Patrick Corporation Limited Submission to the IPART Review of the Interface between the Land Transport Industries and the Stevedores at Port Botany

Table of Contents 1. Executive Summary ....................................................................................................2 2. Building on previous studies .....................................................................................5 3. Solutions ....................................................................................................................11 4. Patrick’s Submission ................................................................................................12 5. Improving the efficiency of road freight movements.............................................13

5.1 The logistics chain in Sydney ......................................................................13 5.2 Road Freight Movements ............................................................................13 5.3 Land Side Operations..................................................................................14 5.4 Patrick Land Side Investment......................................................................16 5.5 Interfaces and interdependencies between land side

operations and road freight movements ......................................................18 5.6 The VBS ......................................................................................................19 5.7 Mismatch of Hours.......................................................................................42 5.8 Misaligned incentives along the supply chain..............................................45

6. Improving rail efficiency ...........................................................................................47 6.1 Operational constraints................................................................................49 6.2 Infrastructure constraints .............................................................................51 6.3 Combined Effect ..........................................................................................52 6.4 Rail Access charges at Port Botany ............................................................53

7. Facilitating development of ‘inland ports’ ..............................................................55 7.1 Stevedores' obligations................................................................................56

8. Vertical integration of the supply chain ..................................................................57 8.1 Asciano Businesses ....................................................................................57 8.2 A third stevedore for Sydney .......................................................................61

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Table of Contents - Figures Figure 1: Sydney Road Transport Charges (Nominal $) 1990/2000 to 2005/2006....................... 12 Figure 2: A side view of the Patrick Rail Mounted Gantry Crane ................................................ 17 Figure 3: VBS Slot Booking Fees from 1999 to 2007 .................................................................. 22 Figure 4: Cost of transporting a container from Port Botany ........................................................ 23 Figure 5: IT related costs via the real time interface between the 1-Stop VBS and Patrick EDI.. 24 Figure 6: Slot time zones............................................................................................................... 26 Figure 7: Slot releases by Patrick .................................................................................................. 26 Figure 8: Patrick VBS Daily Release ............................................................................................ 27 Figure 9: Information gathered by Patrick in relation to truck turnaround times.......................... 29 Figure 10: Proportion of trucks arriving on time for their slots at Port Botany .............................. 33 Figure 11: Arrival times of trucks versus their actual VBS booking slot time................................ 33 Figure 12: Variation of truck arrivals.............................................................................................. 34 Figure 13: Rental rates and charges................................................................................................. 35 Figure 14: Time available to pick up or deliver cargo .................................................................... 40 Figure 15: Truck arrivals per hour January-April 2007 .................................................................. 43 Figure 16: Truck arrivals per day of the week January-April 2007 ................................................ 43 Figure 17: Port Botany TEU throughput projections ...................................................................... 45 Figure 18: Projected increase in train arrivals at Botany Yard 2006-2012 ..................................... 46 Figure 19: FIAB recommendations relating to rail and Patrick's response ..................................... 47 Figure 20: Number of paths for non-passenger trains ..................................................................... 48 Figure 21: FIAB recommendations relating to rail and Patrick's response ..................................... 49 Figure 22: Botany rail move reliability ........................................................................................... 49 Figure 23: Competition between rail and road ................................................................................ 52 Figure 24: Shares of truck container movements at Port Botany .................................................... 59 Figure 25: Truck turnaround times by container ............................................................................. 60

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1. Executive Summary

All participants in the import/export logistics supply chain, including Patrick, share a common

goal: to lift the productivity and efficiency of the land side interfaces.

Patrick welcomes the independent review of the current land-transport interface at Port Botany

being undertaken by IPART and Patrick appreciates the opportunity to make this submission.

Patrick looks forward to co-operating with IPART, and, in due course, with other stakeholders,

in analysing the issues and assessing the options for dealing with continued growth in

throughput at Port Botany. If unaddressed, Patrick believes that such congestion will hinder

Port Botany as one of Australia's and New South Wales' most important export and import

gateways.

The challenge of securing land side efficiency has long been recognised and debated. In

response, Patrick has invested significant amounts of capital into the Port Botany facility to

secure such productivity improvements.

The IPART Issues Paper has raised a number of issues regarding the land side interface at Port

Botany and Patrick welcomes the opportunity to make comment in response. Salient points

raised in this Submission include:

(a) The current $4 slot booking fee is an insignificant cost compared to the efficiency

and flexibility that the VBS delivers and in light of standard charges for moving a

container in Sydney. The $4 slot booking fee for the VBS has not changed since

April 2003. Patrick is aware that the fee is on charged to end customers and does

not represent a cost to truck operators.

(b) In current dollars, road transport charges have increased 37% per TEU since

1998/1999. In the same time, stevedoring charges per TEU have remained constant.

Furthermore, the average number of containers being transported per Port Botany

truck movement has not changed since 1999.

(c) Patrick is aware that concerns have been expressed from time to time by a small

number of land side operators concerning their perception that Patrick, in its

stevedoring of vessels, gives priority to quayside activities over land side activities.

This is not possible due to the interdependence of the two activities and the fact

they are inextricably linked.

(d) Efficient land side operations go hand in hand with efficient quay side operations.

One cannot exist without the other.

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(e) Patrick has invested over $200M since 2005 into the Port Botany facility, in the

process enhancing both land side and quayside efficiency. This allowed Patrick to

handle a 35% increase in container throughput and a 20% increase in truck numbers

from February 2006 to February 2007.

(f) The introduction of a Vehicle Booking System has allowed the growth in container

throughput volumes through the Port of Sydney (and hence truck movements) to be

handled efficiently. Truck turnaround times are below what was standard in the

1990s when throughput was a fraction of what it is in 2007. Implementation of

similar Vehicle Booking Systems continue at ports around the world, such as the

Port of Auckland and the Port of Southampton, for example.

(g) Any comparison between Sydney and Melbourne will recognise the efficient road

network around the Port of Melbourne and a smaller number of carriers as

contributors to Melbourne’s perceived efficiency advantage. The inability of

carriers in Sydney to meet booked windows on a consistent basis exacerbates the

difference.

(h) Container dwell time has a direct influence on terminal capacity and the efficiency

of operations. Any market mechanisms to reduce dwell time and encourage the

efficient collection and delivery of containers must be encouraged. Storage charges

are such a mechanism. In the last twelve months, only 2.2% of containers passing

through the Patrick Port Botany facility have incurred storage charges. The majority

of storage revenue arises from long stay containers.

(i) Mismatch of hours will continue to limit efficiency gains throughout the supply

chain. It has been well documented that the stevedores have made the adjustment to

24/7 operation but other supply chain participants have not.

(j) Patrick fully supports the NSW Government’s target of achieving 40% rail share by

2011 for Port Botany’s containers. Patrick has invested heavily to ensure our

operations will meet such a target. However, considerable improvements in rail

infrastructure and operating procedures will be required if this target is to be

achieved.

(k) Modifications to the Botany Yard and duplication of the Botany Freight Line will

contribute to providing greater capacity and capability for increased freight

movement by rail to and from Port Botany.

(l) Patrick is supportive of the FIAB recommendations relating to inland ports in NSW.

Patrick believes that market based solutions will deliver the greatest efficiency,

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success and sustainability. Patrick believes that the role of Government should be

limited to providing the investment in infrastructure (particularly rail networks) and

making land available for the development of inland terminals. The development

and operation of such terminals should be left to the private sector.

(m) Vertical integration is one way in which the various parties in the supply chain can

work together to drive efficiency. However, there is little vertical integration in the

supply chain in Sydney. Patrick Port Services move fewer than 2% of road

movements into or out of the Port, and truck turnaround data provided to the ACCC

supports the fact that they receive no preferential treatment due to their ownership

structure. Recent restructures within the stevedoring industry will further reduce

vertical integration and enhance transparency.

Patrick believes that the issues facing the efficient movement of freight around Sydney will not

be addressed by focussing solely on the operation of the Vehicle Booking Systems at Sydney’s

container terminals. Instead, increases in container throughput will only be handled by

focussing attention on three key areas:

(a) Improving the efficiency of road freight movement to and from Port Botany;

(b) Improving the efficiency of rail into and out of Port Botany; and

(c) The greater use of inland terminals.

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2. Building on previous studies

It is important for IPART to utilise the large body of knowledge on the key challenges facing

Port Botany already developed in previous studies. Many of the challenges still facing the

land-transport interfaces at container terminals at Port Botany have been identified in past

reviews. Patrick is keen to see many of those recommended reforms implemented.

This submission draws on the experience that the significant improvements in stevedoring

efficiency and productivity over the past decade have brought to the Port Botany container

terminal operations in suggesting where the solutions can be found for the problems being

experienced in the land-transport interfaces.

Despite many substantial improvements in waterfront and stevedoring efficiency, there remain

significant inefficiencies in the land-transport interfaces at Patrick's container terminal at Port

Botany as a result of a failure of land transport operators to achieve similar improvements.

Patrick has undertaken significant levels of investment to realise its goal of achieving similar

levels of efficiency gain in land side operations that it has achieved in its quay side operations.

Patrick’s crane lift rates are now on par with world’s best practice for similar sized container

terminals.

While this inquiry has its focus on the land-transport interface, and specifically the VBS, the

Terms of Reference and the Issues Paper implicitly recognise that each link in the logistics

chain affects each of the other links. For the chain to reach optimal efficiency, to the ultimate

benefit of the consumers of New South Wales, all of the links must be optimised to work

together.

The Productivity Commission originally identified this in its 1998 Report entitled International

Benchmarking of the Waterfront. It referred to many of the issues still observable today in the

land side interface at Port Botany:

Many of the problems identified in this chapter could be overcome by improved co-

ordination. However, there are few incentives to encourage the numerous

operators to co-ordinate their activities.1

It is only by reviewing the issues affecting the efficiency of all links of the import/export chain

working together that IPART can make recommendations that will materially increase the

efficiency of the land side interface at Port Botany.

1 See Chapter 10 entitled "Port-Land Interface".

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Throughout the 1980s, 1990s and 2000s there have been numerous reviews which have

considered various aspects of the logistics chain. These reviews have identified issues in

relation to the efficiency and operation of the supply chain, and in particular the land side

interface, and made various recommendations about improvements that could be made.

Many of the issues that have been identified repeatedly by these reviews are still adversely

affecting the logistics chain despite the identification of the problems and the proposals for

reform and solutions.

The main themes that have been repeated throughout these reports include:

(a) Ability to service increased capacity in the future

The major theme throughout these reports is the need to ensure that the logistics

chain is able to deliver adequate capacity into the future to be able to handle

forecast growth and demand.2 There has been significant growth in volumes over

the last several years (in 2005/2006 Sydney processed 1.4 million TEUs, which was

an increase of 7.4% year on year in containerised throughput3) and the forecast

growth and demand over the next two decades will be even more substantial. For

example, it is predicted that by 2025/2026 Port Botany's container throughput will

be between 3.2 million and 4.3 million TEUs.4

(b) The challenge of land side efficiency

It has been widely recognised that an integral part of ensuring that Port Botany can

service this increased volume into the future will be in managing the logistics chain

so that there is efficient transfer of containers between the stevedores and transport

operators5 in order to ensure that this interface does not become a transport

bottleneck.6

2 ACCC Container Stevedoring Monitoring Report No 8 at p 3.

3 ACCC Container Stevedoring Monitoring Report No 8 at p 8.

4 New South Wales Land Side Infrastructure Capability: International Containers, July 2005, Sea Freight Council of New South Wales at p 7.

5 Railing Port Botany Containers: Proposals to Ease Pressure on Sydney's Roads, July 2005, at p 30.

6 ACCC Container Stevedoring Monitoring Report No 8 at p 3.

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Recommendations of the recent Victorian Competition and Efficiency Commission

Inquiry7 propose solutions to managing port congestion, which are similar to

Patrick’s views and focus on:

(i) improving the efficiency of road freight into and out of the port and in

immediate area;

(ii) increasing the efficiency of rail freight into and out of the port; and

(iii) assisting the development of "inland ports" or intermodal hubs.

(c) The mismatch of hours between participants in the logistics chain

It has been widely acknowledged that the differences in working hours is an

impediment to optimal logistics and has a significant impact on the capacity of the

logistics chain to function effectively.8 This has been recognised by not just the

authors of these reports, but also by the participants in the logistics chain

themselves.

