A furore over rents at Australia’s largest freight terminal has been resolved, with stevedore DP World and the Port of Melbourne announcing new lease arrangements for West Swanson Terminal.
Under the deal, incremental rent increases are to occur during the course of the fifty year tenure, starting with CPI increments in 2015 and 2016 to nominally $45 per square metre in 2023 with agreed escalations to 2028.
The first market rent review is to occur in 2028 and every five years thereafter.
DP World currently pays between $16 and $18 per square metre.
The deal is being interpreted in some quarters as a back-down by the state government (the port owner), with an earlier proposal that would have hiked rents by almost eight times, generating intense industry opposition.
With legislation for its privatisation in state parliament, many thought the originally-mooted price hike for DP World’s rent was aimed at fetching a better sale price for the port in the near future.
DP World Australia managing director and chief executive, Paul Scurrah, said the new arrangements would provide certainty.
“Everyone wins,” he said. “Our customers, service providers and the Victorian freight industry will benefit from long-term lease and price certainty, which comes with DP World Australia’s commitment to operating in the Port of Melbourne.”
Port of Melbourne chief executive Nick Easy said the new lease would grant fifty-year tenure to DPW Australia to 2065 with key performance indicators, efficiency incentives, and known fixed escalations for the next 13 years.
“The longevity of the lease tenure represents a strong vote of confidence in the Port of Melbourne by an important tenant and ensures it remains competitive,” he said.
Scurrah said longer periods between rental reviews meant the new lease would remove uncertainty from the container market.
Victorian Transport Association chief executive Peter Anderson hailed the deal saying his organisation always “opposed those exorbitant rent increases” because of unbearable flow on costs to other port users.
“This gives other port users better certainty in their operational and business planning,” Anderson explained.
He said the DPW deal should not be seen as a green light for the current port privatisation legislation, however, with questions remaining about regulations, cost protections and whether operational improvements would be a by-product of privatisation.