International Trade Supply Chains Disorder
Whilst political tensions are on the rise with China, impacting access to the market for numerous Australian exporters is taking priority in media headlines. However, the disorder of the international trade supply chains has gone unnoticed.
The FTA's announcement takes note of the Sunday Telegraph's article "Game over for Christmas", highlighting the state of shipping operations. Throughout this year, the industry has experienced port congestion, limited services record high freight rates, increased detention charges, staged empty containers movements, congestion surcharges, ongoing terminal access charges and new stevedore tariffs. In addition, Biosecurity document assessment, inspections and treatment release timeframes are at commercially undesirable levels. The state of shipping operations has never been worse due to these ongoing issues.
Delays in Biosecurity Processing:
The Department of Agriculture, Water and the Environment continues to struggle to manage the increased "surge" in import volumes, resulting in unacceptable delays to the processing of entries through the COLS systems, inspections and the release of containers post-treatment.
It appears that limited departmental resources are further stressed by the need to re-deploy staff to manage the Khapra Beetle threat.
The cease-fire between Patrick Terminals and the Maritime Union of Australia (MUA) ended on Tuesday 1 December 2020. The FTA received an update from Patrick CEO with no additional details other than they are still in negotiations with the MUA. The FTA remains positive that both parties can settle outstanding claims without further industrial action and establish an Enterprise Agreement.
Furthermore, the FTA followed up with Svitzer and will advise on further development that is affecting their tug operations at containerised ports.
Shipping lines have provided feedback to the FTA noting that move count productivity by stevedores is improving as compared to previous experiences during the peak of the industrial action. Further industrial action, resulting in operational disruption would have harmful impacts on the logistics industry and would cause further economic consequences.
Container Gridlock expected at Port Botany:
There has been a surplus over the last 15 months of import over export containers arriving at Port Botany. Whilst this is not uncommon and during normal operational times, shipping lines are known to bring in sweeper vessels to evacuate empty containers to clear local congestion and for equipment to be used back in Asia.
Due to the industrial action throughout the course of the year at Patrick, DP World and Hutchison decreased the stevedore servicing vessels and schedules were delayed. To further obscure matters, Port Botany experienced infrastructure issues and hostile weather events. This prevented container shipping lines to deploy sweeper vessels, due to unavailability at berths, with the situation further intensified by capped equipment, exchanged, leaving vessels sailing open from Australia, instead of utilising the capacity to evacuate equipment from Australia.
The container imbalance is estimated to be 75,000 TEU currently sitting in Empty Container Parks and transport operator yards throughout Sydney. To clear the backlog, it would require 20 dedicated sweeper vessels, which would take roughly 5 months to clear if deployed on a weekly basis and without taking into account for additional trade imbalances and the ability for terminals to handle the additional tonnage and container exchanges.
Feedback from key industry stakeholders, given to the FTA suggests there are two fundamental problems preventing the evacuation of equipment. The first is capped exchanges at terminals on the East coast, limiting the ability to evacuate equipment on the standard container shipping services calling Australia. The second problem relates to Shipping Australia advising that all container vessels globally are fully utilised due to higher global container shipping demand, resulting in the inability for shipping lines to contract sweeper vessels.
Transport operators share concerns that without any significant and immediate relief, the glut of empty containers will move Sydney's container logistics from the current state of 'congestion' to one of 'gridlock'. Alongside Sydney's current situation, empty container volumes are significantly increasing in Melbourne.
Impacts on Exporters:
Over this time, some vessels will bring in import containers, focusing on a quick turn-around of moving large numbers of empty containers. Whilst this is a precaution taken to evacuate as many empty containers as possible, it is unclear how well this will serve exporters and what available capacity will look like in the coming months, given a bumper grain crop is nearly ready to reach markets.
Multiple vessels are bypassing Sydney and the vessels that are services are limited to the number of export containers they are able to load with stevedores imposing move count restrictions on shipping lines.
Whilst there is an over-supply of empty containers, the FTA continues to receive reports of limited availability of serviced Food Quality equipment for use by exporters of agricultural products.
Container Detention Charges:
The decreased capacity in the Sydney Empty Container Park market has seen shipping lines advising they are unable to provide de-hire locations for their empty containers. Resulting in transport operators forced to fulfil numerous 're-directions', fill their yards and complete multiple lifts to access containers with stacks. Reasonably, transport operators have passed this cost down the supply chain.
To further increase tensions, shipping lines are continuously charging container detention fees for 'late' de-hire returns, maintaining a position of responding on a case by case basis, as the industry maintains a limited ability to de-hire on an intermittent basis.
The Infrastructure Surcharge to the National Transport Commission (NTC) is unlikely to provide the required relief to Australian exporters and importers with the expectation that state governments will follow a process similar to the processes implemented in Victoria. Although stevedores will have to jump through a number of hoop's and face increased scrutiny, it is likely that this process will see an increase in what already inflated fees within the industry.
The FTA has expressed concern over the likely implied approval for this cost recovery system. The FTA's update discusses their ongoing stance on the matter, for operational costs to be absorbed by the stevedore or passed onto their commercial clients, the shipping lines. If this cost was passed onto the latter, they would then have the choice of absorbing the cost or passing it onto their commercial client through formal negotiations with importers, exporters and freight forwarders.
Terminal Handling Charges:
The ACCC's Container stevedoring monitoring report 2019-20 indicates that stevedore 'Quayside' charges placed on shipping lines are declining, with overall stevedore profits increasing. This is mostly due to an increase in 'Landside and other' charges, such as infrastructure surcharges.
The FTA has received feedback from members that these savings have not been passed down the supply chain by shipping lines with a commensurate reduction in Terminal Handling Charges (THC). Rather, alongside record high freight rates, shipping lines are also increasing their Terminal Handling Charges.
Congestion surcharges enforced by shipping lines are increasingly having devastating impacts on the industry. A lack of transparency on the surcharge appears to be focused on ensuring shipping lines are recovering costs at the expense of exporters and importers to extend record profits reported during the Coronavirus pandemic and global economic downturn.
The FTA shared a finding from the Container stevedoring monitoring report 2019-20 that found that the ACCC is watching developments around congestion charges closely to ensure they remain temporary (if justified and reasonable) and not become embedded fees borne by importers and exporters. This comes as a result of the imposed congestion charge of up to US$350 per standard container in Sydney on senders and receivers.
We will continue to monitor the landscape and update where necessary.