Shipping lines have hit back at claims they are overcharging for sea freight and are hindering the ability of Australian agricultural exports to reach markets.
They have denied they are choking exports and that the simple equation of supply and demand is working on the world's shipping routes. They say up to 60 per cent of containers on ships that leave Australia are empty.
In response to The Land's revelations of freight charges hitting ag container exports throughout the supply chain from the farm to ship, Shipping Australia Ltd has issued a reply to claims some exporters can't book ag-suitable containers and have been restricted from reaching markets.
Meantime, the Australian Competition and Consumer Commission revelaed it is investigating handling charges by stevedores at major ports.
Commission regulator Rod Sims said in an interview that the ACCC is investigating if anti-competitive conduct by port operators has led to price rises in the container transport industry.
"We have a narrowly focused investigation as to whether there is a breach of competition laws in relation to containers," Mr Sims said.
The ACCC would also look at shipping and the cost of freight in its stevedoring report due in November.
"We're going to look at to what extent this is a structural problem - due to the fact that you've got concentration in shipping, which has occurred a lot - or to what extent is it a short-term issue, due to the spikes in demand as people consume more goods and less services as COVID-19 interrupts the supply chain," he told the ABC.
Shipping Australia Limited, peak industry body for shipping lines in Australia, spokesman Jim Wilson, replied to claims in The Land that shipping lines were part of the problem holding up ag freight.
He accused some vested interests in the export industry of spreading propaganda.
The Australian Peak Shippers Association had attacked the fact shipping lines are not controlled by compeitition laws and has called for a federal inquiry and the creation of a maritime regulator.
APSA director Paul Zalai said "if the government is sold on the need to give shipping lines continued exemptions from the Competition and Consumer Act, then we will clearly need a federal maritime regulator to oversee proceedings to safeguard the commercial viability of Australian exporters and importers".
The main points from Shipping Australia's reply were:
- market mechanisms have seen increases in costs due to supply and demand
- shortage of food safe containers worldwide needed for many grain exports.
- no denial that freight costs per container have skyrocketed.
- shippng lines are acting independently and there is no choking or gouging.
- no shortage of containers for export - ships normally have 60 per cent empty leaving Australia.
- poor performing ports around the world are delaying shipping
- some ships are skipping Port Botany due to congestion
- no cuts to shipping routes, world shipping has expanded
SAL on its website says its members include "major Australian and international ship owners, operators and agency companies involved in bulk, tanker, general cargo shipping, container, passenger and heavy lift trades as well as towage".
The reply to The Land's questions acknowledged sea container freight costs have risen considerably in the last year.
"It's no secret that freight costs have gone up and in some cases, on some trade lanes, freight costs have increased considerably. Before the pandemic, in or about December 2019, the global average freight rate for a forty foot box was about USD$1,446. As of September 3, 2021, that figure had risen to US$10,519," he said. "It's worth bearing in mind that not all freight rates on all trade lanes have increased by anywhere near so much."
(Most sea freight is contained in a Twenty-foot equivalent unit (TEU)).
"In the current environment a combination of a surge in demand for cargo and extreme port congestion (which takes out huge volumes of the supply of shipping services) have caused demand to massively outstrip supply". Similar to agricultural markets, he said.
"Incidentally, we'd also like to point out that, despite the focus of some parties on ocean shipping companies, a very great many organisations in the supply chain, including trucking and logistics companies, including freight forwarders, are making record profits too. There's nothing wrong with that, it's just the nature of the transport markets right now.
"Mainfreight, CLX, Wiseway, Silk Logistics, K&S Corporation, DSV, Kuehne & Nagel - these are just some of the transport and freight forwarding companies that are making good revenues and profits (sometimes in the billions of dollars) from the current markets right now."
Asked why ag exporters can't get sea containers, Mr Wilson replied:
"I'd like to base my answers on Port Botany, Sydney. It's a port that is very representative of Australia's container trade. Port Botany reports on a financial year basis. In the financial year ending June 2021, Port Botany handled 2.69 million TEU (twenty foot containers). Of that figure 1.34 million TEU were exports and just under 1.35 million were imports.
