Victoria’s Essential Services Commission has issued its Review of Port Planning: Final Report, in which it finds that competition among stevedoring companies DP World (P&O) and Asciano (Patrick’s) is low and "market concentration is high by any standard measures".
"Furthermore, as the development of a new container terminal at the port of Melbourne will take a number of years, there is effectively a barrier to entry, and the threat of competitive entry may not represent a significant constraint at present.
"Although the stevedores’ principal customers, the shipping lines, appear to be able to exert some countervailing power, substitution possibilities are limited for most of the port’s throughput because the distance between ports is too great to allow competitive land-bridging of containers between ports.
The Commission’s analysis also suggests that the demand for stevedoring services is highly inelastic, primarily because charges by stevedores are only a small proportion of the value of container trade. Hence demand sensitivity is not likely to be a constraining factor that will inhibit the exercise of market power. For these reasons, notwithstanding productivity improvements and real price reductions achieved in certain years, the stevedores are considered to have a significant degree of market power.
The commission has found that there is not likely to be sufficient container throughput to support the entry of a third stevedore until 2015.
"Available information in relation to the minimum efficient scale suggests that, as Swanson Dock handled approximately 1.8 million TEU in 2006-07, it would not minimise costs at the present time to have a third stevedore (not taking into account any other benefits such as innovation and greater competition). However, by 2015, it is forecast that international and mainland container trade will reach 2.8 million TEU. At that time the market may be sufficient to support three terminals.
The report also casts doubt on the ability of a third stevedore to gain a foothold even then: "The incumbent stevedores both operate nationally, which may benefit shipping lines as transaction costs may be reduced and volume discounts offered. Hence a third stevedore may need to be established at two or more ports concurrently, which is more difficult than establishing a single terminal."
The commission’s report concludes that the earliest possibility for the entry of a third stevedore will be when a new terminal is developed, for which planning must begin now.
"The adequacy of the container handling capacity to meet expected container growth at the Port of Melbourne will affect the timing of new terminal developments, and potential entry of a third stevedore.
"Because lead times for developing a new container terminal are around six years, the Commission’s capacity analysis suggests that the process for developing new container stevedoring facilities will need to commence as early as 2008-09, as additional terminal capacity may be needed around 2014-15."