For example, the Seafreight Council ("SFC") found that 42% of respondents to its

survey on Coordination of Working Arrangements thought that changing their own

hours of operation would result in an increase in supply chain efficiency.9

Furthermore, 69% of survey participants indicated that they thought their business

would operate more effectively if other stakeholders in the supply chain changed

their hours of operation.10 However, a large number of those respondents who saw

a benefit for supply chain efficiency from changes to work hours were not prepared

to make a change to their own work hours because of the increased costs that they

would incur.11

In Patrick's view, it should be the responsibility of all participants in the logistics

chain to actively undertake change themselves although this is often not the case.

Previous reports have specifically identified this problem and have stated that: 7 Making The Right Choices: Options For Managing Transport Congestion, Final Report September 2006 at p 323.

8 SFC New South Wales Freight Supply Chain - Coordination of Working Arrangements (Mismatch of Hours) at p 1.

9 SFC New South Wales Freight Supply Chain - Coordination of Working Arrangements (Mismatch of Hours) at p 16.

10 SFC New South Wales Freight Supply Chain - Coordination of Working Arrangements (Mismatch of Hours) at p 21.

11 SFC New South Wales Freight Supply Chain - Coordination of Working Arrangements (Mismatch of Hours) at p 17.

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The challenge facing the industry is creating the opportunity to work

collaboratively to implement changes that may not directly benefit the

initiator, but would enhance the efficiency of the freight logistics task

overall12

Patrick fully supports this assessment. Patrick has undertaken significant

investment over several years to improve efficiency in the logistics supply chain.13

This includes investment such as the implementation of the VBS, which has been of

significant direct benefit to other participants in the supply chain as well as to

Patrick.

Further improvements in the efficiency of the land side interface will require a

contribution of other participants. Patrick has made a significant contribution to

improving the efficiency of the land side interface, and is continuing to make

significant inroads into the inefficiencies that have been identified as being the

responsibility of the stevedores.

For example, both the Freight Infrastructure Advisory Board ("FIAB") and Sydney

Ports Corporation (“SPC”) have recognised that encouraging the operators of road

and rail to move away from peak periods and a move towards a 24 hours a day, 7

days a week basis will make a major contribution to increasing port efficiency.14

To date, there has been no significant shift to this type of operation by any road or

rail operators.

(d) Lack of coordination between the participants in the logistics chain

In 1992, this issue was identified in the Warehouse to Wharf Report which stated

"the need for more effective coordination and interaction between transport chain

participants".15

It has since been echoed by the SFC in its Import/Export Container Mapping Study,

in which it highlighted "the importance of industry collaboration in relation to

achieving the efficiencies required to meet the increasing pressures on the

12 SFC New South Wales Freight Supply Chain - Coordination of Working Arrangements (Mismatch of Hours) at p 21.

13 ACCC Container Stevedoring Monitoring Report No 8 at pp 22-3.

14 Railing Port Botany Containers: Proposals to Ease Pressure on Sydney's Roads, July 2005, page 31 and Sydney Ports Corporation Logistics Review 2005-06 at p 9.

15 Efficiency of the Interface between Seaports and Land Transport Warehouse to Wharf, April 1992 at p 52.

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container management task in the future"16 and also in the Productivity

Commission Report in 1998, cited above. The FIAB has also recognised this

problem and noted the ad hoc decision making undertaken by participants in the

logistics chain without due regard to the significant impact that the decision may

have on the operation of the logistics chain.17

Various reforms have been suggested to address these issues, including:

(i) aligning hours of operation;

(ii) developing information technology to transfer information between all

participants in the supply chain;

(iii) undertaking further investigation to improve the efficiency of the

stevedores' land side interfaces;

(iv) greater utilisation of rail transport;

(v) greater utilisation of container staging; and

(vi) developing vehicle booking systems.

Patrick is keen to see many of these reforms and solutions implemented and has,

itself, adopted and implemented many of the recommendations from these reviews

stretching back many years.18 Patrick's efforts in trying to find solutions to the

problems have been recognised in previous reports.

For example, it has been noted that:

(i) unit total revenues for stevedores are 22.4% lower in 2005/2006 than in

1998/99;19

(ii) Patrick increasingly provides services that facilitate the movement of

containers from the wharves to road and rail transport links;20

16 New South Wales Import/Export Container Mapping Study, February 2004 at p 19.

17 Railing Port Botany Containers: Proposals to Ease Pressure on Sydney's Roads, July 2005, page 31 and Sydney Ports Corporation Logistics Review 2005-06 at p 31.

18 Thomas I (1996) The Australian Financial Review, “Patrick to boost Botany capacity”.

19 ACCC Container Stevedoring Monitoring Report No 8 at p.2.

20 ACCC Container Stevedoring Monitoring Report No 8 at p 7.

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(iii) Patrick has undertaken substantial labour force reforms, improvements in

other workplace arrangements and investment in new technologies and

higher utilisation levels.21 These factors are all referable to the strategies

that have been put in place by Patrick to improve efficiency; and

(iv) Patrick has made substantial capital investment in its container terminal

facilities in the last decade which has been designed to increase the

capacity available in the terminal to allow for growth in throughput over

the next decade.22

Over the last 15 years, Patrick has invested in each of the major factors affecting

capacity, being:

(i) the number of quay cranes that operate at the terminals and the size of

the container storage space;

(ii) modern equipment and facilities for the road and rail interface;

(iii) the efficiency with which the cranes and yard space are utilised;

(iv) the size and skill of the labour force employed at the terminal; and

(v) the stevedores are making continuous efforts to improve the system

including implementing enhanced vehicle booking systems, new

equipment and improved operational procedures.

In Patrick's view, it is now time that all other participants in the logistics chain,

recognise that they, together, with the improvements being put in place by the

stevedores, must make their own contribution to improving the efficiencies in the

logistics chain.

21 ACCC Container Stevedoring Monitoring Report No 8 at p 10.

22 ACCC Container Stevedoring Monitoring Report No 8 at pp 22-23.

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3. Solutions

Owing to the complexity of the links of the import/export logistics chain, there is no single

panacea for all of the inefficiencies in the chain. However, what is universally accepted is that

in order to minimise the inefficiencies, all of the previous reviews agree, as does Patrick, that

the chain must work together as a co-ordinated whole. If there is mismatch of capacity at any

link of the chain, inefficiency results with an overall detrimental effect on the chain.

Solutions which have been the subject of recommendations of a number of reviews going back

as far as the Cross Report of 1992, would ensure that the whole chain can work together.

Patrick believes that the following measures would have a significant impact and are

deliverable:

(a) Improving the efficiency of road freight movements through the continued use of

existing measures (including the VBS, no show charges and storage charges) plus

other measures aimed at eliminating the mismatch of hours (such as expanding the

hours of operation of carriers and enhancements to the VBS aimed at greater

efficiency from carriers, for example) and addressing misaligned incentives along

the supply chain.

(b) Improving the efficiency of rail into and out of Port Botany. Patrick regards the

achievement of 40% rail modal share as being hampered by constraints outside the

terminal. The difficulties for rail to gain significant modal share are legion. As the

AusLink "Sydney Urban Corridor Strategy" Paper23 notes constraints on rail freight

operations are common to all lines and include limitations on freight rail operators

due to the high volume of passenger services, the limited number of train paths

available and congestion at junctions and restrictive track layouts, to name just a

few!

(c) the greater use of inland terminals away from the scarce and expensive port land

using rail or dedicated land bridging from the ocean terminal to the inland port

where road operators can deliver or pick up the containers. By this means, the

potential of a bottleneck at the ocean terminal can be avoided, containers can be

temporarily stored at a lower cost and there can be greater flexibility for users of the

inland terminals.

23 AusLink, “Sydney Urban Corridor Strategy”, May 2007.

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4. Patrick’s Submission

This submission addresses in more detail in each of the following sections the areas identified

in the Issues Paper as being of interest to IPART:

(a) Section 5: Improving the Efficiency of Road Freight Movements;

(b) Section 6: Improving Rail Efficiency;

(c) Section 7: The Facilitation of Inland Ports; and

(d) Section 8: Vertical Integration of the Supply Chain.

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5. Improving the efficiency of road freight movements

5.1 The logistics chain in Sydney

The land-transport interface is one link in an interconnected logistics chain which involves

many players. These players include exporters (suppliers), importers (purchasers), shipping

companies, stevedores, freight forwarders, customs brokers, road transport operators, port

authorities, container depots, rail operators, warehouse operators, government agencies and

facilitators of electronic data interchange.

It is universally accepted that the large number of parties that make up the logistics supply

chain and the interfaces, interrelationships and interdependencies between them make for a

complicated environment. Regrettably, this complexity is often not appreciated by individual

participants in the supply chain themselves, who tend to focus solely upon their task without

consideration of the role their task plays in the whole supply chain.24

This individual task-oriented focus is a significant contributor to the dysfunction and

inefficiency in the supply chain. As a stevedore and terminal operator, Patrick has interfaces

with many of the different participants in the supply chain and is well placed to be able to

provide its perspective as a key participant in and observer of the whole import/export logistics

chain at Port Botany.

5.2 Road Freight Movements

In current dollars, road transport charges in Sydney have increased 37% per TEU since

1998/1999. In the same time, stevedoring charges per TEU have remained constant.

Furthermore, the number of containers being moved per truck movement to the Patrick

facility remains at the same level as it was in 1999.

The land side interface, which itself involves many participants and a wide range of activities,

is one link in the overall logistics chain. In essence, the land side task is to move import

containers from and export containers to the container terminals on behalf of importers and

exporters in order to coincide with ship time of arrival and departure.

As a major link in the supply chain, the majority of carriers have refused to rise to the

challenge of improving work practices. As a result, stevedoring charges per TEU have

remained unchanged since 1999/2000 while road transport charges per TEU have increased

substantially in NSW.25 This is illustrated in the chart below:26

24 Observed by the Freight Infrastructure Advisory Board (“FIAB”) Railing Port Botany's Containers, at p 31.

25 ACCC Container Stevedoring Monitoring Report no 8 at p 2.

14

Figure 1: Sydney Road Transport Charges (Nominal $) 1990/2000 to 2005/2006

5.3 Land Side Operations

Patrick is aware that concerns have been expressed from time to time by a small number of

land side operators concerning their perception that Patrick, in its stevedoring of vessels,

gives priority to the quay side activities over the land side activities. This is not possible

owing to the interdependence of the land side and ocean side activities.

It is undesirable for Port Botany container terminals to be used to store a large number of

export and import containers at the terminal for an extended period of time. The efficiency of

yard operations is directly affected by stack density.27

Management of the terminal requires that the efficiency with which containers are handled at

the land side interface of the terminal matches the efficiency with which containers are

handled at the quayside interface.

The quay side and land side activities are inextricably linked. One cannot be favoured over the

other by terminal management: they must be balanced. The link between the performance of

the quay side and land side operations is immediately apparent: if the terminal does not

manage the efficiency with which containers are moved from the terminal, the ship to shore

operations are affected due to operational constraints arising from congestion in the yard.

26 Data extracted from BTRE, Waterline, Issues 18-41, 1999-2006.

27 Stack density is the average height of containers stacked in the terminal.

Sydney Road Transport Charges (Nominal $)

0

50

100

150

200

250

300

350

400

450

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

$/TEU

Road Transport Charges

Stevedoring Port Charges

15

The Productivity Commission recognised this relationship between the ability to load and

unload ships and the efficient movement of containers to and from the terminal. For this reason

it is incorrect to claim that land side receivals and deliveries are given a lower priority by

terminals than loading and unloading of ships.28

Associated with the basic task of loading and unloading is container receival, delivery,

clearance and preparation of documentation. The container terminal supplies a facility to store

containers which are in transit. The status of all containers within the terminal at any time are

either pre load or post discharge from a container vessel.

Importers and exporters choose their shipping line. Importers and exporters generally choose

the land-transport operator to transport their containers to and from the container terminals

(“merchant haulage”). A small proportion of container transport is organised by shipping

companies (“carrier haulage”).

The shipping line chooses the stevedore to work its vessels. Individual vessels therefore berth

at the wharf worked by its stevedore. Land transport operators drop off or pick up containers

at a terminal according to the location of the relevant ship.

