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Good morning and thank you for the opportunity to speak at this great event. I know several of my ACCC predecessors have spoken at Ports Australia conferences, and I’m delighted to continue that tradition.
Container shipping is sometimes referred to as an ‘invisible industry’ because the clockwork-like system that moves trillions of dollars’ worth of goods and drives the global economy largely goes unnoticed by the end users of those goods.
At least, it was until COVID-19 threw out global supply chains and caused highly visible delays, price increases, and product unavailability. I think you could mount a strong argument that over the last two and a half years, ordinary consumers have never been more interested in shipping and logistics.
But if the ideal state for container shipping is where everything runs so efficiently that end users don’t even notice it, businesses in the supply chain are no doubt looking forward to returning to invisibility.
I’ll come back to the impact of the pandemic on container shipping in a moment but given the ACCC’s role, I’m going to centre my talk today around another invisible but essential part of our economy: competition. Or where there are natural monopolies, such as ports, regulation as a substitute for competition.
The ACCC is an economy-wide regulator, and our role is to promote competition, fair trading and regulate national infrastructure for the benefit of all Australians.
Our work interacts with waterfront and shipping in two mains ways. First, the Competition and Consumer Act that we enforce governs how all businesses in Australia deal with their competitors, suppliers and customers.
The ACCC’s first successful prosecution under Australia’s revised criminal cartel laws was against three international shipping companies that illegally allocated vehicle manufacturing customers between themselves.
One of our current financial year compliance and enforcement priorities is competition issues in global and domestic supply chains, particularly where they’ve been disrupted by the pandemic. I’ll come back to this a bit later.
But the second and more direct way that our work interacts with waterfront and shipping is our role monitoring and reporting on the prices, costs and profits of container stevedores in the ports of Adelaide, Brisbane, Fremantle, Melbourne and Sydney.
The stevedoring price monitoring direction was given to us in 1999, or six prime ministers ago. The initial aims of it were to monitor the progress of the waterfront reforms, ensure the stevedores absorbed a temporary levy, and monitoring the Patrick, DP World duopoly which ended about a decade ago. Suffice to say, these have long since been superseded and our reporting has evolved considerably since then.
Given the interconnected nature of container freight, our reports have started to take a much wider look across the whole supply chain to help us understand the trends we’re observing in the stevedoring data.
The major disruptions in 2020-21 were driven by a combination of worldwide factors including port closures and reduced staff, government restrictions, and the pandemic driving a surge in consumer demand towards containerised cargo.
As many in the audience will know from first-hand experience, this created a logistical nightmare for the industry. The once efficient major overseas ports became the source of congestion and delays, disrupting shipping line schedules. While shipping lines deployed their entire fleet, they were unable to fully utilise their capacity as vessels were trapped for long periods of time in port waiting queues.
As a result, demand for shipping capacity massively outstripped supply. Shipping lines responded by increasingly omitting ports, rolling over cargo and cancelling bookings. This led to cargo owners around the world scrambling to book scarce capacity on vessels, significantly bidding up freight rates.
In preparing our next report, we’re currently observing that container freight rates remain elevated, although they have trended down since their peak in late-2021. Drewry’s World Container Index on 25 August showed global freight rates were 42% lower than the 2021 peak, but still 64% higher than the 5-year average.
Worryingly, the container freight supply chain remains very congested, and the reliability of international shipping line schedules hasn’t materially improved since last year.
China’s zero-COVID policy has led to several port shutdowns, and the continuing threat this poses may contribute to a ‘just-in-time’ supply chain shifting to a ‘just-in-case’ one. Certainly, market participants have told us there’s been a significant increase in demand for warehouse space, and with it rents.
The ACCC’s ports team has obtained data from each of the five stevedores about their operations up to the end of June 2022, and we’ll also be getting data from the Bureau of Infrastructure, Transport and Research Economics ahead of their upcoming Waterline report.
We’re looking into the accumulation of empty containers in Australians ports, and the fees associated with them. Particularly, reports of drastically higher container detention fee bills, and container detention being charged in circumstances where a container couldn’t be returned due to a capacity constraint at the relevant container park.
Our ports team is also currently consulting with industry participants across the entire supply chain about the most pressing issues right now.
