Overview
3.1
This chapter provides a cross-section of suggestions made by inquiry participants to promote the general use of shipping as an effective and efficient mode of transport, irrespective of where a ship is registered or the nationality of its crew. It also highlights a number of key suggestions aimed at specifically promoting the use of Australian ships and Australian crews, such as reforming the Coastal Trading (Revitalising Australian Shipping) Act 2012 (CT Act), creating a strategic fleet, and extending taxation concessions to make Australia’s taxation system internationally competitive.
Suggestions to promote the use of shipping
3.2
Inquiry participants provided a number of suggestions to improve the utilisation of ships in Australia's transportation task. At a high-level, these suggestions relate to improving the industry's flexibility and ability to quickly respond in a fluid operating environment; improving interactions with other transport modes and reducing intermodal constraints; and creating a level playing field between the different modes. Specific suggestions were also provided for the resources and energy sector; Tasmanian shipping; and cruise shipping. These are discussed in more detail below.
Improve flexibility
3.3
Stakeholders stressed the importance of having access to a flexible shipping industry which allows for frequently changing operational, commercial and weather conditions, and minimises trade disruptions and cost overruns.
3.4
The Chamber of Minerals and Energy of Western Australia (CME) advocated for regulatory and administrative change which increases the maximum licencing period and streamlines the application and variation processes. It stated that its member companies experienced a number of key issues with the current system when planning and negotiating long‑term shipping contracts:
the maximum licencing period of 12 months, coupled with a four-week lead time to finalise an application, results in scheduling complexity and regulatory reporting burden;
unless a variation is applied for, there is no flexibility to deviate from the ports, sailing dates, and volumes originally stated in the licencing application; and
the formal variation process is slow and rigid, and is often unable to respond in a reasonable timeframe.
3.5
It was also argued by the CME that, in the past, domestic shipping has not been efficient or effective enough to respond to the peaks (spot trading) of global commodity cycles making access to international ships vital—particularly as demand continues to outstrip supply.
3.6
Given the above, the CME concluded that current licensing procedures are impractical, onerous, and cumbersome and:
… [o]ther than enabling preferential treatment of domestic ships, the system as it is does not encourage a competitive shipping industry. There is a cost to the public, through higher cost of goods, in forcing the resources sector to use uncompetitive and unresponsive domestic shipping services.
3.7
As noted in chapter 2, the South Australian Freight Council (SAFC) also has concerns regarding the inflexible nature of the CT Act. To promote the efficient utilisation of spare capacity of international vessels transiting around Australia, it supports removing the 5 voyage requirement for obtaining a temporary licence under the CT Act and streamlining the approval and variation processes, and tolerances.
Improve interactions with other modes and reduce intermodal constraints
3.8
Evidence provided to the inquiry expressed support for shipping as a primary mode of transport—particularly noting its efficiency in the movement of freight—to and from transport terminals, and around the country. Stakeholders argued that the focus for the transport sector should be on reducing land-based transport congestion, and addressing some of the infrastructure constraints currently associated with moving freight to and from intermodal transport terminals.
3.9
Ports Australia notes that the effective use of all three modes of transport can lead to optimal social and economic outcomes, and that efficient connectivity across modes should be a key consideration. Given this, it is concerned that there is a current lack of suitable road infrastructure at ports, and that road trains are being diverted, resulting in higher costs and delays.
3.10
Port's Australia is also concerned with the underutilisation of the rail network for freight movements to and from ports. It submits that this is due to a number of reasons, such as port-rail interface issues; conflicts with passenger movements; inconsistent state and territory regulations and operating conditions; and maintenance and investment costs that are not supported by required utilisation rates. It suggests that reform is critical to maximise rail network capacity and, hence, improve the viability of shipping.
3.11
The SAFC notes the critical nature of Australia's ports and their role in maintaining Australia's economic growth. It states that these assets are facing a number of threats which need to be permanently addressed. For example, it submitted that increasing congestion on transport links to Australia's major container ports is a rising problem for Australia, as it increases, amongst other things, time, fuel and wage costs for businesses and the economy.
3.12
SAFC also stated that industry is increasingly concerned with the growth in residential construction around ports. It submits that this causes a number of issues, such as increased conflict with residents; increased congestion on shared roads; reduced land availability for port activities; and reduced options for future port expansion. It concludes that protection of key transport facilities, and the associated transport corridors leading to them, is vital to transport efficiency.
Create a level playing field across modes
3.13
Ports Australia notes that there is a clear imbalance in Australia's transport mix, impacting on Australia's ability to effectively move domestic freight. It submits that, although Australia's domestic freight task grew by 50 per cent between 1999‑00 and 2015‑16, coastal shipping's contribution only grew by 1 per cent; contrasting markedly with an increase of 210 per cent for rail and 61 per cent for road.