Wharf side operations are dictated by vessel arrival and departure times. As the shipping lines

work 24 hours, 7 days a week, they require terminals to load and unload containers on and off

vessels on a continuous basis. As noted in the IPART Issues Paper, the contracts that the

stevedores have with the shipping companies require that stevedores meet certain performance

criteria.

28 Supported by the Productivity Commission, International Benchmarking of the Australian Waterfront, at p 176.

16

5.4 Patrick Land Side Investment

Patrick has invested more than $200M in the last three years at its Port Botany facility

enhancing both land side and wharfside capability and efficiency.

From February 2006 to February 2007, such investment allowed Patrick Port Botany to

handle a 35% increase in shipping volumes and a 20% increase in truck numbers at the

Terminal. An increase in rail movements and transhipments also occurred.

Patrick recognises that it has a responsibility to ensure that its stevedoring and terminal

practices are efficient and optimised for their role in the chain. Part of that responsibility is to

ensure that adequate investment has been made in cargo handling equipment and labour to

efficiently manage the land side interface. Patrick has undertaken significant investment at

the Port Botany facility to ensure that the land transport interface does not emerge as a

transport bottleneck.

Patrick’s program of modernising its’ container facilities began in the mid 1990s. Patrick has

invested over $200 million into the Port Botany facility since 2005. As a result, Patrick has

been well placed to handle the unforeseen and significant rise in container throughput in

Sydney in recent years. As Kevin Chinnery stated, this stands in stark contrast to numerous

other Ports around the world:

“The great 2003 – 2005 container shipping boom blew through the supply chain

infrastructure buffer in the world’s most affluent container import markets on the US

West Coast and Northwest Europe … the volume tipped them over into ship queues and

landward congestion”.29

This investment has included reconfiguring and redeveloping the hardstand covering the entire

terminal. This has transformed the layout of the terminal. The investment has also involved the

purchase of two new ZPMC Quay Cranes at Botany, and increased the straddle fleet to 33

machines, with another five new Kalmar Generation Seven straddles due to arrive in July

2007.

Patrick has also invested in five Rail Mounted Gantry Cranes ("RMGs") for the road/rail

interface. RMGs are an ideal mechanism for handling the road and rail interchange while

ensuring maximum efficiency from available ground area. RMGs are used extensively in

overseas terminal operations for this purpose and also in truck to rail intermodal operations.

The handling of the road and rail interface by semi-automated RMGs creates a highly efficient

interface with straddle operations.

29 Chinnery K, “Congestion: Everyone Owns It: Noone Cures It Alone”, Lloyds List DCN, July 21, 2005.

17

The RMGs will be located on a single runway and carry out the positioning and container

movement instructions from the control system. The RMGs will handle rail and staging

between its legs with trucks being handled under a northern cantilever and straddle carriers

being handled under a southern side cantilever, as illustrated below:

Figure 2: A side view of the Patrick Rail Mounted Gantry Crane

Patrick’s investments, in their current form, can further improve efficiency, and the future

investment plans for the Port Botany container terminal will further improve container

handling capacity by the terminal. However, those “nameplate capacity” improvements have

a limit if other parts of the chain are not improved also. The land side operations servicing the

containers cannot remain unchanged. They presently constrain the terminal and will become

more constraining over time as the demand requires higher freight volumes to be handled, the

other parts of the chain are improved and the land side operations remain unreformed. Patrick

is of the view that further investment aimed at allowing increased land side efficiency may not

be realised if the land side operations of other supply chain participants are not reformed in

parallel.

Patrick is committed to working with land side operators who seek a productive dialogue with

realistic objectives in their access to the terminal. Patrick has reached a productive

relationship with land side operators using its terminals in Melbourne, Fremantle and Brisbane.

Patrick believes there is a need for certain reforms to be implemented in order to achieve a

meaningful increase in efficiency in the Port Botany land side interface.

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5.5 Interfaces and interdependencies between land side operations and road freight movements

Efficient land side operations go hand in hand with efficient wharf side operations. One

cannot exist without the other.

During the loading and unloading of vessels, the task for container terminals is to match the

capacity of the terminal against the capacity of the transport carriers. This allows the volume

of export and import containers being handled at the land side interface to be balanced with the

requirement that vessels be loaded and unloaded in accordance with their scheduled arrival and

departure times.

This capacity management task of terminals involves co-ordination between the stevedores and

the large number of transport operators. The VBS operated by Patrick is one tool in the

capacity management system utilised by Patrick for the land side task.

The tools used by Patrick terminals to assist in the capacity allocation and hence the co-

ordination between participants is as follows:

(a) the allocation of slots through a VBS for the receival and delivery of import and

export containers;

(b) the charging of “no show” fees to discourage transport carriers from not turning up

and also to ensure that carriers do not book more slots than they actually require so

that no capacity is unnecessarily left unused;

(c) the imposition of “storage charges” to ensure that the terminal is not used by

carriers, importers or exporters as a storage facility;

(d) the implementation of paperless processes including the use of PIN numbers to the

transport carriers (for autogate operations) which can be quoted at the gate avoiding

delays in processing paper information; and

(e) allocating stack runs to allow a large volume of empty containers to be moved into

the terminal by carriers at times when the terminal is less busy, such as the evening

and night shifts.

For many years, no co-ordination of vehicles picking up or dropping off containers occurred of

any kind. Containers were handled by a random receival and delivery system – an ad hoc

“first in first served” system. With the large number of transport operators, and the increasing

numbers of containers moving through the ports, this system led to long truck queues as more

trucks arrived at the terminal than the terminal was able to service at one time. This resulted in

19

massive congestion, massive delays and disadvantages to carriers and their exporter and

importer customers alike.

Truck queuing became regarded as a normal part of the logistics chain at ports in Australia.30

This acceptance was evidenced by the level of institutionalisation of the practice of truck

queuing in the establishment of various services for truck drivers in queues (for example,

queuing lanes, toilets, kiosk arrangements) and in the passing on of costs associated with

queuing to importers and exporters.31 This degree of inefficiency and wastage could not

continue as the increasing volume of containers and increased crane rates resulted in pressure

for more efficient land side operations in order to clear the containers.

5.6 The VBS

The introduction of a Vehicle Booking System has allowed the growth in container

throughput volumes through the Port of Sydney (and hence truck movements) to be

managed efficiently. Truck turnaround times are below what was being achieved in the

1990s when throughput was a fraction of what it is today.

The current $4 slot booking fee is an insignificant cost compared to the efficiency and

flexibility that the VBS delivers and in light of standard charges for moving a container in

Sydney. The $4 slot booking fee for the VBS has not changed since April 2003. Patrick is

aware that the fee is on charged to end customers and does not represent a cost to truck

operators.

Implementation of Vehicle Booking Systems continue around the globe, at the Port of

Auckland and the Port of Southampton, for example.32

Prior to the introduction of vehicle booking systems, the random arrivals of trucks meant that

truck turnaround times well in excess of two hours were standard in Australian east coast

ports.33 Truck turnaround times of this magnitude were the standard at a time when volumes

were far below what they are today: for example, 477,000 TEU was the container throughput

for Port Botany in 1990/91. The VBS at Port Botany has delivered an average in gate to out

gate turnaround time of under an hour in an environment of ever increasing trade volume.

30 VTA presentation dated 12/13 February 1991 at p 1.

31 VTA presentation dated 12/13 February 1991 at p 1.

32 Willard A (2006) “Heat is Off” Containerisation International, September, at p.49: “In recent years, congestion has been a major problem for terminals across the world. [This article] … reports on the success of Southampton’s bottleneck solution, the compulsory Vehicle Booking System, a year after implementation”

33 Knowles P, “Truck Queuing: What Operational Changes are Needed” A Presentation to the Waterfront, Ports and Shipping Conference, Sydney, February 12-13, 1991.

20

Patrick introduced a VBS at Port Botany as one tool to reduce truck queues and manage

congestion. The terminals each implemented different VBS systems. While each of the VBS

systems had the same basic purpose, which was to control the rate at which trucks were to

arrive at the terminal to coincide with the terminal’s ability to service those trucks, each

terminal implemented its VBS in a slightly different fashion.

It is widely recognised that the VBS systems introduced by the stevedores have:

(a) significantly reduced truck turnaround times;

(b) reduced the cost of waiting in queues;

(c) minimised truck queues;

(d) allowed containers to be received and delivered more quickly; and

(e) reduced cartage charges to importers and exporters where demurrage was charged

by road transport operators.34

As the Productivity Commission reported when assessing the introduction of VBS in certain

Australian ports:

The systems have significantly reduced truck turnaround times, reduced the cost of

waiting in queues and minimised truck queues. … A VBS also allows containers to

received and delivered quicker. In addition, there is a reduction in cartage charges

if demurrage is charged explicitly by road transport operators. One major

importer in Australia advised that their overall waterfront costs had declined by 30-

40% as a result of a reduction in demurrage charge.35

The VBS portal used by Patrick terminals is one component of the capacity allocation system.

Patrick believes that the VBS system has ensured a much more efficient terminal with benefits

to all carriers and a more even playing field for all carriers by comparison with the ad hoc

random system in use previously.

The role of the VBS in eliminating truck queues was directly observed in Melbourne as a

result of the implementation of key measures recommended by the Final Report of the Joint

Industry Project, 4 July 1990. The massive and immediate effect of the introduction of a

34 Productivity Commission 1998, International Benchmarking of the Australian Waterfront Research Report, at p 177.

35 Productivity Commission 1998, International Benchmarking of the Australian Waterfront Research Report, at p 177.

21

vehicle booking systems is apparent from a comparison of the 1990/1 statistics on truck

turnaround times for trucks to those figures achieved today.36

(a) Cost and price issues

Patrick has always outsourced the VBS function, and today 1-Stop operates a single

system for all Patrick Port Botany users. The 1-Stop VBS is built upon a per

transaction pricing model, which is designed to deliver a fair and equitable system.

Patrick believes that the system offers common access for all carriers and all

carriers are treated equally.

This is the basis upon which the 1-Stop VBS has been built.

36 The additional feature of this report is that the other key measures identified by that report as requiring action by the stevedores and terminal operators have been implemented: greater investment in handling equipment and labour; extended terminal working hours; container documentation pre-preparation; continuous service of trucks and more bulk runs have all been implemented in Port Botany. No change to work practices, investments or systems have been made since then by most truck operators.

22

Date Terminal Operator Costs of VBS & Comments

1992 East Swanson

Dock, Melbourne

GE Not compulsory.

Random slots also available but

priority given to booked slots.

Oct 1994 East Swanson

Dock, Melbourne

Logichip37

June 1999 Port Botany Logichip Terminal moves to a straddle

operation and a VBS is introduced

for the first time at Botany. $3 per

electronic slot booking, $5 per

telephone booking, $50 no show

fee, $10 monthly access fee, $50

registration fee, $20 cancellation

fee.

July 2000 Port Botany Logichip GST introduced on 1 July 2000.

$3.30 per electronic slot booking,

$5.50 per telephone booking, $50

+GST no show fee, $10+ GST

monthly access fee, $50+ GST

registration fee, $20+GST

cancellation fee.

April 2003 Port Botany Logichip $4 (incl. GST) per electronic slot

booking, $8 (incl. GST) per

telephone slot booking, $50 +GST

no show fee, $10 + GST monthly

access fee, $50 + GST registration

fee, $20 + GST cancellation fee.

October

2005

Port Botany 1-Stop $4 (incl. GST) per electronic slot

booking, $8 (incl. GST) per

telephone slot booking, $50 +GST

no show fee, $10 + GST monthly

access fee. No cancellation fees or

subscription fees.

May 2007 Port Botany 1-Stop $4 (incl. GST) per electronic slot

booking, $8 (incl. GST) per

37 All revenue (except for no show fees) paid direct to Logichip.

23

telephone slot booking, $50 +GST

no show fee, $10 + GST monthly

access fee. No cancellation fees or

subscription fees.

VBS Electronic Slot Booking Fees

0

1

2

3

4

5

1999 2000 2001 2002 2003 2004 2005 2006 2007

Dol

lars

Figure 3 – VBS Slot Booking Fees from 1999 to 2007

The $4 slot booking fee for the VBS has not changed since April 2003.

