Overview
2.1
Australia has the fifth largest shipping task in the world due to its exportation of significant raw commodities; reliance on imports arriving by sea; and long coast line, with diverse populations and industries. Further, it has a major offshore oil and gas sector; the world's fastest growing cruise industry; responsibility for parts of the Antarctic region; material defence and border protection activities; and very active ports.
2.2
Over 99 per cent of Australia's imports and exports, by volume, and over 79 per cent, by value, are dependent on shipping. Preliminary data provided by the Bureau of Infrastructure and Transport Research Economics (BITRE) indicated that, in 2016–17, 5879 uniquely identified cargo ships made a total of 32 801 port calls at Australian ports, including 5743 cargo ships making 17 068 voyages to Australian waters from overseas ports.
2.3
The broader Australian maritime industry consists of a range of sectors, including coastal shipping; offshore oil and gas exploration and extraction; towage and port operations; ferries and tourism; and fishing and aquaculture. PwC estimated that, in 2012–13, the Australian maritime industry directly contributed $9 billion to gross domestic product (GDP); employed 31 000 people; and contributed over $900 million in taxation revenue. Further, the industry also indirectly contributed to the economy by employing an additional 13 927 people, and adding a further $11.8 billion to GDP and $387 million to taxation revenue.
Coastal shipping
2.4
In Australia, coastal trading refers to the movement of freight and passengers by ship between ports (and typically between states) around the Australian coast. This is often referred to as 'cabotage'. The movement of freight, or passengers on a round trip, i.e. commencing and concluding at the same port, is not, however, considered coastal trading.
2.5
Approximately 15 per cent of Australia's total domestic freight task is carried by coastal shipping. This substantial domestic freight task is delivered by a number of vessels, such as dry bulk carriers; liquid-bulk carriers; container ships; general cargo ships; and roll on-roll off vessels commonly operating under charter services or liner services.
2.6
The Department of Infrastructure, Regional Development and Cities (the Department) notes that coastal shipping's share of Australia's domestic freight task has declined from 25 per cent to 15 per between 2004–05 and 2014–15, and that coastal shipping is expected to only grow by 15 per cent between 2010 and 2030, during a time when Australia's domestic freight task is projected to grow by 80 per cent. This is despite domestic shipping being well suited to moving large volumes of low-urgency products as, over longer distances, it can do this at lower economic and environmental costs than road and rail.
2.7
Although 15 per cent of Australia's total domestic freight task being carried by coastal shipping, Australia has a small number of Australian owned or operated vessels within the maritime industry. Hence, commercial domestic shipping is primarily undertaken by foreign‑flagged ships operating with temporary licenses issued under the Coastal Trading (Revitalising Australian Shipping) Act 2012 (CT Act), with only a small number of Australian vessels participating in this trade.
2.8
In 2016–17, 35.2 million tonnes of cargo was carried under coastal trading licenses. By volume, 67.6 per cent of this trade was carried under temporary licences; 28.1 per cent under general licences; and 4.3 per cent under transitional general licences (i.e. foreign-flagged vessels utilising Australian crews).
2.9
In 2019, the Australian-flagged fleet consisted of 52 vessels holding general licenses under the CT Act, with only sixteen of these vessels in the Australian major trading fleet, which includes vessels over 2000 Dead Weight Tonnes (DWT). In its submission to the inquiry, the Department noted that this fleet has declined from 30 in 2006–07. The remaining 36 smaller vessels consisted of a mixture of barges; landing craft; catamarans; and passenger vessels, ranging from 40 DWT to 1909 DWT.
2.10
PwC attributes this to a lack of effective fiscal benefits available for owners and operators of Australian vessels. PwC also notes that a significant number of other countries have implemented policies to encourage the growth of their shipping fleets and that these policies have delivered significant fiscal and economic benefits for their domestic economies.
Australia's coastal shipping framework
2.11
Coastal shipping in Australia is currently regulated under the CT Act which commenced on 1 July 2012. The CT Act is administered by the Department, which grants licenses, on behalf of the minister, authorising vessels to carry cargo and passengers between ports within Australia.
