Market Overview

Marine Terminal Operators Sting Australian Shippers, Truckers With Huge Surcharges

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Marine Terminal Operators Sting Australian Shippers, Truckers With Huge Surcharges

 

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Australia's import, export and logistics industries are in dismay at a massively escalating series of surcharges that are being unilaterally charged to truckers and shippers by the nation's main box terminal operators. There have been hikes in surcharges of hundreds of percentage points. And, in one case, an imposed surcharge was literally increased over a couple of years by 2,372 percent.

Industry executives are furious.

"The result has been a disaster for Australian exporters," commented local industry and lobby group, the Freight & Trade Alliance, which represents Australian shippers.

Infrastructure surcharges from the two main terminal operators, Patrick and DP World Australia, have been imposed since late June 2010 according to the competition watchdog, the Australian Competition and Consumer Commission (ACCC).

But, a couple of years ago, the terminal operators really pushed the pedal to the metal on the cost of infrastructure surcharges, according to data compiled by the ACCC. It published surcharge data up to October 2018, along with known details of pre-announced surcharge hikes that were scheduled to take effect in January 2019.

At Melbourne, which handles over three million twenty-foot equivalent unit shipping containers (TEUs) a year, DPW Australia had a $3.45 (US$2.87) charge per box in April 2017. That was increased to A$49.20, then, by January 1, 2019, it stood at A$85.30 (US$60). That's a 2,372 percent increase in the surcharge from April 2017 to January 2019.

And, of course, DP World didn't limit the surcharge increases to Melbourne. DP World charges at Brisbane were introduced at about A$18 in 2010 and escalated to A$65.15 in 2019. In Fremantle, DP World introduced charges of A$8.22 and that has stayed flat until now. Sydney has seen a steep escalation as well. DP World introduced charges of A$21.16 and that was quickly hiked to A$37.65, then to A$63.80.

The other terminal operators weren't blind to the existence of this exciting new revenue source. Box terminal operator Patrick introduced and quickly escalated fees too, as did Hutchison Ports Australia, and Victorian International Container Terminal Ltd. By the end of 2018, nearly all the box terminal operators had imposed large surcharges. Flinders Ports, which operates a monopoly service in Adelaide, South Australia, completed the set with an A$28.50 surcharge in the same year. However, none of the terminal operators have been quite so avaricious as DP World Australia. With the exception of the infrastructure surcharges at Fremantle, its price hikes have left the other marine terminal operators far behind.

And the surcharges didn't stop there. There have been numerous hikes of infrastructure surcharges since the ACCC data was published in October 2018.

Victoria International Container Terminals, or VICT (present in Melbourne only), had an infrastructure surcharge of A$48.00 per box in 2018 and, on January 30, 2019, it hiked the price to A$85.00 per box. That's an increase of about 77 percent. In early February, Patrick announced increases in March to A$77.50 a box at Sydney, A$71.50 at Brisbane, and A$82.50 at East Swanson Dock. Hutchison Ports Australia is the latest to increase its "infrastructure levy." In late March it announced a hike, which will take effect on May 1, to A$35.84 per box in Sydney. That's a 243 percent rise from the 2018 charge of A$10.45 per box.

Commenting on the ongoing price escalations, Paul Zalai, founder and CEO of the Freight & Trade Alliance said: "Why wouldn't you turn on the money tap whenever you want?"

Zalai also argues that shippers and trucking companies should not have to bear the costs at all. He argues that as the customers of the marine box terminal operators are the ocean-shipping lines and that it is the ocean-shipping lines who should pay.

The terminal operators argue that the land-side surcharges are necessary and justified.

Patrick, in its note to customers detailing its March 4 price hikes, said that infrastructure surcharges are necessary to recover costs related to capital investment and dedicated land-side infrastructure. It also argues that the surcharges are necessary to cover increases in rent, local taxes and various maintenance and operational costs.

DP World Australia admitted in a note to customers that the increases in surcharges would attract criticism. However, it argued surcharges are necessary for the purposes of cost recovery and for a healthy Australian marine terminal operating sector.

Some markets observers accept – but only in a small way – that there has been land-side and infrastructure investment. But they argue that the scale and frequency of the surcharge hikes are not justifiable.

"We note that there has been some investment but the surcharges didn't begin that way. When you have 50 percent to 70 percent increases a few months later, then it's hard to understand their rationale," Simon O'Hara, CEO of state-based industry association Road Freight NSW, told FreightWaves.

The real rationale for all the surcharges and hikes in surcharges is that box terminal operator revenues have plummeted because of international box shipping consolidation alongside a simultaneous increase in competition in the local box terminal operator market. The terminal operators needed to prop up their revenues and there was a handy option – impose surcharges on truckers and shippers.

Box shipping lines CSCL, Hanjin (which went bankrupt), APL, Hamburg Sud, OOCL, UASC and CSAV have all disappeared from the local Australian market. And that adversely affected the revenues of marine terminal operators. Fewer ships and ocean carriers mean that the box shipping companies that are still standing have greater bargaining power than they did before. They can offer fewer, bigger and cheaper contracts to terminal operators. Consolidated shipping companies are also able to take advantage of the lowest rate that their predecessor companies enjoyed, so terminal operators are losing their high margin contracts too.

Meanwhile, in Australia, there has been an influx of competition in the marine box terminal operating sector. Five to 10 years ago, there were really only two box terminal operators of note – DP World Australia and Patrick. In the last five years or so Hutchison Ports, VICT and Flinders Ports have all made an entry. These new entrants, apart from Flinders, which secured a monopoly in Adelaide, have not been able to attract huge volumes. But they have secured some throughput and they have thereby caused an erosion of terminal operator pricing power.