The ACCC reports that VBS revenue paid to the stevedores has increased 224% in

the five years to June 2006 and this figure is widely quoted.38 This figure is

misleading and leads to further misinformation being perpetuated about the VBS.

This statistic ignores the reality that in 2001 VBS slot booking revenue was not paid

to Patrick. It was paid by truck operators directly to Logichip, a third party who

operated and maintained the VBS. Since the introduction of the 1-Stop VBS, slot

booking revenues are paid direct to the stevedore, hence the increase in VBS

revenue that is being paid to Patrick.

Patrick contends that the current $4 slot booking fee is an insignificant cost

compared to the efficiency and flexibility that the web based 1-Stop VBS delivers.

This is especially so when considered in light of standard charges for moving a

container in Sydney.

38 As stated by ACCC at p19 of ACCC Container Stevedoring Monitoring Report No 8, as quoted by IPART at p 46 of Issues Paper.

24

Patrick understands that the following is indicative of the cost of transporting a

container from Port Botany to certain destinations and dehiring the empty container:

From Port

Botany to:

20’

container

VBS % of

Transport Cost

40’

container

VBS % of

Transport

Cost

Minto $395 1.01% $460 0.87%

Smithfield $375 1.07% $430 0.93%

Moorebank $365 1.1% $425 0.94%

Blacktown $380 1.05% $445 0.9%

St Marys $410 0.98% $475 0.84%

Kings Park $370 1.08% $440 0.91%

Hornsby $390 1.03% $455 0.88%

Figure 4: Cost of transporting a container from Port Botany

Furthermore, Patrick is aware that it is common practice for many truck operators to

on-charge a multiple of the $4 VBS booking fee to their end customers (generally in

the range of $10 to $15 per slot)39. Patrick is not aware of a proper cost basis for

the magnitude of the margin charged by truck operators on the slot fee.

(b) The 1-Stop VBS

(i) 1-Stop is a stand alone entity and is a joint venture between Patrick and

DPW (formerly P&O Ports);

(ii) 1-Stop has 22 employees currently, including a Chief Executive Officer,

a General Manager, Project Managers, Sales & Administration staff and

Helpdesk staff;

(iii) 1-Stop outsource and subcontract a significant amount of technical work

relating to improvements and maintenance of the VBS;

(iv) Patrick pays 1-Stop a monthly fee for the provision of the VBS, and in

addition to the monies paid direct by Patrick to 1-Stop;

(v) Patrick also incurs significant IT related costs via the real time interface

between the 1-Stop VBS and the Patrick Electronic Data Interchange

39 See, for example, CLAG, “Application for Authorisation in Respect of Stevedoring Services, Charges & Practices at Port Botany”, December 2005 at p 34.

25

(“EDI”) for both incoming and outgoing information, as illustrated

below:

1 – StopVBS Database

PatrickElectronic

DataInterchange Environment

(“EDI”)

OMS WD OMS ESDOMS FIOMS FRE OMS PB

BillingInterface

VBS Web page

DataWarehouse

Real time interface

EDI Programmer/Developer employedby Patrick to monitor interfaces between 1-Stop & Patrick EDI.

OMS Developer & Project Manager employed by Patrick to monitor internalVBS interfaces: all 2 way traffic

Note: “OMS” is the Patrick Operational Management System

VBS Connection Modules

Figure 5: IT related costs via the real time interface between the 1-Stop VBS and Patrick EDI

(vi) The Patrick EDI feeds into the PeopleSoft billing interface, the

COGNOS Datawarehouse and the Operations Management System

(“OMS”) at Port Botany (and also four other Patrick sites around

Australia being Webb Dock and East Swanson Dock, Fishermans Island

and Fremantle). Messages are then transferred to the straddle cranes via

the Patrick Equipment Control Systems (“EC”);

(vii) Patrick also incurs significant labour costs at Port Botany as a result of

the VBS;

(viii) Patrick also incurs significant managerial expenses at Port Botany; and

(ix) Patrick also incurs significant operational costs at Port Botany over a

situation where there is a random truck queue.

(c) No Show Fees

The $50 no show fee has not changed at Port Botany since the no show fees were

first introduced. This charge has been designed to discourage carriers from

overbooking slots to the detriment of other carriers, and to discourage carriers from

26

not turning up for slots that they have booked. It is intended to provide a

disincentive to scarce slot bookings being wasted through non use and thereby

encourage the efficient use of timeslots. This is in the overall interests of

maintaining effective terminal operations.

However, it is common practice to waive penalties for no shows incurred by any

carriers where the terminal determined that the no show problems were caused by

internal delays at the terminal.

Patrick does not charge for late arrivals. Patrick adopts a flexible approach to slots,

allowing access for trucks that are up to 2 hours outside their slot booking as well as

routinely accommodating trucks that arrive well outside their booked time slot.

(d) Different pricing regimes

While users have expressed a preference for uniformity and coordination by

terminal operators, Patrick does not consider that this is possible in the current

regulatory environment.

(e) Non price access issues

The Patrick VBS is an on line web based system that uses the data available from

Patrick Port Botany as well as the 1-Stop community database. The system’s

booking integrity is maintained by validating the data entered by the carrier either

against container availability (for import containers) and/or vessel availability/cut

off (for export containers). The system provides a system of matching truck arrivals

to anticipated terminal capacity. A carrier needing to pick up or deliver a container

from Patrick Port Botany can make an inquiry via the 1-Stop VBS for the most

appropriate available slot and then book that slot.

More detail on the slot request and allocation process is included below:

(i) The booking process allows for the creation and modification of slot

bookings. A ‘slot’ is a booking made against a time zone. There is a

maximum of one container per slot booking. Each day is divided into 24

time zones from Monday to Sunday as outlined below:

27

Zone Time Zone Time

00 0000 – 0100 12 1200 – 1300

01 0100 – 0200 13 1300 – 1400

02 0200 – 0300 14 1400 – 1500

03 0300 – 0400 15 1500 – 1600

04 0400 – 0500 16 1600 – 1700

05 0500- 0600 17 1700 – 1800

06 0600- 0700 18 1800 – 1900

07 0700 – 0800 19 1900 – 2000

08 0800 - 0900 20 2000 – 2100

09 0900 – 1000 21 2100 – 2200

10 1000 - 1100 22 2200 – 2300

11 1100 – 1200 23 2300 - 0000

Figure 6: Slot time zones

(ii) A booking is thus made against a time zone with each zone having a

designated number of ‘Export (to)’ and ‘Import (from)’ slots. This is

determined by Patrick management and reflect the volume capabilities of

the operation for that particular day.

(iii) Slots are released by Patrick each day, generally for slots two days in

advance:

Day Released Day of Slot

Monday Wednesday

Tuesday Thursday

Wednesday Friday, 0930 release for

Saturday and Sunday

Thursday Monday

Friday Tuesday

Figure 7: Slot releases by Patrick

(iv) Two releases of slots are released daily. The first release is at 0700 and

the second is at 0800. This is to spread the load on the 1-Stop computer

systems and to prevent overload.

28

(v) Carriers are either allocated to the 0700 release or the 0800 release. No

carrier is able to access both releases. The two releases do not give

preference to either carrier group, nor favour the earlier release.

(vi) The current release ratios are included below:

Patrick VBS Daily Release

0700 Release29%

0800 Release68%

Telephone Bookings3%

Figure 8: Patrick VBS Daily Release

(vii) The respective split of slots is determined by historical data. Each slot

release represents the proportion of slots that those carriers have

accessed over the prior twelve months.

(viii) Once the slots are released, carriers request slots based on a ‘first come,

first served’ basis.

(ix) No carrier can see which slots have been allocated other than their own.

(x) The initial allocations last for two hours during which time the carrier

must populate the booking with the container details. Unpopulated slots

are returned to the pool of slots automatically. The carrier which has

booked this slot remains liable to pay for it plus a no show fee unless it is

taken up by another carrier.

(xi) The system operates in real time and carriers can see available slots on

their computer screens as they occur.

29

(xii) It is worth noting that container x-raying was implemented from 2003 in

Australian ports for maritime and port security reasons by the Australian

Government through the Australian Customs Service. This is a

mandatory process and occurs randomly without notice at the direction

of the ACS and overrides all normal container movements. Accordingly,

the VBS portal needs to accommodate ACS priority in order to move

containers to the x-ray facility and back to the terminal. There is only

one transport carrier at each port who holds the ACS contract. The

carrier that holds the ACS contract is given a x-ray login to the VBS and

is able to book x-ray slots through that system. The carriers who have the

x-ray contract with ACS get priority via designated truck grids on the

terminal and by-pass any truck queuing as per arrangements with the

ACS. Currently, in Sydney the contract is held by Patrick Port Services,

who are required to pick up and deliver 50 containers per day from both

Port Botany container terminals. This equates to approximately 200

moves per day and the Customs X-Ray Facility at Port Botany ("CEF")

is open five and a half days per week. This equates to roughly 1200

container movements to and from the terminals per week for x-ray

boxes.

Releases are based on expected terminal capacity, considering the amount of

imports and exports for pick up or delivery, labour and equipment availability and

the time of the week. In Sydney, there is more import related activity early in the

week, as carriers pick up import containers which were discharged over the

weekend. There is a trend towards export activity later in the week as carriers

deliver export containers for weekend loading onto vessels.

Patrick Terminal management recognise that the land side capacity of the terminal

changes on a day to day basis and the practice is to release all available slots for

each hour. If extra capacity becomes available during the day, Patrick will release

more slots into the system and advertise this release via 1-Stop messaging which

will send a message out via email and also to the 1-Stop noticeboard.

(f) Slots and Truck Turnaround Times

A narrow focus on truck turnaround overlooks the reality that there are numerous

stages during the processing of a truck over which stevedores have little control.

The land side efficiency of stevedores however, is often correlated to truck

turnaround times.

30

Currently, Patrick gathers the following times for each truck entering the Port

Botany facility:

Code Description

VBStm VBS time slot booked

In Gate The time the truck enters the In Gate, which is

currently located at the southern end of (the old)

Penrhyn Road. This is when Patrick begins to track

the movements, although the truck may have been

queuing for some time before reaching this point.

Hold The container may be held, for reasons such as

allocation issues or documentation issues.

Hold On

Hold Off

G Pass The Gate Pass is issued and the transaction with the

R&D office is therefore complete. Operationally,

this is the point at which Patrick gains control of the

process. If it is an autogate transaction, assuming

there is no problems the InGate = GPass.

Call Up The BAT number appears on the Call Up Board.

Yd In There is no waiting area at the Patrick terminal so

YdIn = On Lane.

On Lane Truck driver enters a parking bay and reverses into

an empty lane. Driver then walks to a grid box and

scans the bat. This informs the Equipment Control

(“EC”) that a job is available.

Compl The containers are loaded or unloaded and the job

is complete.

OutG The truck exits the terminal.

Total The total amount of time from In Gate to Out Gate.

Figure 9: Information gathered by Patrick in relation to truck turnaround times

As the above shaded areas of the table shows, the stevedore has complete control of

the process only in two steps: from when the truck is On Lane until the job is

complete. At all other steps, there is the potential for the turnaround time to be

affected by circumstances outside of Patrick's control: such as a driver stopping for

31

lunch, a chat or a toilet break. Potentially, drivers can also miss the Call Up or delay

the time until getting On Lane.

As stated above, currently Patrick first recognises a truck when it reaches the In

Gate. Potentially, the truck may have queued for some time prior to this point if

there is heavy congestion at the terminal which may be due to a number of factors,

including yard congestion in the terminal or inclement weather conditions.

Currently, Patrick figures do not include such a figure. However, once the terminal

moves to an automated ingate at the Penrhyn Road roundabout, initiated by the scan

of the MSIC, this data will become available.40

Although each slot is for a duration of one hour, established practice is to allow a

further two hours of grace, meaning that each slot booking provides access to the

terminal over a time period of three hours. If a carrier is still unable to service the

slot within this three hour time frame, carriers can make arrangements with the

Patrick Yard Managers to organise another pick up time and thereby avoid a no

show fee. Since the introduction of the VBS, Patrick Port Botany has never rigidly

enforced one hour time slots, to accommodate the inconsistent arrival patterns of

carriers at Port Botany.