2.12
The new legislation replaced the previous permit system, under the Navigation Act 1912, with a three-tiered licence system, giving Australian-flagged ships unlimited access to the coastal trade, while also permitting foreign‑flagged ships to operate under a temporary licence for up to 12 months. The object of these changes were to provide a regulatory framework for coastal trading in Australia which:
promotes a viable shipping industry that contributes to the broader Australian economy;
facilitates the long term growth of the Australian shipping industry;
enhances the efficiency and reliability of Australian shipping as part of the national transport system;
maximises the use of vessels registered in the Australian General Shipping Register (AGSR) in coastal trading;
promotes competition in coastal trading; and
ensures efficient movement of passengers and cargo between Australian ports.
Coastal trading licences
2.13
As part of the CT Act, all domestic maritime movements of cargo, or passengers on interstate voyages, must be authorised by one of three types of licence: general licences, temporary licences, and emergency licences. This tiered licensing system aims to promote the use of Australian ships by allowing them both unrestricted access to coastal trade and the opportunity to compete for voyages intended to be conducted by foreign ships.
General licences
2.14
General licenses are available to Australian‑flagged vessels listed on the AGSR. These licences provide unrestricted access to engage in coastal trading in Australian waters for a period of five years. Each seafarer working on a general licence vessel must be an Australian citizen, permanent resident, or hold a visa with appropriate work rights.
Temporary licences
2.15
Foreign-registered vessels and those registered in the Australian International Shipping Register (AISR) require a temporary licence to engage in coastal trading in Australian waters. A temporary licence covers a period of 12 months and, unlike a general licence, which enables a vessel to have unrestricted access to coastal trading, is restricted to the matters authorised in the licence.
2.16
Further, an application for a temporary licence must be for a minimum of five voyages. If a temporary licence holder wishes to vary the details of approved voyages beyond legislated tolerance limits, an additional application must be submitted. Similarly, if additional voyages are to be added, a separate application must also be submitted.
2.17
Information about each application for a temporary licence is provided to all general licence holders, who are permitted to provide a 'notice in response' indicating that they are able to undertake any, or all, of the voyages on a temporary licence application. A 'notice in response' triggers a mandatory consultation process between the shipper and the general licence holder which may be arbitrated by the Department. Third parties who would be directly affected if an application were granted may also give the responsible minister written comments on a temporary licence application.
Emergency licenses
2.18
Emergency licenses may be granted, for a period of no more than 30 days, to a shipper; or to the owner, charterer, master or agent of a vessel, to respond to significant national emergencies. This licence allows an applicant to respond to significant national emergencies, such as cyclones, earthquakes, floods, thunderstorms, tsunamis and wildfires (which endanger, or threaten to endanger life, property or the environment, and which require a significant and coordinated response).
Regulation of cruise shipping in Australia
2.19
Australia's cruise market is dominated by large international companies, such as Carnival Cruise Line, Royal Caribbean, and P&O Cruises. Prior to the COVID‑19 pandemic, the industry in Australia had been growing strongly with, for example, passenger numbers increasing by 21 per cent in 2016 compared with the preceding year. This resulted in over 1.34 million passengers undertaking cruises during that year.
2.20
According to the Department, most Australian cruise vessels do not hold a general licence under the CT Act as they typically undertake round-trips to and from the same port and, hence, are not considered coastal trading. For example, this includes trips around Sydney harbour and from Cairns to the Great Barrier Reef.
2.21
For the majority of international cruise vessels, the minister has provided an exemption, under section 11 of the CT Act, from the requirements of the CT Act. The most recent exemption came into force on 1 January 2019 and exempts vessels which are:
in-excess of 5000 gross tonnes;
capable of a speed of 15 knots;
capable of carrying at least 100 passengers; and
utilised wholly or primarily for the carriage of passengers between any ports in the Commonwealth or in the territories, except between Victoria and Tasmania.
Regulations in other jurisdictions around the world
2.22
Maritime cabotage regimes vary significantly around the world. Some jurisdictions have 'open coastlines' with unrestricted access to coastal trading, whereas others have 'closed coastlines' where foreign companies are banned from engaging in this trade. Of the 140 countries around the world with a coastline, 91 have cabotage laws restricting foreign vessels and foreign crews from entering the coastal trade. These laws exist in every region of the world, and across jurisdictions with substantially different political, economic, and legal systems.
