Fortescue competes with BHP for Port Hedland towage market

Fortescue Metals Group plans to compete with BHP Billiton for the contestable towage market in Port Hedland, but has vowed not to merely replicate the existing service.

Opening a new front in the battle between the iron ore rivals, Fortescue secured a tugboat licence in in May and will spend close to $200 million over the next two years building the infrastructure needed for the tugs to operate.

It will break BHP’s reign as the only towage provider for the port, with BHP traditionally subcontracting the work to shipping and logistics companies.

Fortescue’s nine tugs are expected to start operating in 2019, and Mr Power said the fleet would not merely service ships carrying Fortescue’s iron ore.

“Yes we will be competing for the third-party or contestable market … but our intention is not to replicate what is already there,” he said.

“We will complement what BHP have there, they are efficient, competitive suppliers. They’ve done a really good job, throughput at the port has increased dramatically.”

After tugboat unions threatened to bring Port Hedland to a halt in 2014, BHP gradually replaced its incumbent tug contractor Teekay with a Queensland company Rivtow.

Rivtow has managed to avoid unionisation of the tug workers by sub-contracting them under a partnership model that is more akin to the legal industry.

When asked if Fortescue will adopt the Rivtow workplace model, Mr Power said a decision had not been finalised.

“We are still working through the details of that, but our focus is very much on how we get maximum efficiency through the port,” he said.

Fortescue’s push into the tug business, under the corporate moniker Pilbara Marine, comes as BHP continues to grow its fleet, announcing in July 2015 that it would spend $325 million building a new tug haven of its own at Port Hedland and building six new tugs.

Exports of all commodities through the port have surged from 177.4 million in the 2010 financial year to 444.7 million in fiscal 2015, with the iron ore expansions of Fortescue and BHP the biggest driver.

Exports should continue to rise under BHP’s plan to be producing 290 million tonnes per year by 2019. Fortescue’s expansion appears to be largely complete.

Meanwhile, Fortescue’s plan to start blending its ores with those of Brazilian miner Vale has progressed slower than expected, but the companies believe it can still create value.

Trials were expected to be under way by now and the blending scheme fully established by September, but a Vale spokesman told investors in Brazil on Friday there would be little to report this year.

“We are progressing well with FMG but at a much slower pace than we had anticipated. I don’t think we will have ore blended in 2016, that is something for 2017,” he said.

“The lab results are very promising, we have done some simple tests in labs, but also in private plants … and there is for sure value creation for the steel plant, this is now a certainty.”

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