Meanwhile, in addition to arguing that surcharges are justified, the box terminal operators also argue that the surcharges can simply be passed on to other parties in the supply chain. The end consumer will ultimately and easily bear the burden, they argue.

"The increase in the Infrastructure Access Charge applied at West Swanson [Dock in Melbourne] would, for example, add just one-tenth of a cent to the delivered cost of an iPhone. It would add just one-quarter of a cent to the delivered cost of school shoes, 10 cents to the delivered cost of a microwave oven and 15 cents to the delivered cost of a flat screen TV. Such increases can be passed through without dampening demand, as is evidenced by growth numbers following previous increases in access charges," DP World Australia said in a statement.

The argument that shippers and transport operators can and will simply pass on the costs may be a bit simplistic.

The competition watchdog points out that, in addition to the charge itself, there is a cost for transport operators in the gap between settling a terminal operator's bill and being paid by its own customers. The obvious cost is the cost of debt-finance. Smaller transport operators are charging their customers a 100 percent markup to cover the charge and associated costs, the competition watchdog says. Bigger transport operators are either not charging margins, or are only charging low margins, the ACCC says.

So, clearly, the costs are not simply being passed on. And if smaller transport operators are charging huge markups to cover the costs while the bigger operators are not, a logical inference that can be drawn is that the surcharges are causing smaller trucking operators to lose competitiveness to the bigger operators.

Meanwhile, the argument that surcharges can be passed on is disputed by the competition watchdog. It believes, based on conversations its officials have had with industry executives, that transport operators are not, in fact, able to fully recover the costs associated with the surcharges.

Shipper representatives don't quite see it in the same way as the terminal operators either.

Particularly hard hit are exporters from the Australian state of Tasmania, which, being an island, is particularly cost-conscious regarding shipping. Regional Development Australia and the Tasmanian Logistics Committee, which represent a wide range of shippers in a variety of sectors, have called the terminal operators' surcharges as "unreasonable" and "unacceptable" in a submission to a government inquiry.

"These charges have left Tasmania increasingly susceptible to loss in market share and poorer economic outcomes due to an inability to remain competitive in overseas markets. In the greater context all exporters within Australia now face these increased costs which impact productivity and resulting profitability with flow-on effects into ongoing industrial competitiveness and employment. Ultimately unreasonable costs (and resulting increases) in any form are unacceptable... Without swift and direct action, Australian economic performance will suffer and this in turn could potentially lead to job losses in major industry sectors and loss of market share internationally," the joint submission says.

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Extra charges create cash-flow problems for shippers. The Freight & Trade Alliance gives the example of a flour exporter that shipped 22,140 boxes in 2018 having to pay an extra A$1.60 million per year in shipping charges. A paper and recyclables exporter, shipping just over 42,000 boxes a year, will pay an extra A$3 million. An exporter of containerized grain and meat that shipped just over 18,000 boxes in 2018 will pay an extra A$893,000 in surcharges this year.

"This is a crisis for Australian exporters," the Freight & Trade Alliance said in a submission to a government inquiry.

Cargo owners can't simply pick different terminal operators to avoid the charges. Shipping lines run ships on particular routes and on particular schedules. From a shipper's perspective there may be reliability issues from ocean carrier to ocean carrier. Cargo owners might need to ship their exports at certain times, on certain schedules and to a given standard of reliability. Some shippers enter into long-term export contracts with certain shipping lines. Ocean carriers also cooperate and coordinate their operations. Shipping services that appear to be different from each other and which are offered by different shipping companies may, in practice, use exactly the same ship to carry their shippers' cargo.

And all of that means shippers do not, in practice, have a choice of terminal operator. And, in turn, that means shippers cannot avoid imposed surcharges.

Truckers are trapped too by the imposed surcharges. Firstly, surcharges are usually due for payment within 28 days. However, the customers of truckers don't necessarily pay their bills in that same amount of time.

"Our guys are being used as banks for 30, 60, 90 days. It's an issue for our guys until they can recover the charges. Why are we carrying these costs? Shouldn't it be carried by Patrick and DP World?" O'Hara asked FreightWaves.

Peter Anderson of the Victorian Transport Association agrees that the surcharges are causing cash-flow problems for truckers.

"Overnight, road operators have had to adjust their prices. Some operators are only making A$10 to A$20 a box. We have asked the [terminal operators] to go to 30 days so we can at least get a full payment cycle. The cash-flow implications are huge. The smaller operators don't have the ability to bounce back," Anderson says.

Secondly, truck operators are at the mercy of the terminal operators. Trucking companies have to do what they're told – they pick up or drop off the cargo where they are instructed to do so by the customs broker.

"We can't go anywhere else, we have no control," Anderson says.

Browse through the terminal operators' terms and conditions and there are statements like this from VICT: "facility access will be conditional on payment of these charges." Or this from Hutchison: "continued access to the terminal is conditional upon acceptance of Hutchison's Terms and Conditions."

Let FreightWaves translate that into plain English: you don't pay, you don't play.

Trucking operators have to pay for their trucks to enter the terminal to load or discharge containers. If they don't pay the surcharges, as unilaterally imposed by the terminal operators, then they're out of business.

"It's grossly arrogant. It's a disgrace. I have to go to [the terminal operator], otherwise they lock me out. And they can close me down," Anderson fumed.

Image sourced from Pixabay

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Posted-In: Australia Freight Freightwaves LogisticsNews Global Markets General

 

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