Selling to Australia more quickly and cheaply

Duncan Graham, Contributor, Surabaya

Is the shortest distance between two points always a straight line? Not in the world of international shipping.

What comes first -- port or freight? It's a question much like the chicken and the egg.

These and other conundrums have been plaguing the mind of Australian transport engineer John Hile for several years as he has pondered the biggest question of all: How can trade between Indonesia and Australia be boosted and made more efficient?

In mid-September a ship carrying 55 containers of paper products from East Java quietly sailed directly from Surabaya to Darwin as a trial run for what may become a new regular service.

The big boxes were then put on a train and trucks destined for shops in the capital cities of the southern states.

From go to whoa the journey took about eight days, around one- third of the time it normally takes on the traditional sea route Surabaya-Singapore-Melbourne.

To the lay person the logistics look clear enough: Why send goods north to Singapore before sending them south to Australia?

But of course it is not that simple, as Hile, the landbridging manager for Australian freight company Toll North, explained: "Surabaya has traditionally been a feeder port for the hub of Singapore. Containers are offloaded there and then mixed with others destined for Australia," he said.

"Australia's major population centers are on the southeast corner of the continent. Darwin may be a lot closer to Indonesia, but it's a tiny city and hasn't been a calling port for ships from Singapore."

It's not just Hile who is trying to alter the shape of international trade. In late September a team from the Northern Territory Government, Australian freight carriers and train operators were in Surabaya trying to persuade shippers to change their routes.

Last year more than one million TEUs left Surabaya's container terminal. (A TEU is the unpronounceable industry term for a "twenty-foot-equivalent unit".) The port at Tanjung Perak could handle double this load.

Economies of scale are pushing the shipping industry toward even bigger vessels. The monsters now carrying 8,000 TEUs will soon be dwarfed by ships with a capacity of 12,500. And, of course, they'll need deeper harbors, more cranes and larger ports to unload.

To make a Surabaya-Darwin connection viable exporters need to know that a scheduled freight service would be departing Indonesia's second-largest port every week.

But without subsidies or guaranteed loadings a shipping company would be reluctant to initiate a regular sailing in the hope that freight will magically appear.

So the Australians spent time trying to stitch deals with shippers and lobbying local manufacturers. Many were among the 230 delegates from more than 25 nations at the ASEAN Ports and Shipping Conference in Surabaya.

The Aussie's arguments were based on savings through the opening last year of the new rail line. This links Darwin to Adelaide 3,000 kilometers to the south, and the east-west network to all state capitals.

There is also an all-weather highway between Darwin and Adelaide open to road trains, and the port of Darwin is being massively upgraded.

"We're not trying to take over existing shipping lines to eastern Australia," said John Parkes, general manager for international marketing of Freightlink, the operators of the north-south rail line. "We're offering an alternative route."

But his attempted appeasement of the big-time freight shifters who snap their fingers at trade movements worth millions was undermined when he revealed ambitions to shift more than 350 containers out of Darwin on every train.

If successful, the ports in Sydney, Melbourne, Adelaide, Brisbane and Fremantle would see a significant downturn in business. Clearly some noses would be put out of joint.

Already, the Australian media has carried stories of the high cost of the rail link and importers preferring to use trucks. Construction faults at Darwin wharf have also made the industry edgy about shifting from the tried and trusted ways of taking goods the long way round.

But the Australian hustlers in East Java flicked away such naysaying as "politics", and pushed on with their sales pitch.

There may not be much romance in a long steel box that looks the same in Antwerp or Zanzibar but the enthusiastic Australians made the business of picking up and plonking down lots of TEUs sound like one great adventure.

"Change is always difficult but this new route through Darwin will happen because the commercial realities will make it happen," said Hile.

"At the moment Indonesia is no better off than China or India in getting its products into Australia through the current trade routes.

"East Java has a huge industrial capacity -- much of it underutilized -- with a low-cost skilled labor force. In the country next door is a major market. Australia has a tiny manufacturing industry and not enough workers. The potential for Surabaya is huge (see adjacent story).

"There's a huge push to have this going within six months -- and we will be successful."