The paradox of stevedoring competition

The December 18 announcement came only after Sydney Ports Corporation twice-requested 90-day extensions to the shelf-life of their proposals.

Those with a liking for terminal efficiency might celebrate Hutchison’s second successful bid in less than three years.

As a result of the Port Botany win, Hutchison will double its presence in Australia in a move that will give it all sorts of operational efficiency.

But the economic rationale for appointing the same operator in two ports is somewhat less certain.

Sydney Ports Corporation had made it clear to the shortlisted parties that their bids had to demonstrate how their terminal would bring competition and economic benefit to the port and the state.

Competition was the easy part – just picking a company that wasn’t called DP World or Patrick and the box was as good as ticked.

But the economic-benefit box is not quite as straightforward.

In winning the right to operate two berths at the port of Brisbane, Hutchison made a commitment to help build that port’s trade.

Now Hutchison has made a similar commitment to the New South Wales Government.

But don’t expect that part to be explained in an official state government statement, for it remains an uncomfortable fact that both ports, and indeed both state governments, now expect Hutchison to be so competitive and efficient as to drive trade to their ports, to the detriment of rival states.

Hutchison will pump hundreds of millions of dollars into developing facilities at both ports in the next few years – and beyond that, perhaps even Melbourne – so it is against its own interests to promote one port over another.

Hutchison has indicated it wants the Webb Dock lease at Melbourne, and while success there will only enhance the terminal operator’s efficiencies in Australia, all of the benefits remain with the stevedore.

Strangely, the popular argument in all of this is that by picking Hutchison for at least two of the top three container ports, it will somehow give the third operator a better chance of survival.

If the stevedores are indeed making the rumoured 20-30% return on investment, and Hutchison starts with a blank canvas, the latter would appear in no danger of going out of business.

Hutchison hasn’t based its business model on half-baked operations – 306 container berths* worldwide require substantial investment and market presence.

But the more terminals Hutchison secures, the safer its position. Brisbane was the foot in the door and Sydney a hefty shoulder.

A lease in Melbourne would take the door completely off its hinges.

By the time Hutchison begins servicing ships in two years, the Australian market should have grown enough to remove any lingering feelings of competitive fragility.

And the Australian Competition and Consumer Commission remains in no doubt, having repeatedly told an unconvinced DP World and Patrick that a bit more competitive tension will do the world of good.

Their nervousness is understandable – world-class  operators decked out with the latest technology and new equipment would have that effect on anyone – like two swimmers in traditional Speedos can’t help but be intimidated by someone of Ian Thorpe’s capabilities standing on the blocks in a comparatively streamlined full-body-length swimming costume.

Hutchison was always the favourite to secure the terminal in Sydney and its operational success would suggest it remains an excellent choice. 

But there is a sensible argument that states have an economic incentive to choose operators that will truly attract cargo to an individual port.

Choosing the same proponent in two states does not necessarily achieve that goal.

A Hutchison win in Melbourne would merely create an east coast triopoly.

* An earlier version of this article incorrectly stated that Hutchison operated 306 terminals worldwide.