Stevedore DP World Australia (DPWA) has been roundly criticised by transport operators, industry associations and members of the container logistics sector following the announcement that it aims to adjust landside fees on 1 May this year.
It could be argued that this is part of a ‘bigger picture’ plan by DPWA to shore up its operating profit in a bid to counteract a steadily declining market share that has coincided with the occurrence of the worst health crisis this country has seen in more than a century.
While coronavirus (Covid-19) is undoubtedly colouring every judgement of every financial decision at present, if DPWA had announced these changes two months prior, would the outcry have been so vehement?
It also needs to be pointed out that the company has proposed to actually reduce its terminal access charges for exporters to $79.50 per full container, a decrease of 23.3 per cent.
However, it is the 27.6 per cent increase to $125.00 per full container levied on importers, along with a hefty 40 per cent a piece increase for manual processing and 'no-show' fees – rising to $231.50 and $210.35 respectively (the latter rise only applying to Melbourne and Brisbane ports) – that has everyone up in arms.
Yet looking back at DPWA’s history over the last couple of years can perhaps shed some light on this latest decision.
For instance, the monthly shipping data for February 2019 indicated that DPWA had suffered a major loss of market share with the former long-standing market leader securing 39 per cent of total container movements.
According to the Australian Competition & Consumer Commission’s Container Stevedoring Monitoring Report 2017-18, DPWA held 45 per cent of the market through 2017-18, while monthly industry data showed that back in February 2018 DPWA managed a very respectable 49 per cent of the Australian market.
Reported reasons for the drop include capacity interruptions which have forced the company to give away work to its competitors.
DPWA was at the time in the process of installing nine new cranes at its Melbourne facility.
A seemingly bigger issue for DPWA has been with Maersk Line’s decision to move its Melbourne business to the Port of Melbourne’s new third operator, Victoria International Container Terminal (VICT).
VICT is said to have won business from Maersk by keener pricing and the various stated advantages of its Webb Dock facilities. VICT is a wholly automated terminal unconstrained by Melbourne’s West Gate Bridge, while the terminals operated by DPWA and Patrick are located up-river of the bridge. As a result, VICT claims to be the only operator that can accommodate the new generation of super-sized container ships.
“The big change on the waterfront is the level of automation,” said DPWA CEO, Glen Hilton.
“Volumes are down because of new entrants. They have cheaper operating models because they don’t have the level of labour on site.
“Flexibility is our issue,” he said. “We have lost significant volumes in Melbourne and we have to deal with the outcome of that,” he said.
The apparent reason DPWA is more vulnerable to inflexibility is that it is the least automated of Australian mainstream terminal operators. Its two biggest terminals, Melbourne and Sydney, are manual operations.
Hilton commenced his tenure as CEO in early 2019 and it is his view that the pressures the company now faces are the “natural by-product of new capacity” in the Australian system.
“A natural by-product of new capacity coming in is that it becomes less profitable to retain volumes within an oversupplied market,” said Hilton.
“The only way to do that is to reduce prices and that reflects in profitability.
“But we are a capital-heavy business. We can’t afford to do that. Once tariffs or prices come down they stay down. For us the focus is about retaining volumes that we had in a different competitive environment, but to understand that profitability can come from a better product, a more cost-efficient product where we can share value with our customers by working on our own efficiency and offering value to the customer,” he said.
It is a theory that particularly in the current economic climate does not wash with the Victorian Transport Association (VTA), judging by its response to DPWA's proposed price changes set to occur on 1 May, as Australia continues to endure under the weight of the Covid-19 crisis.
The VTA has described DPWA's increase to ancillary charges at some of its terminals including the Port of Melbourne as “insensitive” and coming at a time when the transport industry was already facing economic headwinds because of the coronavirus.
In a strongly worded communication to members, VTA CEO, Peter Anderson, said the charges fall under non-prescribed services within the port supply chain and therefore have no regulation attached to their application.
“Now is not the time for rate increases,” said Anderson. “It is disappointing that at a time when the transport industry is working together as never before to overcome the catastrophe Covid-19 has unleased on Australians and the economy, DP World has opted to increase its ancillary charges on wharf carriers servicing its terminals at ports around Australia.”
Anderson said the 40 per cent increase in charges for 'no-shows' by DPWA showed a flagrant disregard and insensitivity to the environment every supply chain participant is facing.
“There are many businesses that are not only trying to survive with reduced revenues but are having to readjust their whole business model to try and keep their staff, at least on part pay, and to ensure that they can remain sustainable until the crisis has finished,” said Anderson.
He called on DPWA to at least give wharf carriers more time to prepare for the increase, which is set to take effect from 1 May.
“Four weeks is not enough time to prepare customers for passing on the increase, which is what wharf carriers must do for their businesses to remain sustainable.
“Wharf carriers are already doing it tough and don’t have the capacity to absorb another raid on their cash flow, which is effectively what this latest increase will create,” he said. “It would at least show some balance if DP World Australia was to extend trading terms to 60 days and remove the late arrival fee for at least six months.”