Steep rise for CBH freight rates

Steep rise for CBH freight rates

Cropping News
On average freight rate bills for the upcoming harvest will increase by 18 per cent or $2.41 per tonne, however some growers will be facing steep rises of up to 40pc.

On average freight rate bills for the upcoming harvest will increase by 18 per cent or $2.41 per tonne, however some growers will be facing steep rises of up to 40pc.

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Some growers, mainly in the road transport sites in the Albany zone and north of the Geraldton zone, will face a 40pc spike in their freight bill that will be finalised in February, at the completion of harvest.

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ON the eve of what is shaping up to be WA's biggest harvest on record, growers have been told they will be slugged on average, an increase of 18 per cent or $2.41 per tonne on their upcoming CBH Group freight bill.

However some growers, mainly in the road transport sites in the Albany zone and north of the Geraldton zone, will face a 40pc spike in their freight bill that will be finalised in February, at the completion of harvest.

CBH acting chief executive officer Ben Macnamara announced the estimates last Friday after lengthy discussion with the board and the Growers' Advisory Council.

This is on the back of the co-operative recently declaring it would divert surplus cash flow from its Operations business into its reinvestment program instead of paying growers a rebate.

"While no one likes to see cost increases like this, unfortunately when costs go up, as a co-operative we need to recover those costs through grower freight rates," Mr Macnamara said.

He said the rises were due to increases in fuel costs, higher wages due to truck driver shortages and CPI increases, as well as a new rail contract.

In early August CBH signed an initial six-year contract with Aurizon for the operation of rail services, ending the Watco Australia contract that ran for 10 years.

While the Aurizon agreement is a key component of the rate rise, Mr Macnamara said they ran a competitive process during contract negotiations and it was critical for growers to be aware that they "didn't go with the highest-priced offering we had and we didn't go with the lowest-priced offering we had".

"Regardless, the cost of rail would have gone up, no matter who we went with," Mr Macnamara said.

"We have also worked with our road transporters across the year and particularly over the past few months, to ensure that we get a greater certainty into the supply chain."

Mr Macnamara said a critical component of the freight deal was to get tonnes to the port at the right time to meet shipping and customer demand.

CBH started taking accountability for the freight task about a decade ago and also acquired its above-rail assets in 2012.

"What we have seen over that time is a general decline in the grower freight rates, or at the very least, a stable freight rate and that has been well lower than the CPI increases if you take the 2011 as a starting point," Mr Macnamara said.

He said the estimated $2.41/t average this year was the biggest increase they have had over this period.

Mr Macnamara said some sites would have small increases on a percentage and a dollar basis and declared "there are some sites which will probably straddle that average".

Of those big increases around the 40pc mark, he said it was critical to consider it on a net tonne per kilometre basis.

"So when you look at some of those sites in the Albany zone, which are coming off what could be argued as a lower base, sites in the Ongerup region or in Nyabing, would be comparable to sites in other zones like Beaumont in the Esperance zone - or in the Kwinana zone you are looking at sites like Corrigin, Quairading and Regans Ford or even up in the Geraldton zone, you are looking at it being comparable to a site like Latham," Mr Macnamara said.

He said it was difficult to estimate how many growers would be affected by the higher 40pc rate increase.

As a result of labour shortages, Mr Macnamara said different industries were competing for scarce driver resources and the increased freight rates were about making sure that they were paying market value to ensure they could retain those drivers.

He was also hopeful it would encourage additional drivers to join the sector.

"Ultimately this is about getting tonnes to port at the right time of year and we know that WA grain attracts a premium in the front half of the year and therefore it is important that we meet that demand," he said.

Mr Macnamara said it was critical to meet the turnaround target of four days that they set with key network users, so they could also maximise the value of the WA crop.

He said supply chain efficiencies would reduce shipping costs that have gone from US$8000 per day to US$35,000 a day.

Mr Macnamara said the average vessel was about 35,000t, so if they were not getting grain to port at the right time, it equated to $1/t per day when the ship was sitting there.

"Our task is to get grain from upcountry to port, if we don't have enough road and rail resources to do that, we ultimately don't deliver any value to growers," Mr Macnamara said.

While the rate rises are only an estimate at the moment, he said the final outcome was usually "within a few percentage points".

Mr Macnamara said there was a little bit of tinkering once they knew the actual size of the current season crop.

"It depends on the fixed and variable cost mix, and where you have got more fixed costs, the larger the crop size, the better leverage you get on that fixed cost, but under our arrangement these days, it is probably more variable and therefore the swings should be fairly modest given the variability and expectation around the crop," he said.

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