‘Regional impacts of improving efficiency & productivity of supply chains’

Luke Fraser Principal, Juturna Infrastructure www.juturna.com.au Ports Australia Regional Ports Conference 2013 Geelong, 20 November

(I didn’t choose the title…) Better?

‘What’s really in the way of some ports and investors making more money and growing GDP?’

About us… • Australian freight infrastructure policy reform and

investment advisory

• Retained advisory to Infrastructure Australia Council on freight investment and planning reform

Recent:

• Mount Isa – Townsville: 50-Year Freight Infrastructure Plan

• National: commercialised road investment leader (grains, etc)

• Geelong: Port-City 2050 (in alliance with GHD)

• Tasmania: Indp’t review of entire freight infrastructure sector: policy, demand, investment structures, reform solutions

Today:

1. ‘Regional trade catchments’ and change

2. So what? Why we should question port/freight efficiency in 2013

3. Barriers to better: Australia’s port policy ‘failure of nerve’

4. Doing better – promising developments

‘Regional trade catchments’ and change

‘Regional trade catchments’ • Few significant

geographic ‘catchments’ for trade, all to ports.

• Little change in 150 years (additions/subtractions)

• Very little correlation with gov’t boundaries.

• Pre 1980s ports provided on settlement model, not economic efficiency basis

Townsville c. 1932– same catchment, same freight task as today.

Uncomplicated: attractive to scale

• Not many sophisticated internal economies and supply chains (eg. compare it to USA/Europe)

• Much of it lends itself to up-scaled mine-to-port, ‘paddock-to-port’ solutions; Containerised more complex, scale still applies

• Efficiency assumes winners and losers

So what? Why we should question port/freight

efficiency in 2013

How we service the tonnage now

–46 ports, 1 billion import/export tpa total

–5 carry 70% (Hedland, Dampier, Newcastle,

Gladstone, Hay Point over 700 million tpa)

–7 capitals* carry 15% (c. 150 million tpa)

Source: Ports Australia FY11-12 - *Burnie & Fremantle as capital proxies

Question for regional port owners

34 ports handling only 165 million tpa: growth driver or growth suppressant?

– Could less ports remove deadweight losses to customers, shareholders and GDP?

– Opportunities for scale and scope efficiencies?

– For less environmental/amenity footprint?

– Growing pie, more sophisticated economies?

Some perspective: grain logistics

CAN/AUS share grain exports by port

• Canada: 3 ports = ¾ of trade*(Vancouver, P. Rupert, Quebec)

• Scale allows Class-1 rail to operate with some success

• Australia: every port wins a (disappointing) prize… • What chance for serious (Class-1) rail investment?

Sources: Canadian Grain Commission 2011-12 (*excl. Prairie Elevators); Ports Australia 11-12

Lessons

• Outside WA ore rail, Australia has a single Class-1 network(ARTC), goes to many ports

• 3 Class-1 rail networks serve Vancouver alone

• Scale across freight modes rewards customer, shareholder, GDP; no scale consigns grain task to trucks and modest-at-best port performance

Barriers to better: Australia’s port policy

‘failure of nerve’

Finance no sweat but changed model

• Private capital can unlock efficiencies in ports and their regional trade catchments

• And wants to: market risk premia on economic assets lowest in history at c. 5-7%

• Public funding is scarce (getting scarcer)

• Governments (rightly) unwilling to debt-fund overtly-commercial infrastructure

• Spells trouble for GOC ports

Ports not the only focus for value

Source: Infrastructure Australia National Ports Strategy Discussion Paper 2011

Blue bars = gov’t monopolies at work (ie road agencies)

No ability to invest in new approach

Are big licks of patient capital allowed to help? No.

Why? A failure of policy nerve

No examination of whole-of-chain freight market access; no review of GOC model vis-à-vis competition principles in 2 decades since their agreement. Instead:

Industry Commission Ports Review 1993:

‘Market structure issues’ seen only as ‘stevedoring, towing and pilotage’ matters. Nothing wider.

ACCC Container stevedoring monitoring reports:

No discussion of challenges outside wharf gate.

Implications of losing our nerve

• Gov’t freight plans not designed to promote growth or reward competitive advantage.

• Growth via fewer, scaled and scoped ports would mean some losers. Instead we keeps things ‘fair’: modest growth across all ports, low yields.

• Economic result is a hidden deadweight loss on the national economy.

• But politically easier for gov’ts given lack of clarity around issue + power of lobbying from ‘at-risk’ ports.

Doing better:

promising developments

‘User-pays, user-gets’ road freight

Port-cities embracing scale

Geelong commerce/gov’t puts zoning/planning in place for future:

• B-triples zone at port: cars out

• B-triples onto major highways; new alignments for rail growth

• B-doubles off Geelong streets

• Commodity-by-commodity growth plans for investors and governments – including staged channel investments

Access to the whole supply chain

• ‘Pit to port’ private model but in (regulated?), multi-user environments

• Long-term port, rail lease, road/channel access rights: big capital unlocks efficiencies

• Legal access regimes to discourage red-tape, lower sovereign/transactional risks

• Money coming for ports already, but deal structures could be made far more productive

Thank you

M: (Principal) - 0437 146 274

E: juturnaconsulting@gmail.com

S: lukeatjuturna

W: www.juturna.com.au