2.23
Research undertaken by Seafarers’ Rights International indicated that cabotage laws have endured for centuries, and that their early rudimentary principles date back to 1381 and the reign of King Richard II of England. This research also investigated the policy objectives and motivations of cabotage regimes around the world, and found that they are usually in place to:
promote fair competition;
retain skills in the local workforce;
promote the domestic maritime industry;
protect the marine environment;
maintain national security and defence capabilities; and
provide an essential public service.
2.24
Canada has a similar system to Australia in that coastal trading licences are issued to residents requesting permission for foreign-flagged vessels to enter Canadian waters to perform a service or activity, over a specified period of time, where there are no suitable domestic vessels available. Approved vessels are allowed to operate under their flag state’s labour rules while in Canadian waters, with their crews being granted temporary foreign worker permits.
2.25
The United States has a strict regime in place where, under the Merchant Marine Act of 1920 (commonly known as the Jones Act), all domestic cargoes are carried by US-built and registered vessels owned and operated by US citizens. The Secretary‑Treasurer of the Seafarers International Union of North America, Mr Dave Heindel, believes the United States’ regime is the ‘purest cabotage that exists’, describing its requirements as follows:
[T]he Jones Act and related maritime cabotage laws require that waterborne cargo and passengers moving between ports in the United States must be transported on vessels that are owned by US citizens, built by US shipyards and documented under US laws. As a result, such vessels are wholly subject to US laws, including that of requiring employment of US citizen crews.
2.26
In 2005, Indonesia moved to tighten its coastal trading regime after having previously allowed foreign-flagged vessels. Through a number of reforms, maritime cabotage in Indonesia is now solely reserved for domestically‑flagged ships.
2.27
In contrast to the United States and Indonesia, other countries, such as China, South Korea, and Brazil, have moved to relax their cabotage regimes. Further, a small number of countries, such as the United Kingdom, the Netherlands, Denmark, New Zealand, and South Africa, currently have no cabotage restrictions in place at all.
Views on Australia's coastal shipping
2.28
The committee heard a wide range of views on Australia's coastal shipping and its legislative framework. A number of participants were critical of the current state of coastal shipping and the changes introduced in 2012 by the CT Act. Some submitters stated that it had failed to achieve its objective of revitalising Australian shipping, restricted competition, and that it was being exploited by various actors within the industry. Others were concerned with the framework's lack of flexibility around licence approvals, variations, and tolerance levels. These issues, and others, are discussed in more detail below.
2.29
Reflecting on the state of coastal shipping in Australia and its broader importance to Australia's supply chain competitiveness, Dr Hermione Parsons, from the Centre for Supply Chain and Logistics at Deakin University, said in her evidence to the committee:
Unfortunately, in Australia we are severely limited because we don't have coastal shipping. Even though we're an island—the largest island and smallest continent—we are at a disadvantage compared to other countries because we don't have an active and effective coastal shipping opportunity for businesses, and our vast distances mean this is even more significant.
2.30
The Minerals Council of Australia (MCA) focused its critique on the CT Act, stating that it made 'retrograde changes' to competition rules that failed to revitalise the domestic shipping fleet as intended, and also made the remaining Australian vessels more expensive than their international counterparts. It also notes that the participation of foreign ships has been a longstanding feature of Australia's coastal shipping trade and believes that their participation is essential to the efficient and timely movement of freight.
2.31
The Maritime Union of Australia (MUA) also believes the CT Act is flawed and has been exploited by a number of industry participants, resulting in a 'downward spiral' in the number of Australian‑owned and operated ships and the level of seafarer employment.
2.32
The Australian Institute of Marine and Power Engineers (AIMPE) pointed to the more than 14 000 temporary licences the Department has issued since 2012, and argued that when these licences are issued, it effectively transfers economic activity from an Australian operator, employing Australian seafarers, to a foreign operator, employing foreign seafarers. AIMPE argued that, because foreign operators do not pay the same level of corporate taxes, and seafarers employed by these operators do not pay the same level of income tax, they have a much lower cost structure. Therefore, the current system is ‘stacked against the Australian maritime industry’.
