The operating profit margin of Australia’s stevedoring industry has increased by 14 percentage points since the start of the COVID-19 pandemic, according to the Australian Competition and Consumer Commission's Container Stevedoring Monitoring Report 2021-22.
Stevedoring involves lifting of containers on and off ships.
The ACCC report examines the prices, costs, and profits of stevedores at Australia’s international container ports, but also looks more broadly at the state of the container freight supply chain following the pandemic disruption of recent years.
It has revealed that the industry operating profit margin of Australia’s five stevedores was 24% in 2021-22, up from 10% in 2019-20.
The ACCC said it has reached the highest level observed since the Patrick and DP World duopoly ended about a decade ago.
Between 2000 and 2013, Patrick and DP World (Sydney, Melbourne, Fremantle and Brisbane), and the Adelaide container terminal collectively achieved operating profits of between 21% and 27%; however, competition from Hutchison and VICT combined with large infrastructure investments and other developments led to their margins declining over the following seven years.
ACCC commissioner Anna Brakey said importers and exporters benefitted from an injection of new competition at Australia’s largest ports several years ago.
“But we’re concerned that in the past few years those gains have been eroded to the detriment of importers and exporters, and, ultimately, Australian consumers,” Brakey said.
The ACCC has not yet formed a conclusive view on the drivers behind the recent increases in stevedores’ operating profits. It said that severely constrained global shipping capacity throughout the pandemic made it harder for importers and exporters to change to a different shipping service, and by implication a different stevedore, which may have weakened price competition between stevedores.
“If stevedores’ higher profits are due to the recent shocks to the global container freight supply chain, we’d expect their profits to decline over time as shipping and terminal congestion eases,” Brakey continued.
“We’ll be closely scrutinising the stevedores’ charges and financial performance in the coming years to see if there are any structural or behavioural factors sustaining higher profits, and whether any further policy or regulatory responses are warranted.”
State of container freight supply chain
The report indicated that COVID-19 continued to cause significant congestion and delays in the container freight supply chain in the 2021-22 financial year, although global shipping schedule reliability has improved in the second half of 2022.
ACCC said that schedule reliability at Australia’s container ports is influenced by the reliability of global shipping schedules, as congestion and delays overseas can delay arrival at other ports along a given route.
A stevedore is reported to have told the ACCC that as few as 10% of ships arrived within two hours of their designated berthing window in 2021-22, but that figure had improved to between 30-40% in recent months.
“Ongoing congestion in global supply chains means it’s still harder to move containers than it was pre-pandemic, but the situation has improved considerably this year,” Brakey said.
The ACCC has also heard that unreliable shipping schedules have caused ‘vessel bunching’ at Australian ports, resulting in large peaks and troughs for stevedores’ container handling. The net ship rate (a measurement of the number of container moved on or off a ship in an hour) at Australia’s container ports fell by 18% between 2019-20 and 2021-22, which is said to be partly due to vessel bunching.
“Less reliable shipping schedules, an increase in the size of ships visiting our container ports, and labour shortages across the whole supply chain have all impacted the efficiency of stevedores’ operations,” Brakey said.
Meanwhile, the recent slowdown in global trade has put downward pressure on global freight spot rates, which in November this year fell below US$2,000 per 40-foot container according to the Platts Container Index produced by S&P Global Commodity Insights. However, ACCC said this is still roughly double the average rate in 2019.
Global freight spot rates peaked in September 2021 at nearly US$8,000, but fell to about US$5,000 by the end of June 2022.
ACCC said elevated freight rates and generally higher costs for importers to use the supply chain have contributed to higher prices for Australian consumers and have put upward pressure on inflation.
“There is currently a high degree of economic uncertainty globally, but if there’s a reduction in global trade next year as industry analysts are predicting, it should ease pressure on supply chains and freight rates even further,” Brakey said.
ACCC calls for reforms
The ACCC believes that the regulation of Australia’s monopoly container ports is ineffective, and the threat of further regulation in most states is not sufficiently credible. It said there is currently the potential for the exercise of market power to exist undetected due to the inadequate level of regulatory scrutiny.
The report said that, at a minimum, Australia’s privatised container ports (Brisbane, Sydney, Melbourne, Adelaide) should be subject to greater regulatory oversight.
The report also said that cargo owners in Australia need more protection against unreasonable detention fee practices. This arose after the ACCC heard that some cargo owners paid significantly higher detention fees in 2021-22. Shipping lines charge detention fees to cargo owners for continuing to use containers beyond an agreed period, to incentivise their prompt return.
Cargo owners said that some shipping lines had levied detention fees on them for failing to return empty containers on time, even though the locations the shipping lines had directed the containers to be returned to were full.
The ACCC said it supports the recommendations in the Productivity Commission’s recent draft report on Australia’s container ports to repeal Part X of the Competition and Consumer Act to encourage greater competition between shipping companies on Australian trade routes, address industrial relations issues, and develop benchmarks to measure the productivity of Australia’s container ports.
“Container shipping is critical to a trade-exposed economy like Australia. A well-functioning and more efficient supply chain would benefit all Australian businesses and consumers,” Brakey said.
The ACCC has monitored the container stevedoring industry since 1998-99, under a direction from the Australian Government.
It said that given the interconnected nature of the container freight supply chain and the heightened interest in trade disruptions during the pandemic, the last two reports have included a broader analysis of the global supply chain.