Port access a divisive issue in Australia
Jan. 24, 2012
by Michael King
The Wheat Export Marketing Act 2008 (WEMA) ushered in a new regime which, in many ways, has been highly beneficial for those involved in the export of wheat from Australia. But finding a way to manage port access that satisfies all stakeholders continues to be elusive.
The crux of the matter is that three bulk handling companies control virtually all the port-related infrastructure that shippers must access to export wheat as bulk.
Of those companies, Viterra operates six wheat export ports in South Australia, GrainCorp controls seven load facilities in eastern Australia and Co-operative Bulk Handling (CBH) runs the four wheat export terminal options in Western Australia. The only grain export facility not controlled by the “big three” is Melbourne Port Terminal, which is operated by the Australian Bulk Alliance, a wholly owned subsidiary of Sumitomo Corporation.
The main sticking point between the bulk handling companies and their accredited exporter customers is that the companies are also accredited bulk exporters in their own right. Some believe this creates a conflict of interest. Not only are they competing with their customers but, because of their control of infrastructure and information, they are able to do so with an unfair advantage, irrespective of fair competition law limitations.
This competition, claim rivals, has seen bulk handling companies limit access to port facilities for third-party exporters, and unfairly allocate shipping stems and risk involving demurrage and dispatch.
With most shippers forced to use the bulk handling companies and port closest to them, this has led to the criticism of Viterra, GrainCorp and CBH for establishing what many users claim are regional monopolies.
The bulk handling companies, by contrast, claim they conduct operations within the legal parameters set by competition law and WEMA. Indeed, they believe they are discriminated against because they must bear the cost of regulatory and port access audits, as well as invest in infrastructure which is then opened up to third parties. Indeed, in general terms they believe the competitiveness of Australia’s wheat industry in global market is currently being undermined by over-regulation of a system that would work equally well without such interference.
Richard Codling, CBH Group General Counsel, said the current port access regime was efficient, fair and allowed the market, not bulk handling companies, to decide who exports and who does not.
“Given the circumstances of Australian infrastructure owners, it is in their interests to maximize volume through wheat export terminals,” he explained.
Port access agreement
The main means of oversight for port access established in the liberalization reforms was via the Australian Competition and Consumer Commission (ACCC), which draws its powers from the Competition and Consumer Act. The ACCC was charged with ensuring fair competition by imposing access undertakings on the bulk handling companies to ensure their terminals are made available under fair terms to third-party exporters. Access undertakings require these companies to post shipping stems and clearly define port terminal rules.
WEMA also obliges bulk handling companies to post a shipping stem of vessels scheduled to call at its ports, a process reviewed by Wheat Exports Australia (WEA), another of the regulatory bodies established under WEMA, which also manages the export accreditation procedure.
In September, a number of port access undertakings were signed with the ACCC by operators which will set the parameters for exports for the next few years. Viterra agreed in September to replace its existing “first-come, first-served” (FCFS) system because, apart from Viterra, only one other exporter had been able to access terminals at Port Lincoln and Adelaide Outer Harbour during peak months. From May 2012, FCFS will be replaced with an auction system.
ACCC and Viterra also agreed to access arrangements designed to increase transparency of available capacity, pricing and stock-at-port information. The accepted undertaking applies from October 2011 to September 2014.
“Auctioning capacity will increase competition among wheat exporters and improve the efficient use of Viterra’s port terminal services,” said ACCC chairman Rod Sims. “These arrangements will benefit all parties involved in the South Australian bulk wheat export market, including Australian farmers.”
The ACCC also accepted an access undertaking from CBH, which already had an auction system in operation, for its ports at Kwinana, Geraldton, Albany and Esperance. This included non-discriminatory access, clear and transparent port loading protocols to manage demand for port terminal services, and an agreement that CBH would “negotiate in good faith with eligible wheat exporters for access to port terminal services.” The ACCC said CBH’s existing system had encouraged competition, and CBH agreed to drop plans to introduce a two-tiered capacity allocation scheme after the ACCC raised concerns.
An agreement with the Australian Bulk Alliance over Melbourne Port Terminal was also agreed until September 2013 with almost no changes. Sims said the existing arrangements were “working well” for bulk wheat exporters.