3.14
The Maritime Union of Australia (MUA) highlighted that, across Australia, roads and rail received a combined $33.3 billion in public funding in 2013‑14, whereas no Commonwealth or state taxation revenue was allocated to the domestic shipping industry. It concluded that:
Government subsidisation of road and rail transport modes significantly disadvantages coastal shipping and distorts the national freight market. Ships do not face a level playing field. This needs to change.
3.15
In their submission, Ports Australia also discussed the disparity in government support across transport modes being a key reason for coastal shipping only accounting for 15 per cent of domestic trade. It submits that Australia needs to decide whether it wants shipping to be a viable transport option, and how it can be effectively supported and utilised.
3.16
The general manger of business development and inland business at ANL Container Line Pty Ltd (ANL), Mr Chris Schultz, questioned the lack of support for Australia's coastal shipping industry:
We [ANL Container Line Pty Ltd] think Australia, as an island nation, is crying out for it. We've got 95 per cent of the population within 100 kilometres of a port. We've got vast distances that we need to cover. We spend billions of dollars on road and rail funding but not one dollar on coastal shipping. How can that be?
3.17
Dr Hermione Parsons, from the Centre for Supply Chain and Logistics at Deakin University, was direct in her observations regarding Australia's lack of coastal shipping:
Critical to Australia's supply chain competitiveness and its ability to have a very strong future as an economy is the ability to have streamlined, effective, efficient and productive supply chains and logistics chains. Fundamental to that is being able to use all the tools that a company requires. In this case, it's a ship, a train, a truck or a plane. 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.
It's astonishing to me that we're working in South-East Asia with developing economies that are acutely aware of the importance of coastal shipping and using the sea as a conduit, and yet we are so complacent and also almost bigoted towards one mode over another. We are not agnostic. I think there's a form of bigotry towards road and away from more suitable modes.
If you look at multimodal efficiency in any other economy where it works and where the economy is doing really well in the supply chain, and if you look at sophisticated economies in Europe and all sorts of different places, you will see that coastal shipping and shipping are fundamental tools that are put into the kitbag of the logistics companies.
3.18
The Australian Competition and Consumer Commission (ACCC) is concerned that heavy vehicles may not be paying an appropriate price for the use of Australian roads and submits that, if prices were set on an independent basis, i.e. at arms‑length from government, it would allow for a more informed basis to choose the most efficient transport mode for moving freight around Australia. If these prices took into account all the costs involved in road transportation, it may improve the competitiveness of coastal shipping as an alternative.
3.19
In his evidence to the committee, Mr Peter van Duyn, from the Centre for Supply Chain and Logistics at Deakin University, commented on the relatively low cost of road freight in Australia, noting that this could be a result of trucking being a very competitive industry operating on small margins; externalities not being effectively priced; and roads being funded by taxpayers. He also noted that some countries in Europe have introduced regulations to account for externalities, such as pollution.
3.20
The SAFC indicated that rising charges at all major Australian ports has made coastal shipping less competitive against other domestic transport modes. It is concerned that this may negatively impact modal shift and, hence, reduce the potential benefits accruing to the economy and freight owners from an efficient coastal trade.
3.21
The CME submitted that the increasing cost of shipping has pushed domestic freight to international ships and land-based modes of transport, such as road and rail. It noted its support for moves to reduce land-based transport congestion, identify current infrastructure constraints, and increase the efficiency of shipping freight. It was argued these types of actions could result in long‑lasting cross-sectoral economic benefits. In particular the CME:
… supports diversification of the industry in providing competitive alternative modes of transport to carry freight to regions such as the Pilbara, Kimberley, Goldfield and the South West. A competitive shipping industry would unlock access to these remote areas, overcoming roadblocks arising from seasonal flooding, cyclones and bushfires.
Support resource and energy shipping
3.22
The Australian Aluminium Council (ALC), representing Australia's bauxite mining, alumina refining, and aluminium smelting industry, notes that the shipping of bulk materials from mines to refineries, and from refineries to smelters, is a critical part of the aluminium supply chain. It is concerned about the costs that may be involved in any government intervention aimed at increasing the broader strategic benefits that shipping provides, such as workforce development and seafarer training. The ALC notes that, although these benefits may be deemed worthwhile, due to the potential increased costs, any intervention to promote the utilisation of Australian shipping should be rigorously tested.
3.23
The Minerals Council of Australia (MCA) is a strong advocate for reform as it believes that retaining the existing regulatory framework will negatively impact employment in Australian industries which rely upon the efficient transport of freight by sea, such as the minerals sector. As mentioned in chapter 2, it stated that the CT Act made 'retrograde changes to competition rules that have failed to revitalise the domestic shipping fleet as intended and made the remaining Australian vessels more expensive than international vessels'.
3.24
Australia's largest natural gas producer, Woodside, supports continued access by foreign-flagged ships in coastal trading; the contestability regime where there is Australian capacity; and a simplified licencing system for foreign vessels when there is no Australian capacity.
