The Minerals Council of Australia (MCA) welcomes the opportunity to provide a submission on the Government’s discussion paper on coastal shipping reforms. As the largest user of coastal shipping services, the Australian minerals industry has a strong interest in competitive and cost-effective coastal shipping. Bulk commodities account for 80 per cent of Australia’s coastal shipping trade by tonnage, with bauxite and other aluminium ores and concentrates comprising 34.2 per cent, and iron ore and concentrates 7.5 per cent.
The participation of foreign ships is a longstanding feature of Australia’s coastal shipping trade and is essential to the efficient and timely movement of freight. However, the Coastal Trading (Revitalising Australian Shipping) Act 2012 made retrograde changes to competition rules by replacing single and continuous voyage permits with a tiered licensing system that discriminates against foreign ships. While Australian-flagged ships enjoy unrestricted access to coastal trade under a five-year general license, foreign-flagged vessels only have access to a 12-month temporary license or, in exceptional circumstances, a 30-day emergency license. In addition, the Act gives Australian ships the power to contest voyages proposed by foreign ships.
The experience of the Australian mining industry is that the Coastal Trading Act has increased domestic transport and administration costs and made it more difficult to source coastal shipping services when they are needed. In particular:
- For some dry bulk commodity producers, the cost of shipping final product around Australia is now about the same as shipping from overseas to Australia
- Bell Bay Aluminium reported a 63 per cent increase in shipping freight rates from Tasmania to Queensland in just the first year of the 2012 regime – from $18.20 a tonne in 2011 to $29.70 a tonne in 2012
- Another company saw freight charges increase by over $3,000 a day up and down the east coast of Australia.
The MCA broadly supports seven amendments to the Coastal Trading Act that are proposed in the discussion paper, but submits that two other amendments – which propose expanding the definition of coastal trading – might have unintended consequences and therefore require further consideration. In addition, while the first six and ninth amendments would ameliorate the inflexibility and burdens of the Act, consideration should also be given to removing the restrictions that protect Australian-flagged ships from competition by foreign-flagged vessels.
Whereas the previous licensing regime allowed both Australian and foreign-flagged ships to engage in coastal trade, the current regime imposes more onerous regulatory obligations on foreign-flagged vessels. Yet even though these differential requirements ensure that Australian vessels receive preferential treatment in coastal trading, they are failing to revitalise the Australian shipping industry. Rather, as the Productivity Commission has argued, the net effect of these protectionist measures is to reduce competition in coastal shipping services and to reduce incentives for domestic suppliers to improve. Consequently, industry users are switching to alternative modes of transport, thereby contributing to a further decline in demand for Australian shipping services.
The contestability provision exemplifies how the Coastal Trading Act diminishes productivity and increases uncertainty. A majority decision of the Full Court of the Federal Court of Australia clarified that commercial matters – such as freight rates, contractual terms or the economic position of the shipper – are discretionary rather than mandatory factors for the minister to consider when assessing a temporary license application. While commercial matters cannot be excluded from consideration, the minister (or his or her delegate) cannot give them a weighting that is inconsistent with the primary protectionist objective of the Coastal Trading Act.
The previous government sought to solve this problem by redefining the objectives of the Act as fostering a competitive coastal shipping services industry that supports the Australian economy, and maximising the use of available shipping capacity on the Australian coast. The previous government also sought to afford Australian and foreign ships equal access rights to carry coastal goods or passengers. Both of these reforms would have improved the efficiency of the Coastal Trading Act and should be reconsidered.
Unless the overriding anti-competitive objective (and discriminatory regulatory regime) of the Coastal Trading Act is addressed, coastal shipping will continue to decline as a share of the national freight task – despite growing volumes. In 2015, the then Deputy Prime Minister warned that:
Between 2000 and 2012, while the volume of freight across Australia actually grew by 57 per cent, shipping’s share of the Australian freight task fell from about 27 per cent to just under 17 per cent. Between 2010 and 2030, Australia’s overall freight task is expected to grow by 80 per cent, but coastal shipping is only forecast to increase by 15 per cent.
The fleet of major licensed Australian ships has been declining for decades, falling from 30 to 15 between 2006-07 and 2013-14. Since the Coastal Trading Act was introduced, the carrying capacity of the Australian coastal fleet has decreased by 63 per cent. In addition, Australia’s coastal fleet is older and more costly to operate by international standards, attracting higher insurance premiums.
The deadweight loss of the existing regulatory regime to the national economy is expected to be between $242 and $466 million to 2025. The Productivity Commission has argued that Tasmania is disproportionately harmed, because it depends on coastal shipping for 99 per cent of freight moved in and out of the state, and because it has smaller freight volumes and more marginal ports. The Productivity Commission also points out that ‘cabotage restrictions protect some jobs at the expense of growth in other industries’.
The high opportunity cost of the Coastal Trading Act – and its failure to stimulate domestic shipping – puts paid to any claim that liberalising coastal trade would result in a net loss of jobs. Some opponents of liberalisation have asserted that it would induce the loss of 1,000 jobs in the Australian shipping industry. Yet there are hundreds of thousands of jobs in other industries – including minerals extraction and processing, petroleum, cement, steel and agriculture – that rely on the efficient transportation of freight by sea. Rio Tinto alone employs 6,000 workers in bauxite mines, alumina refineries and aluminium smelters across Australia.
A number of respected and independent bodies have urged the federal government to liberalise Australia’s coastal trade, including the Productivity Commission, the Australian Competition and Consumer Commission, the Competition Policy Review Panel and the Commission of Audit. In its final report on the regulation of agriculture, the Productivity Commission recommended that:
As a matter of priority, the Australian Government should amend coastal shipping laws to substantially reduce barriers to entry for foreign vessels, to improve competition in coastal shipping services.
The MCA submits that the government should continue to prosecute the sensible and pragmatic national interest reforms that were advanced in the Shipping Legislation Amendment Bill 2015; namely, replacing the current tiered licensing system with a single coastal trading permit and requiring foreign ships operating predominantly in Australia to adhere to domestic workplace relations arrangements.
The regulatory impact statement on the Shipping Legislation Amendment Bill 2015 estimated that a controlled deregulation of coastal shipping would deliver a net benefit of $786.2 million to the Australian economy and an annual deregulatory saving to business of $27.9 million. On the other hand, retaining or increasing restrictions on the participation of foreign ships would entrench domestic shipping industry assistance at the expense of the wider Australian community.