Mar 11, 2015

Shippers to ditch Melbourne if port hikes rent 800%

Australia's largest container shipping group, ANL, has warned it will switch business to the Port of Adelaide or Tasmania's Port of Bell Bay if the Port of Melbourne goes ahead with plans to push stevedore rents up by 800 per cent.

"I'm very concerned that the current indicated pricing will make the Port of Melbourne uncompetitive nationally and you will therefore see a focus on moving more products out of the nearby ports such as Adelaide or Bell Bay rather than call into Melbourne," said John Lines, the managing director of ANL.

"So government needs to be very careful about how they're approaching this matter."
DP World Australia has revealed 300 jobs at the Port of Melbourne are at risk after the port proposed raising its rental costs to $120 per square metre from $15 per square metre.

If the increase goes ahead, rents at the port would be five times more expensive than the Port of Brisbane – which has been privatised – making it by far the most expensive port in Australia.

It would also make the Port of Melbourne the most expensive port among Dubai-based DP World's 65 terminals globally.

Both DP World and its competitor Asciano, whose rent will be reviewed next year, have confirmed they would pass on rent increases to shipping lines in the form of higher charges for handling containers.

Shipping companies will in turn pass on the costs to their customers, which include dairy and meat exporters, Mr Lines said. "It will be felt by the whole Victorian economy."

Mr Lines said he believed the methodology that was used by the Port of Melbourne to assess rents was "flawed" because it was based on the rental agreement made with Philippines-based International Container Terminal Services Inc (ICTSI) when it was awarded the rights to operate Melbourne's third container terminal at Webb Dock in May 2014.
ICTSI is believed to have offered a substantially larger amount of money to the Victorian government than its rivals for the contract to build and operate the port, edging out three competitors, including Hong Kong's Hutchison Port Holdings.
"The price that was paid by ICTSI was above market so I don't think they can turn around and say the rent that ICTSI was prepared to pay for Webb Dock is representative of the market," Mr Lines said.
Victoria's Premier, Daniel Andrews, expressed concern about the "very significant' increase on Wednesday and said he wanted Melbourne to remain "the freight and logistics centre" of Australia.
DP World is in talks with the Port of Melbourne over the proposed rent increase and has said it will pursue legal action if a reasonable rise cannot be agreed.
Lawyers said disputes over rent reviews are a matter of contract law and will be determined by a court if legal action is taken.
"Increases to the lease rental payments will be governed by rent review mechanisms in the leases from the port authority and are not subject to statutory price monitoring or regulation in the same way that other charges are," said a partner at an international law firm. 
Rent increases at other Australian ports have typically been negotiated between stevedores and port authorities without recourse to legal action
ANL is part of French transportation group CMA CGM, the third largest container shipping line in the world. DP World handles 60 percent of Victoria's container traffic.

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