2.33
The Australian Institute of Petroleum (AIP) notes that its members are commonly constrained by approval times and tolerance levels for cargo size and departure dates under the temporary licencing system of the CT Act. The AIP states that this impacts on its members' ability to effectively respond to supply disruptions by securing larger cargo sizes; bringing forward or delaying loading; and rescheduling cargo to alternative ports.
2.34
In its submission to the inquiry, Shipping Australia Limited (SAL) claims that the CT Act, through its policy intent and creation of additional red tape, has had a detrimental effect on the movement of domestic cargo by ships. It states that:
This regime has proven to be inefficient and burdensome on shippers and the shipping industry, restricting access to the Australian market and resulting in the limitation of access of local businesses to efficient and cost‑effective shipping services.
2.35
The South Australian Freight Council (SAFC) advocates for the streamlining of licence approvals, variation processes, and tolerances. It also notes that international vessels transiting around Australia with spare capacity could, with the right legislative framework in place, be marginally priced to deliver a lowest‑cost transportation option.
2.36
The Australian Competition and Consumer Commission (ACCC) highlights that Australia’s coastal shipping regulatory regime continues to impede foreign shipping lines from effectively competing with Australian vessels for domestic trade, and has deterred international lines from carrying domestic cargo despite the obvious efficiencies that may result. It submits that:
… easing the regulatory burden on foreign-flagged ships in conducting coastal trades could induce market entry by international shipping lines. This market entry is likely to result in greater competition and lower shipping costs, with flow-on effects of lower prices for manufacturing inputs and consumer goods. This can have significant benefits for the wider Australian economy, even if the vessels are international-flagged rather than Australian-flagged shipping.
2.37
The MCA noted that Productivity Commission estimates indicate that the Australian economy would benefit by between $19 million and $36 million per year from the removal of restrictions on coastal shipping.
2.38
In contrast to the above, CSL Australia states that the decline in the number of Australian‑flagged and crewed vessels since 2012 has little to do with the CT Act. It believes that the decline is primarily a result of 'timing and circumstance', and states that any legislative framework would have likely struggled in a low international shipping charter market with a high exchange rate, coupled with an aged Australian fleet and high replacement costs. It concludes that these 'macro environmental factors, together with the high operating cost base of Australian vessels assisted in the dramatic decline of Australian vessels, particularly in the dry bulk fleet'.
International shipping
2.39
Australia's international maritime trade is dominated by the export of bulk mining and agricultural products, and is among the top five international exporters of bauxite, alumina, iron ore, coal, and liquefied natural gas. In 2015–16, Australia's seagoing international imports and exports had a combined value of over $400 billion, and there were 30 056 arrivals by 5540 international ships to Australian ports.
International trade routes and cargo shipping
2.40
Although not impacting access to bulk shipping services, the east-west flow of global trade patterns affects the availability of container shipping services to, and from, Australia. As mentioned in chapter 1, this impacts the domestic economy in two key ways:
a lower frequency of liner shipping services, resulting in challenges accessing frequent and reliable container shipping; and
a larger amount of Australian container imports and exports transiting through transhipment hubs, such as Singapore, potentially resulting in delays and additional costs.
2.41
Due to this low frequency of liner shipping services, Part X of the Competition and Consumer Act 2010 (CC Act) operates with the intent of ensuring operators have continued access to frequent and reliable liner cargo shipping services at internationally competitive freight rates. It establishes a regulatory system for international liner cargo shipping services regarding the registration of conference agreements.
2.42
The parties to a conference agreement are required to negotiate with registered representative shipper bodies and, if the conference agreement is registered, are given partial and conditional exemptions from cartel conduct, contracts that restrict dealings or affect competition, and exclusive dealings.
Australian International Shipping Register
2.43
In 2012 the Shipping Registration Act 1981 (Shipping Registration Act) was amended to incorporate provisions which created the AISR. The AISR provides an alternative registration option for ships that are predominantly engaged in international trading, and hoped to address the cost disadvantage experienced by Australian companies operating in the global shipping market, while also maintaining high safety and environmental standards.