"About 1.34 million TEU of Botany's imports were fully loaded TEU. Hardly any, about 5,865 (yes, that's right, just under 6,000 TEU) of imports were empty. Only 0.45% of Botany's imports were empty TEU.
"Now let's look at exports. There were just over 455,000 TEU fully loaded exports and just over 883,192 empty TEU exports. About 34% of Botany's TEU exports were fully loaded and 66% were empty.
"It's a similar situation going back years and years. In other words, although The numbers go up and down a bit, roughly speaking, its normal nearly all of Port Botany's imports to be fully loaded TEU and about two thirds of Port Botany's TEU exports to be empty.
"Australia has a very imbalanced trade. We buy lots of goods from overseas and we don't have the manufacturing base to fill the containers on their journey back overseas. The containers aren't all stuffed with agri-products simply because the vast majority of agricultural produce, such as wheat, is exported in vast dry bulk ships.
Unfortunately, poor container port performance and port congestion is eating away at shipping supply and shipping capacity. There are about 40 container ships stuck off the coast of the Port of Los Angeles. There are 40-ship long queues at ports in China. There are days and days and days of delay in Vietnam and Auckland, and all over the world. Ports need to up their game.
"This is the fundamental nature of Australia's trade: lots of stuff is imported in full boxes, lots of empty boxes go out; lots of empty bulk ships come in, lots of full bulk ships go out. As we said, imbalanced.
"Unfortunately, there are some motivated and self-interested parties who try to spin the fundamental nature of the trade as being something sinister. It's not. It's just a reflection of the composition of Australia's industries.
"The transport task reflects the fundamental nature of Australia's economy and won't change until, or if, Australia becomes a seriously major manufacturer of goods.
"We've heard from media outlets like yours, and from statements by other parties, that various parties cannot get container bookings. Now, without having the details, I couldn't really go into that and even if we did have the details, we wouldn't be able to comment on any one particular organisation's commercial business any way (because of competition law rules).
"But what I can point out to you is that, in the financial year ending June 2021, hundreds of thousands of full TEU were exported from Port Botany (see figures above) and they were similarly exported from the Port of Melbourne and other ports around Australia.
"By way of illustration, we can look at the empty TEUs exported from the main capital city ports around Australia. They account for nearly all containerised exports out of Australia. Unfortunately, these numbers do not cover the exact same timeframe so we can't simply add them up. But they are illustrative as they are typical of the empty TEU exports these ports normally handle:
Full TEU exports
- 455,000 Port Botany 2020-2021 Financial year
- 701,908 Brisbane Jun 2020 to July 2021
- 759,363 Melbourne 2019 Calendar Year
- 237,785 Fremantle Ports 2019-2020
- 179,757 Adelaide 2020 Calendar Year
"As a successful export requires a booking to be made, it follows that if millions of full TEU are being exported throughout the pandemic then, equally clearly, it is proven that a very great number of container bookings have in fact been obtained."
Asked about why agri exporters were finding it hard to get sea containers, Mr Wilson said food grade sea containers were in short supply and these "needed to be ordered".
"In normal, mundane, everyday market situations, most containers are not suitable for the transport of edible agricultural produce. In times of high demand shippers can be frustrated in their attempts to get containers suitable for the transport of edible agri-products.
"By law, agricultural produce like grain has to be shipped in "food" grade containers. They can't be shipped in "clean" containers.
"Food grade containers are cleaned to a far higher standard than clean containers. It takes a lot of time, effort and cost to upgrade a container to "food" grade. Typically, only very small numbers of food grade containers are in circulation or stock at any point in time, even during the most normal everyday mundane set of circumstances. And they're always in high demand somewhere in the world. During times of very high demand, shippers of edible agri-produce need to manage their containerised transport arrangements very carefully.
