BMI View: In tandem with the wider economy, Australia's shipping industry will not see huge strides in terms of y-o-y growth, but it will nonetheless enjoy modest gains over the medium term. While the Australian economy continued to slow in Q1 2015, we maintain our 2015 real GDP growth forecast of 2.3% (versus 2.7% in 2014) - the country's main ports are set to post modest gains, led by the Port of Melbourne (tonnage growth) and Brisbane (container growth).
We caution that the country's worsening terms of trade and unwinding investment boom continue to act as major headwinds to growth. The total value of services exports is now slightly greater than that of iron ore exports, given the sharp decline in commodity prices despite surging volumes, and this divergence will increase over the coming years. This is not welcome news to the shipping industry considering how integral the transportation abroad of iron ore is to the Australian shipping industry - Australia's top export is iron ore, while gold is also in the top five, according to the Observatory of Economic Complexity.
The port of Melbourne will lead the way in terms of tonnage growth in 2015 (3.98%), while the outperformer in box throughput annual growth will be the port of Brisbane with an increase of 4.83%. Meanwhile, the port of Sydney will once again see relatively muted positive growth, with box throughput growth accelerating only slightly while tonnage growth is set to slow.
Headline Industry Data
2015 port of Melbourne tonnage throughput forecast to grow 3.98%.
2015 port of Melbourne container throughput forecast to rise 2.64%.
2015 port of Sydney tonnage throughput forecast to increase 1.46%.
2015 port of Sydney container throughput forecast to increase 3.31%.
2015 port of Brisbane tonnage throughput forecast to rise 3.00%.
2015 port of Brisbane container throughput forecast to grow 4.83%
2015 total trade growth forecast to grow by 3.45%.
Government Approves Sydney Intermodal Terminal - The Australian government approved Moorebank Intermodal Company (MIC) signing an agreement with Sydney Intermodal Terminal Alliance (SIMTA) to build and operate the Moorebank Intermodal Terminal in south-western Sydney. SIMTA, a consortium of Aurizon Holdings and Qube Holdings, will develop the terminal on a joint precinct of its own land and Commonwealth land. The precinct will include an interstate freight terminal with capacity to accommodate up to 500,000 containers a year and an import-export (IMEX) freight terminal to handle up to 1.05mn containers a year. The first stage will include 250,000 containers a year for the IMEX and interstate terminal each. The parties are focusing on securing relevant planning and environmental approvals for the precinct. If the initial approvals are obtained, work on the first stage is expected to start in H215. The IMEX terminal is likely to start operating in late 2017, while the interstate terminal is likely to open in 2019. The Commonwealth is expected to spend about USD370mn on the project.
The Lease of Melbourne Port Is ' Environmental Vandalism ' - Greg Hunt, the Australian Federal Environment Minister, has labelled proposals to lease the port of Melbourne to the private sector 'fiscal vandalism and environmental vandalism wrapped up together'. The bill still must pass through the upper house for the plans to reach fruition, but Hunt has denounced Labor plans to blast the heads of Port Phillip Bay to enable larger vessels to pass through.
ACCC Agrees To JV - A port trucking joint venture (JV) has been given the green light by the Australian Competition and Consumer Commission (ACCC). The ACCC believes the link-up between Asciano's Patrick Container Ports and Australian Container Freight Service (ACFS) will 'be one of the largest providers of each service in Sydney, Melbourne, Brisbane and Fremantle'. It added: 'However, the ACCC determined that, following the joint venture, Patrick and ACFS would continue to face strong competition from a number of alternative providers (including Qube, Toll Extra, Swift, Chalmers and others).'
Risks To Outlook
Australia's trade and, therefore, the shipping industry, would benefit from economic cooperation agreements with countries in the region over the coming years. For example, Australia is hopeful that it will sign a free trade agreement (FTA) with India by the end of 2015. In terms of services trade, Australian Trade and Investment Minister Andrew Robb went on a three-day visit to India in late June, and is seeking to expand its services exports to India by reducing barriers faced by Australian suppliers and by increasing regulatory transparency. In the area of education, Australia is already the second biggest overseas education destination for Indian students, and a joint feasibility study by the two countries concluded that an FTA could facilitate improved transparency in accreditation processes for education service providers as well as improve collaboration access for researchers.
In terms of downside risk, the mining investment outlook in Australia remains bleak, and we do not expect it to improve over the coming year as Australian companies continue to scale back planned investment. This has a knock-on effect on the shipping industry due to that large amount of metals shipped abroad. Mining investment as a share of GDP peaked in 2012, and we forecast gross capital formation to contract by 2.5% in real terms in 2015 (versus -2.0% in 2014) as the slowdown in the mining sector shows no sign of abating. The drag from the mining sector remains one of the key reasons why we expect real GDP growth to slow further to 2.3% in 2015 from 2.7% in 2014 amid the terms of trade reversal.