The economic impact on 'downstream' industries
A number of submitters expressed concern that implementation of the
coastal trading bills would have a negative economic impact on industries that
are reliant on coastal trading. These arguments consisted of two key elements:
- the temporary licence regime will excessively restrict foreign
vessels from accessing the coastline and reduce competition in the freight
- the policy intention for shippers to increase reliance on general
licence vessels will increase freight rates due to the higher seafarer rates
paid on these vessels.
This chapter will examine the broader arguments presented to the
committee on the economic impact on industries that are reliant on coastal
trading. In particular, it will examine arguments pertaining to:
- the objects of the bill;
the policy intention to encourage the use of general licence (GL)
- wages and entitlements of seafarers.
A detailed examination of the regulatory elements of the reform will be
discussed further in chapters four and five, particularly submitters' concerns
about the operation of the temporary licences (TLs).
The majority of submitters' views discussed in this and proceeding
chapters relate to the Coastal Trading (Revitalising Australian Shipping) Bill
2012 (CT bill). As such, references to 'the coastal trading bill' or 'CT bill'
will refer to this bill.
The Australian Dry Bulk Shipping Users provided a broad overview of the
current scale of coastal trade in Australia:
It is really important to understand the size and the scale
of this market that we are talking about when we are talking about coastal
trade. The current market supports 17 Australian vessels that move Australian
product around the coast. This is around 70 per cent of the total coastal
trading market. So you can see it is quite small. Foreign vessels account for a
further 30 per cent of the market, which I assume would be approximately eight
shipping vessel equivalents. So we are not talking about a massive market here.
It is not the 27,000 international voyages moving product in and out of
Australia. It is a tiny slither of the market of which we are highly dependent
The Maritime Union of Australia offered the following explanation on the
decline in coastal shipping:
Fifteen years ago, when permits were starting to be abused,
we were servicing 95 per cent of our cargo. But then it went to 90, 85 and 80,
and now it is 70. What is going to happen if we do not get a curve in that
policy and start redirecting back into Australia as a shipping nation and start
securing the industry and making fiscal decisions both domestically and
internationally is that that 70 per cent will disappear and we will be a
country that is completely beholden to an industry that is not Australian.
Those percentages are mainly declining because of policy negligence or policy
oversight. We believe this suite of legislation addresses that.
The object of the coastal trading bills
A number of submitters recommended that clause 3 of the CT bill (Object
of Act) should be amended to specifically acknowledge the need to foster the viability
of industries reliant on sea freight.
The Business Council of Australia argued that:
...a key objective of any legislative reform of Australia’s
shipping industry should be to increase the competitiveness of the coastal
shipping market and ensuring globally competitive costs of transporting
Australian goods by ship. We have recommended that this objective be made
explicit in any legislative reforms being considered.
CSR Limited, Sucrogen Australia and Sugar Australia argued:
The shipping industry is a service industry to the Australian
economy. In the past 30 years the importance of the integrated supply chain has
become well understood as part of an internationally competitive environment.
Dissecting coastal shipping from the supply chain is likely to lead to a less
competitive supply chain for Australian manufacturing or processing industries.
It is imperative that...all the ramifications of the Minister’s decisions on
the supply chain are considered and that this is reflected in the Objects of
Therefore the Objects should include a clause which reflects
the role that the coastal trading framework has in promoting an efficient and
effective and competitive supply chain for Australia’s internationally trade
exposed industries. The welfare of the coastal shipping industry should not be
at the expense of the industries it is there to serve.
Minerals industry suppliers and customers are responsible for up to half
of the bulk cargo (other than containers or break bulk) moved around Australia.
The Minerals Council of Australia commented:
Our priority, which is lacking in the Object and provisions
of the Bills, is a legislative framework that supports the interest of the
consumers of shipping services: flexibility and internationally competitive
Caltex raised similar concerns to other submitters about the object of
the CT bill. It argued that the reforms omit consideration of industries reliant
on shipping, and in doing so conflict with one of the objects of the CT bill,
paragraph 3(1)(c), to enhance 'the efficiency and reliability of Australian
shipping as part of the national transport system'. Caltex argued that:
...the objects of the Bill, and reform package as a whole,
should include improving the competitiveness of Australian industry in general
and through an internationally competitive coastal shipping industry.
