Chinas Growth puts a strain on Australias Infrastructure

The FT has a great example of how China's economic power is affecting Industries in other countries around the globe. It shows the importance of infrastructure to the Australian economy.


The article highlights the fact that key strategic decisions should be taken at least 3 to 5 years in advance, in order to fully take advantage of the changing world scene.

To make these decisions we need excellent business intelligence and a lot of foresight.

We are reminded that when we shy away from taking these decisions, at the right time, the ensuing economic consequences can be high

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After 38 years as a skipper, little fazes Dave Rolston, master of one of the six tugboats operating in Newcastle, among Australia’s biggest ports and a world leader for coal exports.

But on an outing earlier this month Mr Rolston appeared flummoxed by news that the queue of ships waiting to enter the port and load coal had stretched that morning to a record 70 vessels.

“This is by far the worst it’s ever been,” he says. “We’re working as fast as we can but these ships just keep arriving.”

As his tugboat reached a Manila-registered ship a few miles out of the port’s heads, the boat’s radar screen showed a queue that stretched 40 miles down the coast – two-fifths of the way to Sydney.

Newcastle is suffering from one of the most striking examples of the infrastructure bottlenecks that have arisen across Australia because of surging Chinese-led demand for coal and other commodities.

The average wait for a ship to load up at Newcastle is now three weeks and delays are costing the coal industry about A$1m (US$786,000, €596,000, £407,000) a day according to industry estimates, as producers pay so-called demurrage charges to anchor until a berth becomes available.

Gloucester Coal, one of the producers affected by the queuing, recently described the situation as “a disgrace” that is “costing Australia money”.

To ease the problem, coal producers recently voted to reintroduce quotas, a decision that still needs approval from the Australian competition regulator. But the use of quotas is controversial and has regularly split the big coal companies, leading to a series of policy back-flips.

The delays at Newcastle also illustrate the difficulties of timing costly infrastructure developments to coincide with peaks in demand in a cyclical sector such as coal. Meanwhile, Chinese and other coal purchasers have no incentive to stop their ships from waiting in the queue since producers pick up the bill for delays.

Unlike many state-controlled ports in emerging markets such as India, which are also facing capacity constraints, Newcastle runs as a private operation with investment decisions in the hands of the coal companies. However, another part of the transport chain, the railway network that links Newcastle to the coal-producing Hunter Valley, remains state-owned, which has led to some mutual recrimination.

Brian Nicholls, an industry veteran who has managed several Australian coal mines, says: “The rail system and the coal loading capacity have got to work in harmony, which hasn’t been the case for the Hunter Valley.”

Meanwhile Garry Webb, chief executive of Newcastle Port Corporation, is adamant Newcastle can expand considerably. Standing in front of a giant aerial photograph of the port, he points to several projects that will ensure annual capacity will soon rise from 90m tonnes to 102m tonnes, and eventually reach 120m tonnes.

”We all know that the coal industry is well cashed up,” Mr Webb says. “The government is not going to get back into the funding of coal loading when it got out of it in 1989. Our policy is now very much hands-off. Any kind of interventionism would be a recipe for disaster because it would take away the efficiencies of the commercial world.”

Newcastle’s love affair with coal is almost as old as British settlement of Australia. The colony’s first commercial export cargo was a shipment of 50 tonnes of coal to Bengal in 1799. But Mr Webb argues the port needs to look beyond its longstanding coal customers.

While coal accounts for 90 per cent of the volume handled in Newcastle, it represents 66 per cent of the total value of goods.

The rest is made up of products ranging from Australian wheat to oranges arriving from Brazil.

Quotas have helped reduce queues in the past, but the system continues to divide producers. Xstrata, the UK-listed mining group, has consistently backed quotas, a position at odds with that of Rio Tinto and BHP Billiton, the world’s largest mining company.

Chris Lynch, who oversees BHP’s coal activities, recently told analysts that “quota systems are never a good system. They basically subsidise inefficient production”.

Certainly no one is expecting quotas to act as a magic wand. A spokeswoman for Coal & Allied, a subsidiary of Rio Tinto, says: “There is no quick-fix solution to this issue. Any system must effectively manage coal logistics for at least a two- or three-year timeframe until investment in rail and port capacity matches demand.”

Read China scours Asia for Coal in the Wall Street Journal