DP World faces huge rent increase at the Port of Melbourne

DP World faces huge rent increase at the Port of Melbourne
The Port of Melbourne have proposed a huge rent increase

The Port of Melbourne Corporation has notified DP World Australia that it wants to increase rent at the West Swanson terminal it operates by over 750%.

DP World’s rent would rise from AU$4m (US$3m) a year in 2014 to AU$31m (US$24m)  a year from 1 January 2015 and AU$60m (US$47m) from 1 July 2016. It was notified of the increase on 23 December 2014.

Victoria’s Ports Minister Luke Donnellan said that rent was reviewed by an independent valuer every two years, as specified in the conditions of the lease.

In a statement, DP World said it did not see the issue being resolved without the involvement of the Victorian government. Donnellan said that it was a matter for the Port of Melbourne Corporation but the Premier of the Victorian Government, Daniel Andrews, reportedly told local press he would seek an urgent meeting with the Corporation.

The terminal operator said that this rent increase would make Melbourne the most expensive of its 65 terminals worldwide, more than twice as expensive as the next most pricey terminal.

DP World also said it would challenge the move in court. “We are disappointed with what’s being proposed; we will challenge it, not just for ourselves, but to minimise the impact on importers and exporters in Victoria,” said chief executive Paul Scurrah.

He added that if the rise went ahead: “There will be a lot fewer Melbourne based transport companies delivering and collecting containers to and from Port of Melbourne – and a lot more Sydney and Adelaide based trucking companies delivering containers across Victoria.”

In a statement, DP World said: “Companies such as Wakefield Transport, which exports high volumes of primary produce from Mildura, say they will cease to trade through Melbourne in favour of other ports should the proposed rent hike take effect.” Wakefield Transport could not be reached for comment.

In a previous statement, the company said: “Our discussions with the major shipping and transport companies that use the Port of Melbourne indicate that around 20% of volume could move immediately from Melbourne to Adelaide or Sydney.”

On the other hand, the company said: “Producers from more southerly regions such as South Gippsland and the major importers based in Melbourne may have no option but to pay the higher charges.”

This rent increase would almost double the port’s total revenue, from AU$368m last year to AU$688m, thus making the port more attractive to bidders in the ongoing privatisation process at the port.

Asciano, which owns Patrick Ports, operates Melbourne’s other container terminal. Its rent will be reviewed next year and its chief executive John Mullen said that, if his company faced a similar increase to DP World, it would fight it. “It would make the Port of Melbourne overwhelmingly the most expensive port in Australia and completely uncompetitive by global standards,” he said.

He added: “We pass these costs on with infrastructure charges and, in the end, the person who pays for it is the poor person trying to export product out of country Victoria.”

DP World’s last rent review was in 2013 and resulted in a 17% increase.

In May, a consortium led by ICTSI won the contract to operate the new Webb Dock in Melbourne. There has been speculation that this lease has changed the rate structure at the port.

In March, a Victorian government spokesperson told The Wall Street Journal: ““Money from a port sale could fund transport infrastructure, including the Port of Hastings development, along with rail and road projects”. Many in the industry think that the government is now raising rents to get as much money from the sale of the port as possible, to fund projects like these.