Since the great 2003-2005 container shipping boom, the number of trucks serviced

at the terminal, and hence slots, has increased massively. With the increase in port

throughput has come an increase in vehicle traffic to and from the terminal. Patrick

Port Botany serviced 20% more trucks in February 2007 than it did in February

2006. The load factor per truck41 has not changed since 1999.

(g) Structural Issues

The VBS has allowed Patrick Port Botany to deliver In Gate to Out Gate turnaround

times which have averaged 51 minutes42, despite the considerable and unforeseen

increase in container throughput, and hence vehicles accessing the terminal. This is

in contrast to the situation prior to the introduction of the VBS, where truck

turnaround times were in excess of two hours on average and terminal throughput

was below 50% of what it is today.

40 Patrick perceives real value in a suggestion which has been made that inexpensive and readily achieved realtime webcam video of access roads at Port Botany terminals be webcast to truck operators to allow monitoring of the congestion levels at terminals by carriers allowing staged presentation of trucks accordingly.

41 This refers to the number of containers moved per truck movement to and from the Terminal.

42 This figure represents the average InGate to OutGate time from Jan 1 2004 to June 8 2007.

32

As with most systems, the VBS has shortcomings and there have been continual

improvements made since its introduction including software updates and upgrades

including response to user feedback. 1-Stop currently releases a package of

upgrades and improvements to the VBS every month.

Patrick follows a model of continuous improvement. In Western Australia, a forum

of industry representatives (including Patrick representatives) has been convened to

look into ways to minimise the number of truck movements to and from the Inner

Harbour at Fremantle. The forum has identified certain capabilities both within the

1-Stop technology and the business rules which may assist in the reduction of

traffic. The possibilities for enhancement that have been identified include:

(i) Increasing the number of dual slots in each time zone so that an export

and an import slot is booked at the same time.

(ii) Convert the current dual booking process (one import and one export) to

allow “multi” booking which could mean multiple imports or exports at

the same time.

(iii) Release the “multi” slots earlier than the other slots.

(iv) Establish a “dual” guaranteed slot allocation for carriers who can achieve

certain performance standards.

(v) Create a combined view screen (or appointment scheduler) where

carriers can view and edit bookings to maximise loads and minimise

trips to the terminal.

(vi) Create a port wide backload facility where booking a slot at one facility

can automatically give the option on a slot that will allow the carrier to

backload from the second facility.

Patrick believes that such improvements as those currently being discussed in

Western Australia would also drive a more efficient land-transport interface at Port

Botany. Patrick would ideally like to facilitate and structure a more efficient pick up

and delivery process for import and export containers in Sydney. An impediment to

doing so would be an unwillingness by carriers to work in a constructive manner

with Patrick.

(h) Sydney v Melbourne

33

Any comparison between Sydney and Melbourne will recognise the efficient road network

around the Port and a smaller number of carrier fleets as contributors to a perceived efficiency

advantage in Melbourne. The inability of road operators in Sydney to meet booked windows

on a consistent basis exacerbates the difference.

Given the conditions facing the two Ports, a meaningful comparison of truck

turnaround times and slot release numbers is difficult, as IPART has suggested,

owing to the following factors:43

(i) Melbourne has far higher container throughput than Sydney;

(ii) Sydney moves a higher proportion of cargo by rail (26%) than

Melbourne (17%);

(iii) Sydney has a far higher volume of transhipped containers compared to

Melbourne;

(iv) There is a greater take-up of out of hours and weekend slots in

Melbourne; and

(v) There is a greater balance of import and export trade, meaning there is

not the huge volume of empty containers in Melbourne that characterises

the Sydney trade.

In addition to the above facts, probably the greatest issue facing the land-transport

interface at Port Botany is the failure of carriers to turn up on time for their booked

slot. As previously discussed, trucks in Melbourne carriers are on time for their slot

bookings and do not expect to be serviced outside their one hour time slot unless by

prior arrangements with the Terminal.

The chart below shows the proportion of trucks arriving on time for their slots at

Port Botany (within the one hour booked) on May 21. This was a day where there

was no queuing outside the terminal and an in-gate to out-gate average time of 34.2

minutes.

43 Note issue 9 at p 51.

34

Patrick Port Botany - 21 May 2007

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

12:00

:00 A

M

1:00:0

0 AM

2:00:0

0 AM

3:00:0

0 AM

4:00:0

0 AM

5:00:0

0 AM

6:00:0

0 AM

7:00:0

0 AM

8:00:0

0 AM

9:00:0

0 AM

10:00

:00 A

M

11:00

:00 A

M

12:00

:00 P

M

1:00:0

0 PM

2:00:0

0 PM

3:00:0

0 PM

4:00:0

0 PM

5:00:0

0 PM

6:00:0

0 PM

7:00:0

0 PM

8:00:0

0 PM

9:00:0

0 PM

10:00

:00 P

M

11:00

:00 P

M

Time of Day

% o

f On

Tim

e A

rriv

als

Figure 10: Proportion of trucks arriving on time for their slots at Port Botany

Alternatively, inserted below is data taken from the Patrick Operations Management

System (“OMS”) from 29 May 2007. Again, there was no queuing at the terminal

at this time in the morning. The actual arrival times of trucks is reproduced (under

the “Gate In” column) alongside their actual VBS booking slot time (under the

“VBS Slot” columns):

VBS Slot Gate In VBS Slot Gate In

3:00 4:01 4:00 4:251:00 4:05 3:00 4:270:00 4:06 3:00 4:281:00 4:06 3:00 4:281:00 4:07 3:00 4:303:00 4:08 5:00 4:323:00 4:08 2:00 4:333:00 4:09 5:00 4:333:00 4:10 4:00 4:363:00 4:11 4:00 4:393:00 4:11 4:00 4:463:00 4:12 3:00 4:482:00 4:17 5:00 4:505:00 4:20 4:00 4:572:00 4:22 4:00 4:580:00 4:23 5:00 4:582:00 4:23

Figure 11: Arrival times of trucks versus their actual VBS booking slot time.

35

To illustrate, the first three trucks arriving at the Patrick In Gate after 0400 had

booked a 0300, 0100 and 0000 slot respectively. The above is representative of the

lack of discipline shown by carriers in Sydney regarding VBS slot bookings and, by

contrast, the willingness of Patrick to accommodate arrivals which do not match

their allocated slot times. Activity such as that illustrated in the chart above often

has a flow on effect into the peak dayshift slot booking times, resulting in truck

congestion at the terminal.

Further, the number of actual arrivals per slot demonstrates the variability in actual

arrivals notwithstanding the time of the slot allocated. The data below represents

actual truck arrival numbers presenting at the Patrick In Gate between 0900 and

1000 on days when there was no significant queuing at the terminal. On these days,

the same number of slots were released for the 0900 slot.

The variation of truck arrivals is outlined below:

Date 16 April 2007 17 April 2007 18 April 2007 19 April 2007

Number of trucks

arriving at Patrick In

Gate

42 48 51 79

Figure 12: Variation of truck arrivals

This is in considerable contrast to the experience in Melbourne where truck arrivals

conform to slot time much more closely, allowing the terminals to turn around

trucks without the level of congestion and queuing which often arises due to the

variability of arrivals in Sydney.

(i) Storage Charges

Container dwell time has a direct influence on terminal capacity and efficiency of

operations. Any market mechanisms to reduce dwell time and encourage the efficient

collection and delivery of containers must be encouraged.

Storage charges are such a mechanism. In the last twelve months, only 2.2% of containers

passing through the Patrick Port Botany facility have incurred storage. The majority of

storage revenue arises from ‘long stay’ containers.

Imposition of storage charges is a means to ensure that import containers are

collected from the terminal in an efficient and timely manner. It discourages

36

carriers from using high value terminal land, held under long-term lease by the

stevedore from Sydney Ports Corporation, as a facility to store containers. Port land

is highly valuable and rental rates44 and charges have been rising constantly, as the

chart illustrates:

Figure 13: Rental rates and charges

Storage charges are designed to positively impact import dwell time which has a

large bearing on terminal capacity and efficiency particularly during the peak

season commencing September each year. It is critical that import dwell times

remain at manageable levels. Dwell times have a direct bearing on stack density at a

container terminal. Low stack density has a positive effect on the efficient

facilitation of Australian export trade.

The importance of operational efficiency at Port Botany is illustrated by reference

to problems experienced recently at the ECT Delta Terminal in Rotterdam in The

Netherlands. In February 2007, the ECT refused to accept empty containers due to

a capacity squeeze owing to what port authorities referred to as a “massive increase

in the average time containers spend in the Port”.45

44 As part of the Patrick redevelopment of the Port Botany facility, the Patrick terminal boundary was has been extended at the rear of the Terminal to include the old Penrhyn Road.

45 Roebuck M, “ÉCT Bans Empties to Ease Congestion” International Freighting Weekly, 26 February 2007 at p 3.

Patrick Port Botany 2002 to 2006

41.11%

53.22%

72.61%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Rent Paid to SPC Council Rates Land Tax Payment

% Change in Payment from 2002 to 2006

37

It should be realised that shipping lines also impose strict periods of free-time to

customers and charge detention if containers are not returned to their nominated

depot in time. Patrick’s understanding is that shipping lines generally allow from 7

to 10 days of free-time to import containers which begins the day after vessel

departure (including weekends) and this day is counted as the first day. Quick

turnaround of containers is a pre-requisite to global trade facilitation.

(j) The Relevant Facts About Storage at Patrick

There appears to be a degree of misunderstanding about the significance of storage

charges to the overall costs incurred in the import/export logistics chain.

The facts are as follows regarding Patrick’s operational procedures:

(i) All containers are made available by Patrick systems half an hour after

discharge from a vessel, thereby maximising the free time available;

(ii) Standard practice is to make cargo ‘available’ the day after the vessel has

sailed;

(iii) Patrick’s three free days do not include Sundays and Public Holidays;

(iv) Patrick’s three free days commence from the time the ship is made

officially available; and

(v) This might be up to two days after an individual container has been

discharged and is available for pick up from the Terminal.

Furthermore, in relation to the proportion of containers which incur storage:

(i) From May 2006 to May 2007, approximately 2.2% of total containers

handled at the Port Botany facility incurred storage charges;

(ii) 79.1% of storage revenue is generated from containers that have been on

storage for longer than two days past the three day free period – in other

words, containers that have been in the terminal for longer than five

days; and

(iii) 66.4% of storage revenue is generated from containers that have been on

storage for longer than three days past the three day free period – in

other words, containers that have been in the terminal for longer than

six days.

38

Incorrect assertions have been made by a small number of carriers that storage is

‘fundamentally intended to increase the profitability of the stevedores rather than to

create port discipline and efficiency’46. This is simply incorrect and is denied.

Patrick's incentive is to clear containers as rapidly as possible. The substantial

adverse impact on terminal efficiency when stack density starts to grow far

outweighs the relatively modest gains from storage fees from the 2.2% of containers

that incur storage charges.

Furthermore, this assertion overlooks an agreement made between Patrick Port

Botany and the NSW Road Transport Association (“NSWRTA”), and also

involved Sydney Ports Corporation. In November 2006, in recognition of the record

volumes experienced at Port Botany, Patrick agreed to waive storage charges in

certain circumstances in order to encourage weekend pick ups of import containers.

Patrick does not agree with the contention that ‘delays in access to the port for

container collection by transport operators increase the port storage charges levied

by stevedores’.47 The policy of Patrick management is to co-operate with carriers

and take all reasonable steps48 to ensure that a carrier has access to a container

which is about to incur storage charges.

(k) The effect of the CMR problems on storage revenues in October 2005

The Australian Customs Service ("ACS") published its Cargo Management

Strategy (“CMS”) in 1997. The Cargo Management Re-engineering project

("CMR") was born out of the CMS.

The application and system development for the CMR project included the analysis,

design, development and implementation of the new Integrated Cargo System

("ICS") application. The ICS was implemented in three releases: Release 3,

imports processing, was implemented on 12 October 2005. It had the following

effect:

Problems with the Integrated Cargo System and the Customs Connect

Facility resulted in substantial disruption to the movement of cargo,

46 CLAG, “Application for Authorisation In Respect of Stevedoring Services, Charges & Practices at Port Botany", December 2005 at clause 8.8.

47 IPART (2007), "Review of the Interface between the Land Transport Industries and the Stevedores at Port Botany Issues Paper at p 39.

