Port supply chain costs at the Port of Melbourne

The Issue

The Victorian Government is conducting a Review into port access and pricing involving the container supply chain to and from the Port of Melbourne.

A key area of focus in the Review is the pricing concerns held by transport operators about the increases in infrastructure charges imposed by the stevedores in recent years.

Land transport users have been highly critical of these charges, arguing that they have no ability to avoid or pass these charges through to customers.

Stevedores have maintained that these costs reflect the need to recover significant past investments in terminal facilities that have historically been absorbed as well as a need to re-structure charges to establish a clear pricing signal to improve the efficiency of the interface between truck and container terminals.

The Solution

In order to determine what, if any, regulatory response is required to the increasing infrastucture charges, a proper and considered review of these charges should necessarily have regard to the market and the broader supply chain in which they are applied.  This forms the basis for considering whether these pricing arrangements are consistent with those that would typically prevail in workably competitive markets.

Synergies was engaged by Patrick Terminals to examine these aspects and provide it with a report. Our report considered the following aspects:

• the significance of terminal and land transport costs charged by the stevedore in the context of the broader supply chain;
• the structure and operation of the container terminal market in Melbourne and the degree to which terminal operators are likely if at all to possess market power;
• the structure of the infrastructure charge and identification of who ultimately bears the costs;
• the total supply chain costs faced by the shipper over time given the composition of the total cost may have changed;
• the economic benefits associated with charges that provide signals for more efficient behaviour;
• the costs and risks associated with regulation where there is no clear economic justification.

Based on assessment of these factors, our report found that there was no persuasive case for regulatory intervention in the setting of prices by container terminal operators in Melbourne, and that attempting to regulate these prices would bring with it significant costs and risks.

An assessment of the structural conditions in the market indicated that the terminal market is effectively competitive, with three terminal operators and significant excess capacity at the Port of Melbourne.

The Benefits

Our report provided a comprehensive assessment of the market environment and incentive structures applicable in the container supply chain to and from the Port of Melbourne, which provided an evidentiary basis for assessing whether regulation is justified, given its likely costs and benefits.  Our client was able to draw upon this analysis during the course of preparing its own submission to the Review.

More broadly, supply chain analyses and market based reviews can deliver the following benefits:

• an improved understanding of the costs and the incidence of charges in the import and export cargo task;
• a better understanding of the economic rationale for government regulation;
• identification of the risks and consequences of inappropriate or excessive regulation.