracts, which means that these fees fall outside the scope of the Australian consumer law, should be removed."

The report's authors also call for modest measures to improve domestic shipping capacity and training.

"The resilience of Australia’s maritime supply chain could be improved by reforms to coastal shipping and repealing Part X of the Competition and Consumer Act," the report says, in reference to a law which, unlike in other industries, does not require shipping lines to show that their arrangements provide a net public benefit to Australia.

"Australian-flagged vessels are not a prerequisite to meeting maritime skill requirements. If skills shortages were to occur, these are best addressed by cadetships and skilled migration."

An automated future? 

Crook believes Australian port terminals ought to embrace the kind of automation that has modernised port operations in hubs such as Rotterdam, Qingdao and Shanghai.

"The level of technology is there – I’d like to see the ports invest heavily in automation within their terminals, because that’s the answer to making these ports more efficient and making things turn around quicker," he says.

"The conversation that needs to happen is how can we work with people to train and develop, looking at their skillsets, because there are a lot of valuable great people who have worked with our terminals and ports for a number of years.

"How can we work with them to reskill them and get them to embrace this technology to become more efficient? Because ultimately then, everybody wins."

How businesses can respond to unstable supply chains now

Beyond advocacy through various associations and lobby groups, there is little that individual operators can do to change the current predicament. But Crook says importers can improve their results and de-risk to an extent by getting more involved with their supply chains, and doing so with participation from the highest levels of management.

"We see that the people who are engaging as early as possible in the supply chain with their partners are coming up with the best solutions to get goods here in the most efficient way," he says.

"We have customers that are really engaged in their supply chain as an entire organisation and business, and people that don't, and there's a dramatic difference between the ones that do and don’t – they see anywhere from a 20 to a 30 per cent improvement in efficiency gains.

"If I look at the best run businesses, I'm getting calls from the MDs and CEOs all the way down through the organisation because they understand the ramifications of what’s going on, and they understand that they need product to sell to their customers to generate invoices and generate cash."

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