48 By organising access to a timeslot at the Terminal.

39

particularly sea cargo. Cargo was delayed and Australia’s major ports

congested with containers awaiting clearance and delivery. Industry

stakeholders advised the Australian National Audit Office that the

implementation of Release 3 was extremely stressful and costly, and

extended over many weeks.49

Despite the effect of CMR, when commenting on storage revenue levels the ACCC

recognised that ‘transitional problems’ associated with the ICS “may have been a

contributing factor to higher storage revenues earned by stevedores in 2005-2006’.50

The truth is that the increased storage revenues experienced in 2005-2006 were

purely a result of the ICS introduction. As such, the ACCC quoted figure of a

74.7% rise in storage per TEU since 2001 – 2002 does not properly take account of

the introduction of the ICS which inflated storage revenues for 2005 - 2006.

The pertinent facts are:

(i) Patrick storage revenue per TEU from June 2006 to April 2007 is below

the 2002 – 2003 levels per TEU as quoted in Table 3-iv;51

(ii) Year to date figures referred to above for 2006 – 2007 are only

marginally above 2001-2002 levels;

(iii) The effects of the ICS were evident well into 2006;

(iv) On 9 January 2006, 51% of import containers were ACS held at Patrick

Port Botany;

(v) On 6 February 2006, 45% of import containers were ACS held at Patrick

Port Botany;

(vi) On 24 April 2006, 37% of import containers were ACS held at Patrick

Port Botany. Such figures appear to contradict the claim by ACS that

these problems were largely resolved by late November 2005;52

49 ANAO Audit Report No 24, 2006 – 2007, Customs Cargo Management Re-engineering Report at p 42.

50 ACCC Container Stevedoring Monitoring Report No 8, November 2006 at p 18.

51 Ibid.

52 Ibid at p 19.

40

(vii) The ACCC admits that it is “possible that stevedores incurred some

additional labour and equipment costs during this period as a result of

added congestion within the terminal yards”;

(viii) The truth is that Patrick Port Botany incurred substantial costs

attempting to maintain operations and service levels with yard

congestion at record levels;

(ix) Patrick Port Botany, at our cost, was forced to shuttle entire vessel

import exchanges under bond to facilities off site, as there was no room

available at the Port Botany facility; and

(x) Consolidations and rehandles were continually being undertaken in order

to maintain operations in a yard that was experiencing volumes far

beyond capacity, with a stack density well above the unmanageable

figure of 2.0.

As the Chairman of Shipping Australia at the time pointed out:

…nobody’s preparations proved sound. Customs Integrated Cargo

System didn’t perform; truckers, importers and bankers had no

emergency liaison in place. On the key weekend they all stayed at home.

Only the stevedores and – ironically - Customs itself were visibly doing

anything to deal with the situation.53

The ACCC, IPART and CLAG have not attributed the storage revenue increase

properly to the effect of the ICS introduction. Storage charges have now returned to

pre-ICS implementation levels. This one off rise in storage revenue was abnormal

and should be disregarded when recommending solutions to the long term

inefficiencies which affect the land side interface at the Port Botany container

terminals.

(l) Rationale for Storage

The rationale behind free storage days is allowing the consignee a reasonable

amount of time to organise the clearance of their cargo from the wharves. This

practice stems from the distant past, when the discharge of cargo was a far more

laborious and drawn out process than it is today. In the days before container

shipping, the procedures and processes for clearing cargo through Customs and 53 Phillips M, ‘What's next after the computer crisis and does it look as if we’d be ready for it?” Shipping Australia, November 2005 at p 4.

41

Quarantine was similarly drawn out. The whole system was manual and in broad

terms cargo was not available until the entire cargo on a bill of lading was cleared

and all port and statutory charges were paid.

Four free days of storage had its genesis in these times of lower volume (breakbulk

commodities) and a productivity level commensurate with vessel type and the wide

range of commodities being handled.

Containerisation has now changed the focus of industry endeavours and with

improvements in technology came the ability to load, discharge and transport cargo

far more efficiently . More streamlined procedures and processes for clearing cargo

have also been established, as evidenced by recent ACS and AQIS initiatives.

Since 1 July 2003, four working days of storage (Monday to Saturday including the

day of availability) was changed to three working days (Monday to Saturday

including the day of availability). Patrick has invested substantially in both systems

and infrastructure to enhance terminal access and provide the means for electronic

exchange of data with focus on efficiency and security. Not all in the transport

chain have embraced this opportunity and continue to treat the container terminals

as storage locations for containers rather than temporary r staging locations for

containers in transit. The adoption of increased hours of operation by Patrick has

meant that the absolute time available to pick up or deliver cargo has actually

substantially increased:

Days of Storage R&D Working Hours

Actual Hours Available for Pick

Up or Delivery Early days of

containerisation 4 Mon – Fri Day Shift (7 hrs)

35 hours

Later moved to 4 Mon – Fri

Day & Evening Shift (7 hrs per shift)

70 hours

199954 4 5 days x 3 shifts and Saturday x 2 shifts

136 hours

1 July 2003 3 6 days x 3 shifts 144 hours

June 200755 3 7 days X 3 shifts 168 hours

Figure 14: Time available to pick up or deliver cargo

54 8 hour shifts introduced in September 1998.

55 As discussed above, presently Sundays and Public Holidays do not count in the calculation of the first three working days including day of availability “free days”.

42

5.7 Mismatch of Hours

Mismatch of hours will continue to limit efficiency gains throughout the supply chain. It

has been well documented that stevedores have made the adjustment to 24/7 operations but

other supply chain participants have not.

It is widely recognised that “Sydney roads are already full”.56 Despite this fact, all participants

in the logistics chain except the ships and the stevedores continue to avoid the requirement to

extend their hours of operation. Carriers continue to contribute heavily to peak hour traffic

congestion through their current work practices. They are not assisted by other participants in

the logistics chain such as distribution centres and warehouses. Stevedores work 24/7. No one

else does. This has long been recognised:

Wharf operators contend that they are a 24 hour a day operation. But the

warehouses further down the chain operate for only eight hours each weekday, and

often less. This telescopes freight into congestion peaks.57

During the peak season in 2006, following discussions with the NSWRTA and Sydney Ports

Patrick Port Botany agreed to amend storage charges in order to encourage weekend pick up

and delivery of containers. In the face of Port Botany handling record volumes, this was well

publicised and it was hoped that such incentives would increase truck activity over the

weekend. The change in behaviour was negligible, as the following example reveals:

Illustrative example:

From 4-10 December 2006 Patrick Port Botany serviced over 15 vessels and continued to

experience high container volumes passing through the terminal.

The Terminal recorded an average truck turnaround time of 43 minutes over the course of the

week. The Terminal did not experience material truck congestion at the Terminal at any time

over the week.

Patrick continually advised carriers throughout the week via messages on 1-Stop that strong

volumes were continuing and the Terminal strongly encouraged the utilisation of weekend

slots. The take up is shown in the Table below:

56 Baker J & Clennel A (2007) “Choked Roads to Nowhere – No Remedy in Sight for the City’s Choked Roads” Sydney Morning Herald, 3 May at p 1.

57 House of Representatives Standing Committee on Transport, Communications and Infrastructure (1995) “Warehouse to Wharf: Final Report” at p 5.

43

Shift Number of

Slots Offered

Number of Slots

Taken Up

% Utilisation

Saturday Dec 9

Day Shift

350

124

35%

Saturday Dec 9

Evening Shift

300

0

0%

Sunday Dec 10

Day shift

350

73

21%

Sunday Dec 10

Evening Shift

300

0

0%

It is common carrier industry practise to blame the VBS for not releasing enough slots on a

Monday or Tuesday morning. However, it is impossible to cater for all the potential demand at

these peak times. In this situation, demand will always be greater than supply because there are

thousands of import containers in the Terminal awaiting delivery. The solution cannot be

found, as argued by some carriers, in simply adding more peak time slots.

For example, on the weekend of November 4-5 November 2006, an average of 50 import units

were unloaded per hour from vessels at Patrick Port Botany. However, there was not one

delivery out of the terminal via road or rail after 1200 on the Saturday. This meant that there

were over 3,600 import containers in the Terminal on Monday morning awaiting pick up.

The patterns of truck activity at the Terminal is illustrated in the charts below. The effect of

such behaviour is twofold:

(a) the terminal is hugely congested with import containers early in the week, as it has

filled up over the weekend without an opportunity for congestion to be eased via

road and rail deliveries. Therefore truck turnaround times often suffer due to stack

density and the requirement of countless rehandles to access target containers; and

(b) carriers become frustrated when they are not able to access desired slot times,

generally early morning on a Monday or Tuesday. It is at this time that one will

hear the lament that there are “not enough slots”. This continues to ignore the

reality that there was the possibility of 750 slots being offered the previous day.

44

Patrick Port Botany Jan - Apr 2007

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

12:00

:00 A

M

1:00:0

0 AM

2:00:0

0 AM

3:00:0

0 AM

4:00:0

0 AM

5:00:0

0 AM

6:00:0

0 AM

7:00:0

0 AM

8:00:0

0 AM

9:00:0

0 AM

10:00

:00 A

M

11:00

:00 A

M

12:00

:00 P

M

1:00:0

0 PM

2:00:0

0 PM

3:00:0

0 PM

4:00:0

0 PM

5:00:0

0 PM

6:00:0

0 PM

7:00:0

0 PM

8:00:0

0 PM

9:00:0

0 PM

10:00

:00 P

M

11:00

:00 P

M

Time of Day

Truc

k A

rriv

als

Ove

r 4 M

onth

s - %

per

hou

r

Figure 15: Truck arrivals per hour January – April 2007

Patrick Port Botany Jan - Apr 2007

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Day of Week

% o

f Tot

al T

ruck

s

Figure 16: Truck arrivals pes day of the week January – April 2007

Even if 40% of Port traffic is shifted to rail, the trends above must be altered or else truck

congestion will continue to be unavoidable both at the Terminal and on Sydney’s urban

corridors. Offering more VBS slots at peak times on weekdays, or altering the price on the

weekend, is not the answer. Only the spreading of the demand to non-peak weekday and to

weekend times will materially reduce the congestion.

Patrick would be prepared to consider slot rationing in peak times as suggested by the review

by the Infrastructure Implementation Group of the Freight Infrastructure Advisory Board of

45

May 2007.58 As an anti-congestion signal, clearly this would require considerable planning by

all stakeholders. However, in Patrick's view such supply rationing would be less desirable

than addressing the constraints on the land-transport link in the logistics chain described in this

submission.

Patrick therefore fully supports the conclusion of the Infrastructure Implementation Group that

the FIAB recommendation should be implemented, that:

..both rail and road operations [progress] towards a 24 hour a day, 7 day a week,

basis.59

5.8 Misaligned incentives along the supply chain

IPART raises a number of issues related to the industry structure and question whether the

“best economic signals” are being provided.60 The supply chain is a market based solution

being driven by private sector companies and importantly private sector investments.

Although improvements can certainly be made, Patrick regards any regulatory solution as an

undesirable approach when there are a number of market based outcomes readily available,

and which have been recommended in a number of prior reviews.

Although not directly articulated, a concern IPART seem to have is that there is insufficient

competitive pressure on the stevedores to deliver land side operations efficiently. However,

this is far from the true. Patrick’s level of investment in the land side interface, such as the Rail

Mounted Gantry Cranes, is testament to its importance to the overall operation.

It is important to understand that the efficiency of the terminal is indivisible and performance

of the land side operations can not be separated from the overall performance of the terminal.

An inefficient land side operation will increase congestion within the terminal, impact on the

efficiency of resource utilisation including cranes and manpower and ultimately impact on the

ability of the stevedore to service vessels. An efficient land side operation is required to

deliver an efficient service to shipping lines. This was amply illustrated during the Customs

CMR introduction in late 2005.

The shipping lines are the stevedores' contractual customers. Stevedores do have a competitive

choice to make within ports between terminal operators and often also between ports. Shipping

58 At p 16.

59 FIAB recommendation 20 at p 7; The review by the Infrastructure Implementation Group of the Freight Infrastructure Advisory Board report and recommendation, May 2007 at p 15.

60 IPART Issues Paper at p 42.

46

lines choice of stevedore involves a long and detailed tender process, and there has recently

been shifting of volume between the two major container stevedores in Australia.

