SYDNEY: Australia's resource sector and
state governments had an unexpected opportunity to aggressively
develop the country's infrastructure in the export lull that
accompanied the global financial crisis.
With the absence of heavy export volumes, they could have
worked to unclog the bottlenecks that caused delays and sapped
profits at the height of the resource boom in 2007. But neither
stepped up and little progress has been made to prevent a
repeat of the congestion that stymied shipments to paying
Australian iron ore and coal exports rose to record levels
in the final three months of 2009, with iron ore exports
surpassing 98 million tonnes and coal exports rising above 74
million tonnes on strong demand from China, South Korea and
Japan, according to the Australian Bureau of Agricultural and
Yet even with such high volumes of dry bulk material headed
for the export market, little has been done to prevent a jam.
"The government has been slow to provide infrastructure like
ports and rail, but it is going to be a limiting factor on how
much more exporting capacity Australia has for the world and
for China," Ord Minnett analyst Peter Arden said.
At the height of Australia's resource boom, the lack of
adequate coastal infrastructure resulted in shipment delays and
skyrocketing late costs. On Australia's coal-rich east coast,
miners like BHP Billiton, Centennial Coal Co. Ltd., Rio Tinto
and Xstrata Plc struggled with delays as growing numbers of
freight and commuter trains shared the same rail lines.
"In Queensland, some parts of the rail system don't have
enough passing loops installed. When you have a single-track
line you need to have parts that are double tracked so one
train can wait while another passes," said Paul Young,
commodities analyst at Deutsche Bank in Australia. This meant
inland coal shipments ran late to Newcastle, the regional coal
export hub, leaving cargo vessels no choice but to line up to
The problem reached epic proportions in March 2007, when a
record 70 vessels were lined up for as long as 22 days to pick
up cargo. "You've got to book ships six months in advance and
it's tough to change that," Young said. "If the rail doesn't
respond, or there's a lag in the system, the ship just has to
Demurrage costs, fees shipping lines charge shippers for
delays beyond the scheduled departure time, reportedly ran into
the millions of dollars for Xstrata as the company
unsuccessfully tried to declare force majeure at
Newcastle. "Demurrage hurts producers and it hurts Australia,
because producers are paying costs they shouldn't be. It can
run into the dollars per tonne, and (A)$5 ($4.60) per tonne can
easily encroach on a company's bottom line," Young said.
The railway troubles on Australia's west coast is epitomized
by Fortescue Metals Group Ltd.'s fight for third-party access
to dedicated rail lines owned by competitors BHP Billiton and
Rio Tinto. Both have been embroiled in a decade-long court
battle to prevent newcomer Fortescue from accessing their
private rail infrastructure, built thanks to government land
grants over 40 years ago.
Australia's iron ore-rich west coast also struggles with
port congestion. Port Headland, which handles the bulk of BHP's
and Rio's Pilbara iron ore traffic, has a limit constraint of
380 million tonnes per year. "It can't be expanded past that.
It's running at about 200 million tonnes, and BHP is expanding
its shipments from 130 million tonnes to 240 million tonnes,"
As iron ore shipments from the region increased over the
last two months, so did shipment delays, which recently rose to
12 days from the usual one to five days. "Fortescue is the big
loser. They've been telling the market they will go to 150
million tons, but they can't go beyond 125 million tons," Young
But while mining companies openly complain about inadequate
infrastructure, few are prepared to put up their own funds for
upgrades. "When you develop a mining project you have to
develop the infrastructure, but we seem to have gotten away
from that to expecting someone else to build it," Arden
The slow global economic recovery has presented a window of
opportunity for Australia's infrastructure networks to catch up
to the volumes demanded by the resource industry's export-heavy
On the east coast, the Queensland state government is
finally bowing out of the race and offering its railway network
for sale. However, meaningful upgrades won't come in time. The
sales process will take months, and subsequent work on the
lines won't start immediately, providing little relief for
ships scheduled to pick up coal at Newcastle this year. In the
week ended March 8, there were 46 vessels queuing up at
Newcastle, with coal vessels waiting an average of 15.6 days
compared with just half a day for non-coal ships.
In Western Australia, the state government has approved
plans by Fortescue and Aquila Resources Ltd. to build a
A$1-billion port facility at Anketell designed to handle 350
million tonnes of iron ore to relieve some of the congestion at
nearby Port Headland. "This will be a deep-sea port-in fact,
the first deep-sea port developed in the Pilbara for 30 years,"
Western Australian Premier Colin Barnett told a press
conference. While current iron ore exports from the state stand
at 380 million tonnes, "by 2015 total production will be
somewhere in the range of 600 million to 700 million tonnes,"
he added. However, the project will be years in the making,
with little detail as to the overall cost or who will foot
Some miners are taking the issue into their own hands.
Billionaire mining entrepreneur Gina Rinehart has announced
plans for a A$2.2-billion ($2.03 billion) private railway
linking the Galilee Basin to a port at Abbott Point as she
moves ahead with plans to develop new coal mines in the area.
But Rinehart is alone in an otherwise level field content to
let a unique opportunity slip by.