3.25
Woodside also notes that LNG trading could commence on Australia’s east coast with the proposed development of LNG import terminals. Given that there are currently no available Australian LNG carriers with sufficient capacity to service such a trade, and the existing minimum voyages requirement is likely to impede it, Woodside suggests a class of licence for foreign LNG carriers which could facilitate this new market.
3.26
The Australian Institute of Petroleum (AIP) notes the importance of shipping as a critical component for the reliable supply of crude oil and petroleum products into Australia. AIP states that 'the ability to utilise cost effective and efficient shipping is central to the supply chain … [and] AIP and member companies are concerned to ensure that Australia's regulatory environment further assists the industry in its shipping task and provides a level playing field between imported petroleum products and those produced in the domestic refineries'.
Support Tasmanian shipping
3.27
As an island state, Tasmania is heavily reliant on shipping services to support its communities and grow its economy. By weight, over 99 per cent of goods leaving and arriving in Tasmania are transported by sea, and a number of Bass Strait island communities depend on regular and reliable shipping connections.
3.28
Reflecting this reliance on shipping, and the fact that the cost of shipping across the Bass Strait is higher than equivalent road transport distances, the Australian government introduced the Tasmanian Freight Equalisation Scheme (TFES) in 1976. The aim of the TFES was to place Tasmanian shippers on an equal footing to other Australian producers. Further, in 1996, the Australian government also introduced the Bass Strait Passenger Vehicle Equalisation Scheme to reduce the costs of sea travel on Bass Strait for passengers and vehicles.
3.29
The Tasmanian government’s submission asks the Australian government consider its unique challenges, such as its dependence on domestic and international shipping connections, and that it develop a policy and regulatory environment that ensures a safe, secure, reliable, cost efficient and sustainable shipping service for Tasmania.
Support cruise shipping
3.30
Cruise Lines International Association (CLIA), the regional office of the world's largest cruise industry association, notes that the cruise industry has enjoyed a decade of growth, and that it is one of the most successful aspects of the domestic tourism industry. Notwithstanding, CLIA states that there are a number of regulatory and infrastructure barriers that may constrain further growth and that, as the industry is highly competitive and mobile, there is a risk that these barriers could even cause a future contraction.
3.31
CLIA identified the three key barriers facing the cruise industry in Australia as:
regulatory settings affecting domestic cruising, such as a lack of certainty over licencing exemptions and the importation of ships at dry-dock facilities;
a lack of investment in port-related infrastructure; and
the burden of government and port charges.
3.32
CLIA believes there are a number of steps the Australian government can take to overcome these barriers, such as creating a regulatory environment which supports the domestic cruise and dry-dock industries; limiting additional costs imposed on the industry; and working with the NSW government to overcome berthing capacity problems in Sydney.
Suggestions to promote the use of Australian ships and crews
3.33
The committee heard a number of suggestions aimed at increasing the number of Australian ships and Australian crews. These ranged from amendments to the CT Act and reforms to the taxation system, to the development of a strategic fleet and a maritime cluster. A selection of these proposals is discussed below.
Reform the CT Act
3.34
As highlighted in chapter 2, the MUA believes the CT Act is flawed in its current state and submitted to the inquiry a number of key changes which it believes will improve Australia's cabotage regime. Specifically it recommends that:
the object clause be amended to make it explicit that the primary objective of the CT Act is to provide preferential treatment for Australian ships in coastal trade;
the operation of the CT Act be extended to include ships trading intrastate;
emergency licences under the CT Act be removed;
the types of ships the CT Act applies to be extended to include, for example, large fishing and aquaculture ships, and those carrying oil, condensate, and gas from offshore facilities to mainland refineries;
a statutory coastal ship licencing authority be created;
the application process for general licences be strengthened in accordance with the new object clause and licencing authority;
a new licence type, i.e. a modified general licence, be introduced for foreign‑registered, but Australian crewed, ships;
the application process for the issuance of temporary licences for cargo ships be strengthened in accordance with the new object clause and licencing authority;
a separate application process for the issuance of temporary licences for passenger ships in accordance with the new object clause and licencing authority; and
additional definitions be added regarding national interest trades; routes; and segments, and the national strategic fleet.
3.35
The MUA notes that the intention of these reforms is to ensure that ships operating under a general licence under the CT Act are eligible for all the various shipping tax incentives, whereas those operating under a modified general licence will only be eligible for a subset of them.
3.36
A green paper (the Coastal Trading Green Paper) prepared by Ms Teresa Lloyd, in consultation with the broader industry, also supported changes to the CT Act. Amongst other things, these reforms included clarifying the Act's object to remove ambiguity; introducing a new preferential temporary licence (TL+) where an operator meets minimum Australian content requirements; streamlining the application process; and reforming the contestability provisions.