The reform package should consider the competitiveness of
industry reliant on shipping by providing internationally competitive
incentives to invest in the shipping industry thereby developing a market in
which there is an economic incentive for shippers to use Australian flag
vessels. If the Government wishes to intervene in the shipping market, the
costs should be explicit through concessions to Australian flag vessels rather
than hidden through regulatory burdens on other Australian industries.
The Department of Infrastructure and Transport (the department) argued
that the objects of the CT bill does consider the broader Australian economy:
The object of the Bill as set out in clause 3 reflects the
Government's policy intent and the Department believes addresses the increase
in competitiveness and provision of efficient and cost effective freight
solutions. In particular, item (a) in the object identifies the importance of
shipping being able to contribute positively to the broader Australian economy.
The industry will not be able to make a positive economic contribution if it is
It should be noted that the object clause was developed in
close consultation with the shipping industry – both ship owners/operators and
Amendments in House of
The object of the Coastal Trading (Revitalising Australian Shipping)
Bill 2012 set out in subclause 3(1) originally stated:
The object of this Act is to provide a regulatory framework
for coastal trading in Australia that:
(a) promotes a viable shipping industry that contributes to
the broader Australian economy; and
(b) facilitates the long term growth of the Australian
shipping industry; and
(c) enhances the efficiency and reliability of Australian
shipping as part of the national transport system; and
(d) maximises the use of vessels registered in the Australian
General Shipping Register in coastal trading.
The object clause of the bill has since been amended with government
members of the House of Representatives agreeing to the following coalition
(1) Clause 3, page 2 (line
11), at the end of subclause 3(1), add:
; and (e) promotes competition in coastal trading; and
(f) ensures efficient movement of passengers and cargo
between Australian ports.
Encouraging the use of general licence vessels
As discussed in chapter 1, there has been a decline in Australian
registered ships. The Explanatory Memorandum (EM) outlined that this decline is
due to the failure of Australian shipping policy to compete with international
competitors and 'the regulatory and competitive settings faced by the domestic
A number of tax incentives have been included within the reform package
to counteract the decline in Australian-flagged vessels. In addition,
regulatory measures have been included in the reforms to ensure that it
'maximises the use of vessels registered in the Australian General Shipping
Due to a strong reliance on marine skills and experience, Ports
Australia is supportive of the proposed measures to develop Australia's flag
fleet. It highlighted that coastal shipping should be encouraged as a viable
modal choice and that 'coastal shipping has historically performed about 25 per
cent of the total domestic freight task'. It noted therefore, that 'any falling
away of this performance could be expected to significantly impact on landside
infrastructure, logistics and operations and come at a considerable cost to the
It argued, however, that developing Australia's flag fleet should be
seen as quite distinct from strengthening the domestic sea freight task:
The objective of strengthening the role of coastal shipping
is sometimes perceived as the same as strengthening the role of dedicated
national flag shipping in the coastal task. They are distinctly separate
...measures that will unnecessarily restrict the presence of
other flags in our coastal trades run the risk of deterring interest from
foreign flagged operators shipping freight on the coast where they currently
address a significant proportion of the total domestic freight task, while at
the same time stimulating little or no Australian flagged presence. What it is
imperative to avoid, in our view, is a net effect where the role of coastal
shipping in the total domestic freight task diminishes and Australia is left with
what amounts to a double policy failure of considerable significance and
The Deloitte report on the economic
impacts of the reform
Shippers of dry bulk commodities have argued that they will be adversely
affected by the proposed coastal trading bill on the premise that the use of TL
vessels will be phased out entirely over a five year period.
