Rational Thinking

DP World, the key rival to Qube Holdings’ Patrick stevedoring division, now seems more focused on its bottom line, which could help to allay recent investor concerns surrounding the risks to Patrick’s future market share, the rates charged, and ultimately, to earnings.


Global ports operator DP World recently sent a letter to its customers this week, announcing it would increase port infrastructure charges at its Melbourne operation to $32.50 a container and at its Sydney operation to $21.16, effective from 3 April. The justification for this included higher occupancy costs; proposed infrastructure investment; and tougher competition.


In our view, this is a clear sign that DP World has become more focused on its bottom line and returns. Assuming road/rail operators and/or end-customers absorb these charges, then we estimate they have the potential to increase DP World’s Australian revenue by up to 5% and operating earnings by up to 20%.


Patrick and Hutchison, the other key operators at these ports, have a commercial decision to make, i.e. leave charges unchanged and hope to gain customer share, or follow DP World's lead and raise charges. We believe it makes more financial sense to raise charges, thus gaining a certain bottom-line benefit sooner, rather than waiting for the possibility of market share gain later. We estimate the potential increase to Patrick’s operating earnings could be up to 25%.


We continue to believe Moorebank will be the long-term driver of earnings and valuation for Qube. In recent months, however, we have seen concerns surrounding Patrick's performance weigh on the share price. This announcement by DP World could help to allay those concerns as it is perhaps a tentative step towards a more rational, disciplined Australian stevedoring industry.

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