Industrial action at the nation’s busiest ports will have a cascading impact on multiple industries and pose a significant threat to the economy, independent experts have warned.
On Friday, the Fair Work Commission ruled that workers at Australia’s second largest port operator, DP World, could stop work at its Sydney, Brisbane and Fremantle terminals. It’s the latest instance of industrial action since October.
How badly will this hit the economy?
It could be very significant, according to independent experts. Supply chains are complex and delays can lead to extra costs being passed along to a range of different industries with varying impacts.
If you ask DP World, this dispute is costing more than $84m a week, with a backlog of 44,000 containers that could take two months to clear. Independent experts say that figure is difficult to verify but confirm there are significant delays.
Prof Lushen Shao, an expert in supply chains at the University of Melbourne, says: “The impact could be significant considering that the market share of DP World sits at around 37% and the dispute has lasted for months with an increasingly larger scale.”
Dr Hadi Ghaderi, a logistics and supply chain expert at Swinburne University, says Australia is increasingly reliant on containerised trade and the consequence of delays may not be immediately apparent.
“Even minor disruptions could lead to very, very lengthy disruptions,” Ghaderi says. “This started in October. It could definitely impact the overall health of the supply chain.”
So are freight costs about to go up?
They already have and, according to the peak body for the container transport industry, they’ll keep going up until the dispute is resolved.
The Container Transport Alliance Australia’s advocate, Neil Chambers, has urged both parties to reach consensus as soon as possible, either by agreement or arbitration.
“Purely from the land transport side of things, this is probably costing importers and exporters about 20% more in logistics costs, which is not an insignificant increase,” Chambers says.
The financial figure will depend on the value of the goods being shipped, he says.
“Most of the transport operators have implemented congestion surcharges. They go to drop off exports or pick up imports and find out they can’t be serviced before work is stopped as part of industrial action. They can’t be expected to pick up the additional costs, so they’re passed on and there’s a natural flow-on effect.”
Will this affect the price of consumer goods?
Potentially yes, but it is difficult to say by how much and when.
According to DP World, white goods and appliances such as televisions and radios are among the most imported items at affected ports, along with engines and machines. Coles, Woolworths, JB Hi-Fi and Harvey Norman are all reportedly affected.
Shao says any impact on the price of consumer goods will not be immediately noticed by consumers and a spike isn’t guaranteed.
“The industrial disruption would inevitably increase the operational cost of shipping companies, but the cost increase would have to be passed on to businesses and then to consumers so that they can be felt by consumers,” Shao says. “If the impact is short-term and not significant, it is possible for businesses to absorb it.”
Peter Van Duijn, a logistics expert at Deakin University who was a senior manager at shipping company Patrick during the waterfront dispute, says delays could be the biggest hit to retailers.
“The additional cost on a container-load of televisions if probably not much per unit. But if you have commodities going to retail stores, they might miss sales targets as a result,” Van Duijn says.
“If you import 30,000 T-shirts in a container, well there might be a $500 cost. But retailers might think, ‘Oh, this is a nice opportunity to increase prices.’”
So what about our exports?
This is what concerns most independent experts. While Australian retailers may be able to pass any additional costs on to consumers, exporters don’t always have that option.
According to DP World, fresh meat is the most exported item at three of the impacted ports: Melbourne, Brisbane and Fremantle. At Botany in Sydney, it’s second.
Ghaderi says the industrial action coincides with record high meat exports – up 23% on the past year. In October, more than 5,000 shipping containers of meat left the Port of Melbourne, where industrial action is taking place.
“Such strong numbers depend on a resilient container supply chain and streamlined port operations,” Ghaderi says.
Chambers says delays could reverberate back through the supply chain and impact farmers.
“If you have delays when shipping things that need to be refrigerated – like meat or seafood – then you are paying more on energy costs to store them,” Chambers says.
“You might be paying hundreds of extra dollars in power costs and you might not meet your export contract. That’s a really damaging issue for Australia. It impacts our long-term reputation as a supplier of fresh produce, grains and pulses.”
Will the Red Sea operation further increase costs?
On the same day DP World staff walked off the job, the US and UK militaries launched more than a dozen airstrikes against sites used by Iran-backed Houthis in Yemen. The Houthis’ drone and missile attacks on commercial shipping in the Red Sea were disrupting supply chains.
The peak body for the shipping industry, Shipping Australia, says this will have an indirect impact on costs but not as much as it would have in previous decades. The bulk of Australia import and export trade is now within the Asian region.
“Anything of this nature will produce upward cost pressure on freight rates. It already has and it is likely to continue doing so,” Shipping Australia’s policy manager, Jim Wilson, says. “Anything that causes such a massive deviation around Africa will inevitably induce delay and extra costs.”
Hostilities often lead insurers to increase war-risk premiums. A small increase in premiums can have a big impact, depending on the value of goods that are being carried by the ships.
Wilson says shipping will probably continue through the Red Sea despite the conflict.
“Historically, international commercial shipping has continued sailing during a wide range of global crises – including armed conflicts – and we cannot see that will change.”