A number of these organisations formed an informal group, the Australian
Dry Bulk Shipping Users (ADBSU), to represent 'industries that are highly dependent
on coastal shipping to move dry bulk products'. ADBSU commissioned a report by
Deloitte Access Economics (Deloitte) on the Economic impacts of the proposed
Shipping Reform Package.
The key findings of the report was that under the reforms:
there will be an increase in the cost of coastal shipping, and by
extension freight rates of up to 16 per cent;
- these costs are likely to be borne by the users of coastal sea
- the aggregate impact on Gross Domestic Product (GDP) over the
period to 2025 will be between -$242 million and -$466 million; and
- an associated loss of employment of up to 200 full time
While the Deloitte report explored the impacts on the wider dry bulk
commodities, it focused particularly on the dry bulk shipping groups that
relied heavily on Single Voyage Permit (SVP) and Continuous Voyage Permit (CVP)
vessels under the current regime including dry bulk companies that ship soda
ash, retort coke, gypsum, fertiliser, cement, clinker and raw sugar.
The Deloitte report specified that the large majority of Australia's
shipping task, the producers of bauxite, alumina, iron ore, steel products and
liquid bulks, 'are far less reliant on vessels operating under temporary licences'
and as such are not the focus of the Deloitte analysis.
The modelling in the Deloitte analysis assumed that TL vessels' coastal access
would be 'severely' limited:
It is suggested that there is an intention of government to
severely limit access to the Temporary Licences under the new arrangements. If
this were to occur, this would reverse the situation that has occurred over the
last 15 years where the granting of SVPs and CVP[s] has been accepted as a
necessity to ensure dry bulk cargoes are shipped domestically at competitive
The department argued the Deloitte report had demonstrated a
'misunderstanding' that the bills were intended to limit coastal access for
foreign-flagged, TL vessels:
The report asserts that it is the intention of the Government
to "severely limit" access to the TL under the new arrangements,
potentially removing access altogether.
This is incorrect. The Government is not "closing the
coast". Foreign flagged vessels will continue to have a role in coastal
shipping. It is understood that Deloitte based its modelling on the assumption
that TLs would not be issued after five years.
The Deloitte report seems to indicate this and noted in its discussion
on modelling for its economy-wide impacts that:
...it should be noted that these estimates relate solely to
the impact of the proposed new licensing regime. While the taxation incentives
may influence the rate of uptake of vessel registration under the Australian
flag, the assumption here is that temporary permits are progressively
restricted over the period to 2015 – consistent with the path adopted in the
Regulation Impact Statement.
The ADBSU asserted that the '[Deloitte] report makes the assumptions
used very clear. They are very similar to the Scenario D assumptions outlined
in the Government’s Regulation Impact Statement [RIS]'.
The RIS based its impact analysis on four assumptions in relation to TLs that:
- Scenario A: there is no replacement of foreign TL ships with
- Scenario B: Australian ships gain an additional 10 per cent of
total freight tonnage from foreign TL ships after five years.
- Scenario C: As for scenario B but Australian ships gain 20 per
cent of the total freight tonnage in the 'other dry bulk', petroleum products
and 'other liquid bulk' sectors.
- Scenario D: Use of foreign ships in the 'other dry bulk',
petroleum products and 'other liquid bulk' sectors is phased out altogether
over the first five years.
It was outlined in the RIS that the government does have an intention to
'encourage replacement of foreign ships with Australian ships so some
substitution can be expected'. It therefore deemed scenarios B and C to be most
realistic and scenarios A and D as 'sensitivity tests of more extreme
The department summarised the findings in the RIS that the 'combined net
present value of the economic cost of the package under scenarios B and C to be
a gain of between $40 million and $150 million.
Transitional general licences
As discussed in chapter 2, TLs are given restricted access to coastal
trading and are limited to a 12 month period. In contrast, GLs are issued for
up to a five year period and are given unrestricted access to coastal trading.
A Transitional General Licence (TGL) must adhere to the same conditions
imposed on GL vessels, as specified in clause 21 of the CT bill, including that
seafarers working on the vessel are Australian citizens or hold permanent or
temporary visas with the appropriate working rights. As per GLs, TGLs pay Seagoing
Industry Award (SIA) Part A rates and the period of a TGL is determined by the
Minister with a limit of five years.
