The Australian container port market is showing growth and dynamism, proving that there are opportunities in mature economies – although challenges remain at the individual port and terminal level.The latest statistics from the Port of Sydney, Australia’s second largest container port with a market share of around 30%, show that its container volumes grew by 5.2% in the period between July 2012 and February 2013 compared with the same period in 2011/12. Full import boxes, in particular, showed strong growth (6%) but, interestingly, full exports were slightly down, and the corollary was that empty box volumes increased by nearly 10%. In the same time period, volumes at the country’s third largest container port, Brisbane, grew by 4.5%.
Sydney and Brisbane’s container volume growth is symptomatic of a country which, as one of the world’s mature economies, has performed amongst the best in the face of the global financial crisis and subsequent drawn out recession seen in Europe and North America. Unlike the US, Japanese, UK and German economies, Australian GDP has continued to grow every year in the last decade and the country’s national debt position is far healthier too. Container volumes have grown on average by 6% p.a. since 2000.
This does not mean that Australia is immune to the world’s economic problems, as international trade is fundamental to its success. Overall container volumes fell by 7% in 2009 although this was less than the global decline of nearly 9% that year. Since then Australia’s container port volumes have recovered strongly, albeit growth in 2012 was more modest than that in 2010 and 2011.
As we move into 2013, the Q1 statistics for the Port of Melbourne, the country’s largest container port, show a 2.7% decline against the same period in 2012, contrasting with the recent growth story elsewhere.
Drilling down to the level of individual ports and terminals, the story is one of dynamic change.
Australia has long been one of the leading exponents of port authority corporatisation and privatisation, with ports such as Adelaide and Geelong already in private hands for more than a decade. After a lull of some years, activity levels for port privatisation have picked up again rapidly. In 2010, the Port of Brisbane was privatised on a 99-year lease to a group of infrastructure investors for A$2.3bn (US$2.4bn), and earlier this month the Sydney ports of Port Botany and Port Kembla were transacted also on a 99-year lease to a group of infrastructure investors for no less than A$5,07bn (US$5.2bn).
These are seriously large sums of money and reflect both the underlying confidence in the Australian economy, but also the highly attractive nature of landlord port functions to infrastructure investors, and the rarity of these opportunities. The sums of money which the Queensland and New South Wales governments have generated through their sell-offs may well encourage the government of Victoria to do the same with the Port of Melbourne Corporation before too long – and in Western Australia Fremantle port remains state-owned and run.
As well as significant change taking place at the port authority level, Australia is also seeing a fundamental change at the container terminal level. The main Australian ports have always had no more than two significant terminal operators in each port, with the market dominated by Patrick Ports and DP World. However, this duopoly is no longer going to be the case in Brisbane and Sydney (Botany). In both ports, Hutchison Ports is entering as a third terminal operator. In Brisbane, Hutchison has already brought into service the first berth of a two berth, 800,000 teu p.a. capacity facility, with the second berth due in 2014. In Sydney, the initial operations of what will ultimately be a four berth, one million teu+ facility are expected to start this year. Both new terminals will use automation in the form of Automated Stacking Cranes in their yards. This is an aspect of the industry where Australian ports have been at the forefront, in particular through Patrick’s ground breaking automated straddle carrier terminal at Brisbane.
Adding terminal capacity in mature markets is never easy. Demand growth is incremental and gradual, whereas capacity additions are sudden and “lumpy”. Increasing the number of terminal operators at the same time adds to the challenge. In Brisbane, Hutchison says it will be increasing the port’s capacity by almost 100%, and in Sydney by 50%. The incumbent operators will inevitably suffer in the short term whilst the new operator takes market share to establish its footprint.
However, a price war is highly unlikely. All three operators are seasoned campaigners with level heads, and none will want to see tumbling prices, as no-one wins in such a scenario – and fixed costs remain to be paid regardless. What is significant is that the entry of Hutchison will increase the pressure on the incumbents to pursue the retro-fitting of automation in their terminals in order to reduce operating costs. DP World is already pursuing this in Brisbane, and Patrick Ports has signalled this for Sydney. Spats with the Maritime Union of Australia are already evident.
Meanwhile, the Port of Melbourne has started work on its A$1.6bn (US$1.65bn) capacity expansion plan, which includes a third container terminal to be concessioned to a private operator when it opens in late 2016. Interest is likely to be strong with Hutchison a frontrunner given the commercial attraction of being able to offer carriers and alliances a terminal in multiple Australian ports – something that Patrick Ports and DP World can already do.
Set all this alongside a backdrop of vessel cascading and alliance restructuring in the Intra-Asian trades, and the Australian port scene is sure to remain dynamic.
Our View
Australia has performed better than most mature economies – and is likely to continue to do so. The ownership of ports and terminals is dynamic, and the market is being shaken up by the entry of a significant new terminal operator player.
Plunging prices should not be expected, but greater automation of terminals should be. Further privatisation of Australian port corporations could be on the horizon in multi-billion dollar deals.
Source: Drewry Maritime Research