3.37
The Australian Institute of Marine and Power Engineers (AIMPE) told the committee that since the introduction of the CT Act a trend has emerged whereby some companies rotate the foreign flag vessels they use, so that they are not using the same ship, or ships, all the time. It was argued that these companies are exploiting the temporary licence system in the same way as those companies which consistently deploy the same ship, or ships, carrying the same Australian coastal cargoes.
3.38
An example provided by AIMPE indicated that one international operator acquired temporary licences for approximately 800 voyages and used more than 140 different ships to carry out those trips. It was argued that this type of manipulation of the temporary licence system should be ‘addressed by the imposition of limitations on the number of temporary licences that a company or group can receive each year’.
3.39
The Department of Infrastructure, Regional Development and Cities (the Department) noted that it is currently working with stakeholders on coastal trading reform; however, in evidence provided to the committee the Assistant Secretary of Maritime and Shipping, Mr Andrew Johnson, stated that the proposals will not fundamentally change the system. Specifically he indicated that the discussions are 'focused on options that would improve the way the existing process works and how the licence process works', and that:
[i]t's really about making the existing system work better without changing the fundamentals as to how it operates and what the legislation provides in terms of supporting Australian shipping and the movement of cargo around the coast.
Prioritise Australian ships at domestic ports
3.40
Due to demand spikes, vessel schedules, weather events, and other unforeseen circumstances, CSL Australia notes that congestion at berths in Australian ports can lead to delays of up to 20 days, and sometimes even longer. The costs of these delays are borne by cargo owners under a compensation method which imposes a financial penalty known as 'demurrage'.
3.41
CSL Australia notes that demurrage rates can reflect the charter market or, in longer-term contracts, the operating costs of a vessel. Given this, it was submitted that, for the same time delay, cargo owners utilising foreign ships could incur significant less demurrage costs than domestic alternatives and, hence, reduce the cost competitiveness of Australian ships.
3.42
To mitigate this, CSL Australia suggests that Australian vessels be prioritised across Australian ports. It claims that such an approach could see decreased freight costs for cargo owners and improved supply chain stability. Further, shipowners could benefit from scheduling efficiencies, fewer delays, and increased revenues by undertaking a greater number of voyages each year.
3.43
In alignment with the above, the Coastal Trading Green Paper also suggested port planning processes provide priority access to ports and berths for domestic ships, as well as shore side facilities for their cargos. It also submitted that this could be complemented by discounts on, or exemptions from, port fees for Australian ships.
Introduce a bunker fuel rebate
3.44
CSL Australia submits that Australian vessels are disadvantaged when purchasing bunker fuel. It states that the price of bunker fuel in Singapore is approximately 25 per cent lower than that of Australian ports, such as Gladstone and Melbourne, and that foreign vessels commonly purchase enough fuel from Asian ports for a return voyage prior to trading on the Australian coast. CME also noted this price differential and stated that '[s]sustained high fuel prices [add] to the difficulty in securing competitive domestic shipping contracts'.
3.45
Given this price discrepancy, CSL Australia proposes the introduction of a 25 per cent bunker fuel rebate for Australian vessels on both laden and ballast legs of a trip. Such a rebate could reduce freight costs and lessen the disparity between Australian and foreign vessels.
Reform the Shipping Registration Act
Require ships to register
3.46
The AIMPE argued that a particular loophole in the Shipping Registration Act, which allows vessels to operate in Australian waters continuously without registering, has contributed to the decline of Australia's shipping industry. The AIMPE provided a number of examples of ships operating continuously in Australian waters under repeat temporary licences and argued that:
The business model is clearly not a temporary arrangement it is a long‑term operating model designed to avoid the application of Australian laws which comes with Australian registration and obtaining a General Licence under the coastal trading legislation.
3.47
Given this, the AIMPE suggests that, in alignment with aviation laws which make it an offence to fly a plane between two Australian airports if it is not registered in Australia, any vessel operating in Australian waters for more than 30 days be required to register under the Shipping Registration Act.
Reform seafarers' remuneration
Improve wage parity between domestic and foreign-crewed ships
3.48
Over many years, numerous industry stakeholders have indicated that higher operating costs, especially labour costs, for Australian flagged and crewed vessels is the major reason for their lack of competitiveness. The Department provided figures to the inquiry indicating that the cost of employing Australians at the able seaman level is up to six times that of employing international seafarers in the equivalent position. Given that it is estimated that 40 per cent of operating costs for ships are crew costs, this can be a significant financial disincentive to utilise Australian crews.
3.49
The SAFC also linked high Australian wages to the decline in the number of Australian registered vessels by stating that ‘[t]here is no doubt that the marked differential in Australian and international wages for seafarers is, at least in part, responsible for this’.
3.50
Quantifying the difference in transport costs for the petroleum industry, in its submission to the inquiry, the AIP stated that an Australian tanker crew costs between $9 and $10 million per annum. It noted that this far exceeds the cost of a New Zealand crew at $4.5 million; as well as both British and European crews, which cost between $3.5 million to $4 million per annum.