A TGL vessel must hold a licence under the current regime. It is similar to a
GL vessel with two key exceptions:
it is not listed on the general register (foreign-registered
vessels cannot be listed on the general register); and
- it does not have access to the tax incentives.
Ports Australia argued that developing Australia's flag fleet should not
be considered paramount to, or at the expense of, strengthening Australia's
coastal trading task. It therefore emphasised the need for sound transitional
arrangements for the reforms:
Our view is that there is a strong national interest in the
promotion of coastal seaborne freight and there is a strong risk of failure if
this goal were to be subsumed to the prospect that at best may bring one or two
Australian ships onto the coast. If dedicated coastal shipping were not to be
successful, international lines should not be discouraged or prevented from
carrying coastal cargo. In this regard we have suggested more consideration of
The members of Ports Australia have strong empathy with the
idea of a stronger role for Australian vessels and seafarers in the coastal
trades but see the answer lying in the delivery of a competitive Australian
shipping industry to which there is an enduring commitment, rather than
draconian and cumbersome measures applying to the coast that might stifle that
The Maritime Union of Australia asserted that TGLs are a fundamental
part of the reforms to assist in balancing the use of Australian and foreign
vessels on the coastline and to 'make sure we get that right mix':
Nothing is going to happen in five years. They are not going
to shut down the rollers so the industry is then in the hands of pure
Australian operators. The fundamentals of the package are that transitional
licences will balance out the economies of that use of Australian ships, and
there is a dynamic connection between those two things... And they [TGL vessels]
will still be there, as defined by the legislation, but complementing the use
of Australian shipping, not undermining it. That is the big difference.
In five years time there are still going to be transitional
licences. They will still be operating closer to TCC rates under part B of the
Fair Work Act than part A and they will also be used to supplement and support
the use of Australian shipping, not to replace it. This whole [Deloitte] predication
was based on the doors coming down in five years time, and there is nothing in
the legislation to say that is going to happen. In fact, as I said before, the
legislation is based on the transitional licences using foreign ships and
foreign crews and maybe Australian international ships—our own version of
foreign ships, if you like—that are operating to support the Australian content
in the domestic area. So they [Deloitte] do not get it right. They were not
paid to get it right; they were paid to make the legislation wrong, in my view.
The department confirmed that the assumption in the Deloitte model (that
TLs will be phased out over five years) was incorrect. It strongly asserted
therefore, that Deloitte's findings on increased wages, and by extension
freight rates, were inaccurate and built on false assumptions.
These arguments will be discussed further below.
The committee considers that the transitional arrangements provided in
the coastal trading bills allow for adequate stability during implementation of
the shipping reforms. TGLs allow foreign-registered vessels currently engaged
in coastal trading to continue to service the industries that are dependent on
their services. This approach respects current commercial practices that are in
place yet also provides an incentive for these vessels to move to the general
register, and full general licences, in order to receive the proposed tax
In relation to temporary licences, the committee notes the arguments
from the department that the Deloitte report was based on a misunderstanding
that temporary licences would not be available after five years. The committee
is assured that there is no intention to entirely phase out the use of
The committee recognises that the bills allow for foreign-flagged
vessels to have continued access to the coast using temporary licences, albeit
restricted access. It notes that vessels using the current permit regime are
also subject to certain restrictions, including allowing GLs to nominate for
foreign-flagged vessels' trade.
The committee does acknowledge, however, that submitters deem the
proposed regime as more restrictive than the current permit system. These
arguments will be discussed further in chapters four and five.
Seafarer wages and entitlements
The Department of Education, Employment and Workplace Relations (DEEWR) outlined
that it had received advice from the Department of Infrastructure and Transport
'that it is not intended that there be any discernable change in the current
level of Fair Work coverage under the Bill'.
