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Lachlan Payne[2]
The Independent Review of Australian Shipping (IRAS for short) came about as a result of a passing remark someone made on the phone one day.
This person said that he wondered when the stakes would become high enough for the stakeholders in the Australian shipping industry to tackle head-on the impediments to Australians being able to compete in Australia’s shipping industry.
That struck a chord with me and it occurred to me that the stakes were unlikely to get any higher than they were then. So I rang the key stakeholders and proposed that we convene some kind of forum in which all and any issues – including the most sensitive industrial issues, could be put on the table for consideration.
They agreed that that would be a good idea. The forum would require a moderator and the outcome might include referring matters to government for legislative amendment. I knew that that would require some encouragement on the part of government to introduce certain bills into the House of Representatives and encouragement for the Opposition not to oppose them in the Senate.
So who could be a moderator who would be well connected with both sides of Parliament and who also would understand what the industry was talking about? I quickly realised that two people would be required and that I knew two former Ministers for Transport – one with the Howard Government and one with the Hawke Government – well enough to approach them and gauge their interest in co-chairing the forum.
I contacted The Honourable John Sharp and The Honourable Peter Morris. I met them, explained what I had in mind, they agreed to become involved and away we went.
The brief was very simple. The circumstances of the industry were such that the fleet of vessels operated by Australians was ageing and there was a reluctance to invest in new and replacement tonnage in circumstances where the regulatory and industrial circumstances of the industry were far from certain.
So the brief was to identify and address those issues that need to be identified and addressed to encourage Australian entities to invest in new and replacement tonnage with which to undertake existing and future shipping tasks.
At the outset there was a political mantra which stands across the path of Australians in shipping. That is that Australia is a shipper nation not a shipping nation.
In other words, Australia’s interests are served best by concentrating on exports and the movement of raw materials around Australia and not on the additional question of how Australia might benefit from carrying them.
I am at a loss to understand why the concepts are mutually exclusive. The annual contribution from Australian shipping to net services increased from $161 million in 2000/01 to $180 million in 2001/02.
At the same time, the contribution from foreign shipping to the Australian net services deficit declined by $6 million or 0.2 per cent to $3.1 billion and now constitutes 13.9 per cent of the current account deficit. The impact can be seen in the following table:
Impact of Shipping on Net Services ($ Million)
There is a head-water somewhere where the ‘shipper nation not a shipping nation’ mantra keeps appearing. From the head-water it finds its way into Ministers’ speeches and it becomes self-reinforcing. Someone writes it down for the Minister to say, he says it, and because the Minister says it it must be right so it keeps getting written down again and again.
The mantra is reinforced by reference to the fact that there are fewer Australian-registered ships than there used to be – a lot fewer.
This is taken as evidence of a shrinking Australian shipping industry. What observers do not look at is the fact that Australia is the last place anyone would register a ship and as a result more and more vessels are being transferred by Australian entities into foreign ownership so they can be re-flagged into more competitive environments.
This raises the question of what is meant by Australian shipping.
It is important to appreciate that reference to Australian shipping as meaning Australian-flag shipping can be quite misleading. The reason is that increasingly, Australian entities are moving their ship registration offshore because of the absence of incentive to register a ship in Australia. The table below shows that before long, more Australian-controlled ships will be registered outside Australia than within Australia.
Australian versus Foreign Registration for Australian-controlled Shipping
The shipping industry in Australia is a bit of a moving feast. It is interesting that the term ‘shipping industry’, and more particularly the innocent-looking term ‘Australian shipping’ are understood to mean different things by different people. In fact you will get as many different interpretations as people you ask.
First of all it is worth making the point that shipping is dramatically different to the road and rail industries because the domestic shipping task interfaces directly and sometimes interchangeably with the international shipping task. Secondly, it is important to align what Australian shipping is.
The shipping industry is capable of a very wide definition so let’s look at that first. Shipping can comprehend the whole sea transport chain. The logistics function of control and tracking of freight, its movement, storage, loading, sea carriage, discharge, final delivery and the associated administrative electronic and hard paper work that attaches to all those operations.
Shipping is capable of a narrower definition which is what I am talking about. Shipping can mean the operation of ships in a safe, cost-effective and competitive manner, the employment of people in and in connection with the operation of those ships and the commercial interest of the operators of ships in the cargoes they carry.
Within that definition there are ship-owners, ship operators, ship managers, charterers, manning agents – all more closely aligned with the vessels themselves than those within the wider definition.
Of those functions, some are more Australian than others, but which need to be Australian to give Australian shipping – whatever that is, its Australianness?
Ownership does not need to be Australian and in fact, in the regulatory environment in Australia, almost certainly will not be Australian. It is necessary for a ship not to be owned by an Australian entity in order that it be able to be registered outside Australia. In most cases ships are owned by one sort of finance provider or the other but the beneficial owner should be an Australian entity even if the actual owner is not.
Without beneficial ownership residing in Australia the infrastructure that supports ship operations need not be in Australia and, given the importance and incentive that other nations provide to their shipping industries, ship operation would probably not be in Australia.
