terminal warfare ???

Lucky MR knows how to fight dirty. This surplus capacity will underpin signifigant profit increases when demand returns if they can maintain the duopoly. I'm betting they can

Robert Gottliebsen of Business Spectator wrote:
Business Spectator - Commentary

7:54 AM, 7 Sep 2009

Robert Gottliebsen

Terminal decline

Asciano has done well to recruit former Orica boss Malcolm Broomhead as chairman, plus former ANZ deputy CEO Bob Edgar and former Publishing and Broadcasting chief financial officer Geoff Kleemann as directors.

One of the first jobs of the three new directors will be to help CEO Mark Rowsthorn sort out the mess Asciano faces in the Brisbane, Sydney and Melbourne ports. How Rowsthorn and his board tackle the problems will be important for Asciano's future and for the future of container shipping transport in Australia.

Brisbane, Sydney and Melbourne appear to want to break the duopoly in Australian stevedoring between Asciano (Patrick) and DP World (formerly P&O), but at least one or two of the ports may end up in a horrible mess.

In Brisbane DP World and Asciano have a capacity of about 850,000 TEUs each (a standard container port measurement – 'twenty-foot equivalent units'). The port requires about 850,000 TEUs in total, not per operator, so existing capacity is roughly double what the port requires. Two years ago the then Premier Peter Beattie announced that the global ports operator Hutchinson would be the preferred operator for a new terminal, which will be about half the size of the facilities operated by Patrick and DP World, but this makes the over-capacity even greater.

If it goes ahead there will be a price war, but in the end a price war will make updating investment in the Asciano and DP World facilities no longer worthwhile, so they may fall behind.

The situation in Sydney is in some ways similar to that in Brisbane. Extra capacity was required in Sydney but instead of extending the port by, say, a third, they doubled capacity. This involved a huge outlay. In the longer term it makes sense, but there were large sums spent that could have been used for hospitals, schools or other public spending. And such a huge extension would indicate that another operator is being considered.

Melbourne spent close to a billion dollars deepening Port Phillip Bay to allow large ships in. The original plan was to extend the Asciano and DP World terminals to take additional large container vessels. However, suddenly there was a move to try and force Patrick off its long-term car terminal lease with the objective of putting in another container berth for a third operator.

The game is all set for many years of battle in the courts and so Melbourne will have wasted its money, because the number of large ships that the births can handle will be limited until those battles are concluded. As in Brisbane, Melbourne investment by Asciano and DP World may be limited until the matter is resolved.

The port authorities reckon that bad work practices are creeping back because prices can be increased, so they believe there needs to be greater competition. However, given the enormous amounts of investment required this is not easy to arrange – instead they may simply end up with a price war in which the long-term capacity and efficiency of the ports is eroded. And when Melbournians discover that after all that outlay they are stuck with an outmoded port there will be much soul searching.

Messrs Broomhead, Edgar and Kleemann have much work to do.