The Department of Infrastructure and Transport (DIT) asserted that the
coastal trading bills 'will not change the current coverage of the Fair Work
Act' for vessels engaged in coastal trading and 'it is expected that the
shipping reform bills will not impact on employment costs for ship owners or
Some submitters were concerned that the policy intention to encourage
the use of GL vessels will drive up freight costs due to the higher seafarer
rates required on these vessels.
Under the provisions of the shipping reform package, GL vessels will
continue to pay SIA Part A rates, and TL vessels (foreign-registered vessels)
will continue to pay SIA Part B rates. Under the current regime permit vessels
are also required to pay SIA Part B rates. The Deloitte report outlined the
differences in seafarer rates between SIA Parts A and B:
...the Seagoing Industry Award 2010 provides for more
generous wages and conditions in Part A than it does in Part B, with this
generosity estimated to be in excess of 62%. In light of this, the proposed
licensing regime would result in a greater reliance on vessels operating under
a General Licence, with associated higher wage costs under Part A of the Award.
Deloitte stated that seafarers under SIA Part A have more generous
entitlements and 'accrue leave at a rate of approximately one day of leave for
each day worked in addition to a range of other benefits for eligible employees
including handling allowances, disturbance of sleep allowances, meal allowances
and study allowances'.
The Deloitte report argued that as a result, vessels operating under SIA
Part A have 'operated at some degree of competitive disadvantage to foreign
vessels operating on SVPs and CVPs'.
The RIS acknowledged this disadvantage for Australian-flagged vessels in the
The current regulatory system requires licensed ships to pay
Australian wage rates while carrying coastal cargo. In contrast, ships
operating under permit are able to pay their seafarers at international wage
rates (consistent with Part B of the Seagoing Industry Award) [with]
substantially lower crew costs. The cost differentials can be exacerbated when
ships operating on international trading routes, operate incidental Australian
coastal voyages, under permit, at marginal cost.
The National Bulk Commodities Group (NBCG) provided an example in
different rates of pay in a profit and loss statement from one of its members.
One line item detailed the four different daily rates paid for employing
12 crew on a particular coastal voyage. An additional line item from the
statement projected the adjusted freight costs required (per tonne) in order to
'break-even' under each wage rate paid. These are outlined in Table 3.1 below.
Table 3.1: Example of wage and freight rate assumptions
for July 2012
ITF Market Rates
Aus Part B
Aus Part A
Typical EBA rates
Crew daily rate - Total 12 crew
Freight rate increase/decrease to break-even
Source: Extract from National
Bulk Commodities Group, Submission 10, attachment 2, p. 1.
The impact of increased seafarer
The Deloitte analysis projected that freight rates could increase as
much as 16 per cent under the reforms.
Some submitters, and Deloitte, outlined some of the options shippers have if faced
with increased freight costs including:
withdrawal of services;
using alternative modal options;
- import substitution;
- passing costs on to consumers; and / or
- industry absorbing the costs.
Shipping Australia specified that the introduction of SIA Part B rates in
January 2011 resulted in a substantial increase in the cost of carriage of
cargo, and in some cases the withdrawal of services.
The NBCG foreshadowed the impact of any further increases:
The increases in wage rates (ITF market rates to SIA Part B)
resulted in permit vessels increasing their freight rates by approximately
A$5.00 per tonne for a shipper chartering a mini bulker and A$2.00 per tonne
for a shipper chartering a handy size bulker on known domestic voyages of known
The reality of increasing freight rates results in either
import substitution becoming more commercially attractive or the gap between
seagoing freight rates and road haulage closing – in some cases significantly.
Diagram 3.2, taken from the Deloitte report, outlined the potential
economic impacts that Deloitte suggests could flow-on to the dry bulk shipping
industry as a result of an increased 'cost base for coastal shipping'.
Diagram 3.2: Overview of the economic
Deloitte Access Economics, 'Economic impacts of the proposed Shipping Reform
Package', February 2012, p. 30.