2.44
The Australian Shipping Registration Office within the Australian Maritime Safety Authority (AMSA) is responsible for the registration of Australian ships on the register. Reflecting the policy intent to build Australia’s domestic maritime skills base by providing opportunities for Australians to gain the necessary international seafaring experience, at least two senior positions, i.e. engineering and deck officers, are to be filled by Australians. And to increase the AISR's competitiveness, international labour terms and conditions apply to seafarers working on registered ships engaged in international trading.
2.45
A number of other maritime countries also have international registers for domestic ship owners. These registers offer some of the benefits of open registers, such as the ability to utilise crews of different nationalities, while maintaining the link between the ownership/management of the vessel and the national flag. A noted benefit of this approach is that it allows maritime safety regulators to maintain control over safety and environmental standards, as well as enforcement and compliance activities.
Views on international shipping
Part X of the Competition and Consumer Act
2.46
A number of inquiry participants were critical of Part X of the CC Act. For example, the ACCC itself recommended that it be repealed, and that exemptions for agreements between shipping lines be subject to the same process as other industry sectors through Part VII of the CC Act. It notes that such a reform would be consistent with recommendations made by the 2015 Competition Policy Review.
2.47
The Freight and Trade Alliance and Australian Peak Shippers Association (Joint Submitters), in their joint submission to the inquiry, highlighted the ineffectiveness of Part X of the CC Act and suggested that it does not provide Australian shippers with the level of intended protection. It also noted that, due to the consolidation of the liner shipping industry, the need to register under Part X is becoming increasingly unnecessary.
2.48
Reflecting on this consolidation process, Mr Travis Brooks-Garrett from the Australian Peak Shippers Association stated in evidence to the committee that:
[i]n the last three or four years things have changed ... The shipping lines have gone through a period of unprecedented consolidation … I think something like the top seven shipping lines represent 80 per cent of the global capacity.
2.49
Notwithstanding its deficiencies, the Joint Submitters stated that ‘Australia’s major exporters are clear in their view that Part X protections (minimum services levels and minimum notification periods, in particular) are critical to the functioning of our export economy’. Noting that the ACCC has called for the repeal of Part X, they conclude that this should not occur until equivalent or strengthened protections for exporters are put in place:
To repeal the only protections that exist for our exporters, without first having equivalent protections in place, would be foolhardy and dangerous to our national interests.
Australian International Shipping Register
2.50
A number of inquiry participants were critical of the AISR and recommended it be reformed or repealed. For example, CSL Australia noted in its submission to the inquiry that there were zero vessels registered on the AISR, and suggested that this was a result of the benefits of registration not being competitive when compared to the alternatives.
2.51
Maritime Industry Australia Limited (MIAL) believes that the AISR needs reforming to improve its competitiveness against alternatives and to attract registrations. It states that the register could grow if the Shipping Registration Act was reformed to:
broaden the types of vessels and activities that are eligible;
require a minimum Australian crew component, rather than designated roles;
remove references to a single bargaining unit as the exclusive means of determining terms and conditions on board AISR vessels;
implement improvements to the process of obtaining certificates of equivalence; and
implement improvements to the survey requirements for re-flagging in Australia.
2.52
The MUA also noted that not a single ship has been registered on the AISR and called for the relevant provisions in the Shipping Registration Act to be repealed. It suggested a number of reasons explaining this low level of interest in the register, including a lack of promotion; policy certainty; competitiveness when compared to foreign alternatives; investment capital; and entrepreneurial vision.
2.53
A green paper (the Coastal Trading Green Paper) prepared by Ms Teresa Lloyd, in consultation with the broader industry, suggests that the AISR be reformed to provide a platform whereby ships registered on it are competitive with foreign ships in the coastal trade. It proposes that the AISR provisions within the Shipping Registration Act be amended to, amongst other things, remove the time off the coast requirements; broaden the number of eligible vessels; and alter the requirement that designated roles be held by Australians to a more flexible approach whereby a minimum Australian crew component must be met.