Asciano prepares for 3-way competition in stevedoring industry

A new rival is in town at the port of Brisbane. Since May 2013 the new container terminal at the port of Brisbane owned by Hutchinson Port Holdings has been operating. This has created a three-way shipping game in what was originally a duopoly controlled between Patrick and DP World.

Patrick is operated by Asciano Ltd (ASX: AIO), the rail and shipping company that runs Pacific National and also has stevedoring businesses in Sydney, Melbourne and Fremantle.

The introduction of a third competitor in the port is thought to put pricing pressure on the two incumbent companies. Hutchinson Port Holdings is a subsidiary of Hutchinson Whampoa, the Hong Kong-based conglomerate headed by Li Ka-Shing, the second richest man in Asia.

In addition to opening up pricing for port services, Hutchinson will attempt to compete on cost by bringing in automated equipment, such as two extra quay cranes to work along with the two existing ones, as well as having automated stacking cranes.

Patrick already uses automated cranes in Brisbane and will be meeting the challenge by creating similar automation at its Port Botany facilities. Switching to full automation there is projected to save Patrick about $50 million a year, but it also potentially means its workforce being halved over time.

Hutchinson is starting a new terminal in Port Botany and is bidding to operate a third terminal in Melbourne. It seems the Asian company is attempting to secure a strong foothold in Australia. According to IBISWorld, the market research website, Asciano holds a 57.1% market share in the stevedoring services industry. Second is DP World Australia with a 42% share.

In 2013, Asciano raised NPAT by 39.1%, from $251.9 million to $350.4 million. Its Terminals and Logistics division run by Patrick had $731.5 million in division revenue and $150.1 million in underlying EBIT, down 11.9% from 2012 underlying EBIT.

Investors in this industry should also follow Qube Holdings Ltd (ASX: QUB), an integrated import and export logistics services provider that operates in Port Botany. It has business dealings with Asciano, and has Chris Corrigan, the former head of Patrick Corporation, on its board as chairman.

It wants to build a new port terminal at Moorebank on land next to its current facilities and is in the SIMTA consortium that wants to develop the land once the Army has vacated the location.

Toll Holdings Limited (ASX: TOL) is also involved in road transport shipping in and out of port areas. It’s the company that Asciano spun-off from in 2007.

Foolish takeaway

Having a duopoly of control of big infrastructure like port facilities is very healthy for business. The barriers to entry are high by cost, available space and licensing, but they can be surpassed as we see in the case of Hutchinson. They are just starting in Brisbane and with the other two ports to be developed or awarded in bidding, it will take time to see how this will change the balance of business. Investors should keep reading company reports and get further updates here.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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