Misguided competition policy behind Hutchison ports dispute

While it’s impossible to rationalise Hutchison Ports Australia’s use of text message and email to sack 97 workers, the company’s predicament is not all of its own making.

Indeed, in many ways, they are victims of the dysfunction in Australia’s maritime sector while their bottom line and workforce cop the fallout.

There has not been a stand-alone economic case for new entrants in Australian stevedoring since the 1990s when the scale of containers and the technology being used at our ports reached a tipping point. Over the following decade the number of stevedores in our big ports went from seven to two, and for good reason.

Two stevedores meant companies had sufficient scale to support substantial ongoing investment in the capital productivity required to continuously improve this type of essential infrastructure. It is not possible to make similar commitments if business is spread too thin across three or more companies in Australia’s relatively small market.

From 1998 to 2013, industry consolidation saw costs fall by 44 per cent in real terms as a result of the stevedores becoming more efficient and average prices fall 37 per cent. Meanwhile, productivity improved, with cranes moving 50 per cent more containers per hour and labour productivity doubled. It is a powerful dynamic. Labour productivity plus capital productivity equals success.

Enter the ACCC, who didn’t see it that way and paved the way for the recent entry of a third stevedore in container ports on the east coast. Hot on their heels were state treasurers who saw an opportunity of revenue raising to smother their fiscal shortfalls. Their interest had little to do with delivering cheaper and more efficient port pricing.

Consequently, a third operator hasn’t brought more shipping or more cargo volumes. Far from lowering prices for end users, too many stevedoring companies competing for too little cargo increases costs, making all stevedoring operators unwilling to invest in technology to make our ports more efficient or productive.

The even bigger problem is that while the ACCC zealously pushed for more competition with a third player in the stevedoring business, it actually reinforced anti-competitive behaviour at sea.

In what is appropriately titled “Part X” of Australia’s Competition and Consumer Act, liner shipping operators can enter agreements with each other on freight rates and the quantity and type of cargo to be carried for certain routes.

It’s basically legalised cartel behaviour which you could go to jail for in other industries. Repeal or reform of Part X was recommended by the Productivity Commission in 2005 and a decade later in this year’s Harper review into competition policy. The ACCC and federal government have both refused to repeal and I’m not holding my breath for 2025.

The impact of this is that shipping lines continue to dictate the terms on which goods come into the country: they can, and have effectively frozen out the third stevedore through opportunistic pricing of their shipping contracts. Thus, Hutchison’s financial problems seeking to enter a highly competitive stevedoring market with two mature and consolidated national operators DP World and Patrick. The result has been a mess for everyone involved.

Meanwhile, as I said at last week’s National Reform Summit, which was co-sponsored by The Australian, federal and state governments have been asleep at the wheel on the need for major infrastructure investment in our ports and supporting transport networks.

The capacity constraints strangling productivity growth are not into our ports, but out of our ports as containers spread inland to their final destination. Failure of state and federal governments to invest in the necessary infrastructure means containers are quickly bottlenecked due to poor intermodal road and rail investment and development.

Port operators also need to be considering opportunities to support coastal shipping to complement rail and road, and as container ships get larger, to adopt a trans-shipment model whereby certain ports become hubs for short sea shipment of containers to complement road and rail transport. This is the successful European model.

We need to use this experience as instructive if we are to continue to improve port performance.

Hutchison shareholders have made a major contribution to building this essential interface of our future trading success. But it won’t work without creating more comprehensive regulatory national reforms that streamline tendering and build clearer goals for state and federal contracting out of these public assets.

These reforms also need to deal with cartel behaviour by the shipping lines that hold a throttling grip on Australia as a trading nation.

None of this excuses the sacking of workers by email and text message, and we are having frank and constructive discussions with the company on that, but if we’re going to get long-term jobs growth and certainty in the industry these big picture infrastructure and regulatory issues need to be reviewed and adjusted urgently.

That’s what the Council of Australian Governments is for and it’s about time governments put productivity decline and infrastructure spending back on the national agenda.

Paddy Crumlin is national secretary of the Maritime Union of Australia