GrainCorp has also been granted a new access undertaking which runs through to fall 2014. This covers the use of the company’s FCFS system under which all bookings are made at a flat $5 per tonne regardless of elevator or month.
The Australian Grain Exporters’ Association (AGEA) welcomed the revised access undertakings as an “improvement.” A spokesperson said they would deliver “greater consistency across the three port terminal operators,” more flexibility by allow shipping slots to be transferred, while wider use of auction systems would more efficiently allocate capacity at ports.
“The new undertakings have set the framework for the period to 2014,” she added. “Exporters have the opportunity to utilize the provisions in the undertakings to achieve a satisfactory commercial outcome.”
Further change to the existing regulatory regime is also afoot. The federal government has now accepted most of the recommendation of last year’s report by Australia’s Productivity Commission and has pledged to further deregulate the bulk wheat export sector, a process that will see further refinement of the port access regime.
Agriculture Minister Joe Ludwig said implementation of the recommendations would bolster wheat marketing arrangements and the industry’s competitiveness through a staged transition to full deregulation. This would “reduce the level of administrative red tape for exporters, including accredited port terminal operators, and allow growers more time to adapt to the new export environment,” he added.
WEA and the Wheat Export Charge (WEC) — a 22-cents-per-tonne levy on all exports — will be abolished on Sept. 30, 2012, but the access undertakings already agreed by bulk handling companies with the ACCC will run their course until the fall of 2014.
Then from Oct. 1, 2014, the market will be fully deregulated and access issues will be solely governed by the ACCC.
“CBH hopes that the adoption of reforms recommended by the Productivity Commission will result in less overlap between the ACCC and WEA and reduce the level of red tape on exporters and port terminal operators,” said Codling. “Ultimately as exporters already had access to most port terminals prior to the introduction of WEMA, it is considered that both the undertakings and WEA oversight are unnecessary in the longer term.”
Codling said more could be done to reduce costs over the next year by refining the current system by leaving all access regulation under existing legislation to the ACCC.
“There is no need for multiple regulators of the same port terminal,” he added. “In addition, the requirement to be accredited and to provide a large amount of information to the WEA can be pared back to allow for a more efficient regulatory environment.
“In the longer term — three years — the most appropriate way to reduce costs and ensure the global playing field is level is to remove the regulation itself.”
GrainCorp said that introducing the reforms recommended by the Productivity Commission would first require the passage of several pieces of legislation. “In particular,” said David Ginns, GrainCorp’s corporate affairs manager, “the amendment to remove the regulation, making it illegal to export wheat in bulk under the Customs Prohibited Exports Regulations S. 9AAA 1958, and repeal of the Wheat Export Marketing Act 2008. Such legislation cannot pass either house of Parliament without the support of the Opposition.”
Ginns also lauded the winding up of Wheat Exports Australia, which many claimed imposed unnecessary costs and regulation on the sector.
AGEA, while welcoming most of the reforms in the Commission’s report, retains concerns around the ability of the bulk handling companies to use information to the advantage of their trading arms and has argued that mechanisms should be put in place that avoid vertically integrated companies from advantaging their trading arms through access to information/services that are not available to other exporters.
Information that AGEA believes that all parties should have access to includes:
•Up to date/regular (daily) receival data by site by commodity by grade by tonnes.
•Zone average quality data by port zone by commodity by grade by tonnes.
•Receival profile summary post-harvest by commodity by grade by tonnes.
•Full warehouse stock (i.e. that stock which is in the bulk handling companies system under the grower warehouse option, i.e. uncommitted grain) availability.
•Access to up to date fumigation details and plans to ensure compliance with PRF and MRL.
•Daily reporting of stocks in port by commodity.
•Vessel quality information (e.g. access to sampling, laboratory testing, quality results) prior, during and on completion of loading of vessels.
The final word goes to Ginns.
“The transition from a monopoly to a regulated accreditation system has, by any and all measures, been successful,” he concluded. “The current system discriminates against companies that have a significant investment in grain handling infrastructure, which is not appropriate. GrainCorp applauds any moves to normalize the sector through the removal of regulation that distorts the market, as the current regulations do.”