Like most highly capital intensive industries, operating a ship is a pretty complex activity. The engineering may not always be rocket science but the scale is huge and the problems posed by the operation of vessels require specialist solutions. For these reasons, ship operation is a specialist activity that requires specialists – mostly former seafarers.
The skills base in ship operations is widely drawn upon and is a key issue in the skills stripping that is occurring in Australia at the moment. This activity should be Australian using Australian skills and expertise.
Control of the ship – in the commercial sense – is not crucial to the industry. Having said that, control of the ship’s activities is more likely to be Australian if the ship is otherwise operated by Australian interests.
Ship management really does need to be in Australian hands. Fortunately we have a number of leading ship management companies in Australia and Australia is ideally placed for an expansion of ship management activity.
The cost of doing business in Australia is low, communications are excellent, English is the predominant language, our time zone is close to that of most of Asia.
The crew of a ship operated by Australians in domestic trades has to be Australian as we’ve already established.
Ship registration is a classic. If you are an Australian entity and you own a ship you must register it in Australia. Yet Australia is one of the last places in the world where you would choose to register a ship.
There are no financial incentives to register in Australia – unlike most if not all other OECD and G8 countries that go out of their way to attract ship registration.
I sometimes think the Tyranny of Distance is alive and well in Australia. The range of commercial concepts that are taken for economic settings is so narrow in Australia that it can only be lack of exposure to wider commercial thought that keeps Australia sidelined in an industry such as shipping. Australia is the fifth largest shipping market in the world which other countries break their necks to exploit.
What does Australia as a flag state do to participate in our own enormous shipping market? Nothing. Are Australians encouraged to provide safe and cost-effective sea transport logistics solutions in our own domestic markets? No.
Which brings me to my last point.
I want to describe the conundrum facing both the shipping industry and government about what passes in this country for shipping policy.
The dilemma Australian ship operators face in domestic trades is this:
The administration of the domestic sea transport industry in Australia makes it possible for foreign vessels with foreign crews to compete with Australian vessels with Australian crews at a very substantial cost advantage. Under the applicable legislation, Australian operators whose ships operate in dedicated coastal routes cannot take advantage of the cost-reduction opportunities available to their foreign competitors under Australian law.
There are two ways ships operate in domestic trades. First they can operate under a licence under the Navigation Act 1912. In this case a ship is said to be ‘engaging in the coasting trade’.
A ship with a licence will have been imported under the Customs Act 1901. That means it cannot employ foreign labour at foreign rates of pay. The Special Purpose Visas taken to be held by foreign crews of foreign ships under the Migration Act 1958 are not available once a ship is imported.
Once a ship is ‘engaging in the coasting trade’ it becomes subject to the Seafarers’ Rehabilitation and Compensation Act 1992 and the Occupational Health and Safety (Maritime Industry) Act 1993 both of which impose costs on Australian employers that are not imposed on employers of foreign crews.
The effect of the legislation is to require Australian operators to employ Australian crews which brings them under the terms of the Workplace Relations Act 1996 which applies Australian terms and conditions of employment.
A foreign ship can obtain a permit under the Navigation Act. In this case the vessel is said to be ‘operating in the coastal trade’ and the foreign crewmembers of the vessel are taken to hold a Special Purpose Visa for up to three months provided that the vessel leaves Australia at least once in the three month period.
The foreign vessel is not imported because it has a permit and Customs regard vessels holding permits as not being subject to importation. That being the case the vessel is not deemed to be an Australian ship for the purposes of the Navigation Act and, the Australian seafarers’ compensation and occupational health and safety legislation does not apply.
Similarly, the crew is not subject to Australian terms and conditions of employment.
This differential treatment of ships operating in the Australian interstate and intrastate transport industry puts Australian operators at a cost disadvantage in some cases reckoned to be about $2 million a year.
I find it hard to effectively convey the gravity of this flagrantly anti-competitive set of circumstances.
In conclusion, it is worth making the point that many say that lots of Australian industries have to compete with cheap imports but there are two things which differentiate shipping from that proposition:
First, Australian law does not allow foreign manufacturers to establish themselves in Australia, using foreign labour at foreign rates of pay and selling their goods produced in the Australian market directly into the domestic market.
Secondly, in the case of manufacturers there is no legislative framework that we know of that actually and demonstrably operates to disadvantage Australians whilst facilitating and advantaging foreign interests using foreign labour in the Australian domestic workplace.
It is these and a number of other specific matters that IRAS has been addressing.
It is not at all clear to the Australian shipping industry why there is an attitude from Government that seems reluctant to address issues that have been raised by the industry and acknowledged by the Minister over a lengthening period of time.
I hope I have illustrated why the shipping industry in Australia has sought to take matters into its own hands. The industry will continue to leave the country and that is a pity because Australia should, at least in my view, be capable of being both a shipper nation and a shipping nation.
[1] Paper delivered at Chartered Institute of Logistics and Transport Annual General Meeting, Canberra, 23 July 2003.
[2] Chief Executive, Australian Shipowners Association.
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URL: http://www.austlii.edu.au/au/journals/MarStudies/2003/10.html