Freight vessels coasting to their demise More and more short-haul freight is falling into foreign hands.
Every day, Australian ships ply the coastal waters with their loads of interstate cargo - ships with names like the Portland, the Victorian Reliance, and the Tasmanian Achiever. Also doing the job are vessels from the other side of the planet - such as the Norway-registered Hoegh London, Liberia's Maersk Dubrovnik, or Panama's Navios Soleil. Shipping goods interstate is not the primary purpose of these foreign vessels, of course. They sail to Australia with foreign cargo, unload, sail to another Australian port, load fresh cargo, and sail overseas. But when sailing from one Australian port to another, they usually take goods for the short haul. And that is the problem for Australian shipping. Foreign-registered vessels were once minnows in the coastal goods market but, thanks to cut-price rates - afforded by generous overseas tax regimes and cheap foreign labour - they have shifted most of the sea freight since 2010. As a result, the number of Australian-flagged coastal cargo vessels has more than halved, from 55 in 1995 to 23 in 2012. Industry sources put the present figure at 18 and estimate it could halve again, to just nine within two years.
Concerned over the prospect of the extinction of Australian shipping, the Gillard government passed laws in 2012 to revitalise the sector, providing tax and depreciation breaks. As part of the changes, foreign ships handling interstate goods had to pay their crews Australian wages, had to undertake at least five coastal voyages in a year and could only be hired if no Australian vessels were available. Shipping rates have since surged - as has the ire of customers. Rio Tinto unit Bell Bay Aluminium told the Productivity Commission inquiry into Tasmanian shipping its freight costs had soared 63 per cent as a result of the 2012 laws. The inquiry also heard that the legislation required, for one company, an extra 1000 hours of labour annually to administer. The Department of Infrastructure, meanwhile, estimates the cost to the Australian economy at $202 million in addition to $70 million a year in forgone tax revenue.
The Productivity Commission inquiry is continuing, but the draft report, released two weeks ago, condemns the Gillard changes. ''Given higher shipping costs, adverse effects reported by Tasmanian shippers and … the likely deleterious impact on Australian businesses … the justification for the 2012 changes is now questionable'' it states. The Abbott government has foreshadowed a fresh review into coastal shipping and the inquiry's draft recommendation urges the review proceed ''as soon as possible''. ''The objective of the review should be to achieve the most efficient coastal shipping services feasible for Australia''. Infrastructure Minister Warren Truss, who is responsible for shipping, has signalled that the 2012 laws are dead in the water. ''Shippers tell me that container rates from Melbourne to Brisbane are almost twice the cost of those from Singapore to Melbourne,'' he said in October. ''Bulk freight rates on the east-west route have reportedly doubled in the past year. It is cheaper to transport sugar from Thailand than from Queensland. ''To put it bluntly, there is no point in artificially propping up our coastal shipping industry if it is unable to compete - it will have an impact on the broader economy. Let me make it clear - I want a strong Australian shipping industry with an increasing market share. I want vessels to be Australian flagged, but most of all I want an industry that is efficient, reliable, safe and doing the job that its customers expect''.