3.51
For ships participating in coastal trading, the Department raised the suggestion that by making foreign-flagged vessels meet the same requirements as Australian vessels while in Australian waters the wage cost differential could be reduced and, hence, make Australian‑crewed ships more competitive. Currently, foreign‑flagged vessels operating under temporary licences are required to pay, from the third voyage onwards in Australian waters, crew wages in accordance with Part B of the Seagoing Industry Award 2010. The Department notes that, although higher than the minimum wages established under the Maritime Labor Convention, Part B wages are lower than Part A wages paid to Australian seafarers.
Increase maritime tax incentives
3.52
There are a number of tax concessions already in place for Australian-flagged vessels which provide income tax exemptions for operators; accelerated depreciation and roll-over relief for owners; a refundable tax offset for employers; and an exemption from royalty withholding tax.
3.53
The Department noted that, in 2017, in response to a discussion paper it issued, a number of participants suggested extending the tax incentives for businesses and crews to encourage the use of Australian-flagged vessels. For example, such changes could include reforming the existing accelerated depreciation regime; providing additional relief to employers of Australian seafarers; and the providing direct tax incentives and exemptions to domestic mariners.
3.54
In a 2015 report on Australia's maritime industry, PwC proposed extending the existing taxation incentives while also introducing a number of new measures. Specifically it proposed the extension of the income tax exemption; accelerated depreciation regime; and the seafarer tax offset, while also introducing deemed franking credits and reforming the Australian International Shipping Register (AISR).
3.55
PwC submitted that, with these changes in place it 'anticipate[s] that Australian owned or operated vessels would grow with a resultant increase in the size of the maritime industry'. Based on internal modelling and the experiences of other countries, the total potential economic benefits to the Australian economy could be significant: an additional $4.25 billion in economic output; 9147 additional jobs; and $867 million in additional taxation revenue.
3.56
A number of these suggestions, and others, were also advocated for by other inquiry participants. These included the introduction of deemed franking credits and a dividend withholding exemption for non-resident shareholders; the revision and extension of the seafarer tax offset; and the extension of exemptions to Australia’s offshore industry.
3.57
Woodside submitted that Australia’s existing taxation arrangements make it difficult to compete with other countries, such as the United Kingdom, Singapore, and Norway. The AIMPE highlighted that one of Australia's closest neighbours, Singapore, favours maritime companies and is proactive in its support for maritime industry activities. For example, in 2011 Singapore announced a zero taxation policy in relation to corporate income from the maritime sector.
Reform the foreign crew visa system
An overview of the foreign crew visa system
3.58
Australia has a universal visa requirement with applicants required to meet identity, character, security, and other requirements relevant to the visa for which they apply. Foreign sea crew and supernumerary crew, including accompanying spouses and dependent children, are able to apply for a Maritime Crew Visa (MCV).
3.59
According to the Department of Home Affairs, a MCV allows non-citizens to enter and temporarily remain in Australia as a member of the crew of a non‑military ship to undertake work that meets the normal operational requirements of that ship. MCVs are valid for three years and permit multiply entries.
3.60
MCV applicants must meet public interest criteria and, once issued with a MCV, abide by a number of restrictions regarding:
working in Australia other than as a member of the crew of a non-military ship;
arriving in Australia by air without holding another visa; and
automatically ceasing their visa if they fail to sign on to a vessel within five days of arrival or if their vessel is imported or entered for home consumption under the Customs Act 1901.
3.61
MCVs that are found to be non-genuine can be ceased prior to, or on a person's arrival in Australia, under the Migration Act 1958.
Views on the foreign crew visa system
3.62
There were a number of viewpoints put forward by inquiry participants regarding the foreign crew visa system. For example, the MUA believes the MCV needs significant reform to close a number of loopholes in the current system for foreign seafarers and recommends:
creating a new and separate 'maritime crew visa' for non-nationals employed on ships issued with a temporary licence under the CT Act. Such a visa would contain the labour market testing requirements of a work visa, such as the Subclass 482 Temporary Skill Shortage visa, and payment of market rates;
amending the approval requirements for obtaining an existing MCV so that the security, character and identity checking is strengthened and consistent with the equivalent checks required for the issuance of a Maritime Security Identification Card under the Maritime Transport and Offshore Facilities Security Act 2003;
remove loopholes in visa sponsoring arrangements to eliminate the practice of employers sponsoring foreign maritime workers in permissible occupations and then transferring them to maritime occupations that are not eligible for sponsorship; and
strengthen the role of AMSA in assessing the marine qualifications of workers sponsored by employers under a work visa for employment in maritime occupations.
