Coastal shipping submissions illustrate the great divide

New reform backers point to high costs and inflexibility while opposers say there are devils in the detail

Coastal shipping submissions illustrate the great divide
SeaRoad sees new reform jeopardising its bank negotiations for new ships.


The Senate inquiry into federal government plans to liberalise coastal shipping (cabotage) has garnered a mixed response from key players, with producer customers broadly in favour of reform while those with significant investments based on Labor’s existing 2012 reform laws raising concerns.

The latter has seen road and maritime intermodal firm SeaRoad and Australian-based shipowner ANL Container Line allied with the big rail freight providers, under the banner of the Freight On Rail Group (FORG), arguing the negative consequences for both rail and road of proposed reform were missing from the Coalition’s Shipping Legislation Amendment Bill 2015 [Provisions] regulatory impact statement (RIS).

FORG’s other main point was that rail would be at an "unreasonable" competitive disadvantage as they would pay their workers less and be exempt from Australia’s workplace relations regulations.  

It argues that coastal shipping in its present form is already becoming cheaper without opening the coast to international shipping.

"Our group estimates that in just the last 12 months, freight rates charged by some coastal shipping operators have been reduced by 35 per cent," its submission, one of 39 so far, says.

"As a consequence, coastal shipping is already beginning to increase its share of the freight market, without any changes to coastal shipping regulation."

SeaRoads’ concern also has two main aspects – the risk to bank support for its two new LNG-powered general cargo ships and the likely negative effects on Bass Strait trade.

"Financing has been secured with the ANZ Banking Group partnering with a German government owned development bank and an Export Credit Agency," SeaRoad managing director and CEO Michael Easy’s submission states.

"Central to these negotiations was the positive understanding that the Australian Government was actively promoting a reinvigoration of Australia's maritime industry by encouraging direct investment.

"The proposed legislation will jeopardise this position and is likely to severely impact our current ship replacement plans. It is crucial to our funding arrangements, Tasmania's future and Australia's credibility on the world stage that the legislation acknowledges that the current regime be preserved on Bass Strait."

He adds that "it is worth noting that the 2012 Shipping Reform legislation did not increase the cost of providing coastal RORO shipping in Bass Strait".

While central to the supporters’ case was the lack of flexibility in the existing law, ANL has that criticism for the proposed reform, saying more consultation is needed.

Given the coastal shipping task has three distinct segments – containers, dry bulk and liquid bulk – each with its "own characteristics and requirement".

Supporting a FORG point, it says its coastal container volumes have risen 33 per cent in three years while average revenue per the 20-foot equivalent unit (TEU) container size measure has fallen 8 per cent.

It insists the wage component is negligible in the context of shipping costs.

"The cost of the additional wages under Part B of the Seagoing Industry Award is less than 4% of the freight rate and is not a significant cost driver in setting the freight rates unlike the cost of the vessel and fuel," its submission says.

ANL and SeaRoad both state that Bass Strait trade reliability will be at risk if the reform goes through as is.

Supporters of the new reform include Australian manufacturing and producing companies already competing with cheaper foreign imports.

For the Cement Industry Federation, it is needed "to reduce the financial and administrative imposts being placed on the Australian manufacturing sector as a direct result of the Coastal Trading (Revitalising Australian Shipping) Act 2012" and to address the lack of competition on coastal routes.

The latter is a wider concern, it says, pointing to coastal shipping being "central to the Australian cement industry supply chain and represents around 15-17 per cent of its total costs.

"This is consistent with other domestic manufacturing industries that are highly dependent on Australian coastal shipping, such as producers of iron and steel, alumina and aluminium, integrated clinker and cement, plasterboard, fertiliser, sugar, metal concentrate and refined petroleum products."

Cristal Mining has its own figures to throw against ANL’s.

"Foreign-flagged license holders can operate on the Australian coast at a freight rate of $22.50 per tonne. Since July 2012, general license holders having been charging freight rates up to $35.00 per tonne.

"Also, Cristal is subject to demurrage on each voyage it requires.

"Foreign-flagged license holders’ demurrage rates are $10,000 per day, whereas the general license holders demurrage rates are $28,000 per day.

"This disparity between the freight and demurrage rates has caused considerable financial difficulty for Cristal and other industry users dependent upon the carriage of product on the Australian coast."

It raises compliance cost issues and the lack of planning certainty flowing from the existing temporary licence scheme.

Cristal also tackles a main plank of the opposers’ case – maritime skills.

"The last 30 years of reviews demonstrate the objective of a viable and sustainable Australian-flagged coastal shipping fleet is receding ever further into the distance," its submission states.

"That objective although nationally reassuring, should not be placed ahead of the economic viability of many other Australian businesses that depend on reasonable cost coastal shipping options.

"The jobs of a very small number in the maritime sector cannot artificially be made more valuable than those of thousands in transnational value-adding industries."

Straddling the two is Rio Tinto, which uses owned and chartered bulk ships for domestic transport.

A conditional backer of more reform, it would welcome a more-flexible and less-bureaucratic cabotage regime but would like more detail.

The full list of submissions can be found here.

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