The value of a port.
What if the charges for using your major import port doubled or trebled? Would you be alarmed and what could you do about it? Do you know what the port charges are?
The importance of ports to the economy of a nation, state or province means that many ports are owned by state entities that have a wider remit than maximising profits for shareholders. Their objective is for ports to provide an efficient service for importers and exporters, such that port charges are sufficient to provide funds for the port’s operations and maintenance.
The benefits of this approach will flow to commercial businesses in the country and hopefully to consumers in the form of lower prices, providing a growing economy.
Some governments currently have budget challenges which apparently can only be overcome by either borrowing money or selling state assets. If the latter course of action is selected, potential bidders are encouraged by the knowledge that ports tend to be natural monopolies; ports are built and operated based on dependent and derived demand – a bit of ‘build it and they will come’, especially if the next port is hundreds of kilometres away.
Potential buyers can therefore bid high for the assets, knowing that port charges can be increased to cover the added debt. Also, as the winning bidder is likely to be a public company with shareholders to satisfy, they know port charges can be increased to maximise profits.
Port charges under privatisation
Substantial increases in charges are projected to happen when the Port of Melbourne, currently Australia’s largest port, is sold by the state government. They happened at Port Botany (Sydney), the Port of Newcastle and Port of Brisbane when those ports were privatised.
The price paid to operate Melbourne’s third container terminal indicate that stevedore charges could increase by at least 100 percent over the next two years. Grain exporters could experience handling charges of of $10 per tonne by 2016 against $1.50 per tonne in 2009.
Even if a private operator was more efficient in managing operations than a state entity, the difference in business objectives means that charges will increase, thereby decreasing the county’s international competitiveness. This is at odds with a government’s overall policy of facilitating economic development of the country, state or province.
If a government in any country is considering the sale of one or more ports and your business operates there, then you must expect a significant increase in charges within a two to three year period following the sale. This scenario must be factored into your supply chain planning so that you have the facts at hand to make decisions about the movement of your goods.