We’ll have a lot more to say about these things in the coming months, but I’m going to move to some of the pre-pandemic, long-term trends in the container freight supply chain because they remain highly relevant.
I’ll begin with the positive one, which is that competition between stevedores has increased over the last decade. Hutchison and VICT’s entry in the ports of Brisbane, Sydney and Melbourne has changed the competitive dynamics in these ports by generating stronger competition for shipping lines, lowering quayside prices, and increasing investment in equipment and infrastructure.
As I mentioned earlier, prior to 2013, Patrick and DP World enjoyed a duopoly at Australia’s major container ports. In our stevedoring reports at the time, we regularly expressed concerns about the lack of competition between stevedores.
Two new entrants and a material increase in the level of competition between stevedores is a positive development, and it probably hasn’t received the attention it deserves. Particularly because the general direction in Australia’s economy over many years has been towards greater market concentration.
The second trend is governments privatising ports without putting adequate regulation in place. Since the ACCC’s monitoring regime started, Port Adelaide, Brisbane, Melbourne, and Botany have all been privatised, as well as two key bulk ports in Newcastle and Kembla.
There can, of course, be benefits to privatising a port, including incentives for the port to achieve greater cost efficiencies, and increased responsiveness to the needs of port users.
I acknowledge these benefits. However, Australia’s container ports are regional monopolies and in the absence of appropriate regulation, they can extract monopoly rents from users with no alternative.
We’ve seen this play out in Victoria over the past five years. The Port of Melbourne was privatised in 2017 and the Essential Services Commission of Victoria was tasked with monitoring pricing. In two separate reviews in 2020 and 2021, the Essential Services Commission found that Port of Melbourne had exercised market power in setting land rents and engaged in significant and sustained non-compliance with the state’s Pricing Order. The deficiencies in the scheme are now being addressed by the Victorian State Government, but it’s too early to see the impact of these changes.
But more importantly, what the ESC’s findings in both these reviews demonstrated was the need for ports to be privatised with comprehensive and well-structured regulation from the start.
Many of you will also be aware of our appeal in the case against NSW Ports and its subsidiaries Port Botany and Port Kembla. In June last year, the Federal Court dismissed our proceedings, finding that the relevant section of Australia’s competition laws didn’t apply to NSW Ports when it entered into certain agreements, known as the Port Commitment Deeds.
The court also found that the compensation provisions in the deeds didn’t have an anti-competitive purpose or effect.
In July last year, the ACCC appealed the decision to clarify the application of competition law to privatisation processes run by state governments.
As the regulator charged with promotion of competition, the ACCC takes an in-principle position that state government privatisation processes shouldn’t prevent the possibility of new entrants to a market. The threat of new entry is an important part of the competitive process and it imposes a competitive discipline on existing businesses.
We believe arrangements that seek to maximise the profit from the sale of an existing monopoly, by protecting that monopoly from competition in the future, are inherently anti-competitive.
The third trend I’ll mention is that restrictive work practices and industrial actions over many years have disrupted supply chains and contributed to the relatively poor performance of Australian ports.
Industrial relations matters aren’t within the scope of the ACCC’s functions and expertise, so I don’t intend to weigh into this too much. I’ll just say that any solutions to these challenges should aim to minimise the adverse impact of restrictive work practices and industrial actions on the efficient operation of Australia’s container ports.
The ACCC also supports the development of a performance measures framework for assessing port performance and benchmarking Australian ports internationally, given the importance of the global freight trade to our economy.
The fourth and final trend I want to discuss is a broad one about market structure. Shipping lines have increased their bargaining power over the last decade or so through consolidation and organisation into three large global alliances. This was initially in response to excess shipping capacity during a period of reduced demand after the 2008 global financial crisis.
While consolidation can bring benefits, namely economies of scale and coordination across a global network, increased concentration of the shipping industry combined with the exemptions provided by Part X of the Competition and Consumer Act could lead to artificially elevated freight rates.
Part X is a legal anachronism. It allows shipping lines to make agreements on rates, vessel sharing and scheduling, which might otherwise breach our competition laws, provided the agreements are registered with the Registrar of Liner Shipping. No other industry benefits from such a broad legislated exemption from Australia’s competition laws.