Shipping lines are driven by the needs of their customers, the importer (or in some cases a

freight forwarder). The importer, for example Target, will be concerned with price and the

certainty and timeliness of delivery of its goods. Land side delivery is a key component of

meeting the shipping lines customers’ needs for certainty and timely delivery. If Patrick’s Port

Botany land side efficiency was low it would be expected that shipping lines would look to

move to another terminal operator and potentially another port. This effect is likely to be

compounded by the fact that land side inefficiency will reduce the efficiency of the terminal as

a whole including the direct service to the shipping lines thereby reinforcing the incentive to

change stevedores.

47

6. Improving rail efficiency

Patrick fully supports the NSW Government’s target of achieving 40% rail share by 2011 for

Port Botany containers. Patrick has invested heavily to ensure our operation will meet such

a target.

However, considerable improvements in rail infrastructure and operating procedures will be

required if this target is to be achieved.

Patrick supports the NSW Government’s target of achieving 40% rail share for Port Botany’s

containers. The enormity of the task is clear when considered in light of continued volume

growth, a forecast of which is illustrated below:

PORT BOTANY (m)TEU THROUGHPUT PROJECTIONSBASED ON 8% GROWTH FROM 2007

1.131.26 1.31 1.28 1.3 1.26 1.2

0.28

0.310.36

0.520.64

0.841.06

0

0.5

1

1.5

2

2.5

2006 (20% RAIL) 2007 (20%) 2008 (21%) 2009 (29%) 2010 (33%) 2011 (40%) 2012 (47%)

RAIL

ROAD

Figure 17: Port Botany TEU throughput projections

In line with above, train arrivals at Botany Yard are likely to have to increase from 14 per day

(currently) to over 30 per day in the next five years to meet demand of 40% modal share, as

illustrated in the table below:

2006 2007 2008 2009 2010 2011 2012

TOTAL PORT THROUGHPUT TEU ( WITHOUT TRANSHIPMENTS) 1,414,797 1,540,000 1,663,200 1,796,256 1,939,956 2,095,153 2,262,765TOTAL PORT RAIL THROUGHPUT 284,369 314,211 354,303 516,808 639,127 840,566 1,059,628TOTAL PORT THROUGHPUT RAIL SHARE 20% 20% 21% 29% 33% 40% 47%

SERVICES PER WEEK 75 80 87 124 148 188 226RAIL THROUGHPUT PER WEEK 5,469 6,043 6,814 9,939 12,291 16,165 20,377TEU PER SERVICE 73 76 78 80 83 86 9075 TEU CAPACITY UTILISATION 49% 50% 52% 53% 55% 57% 60%RAIL OPERATING DAYS PER WEEK 5.5 5.5 5.5 5.5 6.0 6.5 7.0AVERAGE BOTANY TRAINS PER DAY 13.6 14.5 15.9 22.6 24.7 28.9 32.3*AVERAGE SHUNTS PER DAY TO BE MANAGED 75 80 87 124 136 159 178

*INCLUDES BOTANY YARD ARRIVALS AND DEPARTURES

AVERAGE OF 32.3 TRAINS PER DAY ACROSS A SEVEN DAY WEEK MEANS UP TO FORTY ON BUSY DAYS - WEEKEND TRAFFIC WILL TEND TO BE LESS FREQUENT

48

Figure 18: Projected increase in train arrivals at Botany Yard 2006-2012

Patrick moved 24.7% of containers by rail in 2005/2006. Patrick rail volume tends to have a

higher share of export activity than import activity. Patrick’s significant levels of investment in

the land side interface puts Patrick in a position to be able to handle increased rail throughput in

coming years.

FIAB had numerous recommendations relating to rail. Recommendation 20 is reproduced below,

with Patrick’s response alongside:

Recommendation Patrick Response

SPC urgently seek agreement of the stevedores to ensure that state of the art

interfaces are available in respect of Patrick’s operations. Recommended that

interfaces provide for:

Capacity to receive, load and unload

600m push-pull trains.

Patrick has invested in two rail spurs

which are longer than 600m each.

Consolidation of train cargo to single

intermodal destinations

Patrick agrees with this and it would

avoid the requirement for extra

shunting requirements in Botany Yard.

Ultimately, this is dependent on rail

operators, importers and exporters.

Reduced turn around times using

dedicated rail handling equipment

Patrick has invested heavily in state of

the art rail handling equipment to

facilitate improved train turnaround

times.

Progress the implementation of both road

and rail operations towards a 24 hours a

day, seven days per week basis

Patrick currently works 24/7 and

encourages a shift towards longer hours

of operation by other participants in the

supply chain.

Figure 19: FIAB recommendations relating to rail and Patrick's response

Patrick regards the major impediments to achieving 40% rail share as being outside the Patrick

Terminal boundary. The efficiency of our rail interface will allow such volumetric targets to be

49

met by Patrick. In particular, the Patrick terminal at Port Botany will have vastly increased rail

servicing capability when the five RMGs come into operation towards the end of 2007.

It is operational constraints and the parlous state of rail infrastructure in the Botany Yard and

across NSW that are the major impediments to increasing rail’s share of the container volume

to the level desired by the NSW Government.

6.1 Operational constraints

During the morning and afternoon peaks no freight traffics are scheduled on the Metropolitan

Freight Network (“MFN”) which represents a significant operational constraint on freight

movements. While the peak from a passenger viewpoint is of relatively short duration, the

freight curfew for movements with the peak flow is considerably longer as RailCorp requires

the freight service to be clear of the suburban network prior to the passenger peak

commencing. The impact of passenger curfews on metro corridors will make it even more

difficult for freight trains to access metropolitan corridors as passenger train numbers increase

in the future.

The limitations imposed by the curfew constrains movements outside the MFN, as shown

below61 and highlighted by the arrows:

Number of paths for non-passenger trains

012345678

Midnigh

t -2.00

am

2.00a

m-4.00

am

4.00a

m -6.00

am

6.00a

m-8.00

am

8.00a

m - 10.0

0am

10.00

am-12

.00pm

12.00

pm -2

.00pm

2.00p

m-4.00

pm

4.00p

m-6.00

pm

6.00p

m - 8.00

pm

8.00p

m - 10.0

0pm

10.00

pm-12

.00am

Figure 20: Number of paths for non-passenger trains

The management and operation of the Botany Yard and Botany Precinct also represents a

significant operational constraint. Currently, there are over 100 moves per day through Botany 61 From RailCorp Standard Working Timetable.

50

Yard. This is due to the fact that trains need to be split between (potentially) three rail sidings,

as shown in the example below of a standard shunting/wagon placement procedure:

Train arrives Botany Yard > Detach loco and place at rear of train for propelling move (note a

propelling move is where the loco is at the rear of the train and has to be directed by radio

from the front of the train) > Propelling move piloted by second driver in car ahead of train >

Place wagons in P&O Transport Australia rail sidings for loading and unloading and detach >

Exit P&O Transport Australia rail sidings and propel into DP World > Place wagons in DP

World and detach for loading and unloading > Exit DP World and propel into Patrick > Place

wagons in Patrick for loading and unloading.

Note that this procedure is reversed at end of window to reform the train in the Botany Yard.

Figure 21: FIAB recommendations relating to rail and Patrick's response

The impact of the passenger curfew plus the current arrangements at Botany Yard (in addition

to specific operational issues relating to the various rail providers in NSW) combine to impact

the reliability of train arrivals at Botany Yard and therefore Patrick. This is illustrated below:

Figure 22: Botany rail move reliability

Patrick believes that the reliability of arrivals must consistently be at the 90% level if forecast

train volumes are to be handled efficiently. Patrick believes that a sole management authority

for the Botany Yard precinct would assist greatly in achieving this target.

BOTANY RAIL MOVE RELIABILITY

20 DAY ROLLING AVERAGE ON TIME PERCENTAGE

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

1

Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07

51

Currently, Botany Yard is controlled by a RailCorp management team. Cooks River is

controlled by an additional RailCorp management team. The track outside Botany Yard is

under the control of RailCorp Network Control. Enfield is currently managed by Pacific

National.

In order to increase visibility and improve decision making, Patrick suggests that one

management body would control the Botany Yard, plus the precinct extending to Cooks River,

a set amount of roads at Enfield and the connecting corridors. This would allow decisions to be

based on long term, objective criteria to be taken in the interests of overall efficiency.

Patrick believes that such a measure will assist in allowing growing train volumes to be

managed effectively. There should be ongoing access to a set amount of roads at Enfield as a

spill over and back up facility to the Botany Yard. That way, the Botany Yard capacity can be

optimised. Currently, trains are staying too long in the Botany precinct greatly increasing

congestion.

6.2 Infrastructure constraints

Modifications to the Botany Yard and duplication of the Botany Freight Line will all

contribute to providing greater capacity and capability for increased freight movement to

and from Port Botany.

Following a reform of Botany Yard management and operations, the next most pressing issue

to be addressed is the infrastructure constraints in the Botany Yard and Botany precinct.

Currently, there are pressing infrastructure improvements required in the Botany Yard. Such

improvements include additional cross overs and sidings, motorised points, upgraded

signalling and specified arrival and departure roads.

There also needs to be duplication of the track between the Botany Yard and Enfield. In

conjunction, Enfield must also allocate sidings for Botany trains and this will require

upgrading and remodelling of the current terminal.

Until this occurs, infrastructure constraints in the Botany Yard will continue to act as the

bottleneck stifling achievement of 40% target share.

The Southern Sydney Freight Line (“SSFL”) will be of significant benefit in relation to freight

movements to and from the south west of Sydney. The SSFL should improve access to the

south west Sydney segment of the market which currently accounts for around 16% of the

metro market, but which is expected to grow to about 20%. While this will assist in access to

the area, it should be noted that the principal advantage will be during the morning and

evening curfews. Interstate intermodal services 1500-1800m in length will also be using the

52

corridor. The limited capacity on the SSFL, with only a single passing loop, may become an

issue.

However, the SSFL does little for large areas of Sydney (and the state of NSW) which still

have to compete with the passenger network, or are simply not serviced by freight rail

networks at all. Patrick recognises the need for well considered freight only lines or dedicated

freight paths west and north, as well as to Illawarra and Yennora.

Furthermore, only two metropolitan terminals will have direct access to the SSFL. One of

these, Ingleburn, is yet to be developed as a container handling facility. Yennora and Camellia

will not be assisted by the SSFL, and will continue to be impacted by the constraints of

competing passenger trains.

The problem for rail is that capacity on the main metropolitan networks, especially during the

shoulder and peak, is limited and the costs of providing additional infrastructure for freight is

very expensive.

Additionally, road has easy access to the M4/M2/M7 to service this market in competition with

rail. This reflects the fact that one reason for the rapid recent and projected growth in new

Distribution Centres in certain areas has been their proximity to the greatly enhanced and

expanded freeway/motorway network.

6.3 Combined Effect

The combined effect of the above makes rail extremely unattractive for many freight

movements in Sydney. Rail suffers considerable competitive disadvantages compared to road,

as outlined below. Rail will only become more attractive with a focus on improving and

modernising rail infrastructure in NSW and operational procedures and revised management

structures in the Botany precinct Until then, rail will continue to find competition with road

difficult:

53

Competitive Issue Road Rail

Congestion Congestion around Port and on parts of the urban road network

Congestion in Botany branch & yard and at key points on the rail network

Access to Infrastructure

No restrictions Curfews, and second priority to passenger on most of network. No access during possessions (track maintenance closures)

Flexibility 24/7 Access to collect containers

Restricted to defined track access paths and affected by passenger curfew

Geographical scope Whole metro region Limited to economic distances around inland terminals

System complexity Low – generally “one-off” lift or delivery

High - Botany Yard issues involving the shunts and splitting of trains, competing with passenger networks, track access regimes to name a few

Delivery time Shorter than rail door to door

Rail may have an advantage if customer has multiple boxes which can be carried on one train, but still require multiple truck trips to the final destination

Cost – Back loading

Normally available Variable

Cost - Overall Generally lower cost than rail door to door

Track access charges, double handling/inland terminal costs, and cost of truck delivery to customer

Figure 23: Competition between rail and road

Finally, the fragmented nature of the market means that even a high rail share in this south

west segment will leave substantial share to be found in other parts of the market if the 40%

target is to be reached. The west of Sydney (Penrith, St Mary's, Eastern Creek) remains largely

unserviced. This impacts on areas outside of Sydney (Parkes, Dubbo, Blayney, Bathurst for

example) which enter Sydney from that direction, and are a source for large export volumes of

containerised freight.

