Global and domestic disruptions continue to destabilise the container freight supply chain, leading to congestion, delays and higher costs, which resulted in some importers having to pay four to 11 times as much for ocean freight as a year earlier, according to the 2023-24 ACCC Container stevedoring monitoring report.
During 2024, the ACCC conducted a detailed examination of charges levied by stevedores to transport operators over the past seven years, known as landside charges. The ACCC also conducted enquiries into charges levied by empty-container parks to transport operators, known as notification fees.
The report raises concerns about limited competition on landside charges charged by stevedores and notification fees charged by empty-container parks leading to poor outcomes for Australian consumers and businesses.
The findings come after the container freight supply chain largely recovered from the disruptions of the pandemic, only to experience restrictions in the Panama Canal and attacks in the Red Sea causing shipping lines to avoid the Suez Canal.
In addition, industrial action at DP World’s terminals contributed to further disruptions in the container stevedoring market.
Importers and exporters experienced increased costs and delays, leading to lost sales, cashflow issues and potential reputational damage, the report says.
“It’s been a difficult time for businesses dependant on the container freight supply chain, which in turn affects consumers and impacts the Australian economy through higher costs and shipping delays,” ACCC Commissioner Anna Brakey said.
“We have found there are likely market failures in the container freight supply chain which may warrant a policy or a regulatory response,” Ms Brakey said.
Likely market failures in the supply chain
The report finds stevedores and empty-container parks appear to have little incentive to pursue increases in market share by discounting their charges to transport operators. This is because stevedores and empty container parks levy one set of landside charges to all transport operators, so there appears to be a disincentive for them to offer discounts to win new customers, as those discounts would apply to all transport operators.
Importers and exporters are unable to negotiate directly with stevedores and empty-container parks and can only respond to charges indirectly, by switching shipping services. Some Australian importers and exporters have only limited ability to do so, either because the shipping is arranged by their overseas counterparty or because there are no suitable alternative shipping service options on their trade route.
Many other importers and exporters are constrained in switching because they face switching costs, would have to forego non-price benefits that they value or cannot be certain that any savings in landside charges or notification fees will last due to the unpredictable nature of increases in these charges.
“We have found that a combination of factors likely contributed to higher charges for stevedoring and empty-container park services over the past seven years, likely creating a market failure in the container freight supply chain,” Ms Brakey said.
“Reform may be needed to improve the efficiency of the container freight supply chain. Measures may be needed to address apparent market failures relating to landside charges levied by stevedores and notification fees levied by empty-container parks.”
Stevedores appear to have increased their total prices above levels they expected to negotiate with shipping lines
Australian importers and exporters initially appeared to be benefiting from new entry of Hutchison and Victoria International Container Terminal. In the period between 2013 and 2017, stevedores competed aggressively to win shipping services to retain and increase their market share, which put significant downward pressure on stevedores’ prices to shipping lines.
Information obtained by the ACCC indicates that, despite increases in their operating costs at the time, some stevedores expected stevedoring prices to remain subdued while there was significant spare terminal capacity in the market.
While total industry throughput increased over the past seven years, Patrick Terminals’ internal estimates show that there remains significant spare terminal capacity in the market.
Table 1: Estimates of national effective terminal capacity utilisation: 2018-2023[1]
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
|
National |
68% |
69% |
66% |
75% |
72% |
67% |
Source: ACCC analysis of information received from Patrick Terminals
Note: National estimate includes the ports in Melbourne, Sydney, Brisbane and Fremantle.
Despite this, stevedores have materially increased their overall prices by significantly raising landside charges over the past seven years. These overall price increases far exceeded increases in stevedores’ operating costs per container. Between 2016-17 and 2023-24, real stevedoring industry total revenue per lift (proxy for total stevedoring prices) has increased by $72.16 per container (or 22.6 per cent), while real stevedoring industry total costs per lift have increased by $24.22 per container (or 8.9 per cent).
The ACCC recognises that stevedoring is a capital-intensive business and that stevedores have made significant capital investments over the past ten years. However, in ‘workably competitive’ markets that are characterised by significant spare capacity, firms cannot profitably increase their prices at a time of their choosing to increase the return on their capital investments.[2]
Information obtained by the ACCC from the stevedores indicates that there is currently very limited competition between stevedores on landside charges and that this appears to have resulted in importers and exporters paying more for stevedoring services than they would have if stevedores continued to negotiate all their overall prices with shipping lines.
“Stevedores appear to be able to raise landside charges more easily than charges to shipping lines as importers and exporters are constrained in their capacity to respond to increases in landside charges,” Ms Brakey said.
“Stevedores appear to have undermined the pricing benefits that importer and exporters were receiving from competitive dynamics in the stevedoring market that followed new entry of Hutchison and Victoria International Container Terminal.”
“Given current cost of living pressures, we consider this element of the supply chain might benefit from a policy or regulatory response which improves efficiency by addressing market failures,” Ms Brakey said.
Rapidly rising empty-container park notification fees warrant closer scrutiny
Empty-container park notification fees to transport operators have increased significantly across Australia since 2018, in a similar way to the stevedores’ landside charges. The ACCC report finds this indicates a lack of competitive tension and warrants closer scrutiny.
Empty-container parks introduced notification fees on transport operators soon after stevedores started increasing terminal access charges. With the notification fee, container parks charge three sets of charges for handling the same empty container. The parks charge shipping lines for handling a container under their existing contracts, and importers and exporters (via the transport operators) when they drop off and pick up the empty containers.
These notification fees have increased significantly since 2018, demonstrated by highest fees in Sydney and Brisbane increasing from $5.50 per container in 2018 to $179.40 or $143.30 per container, respectively, in the first half of 2024.
Figure 1: Highest notification fees per container (in nominal terms), by port, 2018 to H1 2024
Source: ACCC analysis of information obtained through market enquiries.
Note: Fees are presented on a calendar year basis and end as at June 2024.
This shows that importers and exporters appear to be constrained in their ability to respond to the increases in notification fees.
“This seems to be another part of the container freight supply chain that may not be working for the benefit of Australian businesses and consumers and warrants closer scrutiny,” Ms Brakey said.
Background
The ACCC has monitored the container stevedoring industry since 1998-99, under a direction from the Australian Government.
Container stevedoring involves lifting containers on and off ships. The ACCC currently monitors the prices, costs and profits of container stevedores at five Australian container ports: Adelaide, Brisbane, Fremantle, Melbourne and Sydney.
Figure 2: Flow of charges between parties in the supply chain
[1] Effective terminal capacity is the capacity of the terminal at a given point in time, taking into account short-medium term operational constraints, such as yard capacity and availability of equipment.
[2] Markets are ‘workably competitive’ where competitive pressures, despite imperfections, constrain market power and produce reasonable outcomes such as fair pricing, efficiency and innovation.