It was included in the law back in the 1970s because people were concerned that Australia’s geographical remoteness made us an unattractive destination for international shipping lines.
Since then, multiple reviews of Australia’s competition laws have found that Part X is outdated and unnecessary, and have recommended it be repealed. The ACCC shares this view.
Determining what, if any, forms of collaboration should be exempt from competition laws should be a matter for the ACCC after a transparent process, and only where we have assessed that the reduction in competition would result in significant efficiencies or public benefits. Our legislation already provides the appropriate mechanism for this assessment through the authorisation and class exemption regimes.
Over the years, other countries that had similar exemptions to Australia’s Part X have removed or limited them on the basis that the potential harm from allowing cartel behaviour by shipping companies may outweigh the benefits of regularity and reliability of service.
To come back to market structure, in recent years there has also been increasing vertical integration between shipping lines and landside services, both internationally and domestically.
For example, in 2019, shipping line MSC acquired Integrated Container Logistics, which is a provider of specialised container transport, warehousing, distribution and storage solutions at Fremantle Port.
We’ve heard from industry participants that some vertically integrated shipping lines are only offering shipping capacity to cargo owners if they also take up their logistics services. We’ve also heard concerns that vertical integration could squeeze small and medium freight forwarders for landside logistics, warehousing and customs clearance services out of the market.
Some vertical integration has also occurred in landside and logistics services, and stevedoring operations.
In 2016, Qube Holdings acquired a 50% interest in Patrick Terminals and, in 2018, it acquired a container park at Port Botany. Some transport operators told us they were concerned it could result in Qube receiving preferential treatment from its related companies.
Last year, Qube also acquired Newcastle Agri Terminal before the ACCC was able to properly consider and review the transaction. After investigating, we decided not to pursue enforcement action, but we remain concerned about potential impacts on the supply chain for bulk grain export through the Port of Newcastle, and we’re watching how it develops.
Not all vertical integration raises competition concerns. It can lead to greater efficiencies and lower costs for customers due to synergies in related services. But, where there is insufficient competition in the upstream or downstream market, vertical integration can provide the incentive and ability for a firm to establish and maintain a dominant position.
A vertically integrated firm could then use this dominant position to discriminate against upstream or downstream competitors, or favour its own related entities, to the detriment of end users.
I mentioned at the start of my speech that one of the ACCC’s current compliance and enforcement priorities is competition issues in global and domestic supply chains. Each year, we undertake a robust review process to come up with these priorities as they focus our attention on the issues that are likely to have the biggest impact.
As part of our focus on competition in global supply chains, earlier this year we announced a new international working group with the competition authorities of the ‘five eyes’ alliance. This group is solely focused on anti-competitive conduct in supply chains.
The members are the United States Department of Justice, Canadian Competition Bureau, New Zealand Commerce Commission, the United Kingdom’s Competition and Markets Authority, and the ACCC.
The five competition authorities are all signatories to a cooperation framework, which provides the basis for the intelligence sharing.
Of course, our current supply chain disruptions are the result of COVID-19, and more recently Russia’s war in Ukraine. The reverberations from these enormous global shocks cannot be halted through competition law enforcement.
The reason that we and our international counterparts have prioritised this is there’s potential for companies in global supply chains to use the current conditions as a cover to engage in collusive conduct.
We’re looking for evidence of illegal coordination between competitors, such as fixing prices or restricting output. The reason for such conduct could be attempting to maintain high prices when the prevailing market forces are bringing them down.
A different example could be a business that’s gained market power during the pandemic because supply chain disruptions have reduced the competition it faces from imports. That isn’t illegal, but we’d be concerned if such a business sought to entrench its power by locking in customers to prevent them from switching to imported goods when they become available again.
Our alliance partners in the United States recently stated that the future of antitrust enforcement will require proactive enforcement efforts, and they won’t be waiting for cases to come to them. We share this view.
We are ready to act if we see businesses attempting to take advantage of supply chain disruptions to fix prices or share markets, or misuse their market power.
While the supply chain priority is new this financial year, the ACCC has a lot of experience in these markets. I’m coming towards the end of my speech, but I want to finish by talking about a few matters that are relevant to the container freight industry.
