Editor’s Note: In today’s Thursday Feature, we are going “Down Under” to report on a proposed rent increase that has the Australian shipping industry in an uproar.
One of the world’s biggest cargo container companies has been hit with a 750% rent increase by Australia’s Port of Melbourne, the nation’s largest port.
DP World Australia, a subsidiary of a global cargo container company based in Dubai, was informed that its rent at the Port of Melbourne would increase from $15 per square meter to $120 per square meter — an increase of more than 750%.
If the proposed increase goes ahead, rents at the Melbourne port will be 500% higher than those at the Port of Brisbane and will be the highest in all of Australia by far.
Company officials said the move will result in a loss of at least 300 jobs and will raise prices on many imported goods. Both DP World and it’s main competitor, Asciano — whose rental agreement is up for renewal next year — have said they will pass on the increases to shippling lines in the form of higher charges for handling containers.
And company officials at Australia’s largest cargo container company, ANL, said if it’s hit with a similar increase, it might pack up its business and take it elsewhere, such as Tasmania’s Port of Bell Bay.
Port to Be Privatized
Some observers suggested that current rental rates at the port were far below the market rate and that the increase would bring rents in line with other ports.But the move also could be related to a plan by the Australian state of Victoria — the port’s current owner — to sell the port to a private buyer later this year for as much as $5 billion.
DP World chief executive Paul Scurrah has promised to fight the rent increase in court.
“I thought there was a decimal point missing when I saw the rent increase for the first time,” Scurrah told Logistics Magazine. “We have had rental increases before and there is provision in the contract to negotiate rental fees every two years, but an increase of this size wil cause job losses and may see shipping companies avoid using the port.”
Consumers to Bear the Brunt
John Mullen, CEO of Asciano, another container company at the port whose rental agreement is up for renewal, said the Victorian government had to decide what it wants the purpose of the port to be.
“Is it to sell and maximize the return of the state government and the investment banks or is it to be a competitive gateway for trade in and out of the state?” Mullen asked the Sydney Morning Herald. “We pass these costs on with infrastructure changes, and in the end the person who pays fo it is the poor person trying to export product out of the country Victoria. Is that really what a government wants?”
‘Money Grab’ Criticized by Shipping Industry
Rod Nairn, CEO of Shipping Australia, an industry lobbying group, criticized the decision to implement such an enormous rent increase, claiming it will trigger an economic downturn throughout the state of Victoria.
“This looks like another blatant state government money grab from which all Victorians will suffer,” Nairn said in a news release. “This will be a boon for Adelaide and Sydney but it will be disastrous for Victoria to have the honor of the most expensive port in the world.”
He added that the state government should look at the long-term implications of the move, rather than the immediate benefit of boosting the port’s value prior to selling it.
“This will come at the enduring cost of all Australians,” Nairn warned. “It’s a short-term gain, long-term pain outcome.”
Other Industries React
The enormous rent increase and ensuing fallout has prompted reaction from other companies currently doing business at the port.
Qube Holdings, one of Australia’s biggest logistics companies, recently re-routed trains that transport containers of paper, grain and rice six days per week from New South Wales’ Rivernia region from the Port of Melbourne to Sydney’s Port of Botany because the charges were lower.
Carriers May Be Forced to Bite the Bullet … For Now
DP World, Asciano and other cargo container companies may be forced to pay the dramatically higher rents, at least in the short term. Threatening to move operations elsewhere is one thing, but actually building new facilities, transferring or hiring new workers, and renegotiating agreements will all of their international roster of clients is another.
Plus, Australia’s major cities are scattered far and wide across an enormous continent, the center of which is mostly barren desert. Building infrastructure such a roads and rail lines to support moving operations to remote cities such as Adelaide could take years, if not decades.
In the meantime, attorneys from DP World are seeking to negotiate a more reasonable rental agreement with the state government, but have warned that if an better deal can’t be struck, they will be taking their grievance to the Australian court system.