Therefore, the other major requirement for improved network capacity, after the SSFL and

Botany lines, is to provide additional pathing to the Western Sydney market between

Parramatta and the Blue Mountains, for example, the emerging Eastern Creek segment.

6.4 Rail Access charges at Port Botany

The payment of a window fee guarantees an exclusive right of entry for a rail operator in

the specified time range. It is based upon a similar principle to a rail access fee which

guarantees an exclusive path.

54

Patrick charges a standard window fee for entry and use of the Terminal siding for all

operators. The charging of such a fee is consistent with operating procedures at other rail

sidings in Sydney and other States in Australia.

The payment of a window fee guarantees an exclusive right of entry for a rail operator in the

specified time range. It is based upon a similar principle to a rail access fee which guarantees

an exclusive path – a window fee buys exclusive internal siding time at the Patrick terminal.

Operational certainty is an extremely important commercial consideration for any rail operator

and the window fee is a mutual commitment on behalf of both the Terminal operator and the

rail operator.

The window fee encourages rail operators to deliver on time performance to the Terminal. On

time performance figures for trains arriving at Port Botany are poor and improvements in on

time performance are essential if modal shift is to occur so as to achieve the 40% rail share

objective.

55

7. Facilitating development of ‘inland ports’

Patrick is supportive of the FIAB recommendations relating to the development of inland ports

in NSW. Patrick believes that market based solutions will deliver the greatest efficiency,

success and sustainability. Patrick believes that the role of Government should be to limited to

providing the investment in infrastructure (particularly rail networks) and making land

available for the development of inland terminals. The development and operation of such

terminals should be left to the private sector.

In principle, Patrick is fully supportive of the FIAB recommendations relating to the

development of inland ports in NSW. Patrick agrees that:

efficient rail movements from Port Botany require efficient intermodal terminals,

located where possible on freight-only rail lines".62

Inland intermodal terminals will deliver economic, social and environmental benefits, in

particular:

(a) Assist in achieving NSW Government goals to reach a 40% rail share;

(b) Improve service levels to importers and exporters by moving wharf interface closer

to demand centres on Sydney’s fringes;

(c) Improved truck productivity;

(d) Decreased traffic congestion and improved traffic flows in ‘near-port’ areas;

(e) Potential for lower road maintenance costs in certain elements of the road network;

(f) Social amenity outcomes;

(g) Fewer greenhouse gas emissions; and

(h) A more sustainable freight and logistics industry better able to cope with anticipated

levels of growth.63

Given the geographical constraints and demographics of cargo movements in Sydney, the

establishment of such intermodal facilities is an immediate priority facing NSW.

62 Review by the Infrastructure Implementation Group of the Freight Infrastructure Advisory Board report and recommendations, May 2007 at p 4.

63 Victorian Freight and Logistics Council (2004) “Industry Intermodal Awareness Program”, VFLC, Melbourne.

56

Patrick supports a recommendation of FIAB and endorsed by the Review by the Infrastructure

Implementation Group, that:

(a) terminals be of sufficient capacity to load full trains either to or from a single

stevedore;

(b) terminals of sufficient size to accommodate on site empty containers parks and

servicing, on site warehousing development, driver facilities, including truck and

trailer parking, rest facilities, an AQIS Inspection in Customs bonded areas;

(c) terminals be available to operate 24 hours a day, 7 days a week to maximise the

return on investment in the sites and utilise the rail network to its maximum

capacity.64

Patrick believes that market based solutions will deliver the greatest efficiency, success and

sustainability. Patrick believes that the role of Government should be limited to providing the

investment in infrastructure (particularly transport networks) and making land available for the

development of inland terminals. The development and operation of such terminals should be

left to industry.

The identified bottle necks which are preventing efficient land side transport of containers will

not be materially addressed by terminal expansion at Port Botany or by the advent of further

container terminal operators. The issues of mismatch in the import/export chain will remain

until the reforms in the land transport operations are implemented. The solutions which

Patrick proposes apply also to containers transported to or from any further terminal which

operates at Port Botany.

7.1 Stevedores' obligations

Under the terms of the Lease for the Port Botany facility between Sydney Ports Corporation

and Patrick, Patrick is entitled to quiet enjoyment of its premises at Port Botany. Patrick is

fully compliant with all obligations relating to the provision of road and rail access under the

terms of its Lease.

64 Review by the Infrastructure and Implementation Group of the Freight Infrastructure Advisory Board report and recommendations, May 2007 at p 11.

57

8. Vertical integration of the supply chain

Vertical integration is one way in which the various parties in the supply chain can work

closely together to drive efficiency. However, there is little vertical integration in the supply

chain in Sydney. Patrick Port Services move fewer than 2% of road movements into or out of

the Port, and the data supports the fact that they receive no preferential treatment due to their

ownership structure. Recent restructures within the stevedores will further reduce vertical

integration and enhance transparency.

IPART raise a number of issues related to vertical integration of the Port Botany supply chain

and seek to asses whether this vertical integration affects the transparency and fairness of the

provision of services in the terminals.

It is important to recognise that vertical integration can deliver significant efficiency benefits

for the supply chain and in many cases is the most appropriate structural solution. However, it

is also important not to overstate the extent of vertical integration in the Port Botany supply

chain, for example 98%65 of the truck movements in Port Botany are associated with non-

stevedore related transport providers.

As IPART notes66 in its Issues Paper there have been a number of changes in the ownership

structure of the Port Botany supply chain. The first section below addresses the changes in

Patrick’s business structure, focusing on the creation of Asciano and describes the current level

of vertical integration. The second section looks at the impact of this vertical integration on

access arrangements in the terminal.

8.1 Asciano Businesses

In December 2006, Toll announced its intention to separate its business into two ASX Listed

entities. This proposal has received regulatory approval and shareholder approval. Asciano

(AIO) was listed on the ASX on June 6, 2007. The chart below summarises the restructure.

Asciano will comprise the Pacific National and Patrick businesses plus the Toll Owens, AAT,

QBH and CCA joint ventures. Toll will retain the remaining companies which mainly

comprise freight forwarding and logistics businesses plus the 63% holding in Virgin Blue.

65 Movements in Patrick’s Port Botany terminal in the calendar year to March 2007.

66 Issues Paper at p 40.

58

The restructure will return Patrick’s level of vertical integration at Port Botany back to the

position prior to Toll’s acquisition of Patrick in early 2006. That is, Toll companies are now

independent of Patrick and in addition to the terminal operations there are only two Patrick

related companies active in the Port Botany supply chain: Patrick Port Services and Patrick

PortLink.

Patrick Port Services offers a range of land based services to shipping lines, freight forwarding

agents, customers brokers, importers and exporters. Its key operations include:

(a) Container parks – container storage and handling;

(b) Container packing and unpacking;

(c) Container transportation to and from Container Parks;

(d) Container repairs, refurbishment and preparation;

(e) General warehousing and bonding; and

Toll Holdings(ASX listed)

Domestic Freight ForwardingLogisticsShippingDistribution and WarehousingInternational ForwardingDefence LogisticsExpress/CouriersAutologistics

Aust

ralia

Toll AsiaAsia

Toll NZ (84.2%)NZ

Virgin Blue (62.8%)VBA

Public shareholders

Asciano Limited Asciano Finance Trust

Stapled structure (ASX listed)

PatrickContainer terminalsPortLinkPort ServicesBulk portsStevedoringToll Owens (50%)

Por

tsR

ail

Public securityholders

Pacific NationalIntermodalBulk

Oth

er

Patrick Autocare JV (80%)AAT (50%)QBH (50%)CCA (50%)

Toll Holdings(ASX listed)

Domestic Freight ForwardingLogisticsShippingDistribution and WarehousingInternational ForwardingDefence LogisticsExpress/CouriersAutologistics

Aust

ralia

Toll AsiaAsia

Toll NZ (84.2%)NZ

Virgin Blue (62.8%)VBA

Public shareholders

Toll Holdings(ASX listed)

Domestic Freight ForwardingLogisticsShippingDistribution and WarehousingInternational ForwardingDefence LogisticsExpress/CouriersAutologistics

Aust

ralia

Toll AsiaAsia

Toll NZ (84.2%)NZ

Virgin Blue (62.8%)VBA

Public shareholders

Asciano Limited Asciano Finance Trust

Stapled structure (ASX listed)

PatrickContainer terminalsPortLinkPort ServicesBulk portsStevedoringToll Owens (50%)

Por

tsR

ail

Public securityholders

Pacific NationalIntermodalBulk

Oth

er

Patrick Autocare JV (80%)AAT (50%)QBH (50%)CCA (50%)

59

(f) Quarantine services.

Port Services employs approximately 700 people in Sydney, Townsville, Brisbane, Melbourne,

Adelaide and Perth.

Patrick PortLink’s main focus is providing rail based land-side logistics and freight forwarding

for importers and exporters between the port, metropolitan container terminals and regional

centres. It key operations include:

(a) Rural rail services to major ports;

(b) Regional Intermodal and “Inland Port” terminals;

(c) Rural Import/Export packing and warehousing; and

(d) Rural distribution services including freight forwarding to support port rail

activities.

PortLink operates across a network of 25 sites throughout south Eastern Australia. It currently

employs about 380 people.

In order to facilitate regulatory approval for the creation of Asciano, Toll and Asciano have

agreed with the ACCC undertakings which include a non discrimination regime covering both

PN and Patrick. The Patrick undertakings focus on non discrimination at the Ports including

Sydney.67 Compliance with these undertakings is independently audited every 6 months.

Vertical Integration and Access Arrangements

IPART68 has stated it will review concerns raised by industry participants that stevedores may

be providing preferential access to their affiliated businesses. The focus of these concerns is

around treatment of affiliates is in the movement of containers by truck. These concerns are

not supported by any cogent evidence.

When looking at issues of vertical integration it is important to understand the relative size of

Patrick Port Services operations at Port Botany. The trucking companies utilising Port Botany

are extremely diversified with the largest customer only having 12% of container movements

and the top 10 customers only making up 33% of total container movements.

67 See http://www.accc.gov.au/content/item.phtml?itemId=785480&nodeId=3a981ab6609cf233f1fb75cdb7d8a734&fn=Fifth%20variation%2020070418.pdf and http://www.accc.gov.au/content/item.phtml?itemId=785515&nodeId=8adc6849bfbe1bfc4cc8355edf3d38d0&fn=Undertaking.pdf

68 IPART Issues Paper at p 40.

60

The figure below illustrates the shares of container movements by truck for the largest ten

transport companies plus Patrick Port Services.

Shares of Truck Container Movements at Port BotanyLargest 10 plus Patrick Port Services

Year to March 2007

Other PPS

Figure 24: Shares of truck container movements at Port Botany

In the year to March 2007, less than 1.5% of truck movements in Port Botany were undertaken

by Patrick Port Services.69 The data above indicates competition among a very large number

of carriers for trucking movements from Port Botany and is in direct contradiction to claims

that vertical integration has been distorting competition in favour of vertically integrated

operators.

Truck turnaround times for the year to March 2007 for the ten largest customers plus Patrick

Port Services at Port Botany show an even distribution. Differences between large and smaller

operators arise because larger operations often have a higher number of containers per truck

and are able to take advantage of stack runs. Patrick’s truck turnaround times are in line with

other larger operators.

69 This excludes the container movements for Quarantine Service contract. These trucks have special access rights in order to meet the contractual commitments to the Quarantine Service.

61

Figure 25: Truck turnaround times by container

Concerns regarding affiliate treatment expressed by industry participants simply do not stand

up to rigorous scrutiny.

8.2 A third stevedore for Sydney

Patrick believes that additional quayside capacity at Port Botany will not overcome the key

challenges facing the land side interface as outlined above. The constraints on the efficient

movement of freight in NSW must be addressed by improvements to the movement of road

freight, investment in rail infrastructure and the establishment of intermodal terminals in NSW.

Land side efficiency issues are not going to be solved by constructing additional quay line at

Port Botany.

Truck Turnaround Times by Container - 10 Largest Customers plus Patrick Port

Services Sydney year to March 2007

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8PPS

9 10 11

Minutes per container