Gina Cass-Gottlieb, the chair of the competition watchdog, has called for the regulation of container ports so as to boost competition. She also called for port performance monitoring.
She told delegates to the Ports Australia conference earlier this week that “proper regulation to compensate for a lack of competitive pressure on our container ports”*1 would go some way to achieving increased competition.
Opening her speech with a praise of the virtues of container shipping, which, she said, is a clockwork-like system that moves trillions of dollars’ worth of goods and drives the global economy, she went on to say that “where there are natural monopolies, such as ports, regulation [is] a substitute for competition”.
The chair of the Australian Competition & Consumer Commission then noted that a major long-term trend has been that governments have privatised ports without putting adequate regulation in place. Ms Cass-Gottlieb acknowledged that there can be benefits to privatising a port, such as the creation of incentives for the port to achieve greater cost efficiencies and an increased responsiveness to the needs of port users.
However, she went on to say that “Australia’s container ports are regional monopolies and, in the absence of appropriate regulation, they can extract monopoly rents*2 from users with no alternative”.
Ms Cass-Gottlieb referred to the work of the Essential Services Commission which demonstrated that there was a need for ports to be privatised with comprehensive and well-structured regulation “from the start”.
She then went on to discuss the privatisation of ports in New South Wales. That privatisation was set up so that if the Port of Newcastle handles above a certain number of containers then it has to make volume-based payments to the State government, which in turn, then has to make volume based-payments to NSW Ports. In effect, that system renders uneconomic any potential entry of Newcastle into the NSW container market.
“The ACCC takes an in-principle position that state government privatisation processes shouldn’t prevent the possibility of new entrants to a market. The threat of new entry is an important part of the competitive process and it imposes a competitive discipline on existing businesses. We believe arrangements that seek to maximise the profit from the sale of an existing monopoly, by protecting that monopoly from competition in the future, are inherently anti-competitive,” Ms Cass-Gottlieb said.
The ACCC later began litigation but was defeated on technicalities namely, that certain aspects of the Australian competition law did not apply at the time of the creation of the privatisation and, secondly, that the deal did not have an anti-competitive purpose or effect. As the previous ACCC chair noted, a problem that faces the watchdog in such cases is that the ACCC is required to prove the likely future state of competition (both with and without the alleged anti-competitive conduct) to the civil standard of proof.
The ACCC effectively had to prove that, at the time of the privatisation, a container terminal at Newcastle would be viable within the next 20 to 30 years when all it (or any one else) can actually do is prove what is currently known. Proving (as opposed to speculating on, or demonstrating, what is probable) what will happen in the future is next to impossible (or maybe even impossible) in a complex area such as business development in a market economy.
Ms Cass-Gottlieb also made an intriguing, short comment, that the ACCC supports the development of a performance measures framework for assessing port performance and for benchmarking Australian ports internationally.
Wrapping up the speech, Ms Cass-Gottlieb, concluded: “our economy now, perhaps more than ever, needs well-regulated ports”.
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*1 Ms Cass-Gottlieb also said that “addressing restrictive work practices”, and “repealing Part X to increase competition between shipping lines on Australian trade routes” would also help to boost competition. Shipping Australia has addressed Ms Cass-Gottlieb’s comments on “restrictive work practices” and also on “repealing Part X” in separate articles.
*2 A “monopoly rent” is the price of goods or services sold at a price far above what would be charged in a competitive market. It’s a sub-set of economic rents. Read more.
