DP World dispute reaches critical point

Containers stacked in Melbourne.

With the ongoing industrial action at DP World container terminals no closer to resolution supply chain experts at RMIT University have weighed in on the issue.

Distinguished Professor Anthony Forsyth, who specialises in collective bargaining, trade unions, union education, labour hire and the gig economy, said the dispute, while it was being likened to the 1998 waterfront dispute, described it as a regular form of industrial conflict over pay and conditions – nothing like the 1998 episode, in which the Howard Government and Patrick Stevedores sought to de-unionise the waterfront.

“DP World is lobbying the Federal Government to intervene, using a power in the Fair Work Act that enables the Employment Minister to terminate industrial action if it threatens to cause harm to the welfare of the community or damage to the Australian economy,” he said.

“That ministerial power has never been exercised and it is unlikely we will see a Labor Government use it in this case.

“The company could instead seek an order from the Fair Work Commission, terminating the Maritime Union of Australia’s (MUA) industrial action on the same grounds – harm to the community or the economy.

“DP World would have to provide evidence that the union’s work bans are having a crippling effect on stevedoring services and disrupting the supply chain of essential goods and products.”

The MUA’s strategy, noted Forsyth, appears to be carefully calibrated to ensure that the work bans do not cross the threshold that would see them terminated by the Commission.

“As the dispute drags on, the Albanese Government will come under increasing pressure to steer the parties towards a resolution in the national interest,” he said.

Forsyth’s research traces the shifting legislative agendas of Coalition and Labor Governments in Australia and connects the national discourse on workplace regulation with international debates.

In other global territories, industrial action of this nature can have devastating consequences for economies.

During the 11-day closure at 29 major ports on the US West Coast from Sep–Oct 2002, port authorities estimated a loss of $19.4 billion.

According to the Boston Consulting Group, an estimated one-month disruption in US West Coast ports would reduce exports from Asia by about 0.4 per cent of GDP, with the negative impacts on Hong Kong, Singapore and Malaysia being about 1.1 per cent of GDP.

Port cartage businesses are already experiencing longer wait times as shipping frequencies have slowed.

In turn, this leads to onflow delays in supply from the port to warehouses, distribution centres and retailers such as supermarkets.

“Industrial actions leading to stoppage at ports may have direct, indirect and induced effects on supply chains, national economy and society at large,” said RMIT Professor Vinh Thai, whose field of expertise includes logistics and supply chain management.

Higher price of import cargoes were not going to improve a highly inflationary environment being felt in Australia where the rising cost of living continued.

The loss of export competitiveness, according to Thai, implies the negative impact on the nation’s balance of payment.

“All can contribute to social chaos,” he said.

“While the Union has the right to enact industrial actions to protect the workers’ rights, the port operators also have their justifications as industrial actions can lead to disastrous impacts not only on their own business but also on supply chains, the national economy, and society.

“Given that DP World accounts for 40 per cent of Australia’s port throughput, the issue has to be handled with care.”

The MUA begun protected industrial action last October in response to plans by DP World, which is part-owned by the Dubai Government, that would slash penalty rates.

The union, which is enforcing limited stop-work orders, wants a 16 per cent pay increase over two years.

A backlog of some 44,000 containers is likely to take months to clear.

Meanwhile escalating tensions in the Red Sea continue to disrupt global trade.

Vessels using the Red Sea shipping channel have faced attacks over the past several weeks from Yemen-based Houthis, prompting shipping companies to change routes, leading to a spike in freight rates.

One of the hardest hit trade sectors is likely to be Australia’s agricultural sector.

RaboResearch General Manager Stefan Vogel said as ocean shipping companies divert more vessels away from the Suez Canal to avoid attacks by Houthi militants and the escalating military action against them in the Red Sea, Australian canola exports may be particularly impacted as the bulk of these are destined for the EU and normally shipped through the canal.

Australia may also have to deal with some increased costs for imported goods – such as certain fertilisers, agricultural chemicals and machinery parts – as importers face higher freight costs, as a result of diverting around the canal and impacted areas.

However, the elevated freight costs are not expected to reach the COVID-related highs seen in 2021, Vogel said.

“Globally, for containerised and bulk goods, the shipping industry has to make tough decisions at the moment – either to navigate the Suez Canal and risk severe attacks by Iran-backed Houthi rebels or to take a nine to 15-day detour around Africa’s Cape of Good Hope,” he said.

Vogel said initial attacks by the Houthi on cargo ships had seen bulk freight rates spike in December, though these had now settled back closer to 2023 average prices.

For Australian canola exports, shipments to “our prime markets in Europe are likely to get more complicated and expensive”, he said, “as they do usually pass through the Suez Canal, while canola shipments to the EU from our competitors in Ukraine and Canada do not”.

The canal issues, however, might help Australian wheat and barley shipments to be slightly more competitive into destination markets in Asia, the Middle East and eastern Africa noted Vogel.

“This is because our key competitors from Russia, Ukraine, the EU and even the east coast of the US will struggle to get to these destinations as they usually pass through the Suez Canal, while Australian grain does not,” he said.

The impact of the Suez/Red Sea crisis on agricultural fertiliser and other farm input imports is likely to be mixed.

“Fertilisers used on farm in Australia are largely imported in bulk. And, at least for nitrogen and phosphate fertiliser supplies, they should not be impacted much as they mostly derive from Asia and the Middle East and don’t pass through the Suez Canal,” he said.

“Potash, however, largely comes to Australia from North America and Europe and some of those shipments could be impacted by the attacks and re-routing of vessels.”

Containerised shipments – both to and from Australia – will also be affected, according to Vogel.

“And this is likely to have time and cost impacts on plant protection chemicals and machinery parts coming into Australia as well as Australian meat and fresh produce exports,” he said.

“During the 2021 freight crisis, Australia struggled to find sufficient containers for exports as shipping companies gave preference to their major global routes and somewhat neglected Oceania or they tried to quickly take empty containers back from Australia to China rather than adding in shipping time to export Australian goods. A similar struggle for containers is not unlikely to materialise again if the Red Sea struggles tighten global container freight capacity further.”

The FBX global ocean freight container index has more than doubled from early December to mid-January to reach the highest price level seen since October 2022, Rabobank said.

“The good news is container freight rates at the moment are still three to four times below the massively COVID-inflated levels of 2021,” Vogel said.

“Imported goods into Australia will have to bear the higher freight costs, but container freight is unlikely to get as expensive as in 2021.”

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