3.63
In contrast, the CLIA submitted that the foreign crew visa system works 'reasonably well' for cruise shipping; however, it highlighted the ongoing issue of visas being invalidated when a cruise ship enters a dry-dock‑facility to undertake repairs and maintenance and is imported under the Customs Act 1901.
3.64
The broader issues raised by inquiry participants on the use of foreign-crewed vessels, such as security and exploitation, is further discussed in chapter 6 – Security and standards.
Develop a strategic fleet
3.65
A number of inquiry participants advocated the creation of an Australian strategic fleet. For example, the MUA submitted that:
The establishment of a national strategic fleet of ships which are of strategic significance to the nation and which provide a social and or community service benefit will be an important initiative in rebuilding the Australian shipping industry.
3.66
In establishing a strategic fleet, Maritime Industry Australia Limited (MIAL) identified its three key objectives as:
providing sufficient numbers of vessels to ensure adequate training and experience-building opportunities to secure the strategic skillset the nation requires;
having sufficient vessels of certain types available to secure Australian critical infrastructure and supply chains; and
ensuring sufficient suitable vessels are available for requisitioning, should the nation require such support.
3.67
Such a fleet would operate in commercial trades by private enterprises and be available for requisition by the government in times of war or national emergency. As MIAL notes, however, Australian ships with Australian crews are financially uncompetitive and, for a strategic fleet to exist, incentives must be put in place. CSL Australia submits that the funding requirement for each vessel could be up to $5 million per year at current wage levels and conditions and would offset the differential between domestic and foreign operating costs.
3.68
It is envisaged that these vessels could also be utilised by Australian seafarers to train on, while also providing opportunities for engineers and officers to gain the high-level skills and experience necessary for port service roles, such as pilots and harbour masters, and shore-based technical superintendent positions.
3.69
It was noted that the creation of a strategic fleet is not too dissimilar to the vessels which were owned and operated by the Australian Coastal Shipping Commission and the Australian National Line between 1956 and 1998. This fleet was available for requisition by the government as a merchant fleet, and the vessels were equipped to handle additional seafarers and passengers, and designed for the transportation and landing of military vehicles.
Develop a maritime cluster
An overview of maritime clusters
3.70
A maritime cluster refers to a group of companies in the maritime industry which are located in a close proximity to one another. Such an arrangement can deliver a range of benefits to their constituent entities, such as creating competitive advantages through mutually beneficial relationships between the companies within the cluster. Crucially, they also provide access to know-how, as it’s easier to share knowledge, best practice, and recruit qualified people when similar companies are located in close proximity to each other. A similar environment exists in the information technology industry in Silicon Valley in California.
3.71
A number of maritime clusters have successfully been developed in Europe and Asia. For example, on the west coast of Norway the Global Centre of Expertise (GCE) Blue Maritime Cluster consists of 18 shipping companies; 14 design enterprises; 14 shipyards; 172 equipment suppliers; and over 22 500 employees. It has a turnover of approximately $9.5 billion euros per annum and focuses on a number of key areas, such as: virtual prototyping; simulation driven innovation; big data; robotics; advanced manufacturing; mechatronics; advanced marine operations; and human factor driven operations.
3.72
In its submission, the Department noted that the Organisation for Economic Co-operation and Development (OECD) identified four key policy instruments for governments to support the growth of maritime clusters: development support; financial investment; coordination and information sharing; and human capital matching.
Australia's shipbuilding industry
3.73
Although Australia’s local commercial shipbuilding industry has declined due to foreign competition, Australia still maintains a significant industry. Companies such as Austal, ASC Shipbuilding Pty Ltd, Bae Systems Australia, and Thales Australia build and maintain large ships for both military and civilian purposes.
3.74
According to departmental figures, in 2017–18 military-related shipbuilding accounted for 57.3 per cent of the market; ship repairs and maintenance accounted for 20.5 per cent; commercial shipbuilding accounted for 16.7 per cent; and submarine construction accounted for 5.5 per cent.
3.75
A Naval Shipbuilding Program has also been established which will see more than 50 navy vessels built in Adelaide and Perth. In his evidence to the committee, the Deputy Secretary of National Naval Shipbuilding within the Department of Defence, Mr Tony Dalton, stated that:
At the moment the government is planning to invest between $168 billion and $183 billion across shipbuilding and upgrade programs between now and the 2050s. That's a remarkable degree of investment and a remarkable vote of confidence in the ability of Australians to build complex ships in Australia competitively with the international market. I think that augurs well for the future, and we'll be able to build the facilities around it that will then provide opportunities for not only naval shipbuilding but domestic shipbuilding of a commercial nature as well.
3.76
Mr Dalton also suggested that this large investment within the naval shipbuilding industry would benefit the broader industry:
I think it's reasonable to suggest that the work that we're putting into the shipbuilding, in particular in Western Australia, will make them much more competitive and will introduce modern shipbuilding techniques that are equally applicable to both commercial and naval shipbuilding … I think the program will make shipbuilders, particularly in Western Australia, more competitive in an international market and more competitive to produce ships domestically outside of the naval shipbuilding program.