"Agri-shippers need to specifically order "food" grade containers in advance in sufficient numbers," he emphasised.
He said no export goods were being offloaded for more lucrative cargo or going to the wrong destination.
"Ships head to hundreds of ports all around the world. By virtue of trans-shipment (putting a box on a ship on the Australia-Singapore route, unloading it at Singapore and then re-loading the box onto another ship at Singapore to somewhere else) an Australian-origin shipment can go from here to pretty much any container port in the world and can even then be trucked far inland. So, "no, ships are not headed to the wrong destination".
Mr Wilson said contrary to many beliefs. there were more ships on the world waterways. COVID-19 had made it very difficult on supply chains to function, but ports were to blame, more than ships.
"COVID happened and governments around the world locked down their populations. Deprived of the ability to go on holiday, eat out, go the pub, populations all around the world have gone on a retail frenzy. Your readers may be aware of the "multiplier effect". If one sector starts selling more of its stuff, then it needs more of everything to make and sell that stuff. Most of the world is covered by seawater. Major consumer centres are separate from centres of manufacturing, which are in turn separate from the centres of primary commodities creation (farms, forestry, fisheries) and primary commodities extraction (mines). All of those commodities have to be transported over the ocean to be manufactured into goods and then re-transported over the ocean to be sold to someone.
"As you can probably imagine, if the demand for goods has increased, then the demand for shipping has increased.
"The supply of shipping, believe it or not, has actually expanded. The demolition market has near-dried up. The previously idled fleet has been put back to work. Non-specialist multi-purpose ships and even massive capesize bulkers have been hired to carry containers. Ocean shipping has invested in massive orders for new ships and new containers. Unfortunately, the new fleet will take time to be built (about two to three years for the ships and several months for the huge fleet orders of containers).
"Unfortunately, poor container port performance and port congestion is eating away at shipping supply and shipping capacity. There are about 40 container ships stuck off the coast of the Port of Los Angeles. There are 40-ship long queues at ports in China. There are days and days and days of delay in Vietnam and Auckland, and all over the world. Ports need to up their game."
He said ships were skipping Port Botany because of many issues including congestion.
"Yes, ships are skipping Port Botany, as they are skipping many different ports around the world because of port congestion. The current one-day cost of delay (not including fuel) can be estimated at about AUD$129,000 a day for a 4,000 TEU vessel (a size of container ship that often calls in Australia). And remember: that's without fuel.
"Ships have to skip ports because shipping companies cannot afford to have ships sitting around for a long time. Can you imagine the cost of a ten day delay for every ship in your 50-ship-strong, or 500-ship-strong, shipping fleet? The cost would be horrendous. Shipping companies couldn't afford it - they'd go bankrupt. And that's not even taking into account the opportunity cost of the lost opportunity of moving freight.
"Ships also skip ports so as to keep trade moving. Here's how: imagine if ships did not skip a congested port and imagine if ports and ships worked on a one-in / one-out basis. As more and more ships arrived at the congested port, the queue would get longer and longer (just like a traffic jam gets longer and longer) because the ships at the back of the queue would arrive faster than ships at the front of the queue could be processed by a port.
"The port would become more and more congested. The warehouses and other facilities near that port would start filling up. Meanwhile, non-congested ports would not be receiving any ships and other cities and countries would start running short of goods and commodities. Eventually, we'd have a few extremely congested ports holding most of the world's fleet, but there would be empty shops and starving citizenry everywhere else in the world!
"This, of course, does not happen because ships skip congested ports."
He said there was no need for a maritime regulator as pushed by the APSA.
"The current high freight rates are caused by normal market mechanisms. When demand reduces as populations are released from lockdowns and as massive orders for new fleets of ships and new fleets of containers are delivered, then it is likely that supply will begin to exceed demand. That will likely cause freight rates to decline and service levels to improve in due course. A self-solving situation logically means there is no need for regulation to resolve that situation."