The free-market Institute of Public Affairs has long argued for deregulation of coastal shipping. Cabotage - protection of Australian-flagged ships against foreign competitors - had existed in some form since Federation, but that was no reason to keep it going, said research fellow Aaron Lane. ''What some shipping industry representatives want to do is tinker around the edges with the legislation or wind it back pre-2012. While that would be a good start … I don't think there should be any coastal shipping laws at all''. Lane, who appeared before the Productivity Commission inquiry with an IPA submission, said it did not matter whether a ship was Australian or foreign registered. ''At the end of the day it doesn't matter if you have one Australian-flagged ship or a hundred … 85 per cent of coastal shipping freight is bulk products. It's about making those goods cheaper, it's not about propping up Australian-flagged vessels. What matters is, are these ships providing a cheap and efficient transportation system for producers of bulk goods?'' Lane was scathing about the 2012 laws and pointed out that the Fair Work Act of 2009 also affected shipping costs. ''For the first time in 200 years of coastal shipping, the foreign vessels that solely employ foreign crews were made to pay Australian wages. That has never happened before,'' he said, describing Bell Bay Aluminium's 63 per cent increase in shipping costs as ''extraordinary'' and ''incredible''. The idea that the 2012 laws would, in the long term, bolster the numbers of Australian-flagged vessels was flawed, he said. ''Protectionism never works in the long run. Protectionism never starts an industry. It never increases, it always eventually gets to the point where it has to be opened up to trade''. More optimistically, Lane believes there will always be an Australian-flagged fleet. International ships go from port to port on an ad hoc basis whereas local vessels can offer a timetabled service. ''International vessels are carrying interstate freight when it's convenient to them,'' he said. ''There's always going to be a demand for freight that needs to get to its destination by a certain deadline. There will be a market that remains for Australian operators to take advantage of that situation''. Finally, he rejects the idea that national defence requires a domestic maritime fleet. ''The same argument is touted for keeping Qantas as a national carrier. The Commonwealth has to maintain a defence force and I think the defence force should be adequate''.
Despite the desire of the IPA and the Business Council of Australia to fully deregulate the industry, the Coalition was unlikely to do so, said Angela Gillham, manager of industry operations at the Australian Shipowners Association. ''That would mean foreign-flagged vessels could move any domestic cargo wherever they liked without needing a licence. That's not a probable solution, not even with this government. It would take a very brave government to get rid of cabotage completely,'' she said. The ASA - whose members use both Australian and foreign-flagged ships - rejected deregulation but would also like to see the 2012 laws changed, Gillham said. The requirement that foreign vessels make a minimum of five coastal voyages a year caused particular resentment, she said. Nor were taxes lowered enough to make Australian vessels competitive. ''The zero tax regime was actually just a tax deferral'' she said. ''As soon as you went to pay shareholders, it was taxed at the full rate. It's competition that has driven Australian operators out of the market. We just can't compete on the same cost base''. The real growth for Australian shipping, she believes, may lie in international trading rather than coastal trading. Ten per cent of the world's sea trade passes through the nation's ports, overwhelmingly transported by foreign-flagged ships. Australian-flagged international ships, however, are at the same tax and wages disadvantage as their coastal counterparts. There were only six such ships at present, said Gillham, but with the right reforms this could change. ''We don't see a huge potential for growth in coastal trading. The real growth area is for Australian companies taking Australian international cargo''. This would require legislation to permit a mix of Australian and foreign crews as well as tax changes. ''We think it is in the national interest to have a vibrant and viable Australian shipping industry. We're an island nation. We rely on shipping,'' she said. ''Our view is that changes to the 2012 act would take the heat out of the issue and solve most people's major concerns''.
The Maritime Union of Australia, in its submission to the Tasmanian inquiry, also believes tinkering with the 2012 act is the way to go and has condemned the Productivity Commission's draft recommendation. ''A review could be a useful mechanism to … clarify some ambiguities and flaws in the legislation,'' it stated. However, ''what the Productivity Commission is clearly proposing is wholesale deregulation of Australian coastal shipping - the repeal of the 2012 act. What is proposed is not even a return to the previous permit system or some form of regulatory framework that promotes competition … this is, in effect, a recommendation for the complete dismantling of an entire Australian service industry''. This would not be without precedent, said Australian Maritime College Associate Professor Marcus Bowles. ''South Africa has completely lost all of their domestic-flagged vessels, because the international companies came in and bought them up. South Africa is a huge nation and the international vessels move along the ports before they get to the destination port, dropping off and picking up domestic freight''. Bowles believes the 2012 laws have not been given a chance. ''Do I think they were going to be good for Australia in the long term? I think that will never be judged because they haven't been deployed'' he said. ''All the indications were it would have improved the efficiency of the industry and its competitiveness … it was moving in the right direction''.
Something needs to be done, said Bowles, but the IPA's ''simplistic'' deregulation approach is not the answer. ''Any economic policy for any island economy has to have a viable shipping fleet''.
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