Infrastructure charges The ACCC is concerned but says there is nothing they can do

Infrastructure charges – The ACCC is concerned but says there is nothing they can do

 

Trucking companies have seen a massive rise in the charges imposed by stevedores on the collection or delivery of containers. The ACCC has reviewed these charges in its latest Container Stevedoring Monitoring Report and has offered no relief to trucking companies.  In short, while the charges are likely to hurt transport companies and cargo owners, the ACCC believes the charges are legal.
With infrastructure charges likely to remain, if not increase, transport companies need to ensure their customers understand this cost, that it is legally invoiced to customers, and the transport company has the full right to recover the cost.

Rapid rise in charges as a new source of revenue
The ACCC reported that infrastructure charges are now applied at all ports it monitors. The rise of these fees has been most notable in Melbourne where the charge imposed by DP World has gone from $3.45 per container in April 2017 to $85.30 per container from January 2019.
While many reasons were given for the charges and their increase, the theme of the report is that the charges represent a move by stevedores to recover revenue from land transport companies rather than shipping lines. There is competition for the business of shipping lines and stevedores are being forced to drop prices. However, there are no market forces at play when trucking companies pick up a container. They have to go to the stevedore where the container is located. As a result, there is no commercial pressure to keep infrastructure charges low.
It was reported that total profits of the monitored stevedores in 2017-18 was about $60 million. The amount raised by the infrastructure charge was $100 million. Given the reported difficulty with generating more revenue from the shipping lines, it's hard to see stevedores abandoning this new revenue stream. Rather, the ACCC expects the revenue from these charges in 18 – 19 to increase to $180 million.

Are infrastructure charges legal?
The ACCC does not believe the imposition of infrastructure charges breaches the Australian Competition and Consumer Act. This is because the ACCC does not believe the costs substantially lessen competition or constitute unconscionable conduct. The position would be different if the stevedores elected to waive the charges for any of their related businesses.
The ACCC has also stated that it is reviewing stevedores' terms and conditions for compliance with the unfair contract laws. There are two major limitations with this law in respect of infrastructure charges:

  1. the laws only apply to contracts where one of the parties has 20 or less employees. As such, it can only assist small trucking companies; and most importantly
  2. a term that sets the price payable cannot be deemed unfair.

Government intervention
The ACCC is concerned that left unchecked infrastructure charges will increase by an amount that is greater than what is required by the stevedores to recover their costs and earn a profit. Ultimately this could lead to transport companies and importers/exporters paying higher charges to ship their goods. In a normal market, consumers would refuse to pay the cost and switch to an alternative service provider. However, the ACCC has clearly pointed out that the shipping line, and not the transport company, choose the stevedore that is used.
The combination of transport companies being forced to accept higher prices and the ACCC having no power to regulate the price increase, has resulted in the ACCC calling on government to review the situation and consider a regulatory response. The ACCC reports that NSW already has power to regulate infrastructure charges and the Victorian Government recently commenced a review into the charges. If infrastructures charges are acting to the detriment of supply chains, the ACCC noted that the following regulatory responses could be considered:

  • stevedores may be required to seek approval before increasing charges
  • the rate of the increase in the charges could be capped
  • the pricing strategy could be disallowed altogether.

The ACCC warned governments to signal any policy change before the stevedores become too reliant on the charges. There is a real risk this has already occurred. Long term contracts with shipping lines may have been negotiated that are only commercially viable if landside revenue is increased.
Our view is that this is an extremely complex issue and in an environment where stevedore profits are falling, governments will be slow to force pricing changes. The policy situation would be easier if the infrastructure charge resulted in an increase in overall profits, as opposed to reallocating sources of revenue.

What can transport companies do?
Infrastructure charges are a cost outside of the control of transport companies. Most will see it as  appropriate that the risk of such cost increases is passed on fully to cargo owners. To do this transport companies need to:

  • ensure that customers understand the nature of an infrastructure charge
  • make customers aware that the transport company cannot avoid the charge or elect to use a cheaper stevedore
  • make sure their terms and conditions include the right to specifically recover infrastructure charges from the customer and, more generally, contain a right to recover other third party costs that cannot be avoided
  • ensure the transport operator's terms and conditions have been accepted by the cargo owner
  • make sure quotes include known costs, such as the infrastructure charge, to avoid an allegation that the quotes were misleading
  • be transparent in the recovery of the cost. An infrastructure charge should not be uplifted on the transport company's invoice unless it is clear what is charged by the stevedore and what is the mark-up by the transport company. It is legitimate to charge extra to cover the expense of financing and handling the infrastructure charge. However, this cost cannot be misrepresented as an amount charged by the stevedore
  • appreciate that with increased charges your bad debtor risk increases and review what security you have in place if the customer does not pay.

The ACCC does not have the power to set stevedore prices and has not identified any short term solution. With failing profits, increased competition and more powerful shipping lines, infrastructure charges are here to stay. The key for transport companies is to recognise this reality and make the necessary changes to its own business and contracts with their customers.