More efficient port supply chains in Victoria

Victoria is not alone in its challenge to establish a more efficient ports industry. The importance of a well functioning ports and freight supply chain is increasingly critical both economically and to our way of life. Integrating land-side access is increasingly challenging. Whilst stevedoring charges have been controversial, policy makers should resist the urge to extend economic regulation beyond where it is demonstrably necessary.

Industry fragmentation creates efficiency challenges

Ports are critical gateways for our freight networks. As Australia’s largest container port, the Port of Melbourne is not only economically significant to Victoria but also to the rest of Australia. Victoria’s other commercial trading ports (Geelong, Hastings and Portland) are important transfer points that connect Victoria to Tasmania and international markets. Just how efficient ports and related maritime service markets are can therefore have a material impact on many other businesses and their own costs of production.

The extensive privatisation and corporatisation of port bodies that occurred in late 1990s has delivered many benefits for Victorians as a result of the subsequent investment that followed. But privatisation has also resulted in significant fragmentation across the ports sector in Victoria.

Such fragmentation creates challenges when governments are increasingly looking for the ports sector to deliver better service quality outcomes and cost reductions on behalf of Australian importers and exporters. Integrated planning processes, particularly landside integration, becomes more challenging in a fragmented ports environment.

Victoria is not alone in this regard, with several governments around Australia also considering what tools they have to extract such gains in a post privatisation era, and just as important, defining the appropriate government role in a now largely privatised sector.

Victorian Ports Review

The discussion paper highlights many of the legacy issues associated with earlier reforms, ranging from the institutional arrangements governing waterways and navigational management, to the watershed issue of where the State’s future container port should be located. The Review also calls out the inconsistent allocation of responsibility for port development strategies and identifies a lack of policy cohesion in relation to the Harbour Master’s role. There’s a lot on the table.

It is pleasing to see the Victorian Review taking a holistic approach to the issues surrounding port performance. Recent debates about port efficiency (not just in Victoria but Australia-wide) has focused much attention on port authority management arrangements as well as land-side access arrangements controlled by the terminal operators. While these are valid issues, they tend to overlook the other services that form part of the ports sector. For example, pilotage and towage can have a material cost impact on a shipping service. Such charges are less often scrutinised, with their critical safety role seemingly placing them ‘off limits’. Examination of the degree to which such services could be delivered more efficiently, while not compromising safety, is warranted.

However, we urge caution in considering regulation to be a panacea for achieving efficiency outcomes. The review identifies a range of options for regulating aspects of the ports and shipping sector to address specific concerns. Regulation, where it is not economically justified, can impose significant costs on a supply chain and can ultimately distort the investment incentives on participants within that supply chain. Policy makers should resist the urge to extend economic regulation beyond where it is demonstrably necessary