Views on developing a maritime cluster
3.77
Although supporting increased competition in the shipping industry, the CME warned against sinking significant amounts of taxpayer money into developing a new maritime cluster in Australia. It noted that, although Australia possesses maritime research centres and a high-tech ship building industry, it does not possess a comparative advantage in shipping services. Hence, it submitted that existing shipping hubs, such as those in Singapore, Hong Kong, and Dubai, may be better suited to attracting the expertise and knowledge required to form a maritime cluster.
3.78
The Centre for Supply Chain and Logistics at Deakin University also noted that there are currently only a small number of Australian-flagged vessels with Australian crews, and that to create a maritime cluster of industries associated with shipping, a larger fleet of Australian vessels would be necessary.
3.79
The MUA believes that, with the right policy, administrative, and funding support from government and industry, a successful maritime cluster could be created in Australia. It proposes that such a cluster could revolve around:
Australia as a shipper of product to world markets – as a major user of ship charter services and a hub marketer of resource products;
Australia's coastal shipping sector;
expertise and innovation in supply chain management;
Australia's ports sector;
Australia's expertise in offshore oil and gas exploration, construction, production and transportation;
defence shipbuilding and the marine innovation that will come from the current $80 billion investment;
civilian shipbuilding—particularly aluminium hulled ships for both civilian and defence needs;
marine and oceanographic research;
various universities with a focus on ports, shipping and the marine environment; and
a highly skilled seafaring and maritime workforce.
Committee view and recommendations
Level playing field across modes
3.80
The committee notes the shrinking contribution of Australia's coastal shipping trade in Australia's growing domestic freight task. The committee believes there is an uneven playing field, due to government subsidisation of road and rail transport, which disadvantages coastal shipping as a viable alternative. This is further compounded by the fact that, as indicated by the ACCC, heavy vehicles may not be paying an appropriate price for the use of Australian roads, and that there are increasing charges at Australian ports.
3.81
The committee recommends that the Australian government quantifies and reviews the level of subsidisation across competing modes of transport to ensure that shipping is able to compete on an equal basis in accessing the infrastructure and markets it requires to operate.
Resource and energy shipping
3.82
Efficient bulk shipping is vital to the international competitiveness of Australia's energy and resource industries. The committee acknowledges concerns raised by industry in relation to the existing regulatory framework and agrees that there is a role for foreign-flagged ships where there is no available Australian capacity. It also notes the concerns raised regarding the complexity of the licencing system and the proposal to introduce a new class of licence to service future coastal LNG trading.
3.83
The committee recommends that the Australian government reviews Australia’s coastal trading framework to ensure that Australian shipping supports the growth of emerging markets and trade, such as coastal LNG trading, offshore wind energy, and the expedition cruise sector.
Tasmanian shipping
3.84
As an island state without a road or rail connection to the Australian mainland, the committee acknowledges Tasmania's reliance, and the reliance of a number of Bass Strait island communities, on dependable and frequent shipping. Given this, the committee strongly supports the continuation of the Tasmanian Freight Equalisation Scheme and the Bass Straight Passenger Vehicle Equalisation Scheme, and advocates for other initiatives which promote safe and cost effective shipping while also recognising Tasmania's unique challenges.
3.85
The committee recommends that the Australian government continues to fund the operation of the Tasmanian Freight Equalisation Scheme and the Bass Straight Passenger Vehicle Equalisation Scheme.
CT Act
3.86
The committee notes the widespread disappointment across the shipping industry with the licencing system implemented in 2012 by the CT Act. The committee believes that a strong licencing regime for participants in Australia's coastal trade is essential to promote Australian shipping, and that it is obvious that the current arrangements are inadequate and not fit-for-purpose.
3.87
The committee also considers that it is timely to consider if the coastal trade licencing system should be extended to cover intrastate trading as well as interstate trading, noting that harmonisation is already a feature of other maritime regulatory schemes covering ship safety and work health and safety.
3.88
The committee recommends that the current licencing system be urgently reformed to clarify its objective; expand its scope, including covering intrastate trading; reform the application process and provisions along commercial lines; and introduce a new type of temporary licence for operators who meet minimum Australian content requirements.
Port delays, port costs, and bunker fuel
3.89
The committee notes evidence indicating that, due to the way demurrage rates are determined, Australian ships are disproportionally disadvantaged by time delays at domestic ports, and that they also commonly incur higher bunker fuel costs than their foreign competitors who can refuel at international ports with lower prices. Given this inequity, the committee highlights suggestions raised during the inquiry to prioritise Australian ships at domestic ports and provide Australian ships with a bunker fuel rebate and priority access to berthing slots. The committee also notes that some ports provide differential pricing practices which assist Australian ships, a practice that could be extended on a nationally consistent basis.