Withdrawal of services
Deloitte noted that the impacts of the reforms 'rest heavily on the
commercial decisions of a range of industry players' which makes precise
However, the committee has received some early indication from Sucrogen
Australia Limited that the molasses market may be forced to export offshore
under the reforms:
The balance of north Queensland molasses is sold and exported
through a single desk entity, Australian Molasses Trading which is managed
under contract by Sucrogen. The molasses business is highly trade exposed. A
Bill which has the effect of driving up the cost of coastal shipping will force
a potential re think of where this product is sold. All Australian molasses
could be exported into existing global markets in preference to supplying
domestic markets. This could cause the Australian market to import molasses in
cheaper international vessels. There is no benefit to the shipping industry
from this legislation if higher coastal shipping costs encourage a change in
trade flows from domestic to international.
Alternative modes of transport
The Australian Logistics Council (ALC) submission cited government
figures that around 25 per cent of the domestic freight task (on a per kilometre
basis) is carried by ships. ALC highlighted that choice of transport mode within
the freight sector is dependent on a number of factors:
...including price, timeliness and reliability, availability
(frequency) and flexibility of service, suitability of mode for product and
delivery times falling within preferred windows of time for transport
Taking this into consideration, the Deloitte report acknowledged that 'it
is unclear to what degree these modes of transport [rail and road freight] provide
a competitive and practical alternative to coastal bulk freight':
For each of the commodities and freight routes included in
the analysis, the cost of road or rail freight was higher than the cost of
shipping – even after the 10 to 16 per cent increase – or was not an option due
to location etc (e.g. for those freighting commodity out of Tasmania to other
states). As such, intermodal substitution is not regarded as an option for
managing the freight cost increase for these commodity producers.
Import substitution, cost
absorption or costs passed on
Deloitte predicted that should an increase in freight rates occur, due to
the rising value of the Australian dollar, a switch to imports was highly
likely. It noted that due to thin margins within industry the scope to absorb
costs is limited and 'if they are passed through, competiveness will be
For many of the commodities and freight routes included [in] the
analysis, the delivered price of competing imports was comparable even before
the increase in the delivered price of locally produced product. This is mainly
due to the current high exchange rate, which makes imports cheaper, and the
current low international shipping rates, which makes the cost of importing
goods cheaper. In light of this, the potential for these commodity producers to
pass on the cost of the increased freight rate is regarded as minimal and the
likelihood of substitution to imports high.
That said, in many cases, the industries’ thin margins mean
the scope to absorb a cost increase is limited. The ultimate outcome therefore
is one where either
(i) producers absorb cost
increases and reduce output (partially or wholly) as production becomes
(ii) increase prices (pass on the
cost impacts) to maintain margins.
In the case of the latter, an increase in the domestic prices
raises the probability that these intermediate commodities will be imported
rather than supplied domestically. As the discussion throughout other parts of
this report notes, the scope of import substitution is in many instances high.
The NBCG commented on the impact of a potential wage increases, and by
extension freight rate increases. It emphasised the potential impact on smaller
dry bulk shipping users and further highlighted the likelihood of import
substitution under the reforms:
These increases would flow-through to freight rates with the
knock-on effect of making import substitution competitive leading to an outcome
of fewer Australian registered ships undertaking coastal transport tasks and a
significant loss of jobs in dry bulk manufacturing sites and within locally
based ship-management offices, which employ administrative and technical
The progression from the use of temporary licensed vessels to
general licensed vessels is unacceptable to smaller dry bulk shipping users,
because the freight rate adjustment (to accommodate the ship operator’s
increased crew costs – SIA Part B to SIA Part A) would render their product
uncompetitive when benchmarked against their international competitors.
Mr David Trebeck, Chairman of Penrice Holdings, provided an example of
where imports or alternative modes of freight may be considered a preferred,
and more economical, option:
Penrice is an Adelaide based company which ships soda ash to
other destinations around Australia. We have a preference for using coastal
shipping where we can. The economic break-even is at about Newcastle. In other
words, if we tried to use coastal shipping to take product up to Queensland it
would get knocked off by imports of soda ash from the US, which predominantly
fill the Queensland market. The potential development of coal seam gas and the
extraction of soda ash out of the water stream is an interesting variant on
that, but that is outside today's activities. We can just get product to
Newcastle competitively. In fact, we are a bit less than competitive with
imports at Newcastle but our customers stay with us because of other aspects of
the service, such as reliability.