The ACCC intervened in late-2019 when Tasmanian Ports Corporation imposed a new port access charge on its customer Grange Resources, after Grange decided to switch to a new towage and pilotage provider.
The Federal Court found that TasPorts had breached the law as it didn’t have a right to impose the new charge. This was an important decision because it was the first time a corporation had been declared to have breached the revised misuse of market power law.
Companies with substantial market power have a special responsibility when deciding how to respond to competitive threats. If they respond in a competitive way, for example by offering customers better products at better prices, they won’t face the risk of enforcement action. But if they hinder a competitor from competing on its merits, the ACCC will be ready to act.
The ACCC also has an important role assessing what impact certain mergers and acquisitions may have on the state of competition in markets. We enforce the merger law that prohibits any acquisition that would have the effect, or be likely to have the effect, of substantially lessening competition in any market.
Competition in waterfront and shipping, and in related markets such as rail freight, can have far-reaching consequences across the economy. A recent merger that is relevant to ports is Aurizon’s proposed acquisition of One Rail. Aurizon sought informal clearance for the transaction, and we issued a statement of issues in June outlining our preliminary competition concerns. In July, we announced that we wouldn’t oppose the transaction after accepting a court-enforceable undertaking from Aurizon to address the competition concerns by divesting One Rail’s east coast business.
Aurizon and One Rail are two of the three main suppliers of rail haulage services for coal in New South Wales and Queensland. We believed that without the divestment of One Rail, the proposed acquisition would have been likely to substantially lessen competition. It would have reduced the number of main competitors from three to two, likely resulting in higher prices or decreased service levels for coal moving customers in New South Wales and Queensland.
To address the concerns, Aurizon offered us a divestiture remedy in which they committed to sell One Rail’s east coast business, which includes its coal haulage operations in New South Wales and Queensland, so three main competitors would remain in this market.
We also considered the impact of the proposed acquisition on competition in regional markets for the supply of rail haulage services for bulk commodities other than coal. We were satisfied that the divestment would preserve One Rail’s east coast business as a potential competitor to Aurizon for non-coal bulk rail haulage as well, and Aurizon would continue to be constrained by a number of existing bulk rail haulage competitors.
Another recent merger review that is more directly relevant to this audience is the proposed acquisition of the Port of Geelong by the Spirit Super and Palisade Investment Partners consortium.
Just in the last week, the consortium decided to not proceed with the transaction and withdrew its request for merger clearance. We had previously identified competition concerns regarding the likely impact on competition in the supply of port services for long-term bulk cargo customers in Victoria due to the reduction in competition between the Port of Portland and Port of Geelong. The parties’ decision to not proceed with the transaction came after being informed that we continued to hold these concerns and that more time would be required to investigate.
The acquisition would have resulted in Palisade Investment Partners managing, on behalf of investors, 100% of the Port of Portland and 49% of the Port of Geelong. These two ports combined handle over half of Victoria’s bulk cargo.
Superannuation and other investment funds have interests in many of Australia’s infrastructure assets. The issue of common fund management and ownership among competing firms, including via minority interests, has increasingly become a focus of regulators and policy makers.
Parties proposing to acquire interests in Australia’s critical infrastructure can expect a careful and thorough ACCC review as the long-term consequences for competition can be very significant.
I’ll finish by reiterating that I recognise the last two and a half years have posed major challenges to businesses in the container freight industry. But in the same way that we’re taught to never let a crisis go to waste, the current supply chain dynamics should be Australia’s motivation to address some long-standing issues.
At the heart of all these issues is competition. Competitive markets lead to a stronger economy because competition drives innovation and productivity. And given that shipping and logistics touches almost every single part of our national economy, the benefits of increased competition in your sector can be far reaching.
Proper regulation to compensate for a lack of competitive pressure on our container ports, addressing restrictive work practices to improve efficiency, and repealing Part X to increase competition between shipping lines on Australian trade routes would go some way to achieving this.
Our economy now, perhaps more than ever, needs well-regulated ports and strong competition between port service providers.
Thank you for the opportunity to speak here today and I am happy to take any questions that you might have.