The next generation of bigger container ships bound for Australia will not be able to safely pass beneath the West Gate Bridge nor enter the Yarra River channel to reach the city's port, costing Melbourne valuable trade, industry warns.
The warning follows the release of new data that shows Sydney overtook the Port of Melbourne as Australia's busiest last financial year.
A container ship sails down the Yarra River under the West Gate Bridge after leaving the Port of Melbourne. Photo: Craig Abraham
Shipping and transport groups say the Andrews government's failure to resolve looming constraints at the Port of Melbourne has put Victoria at risk of losing import and export trade to interstate ports and even to New Zealand, with negative consequences for the health of the state economy.
Sydney's Port Botany has nudged ahead of the Port of Melbourne as the chief destination for container trade, handling 34 per cent of Australia's container movements in 2016-17.
The Port of Melbourne handled 33 per cent, down from 36 per cent the year before, according to a report by the Australian Competition and Consumer Commission.
The report on Australia's stevedores did not attribute Melbourne's declining share to larger ship sizes but said "the Port of Melbourne is the port most likely to limit the size of ships visiting Australia".
Last month the biggest container ship ever to visit Australia, the Susan Maersk, docked at the Port of Brisbane.
It can carry 10,000 standard shipping containers and at such a size would have been too big to travel up the mouth of the Yarra River to Swanson Dock, and would have been a borderline chance of passing beneath the West Gate Bridge.
Neil Chambers, director of the Container Transport Alliance Australia, said shipping lines were beginning to use larger ships to reduce transport costs and Melbourne risked losing trade to Sydney and Brisbane in coming years.
"Melbourne is constraining the rest of Australia," Mr Chambers said.
Infrastructure Victoria, the Andrews government's infrastructure adviser, took a different view in May when it said the Port of Melbourne would retain its dominant position as the hub for Victoria's container trade for at least another 40 years.
This was despite acknowledging its geographical disadvantages, including the 50.1 metre clearance height at high tide of the West Gate Bridge and the depth and width of the Yarra River shipping channel.
At the Port of Melbourne, international containers are handled at Swanson Dock and Webb Dock.
The size of container ships that can access Swanson Dock is limited to about 7500 20-foot containers.
Larger ships could stop at Webb Dock because it is south of the bridge, however both the ACCC and the shipping industry argue this would be bad for competition at Melbourne's port.
In its advice to government, Infrastructure Victoria suggested these limitations could be overcome by imposing "reasonable constraints" on the size of ships that can visit the Port of Melbourne.
But the advice has been labelled a joke in commentary by the chief spokesman for Australia's shipping industry.
Rod Nairn, the chief executive of Shipping Australia, said the Andrews government's infrastructure adviser had failed to consider evidence from overseas that ships are rapidly getting bigger.
"Melbourne is the only east coast port that can't accommodate the ships that some of the major shipping companies want to bring now ... let alone in 30 or 40 years," Mr Nairn wrote in an industry newsletter this month.
"The risk is that shipping lines may consider bypassing Melbourne for Adelaide or Sydney and use rail, or a smaller ship feeder service (possibly from New Zealand to reduce trans-shipment costs) to make the connection," he wrote.
"This would ultimately cost the Victorian consumer, the Port of Melbourne and the state economy."
The Andrews government said in May it would respond to Infrastructure Victoria's advice this year, when it will release its freight strategy but this week it said the strategy will be published early next year.
"Transport for Victoria is working with industry leaders to develop a comprehensive new freight strategy which will inform government policy and investment," a spokesman for Ports Minister Luke Donnellan said.
"As part of this plan, we will respond to critical questions about future port capacity and the recommendations made by Infrastructure Victoria."
The Andrews government leased the Port of Melbourne to the Lonsdale Consortium for 50 years last year, for $9.7 billion.
It will use most of the windfall to remove 50 level crossings and set up a transport building fund for other projects.