Further south than Sydney, it is cheaper now to send the
product by road. From an environmental viewpoint and other factors there are
advantages in sending it by ship, we all understand that, but road wins out to
Melbourne, for example. That is why the company has a relatively small
geographical area that it services by ship, and any action that results in
extra costs being loaded onto our coastal shipping providers, existing or new,
will reduce that window to the point where we will lose the market. It is as
simple as that.
Proposed wage rates maintain
The Maritime Union of Australia asserted that the High Court has already
found that the shipping industry 'is within the domestic remit of labour
regulation and the Fair Work Act'. It highlighted that that this 'was in no way
determined by this set of bills... and was put in place by the Fair Work Act
and previously the Work Choices act':
There was some confusion about the Deloitte report. They are
obviously a very important and pervasively influential group but they do not
understand shipping. Some of the things that they were commenting on, in terms
of the juxtaposition of costs, had nothing to do with this set of bills. It is
something that had previously been determined in labour law in this country.
The Hon. Anthony Albanese, MP, Minister for Infrastructure and Transport,
in an earlier media release, asserted that:
Foreign ships operating on the Australian coast are already
required to pay Australian wages and our reforms make no change to this.
It appears the Deloitte modelling commissioned and released
today by the Australian Dry Bulk Shipping Users is based on the assumption that
this is not currently the case.
In response to the Minister's statement, the ADBSU emphasised that the Deloitte
report does use Australian wages in its modelling and that these wages include
higher crewing costs for Australian flagged vessels due to seafarer
Following the public release of the DAE report, the
Australian Government has incorrectly claimed that the report compares
international wages with domestic wages. The Minister has used this incorrect
claim as a basis for the Government to dismiss consideration of the DAE report
The Australian wages of the Seagoing Industry Award have been
payable to employees operating a coastal voyage under permit since 2011 under
the Fair Work Act. As per the Government’s Regulation Impact Statement,
Australian wages are also used in the modelling of the DAE report.
However, The Government must acknowledge that Australian
flagged vessels do face higher crewing costs than international vessels
operating on the coast as a result of the ‘conditions’ outlined in the Seagoing
Industry Award that do not apply to foreign vessels.
These conditions include some very generous elements
- Approximately one day off for every day worked (including travel from
home to port); and
- An additional five weeks annual leave.
These conditions represent expenses that are faced by
Australian Flagged vessels only.
The department reiterated that the modelling for the Deloitte analysis
was based on an assumption that access to TL vessels would be phased out over a
five year period (forcing a total reliance on vessels paying SIA Part A rates),
and that this was incorrect. The department informed the committee that the
government had no intention to entirely phase out the use of TL vessels:
...there is, as I mentioned before, an assumption that the
government intends to phase out temporary licences after a period of five
years—that is, arrangements for access for foreign vessels to the coast. This
is not correct. There is nothing in the legislation and there has never been
anything in the government's policy to that end.
Given that the underpinning assumption is that temporary
licences will be phased out, the modelling is predicated on the idea that wages
will increase between 60 and 100 per cent, which is based on moving from part B
of the Seagoing Industry Award to part A. That seems to underpin a number of
the cost assumptions. We would argue that that starting assumption is incorrect.
The committee questions the findings of the Deloitte analysis on
increased freight rates and the reduction in competition for industries reliant
on coastal trading. The modelling used in the Deloitte analysis is based on a
flawed assumption that temporary licences will be entirely phased out within
five years. This is incorrect. Under the reforms, coastal trading will remain
open to Temporary Licensed vessels.
The committee emphasises the interlocking nature of the package of
bills. It highlights that any economic analysis of the reforms should consider
the full suite of bills, including the tax incentives in the package. The
Deloitte analysis fails to do this.
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