Seafarers’ remuneration
3.90
Evidence provided to the committee highlighted the discrepancy in wages between Australian-crewed ships and their foreign-crewed competitors. It is obvious to the committee that any commercial operator would preference a crew with a significantly lower wages bill, and that immediate action is needed to reduce this cost differential.
3.91
This is a central concern of the committee, as it believes this to be a key reason for the lack of Australian‑crewed ships. The committee is of the opinion that foreign seafarers are not fairly remunerated under existing arrangements and, hence, strongly supports suggestions to increase wages for these mariners so that they better align with their Australian counterparts.
3.92
The committee recommends that the Australian government requires foreign‑flagged vessels to pay crew wages equal to those of Australian vessels while operating in Australian waters.
Taxation arrangements
3.93
The committee believes that Australia must have a competitive taxation system to promote Australian shipping, and notes a number of suggestions raised by submitters which the government could pursue. These include extending the seafarer tax offset, income tax exemption, and accelerated depreciation regime; and introducing deemed franking credits and a dividend withholding exemption for non-residents.
3.94
The committee recommends that the Australian government reviews the maritime tax concessions currently in place to ensure that Australia's tax system is competitive with other jurisdictions, and that it promotes the use of Australian ships and crews.
Foreign crew visa system
3.95
The committee is concerned that the requirements to obtain a Maritime Crew Visa are inadequate and need strengthening, specifically around security, character, identity checking, and the misapplication of the MCV as a domestic work visa. The committee notes the features of the Canadian model that integrates its maritime crew visa system with its coastal trading regulatory system. Furthermore, the committee is concerned about suggestions that the Maritime Crew Visa system currently allows employers to sponsor maritime workers in permissible occupations, but then subsequently transfer them to non-permissible occupations.
3.96
The committee recommends that the Australian government strengthens background checks to obtain a Maritime Crew Visa to better align with those required for applicants applying for a Maritime Security Identification Card, and monitor the ongoing applicability of the visa.
3.97
The committee recommends that the Australian government reviews whether the existing Maritime Crew Visa system is being exploited by sponsors to allow foreign maritime workers to be transferred to occupations which are not eligible for sponsorship.
3.98
The committee recommends that the Australian government retains the existing Maritime Crew Visa for seafarers on foreign ships undertaking short port calls as part of a continuing international voyage; and introduce a new, or special conditions, Maritime Crew Visa that enables foreign seafarers to be in Australia for periods of up to 45 days for one of six specified purposes, being:
ships undertaking interstate coastal voyages authorised by a temporary licence issued under the Coastal Trading (Revitalising Australian Shipping) Act 2012;
ships undertaking repairs, maintenance, or dry docking in Australia;
mother ships at anchorage in a roadstead in coastal waters awaiting barge loading;
ships docked or at anchorage holding inventory such as refined petroleum product awaiting access to an onshore storage facility or oil awaiting refining;
ships involved in production and processing, e.g. marine products; and
ships held at an anchorage point or wharf for biosecurity reasons, or if detained by the Australian Maritime Safety Authority.
In all other circumstances foreign seafarers be required to hold a Temporary Skill Shortage visa (Subclass 482), similar to the Canadian system.
Strategic fleet
3.99
The committee is supportive of exploring the idea of creating a strategic fleet, which would operate on a commercial basis, but be available for requisition by government in times of war or crisis. The committee envisages that such a fleet would also provide vessels for seafarers to train on, gain sea time necessary to meet the IMO STCW Convention requirements, and build up their experience at sea.
3.100
The committee recommends that the Australian government commits to establish a strategic fleet, and that a strategic fleet taskforce be established to advise on the legislative, operational, funding, and requisitioning arrangements necessary to establish a strategic fleet.
Maritime cluster
3.101
The committee acknowledges the potential benefits that a maritime cluster can provide industry participants, and notes that a number have been successfully developed in Europe and Asia. The committee notes the emerging opportunities for Australian shipping, and related onshore maritime activity, arising from the energy and industrial transformation trends in the Australian economy. The committee is supportive of the Australian government pursuing the maritime cluster concept, and assessing its viability in an Australian context through the creation of a maritime cluster development taskforce.
3.102
The committee recommends that the Australian government establishes an Australian maritime cluster development taskforce to advise on the development of a maritime cluster in Australia.
International shipping
3.103
The committee acknowledges that global trade patterns affect the availability of container shipping services in Australia, and highlights the importance of policies which ensure operators have continued access to frequent and reliable liner cargo shipping services at competitive rates.
3.104
Given this, the committee is concerned that Part X of the Competition and Consumer Act 2010 is not fit‑for‑purpose, with both industry and the ACCC calling for it to be repealed or reformed. The committee accepts that, if it is to be repealed, other protections must be put in place first to protect Australian exporters.
3.105
The committee recommends that Part X of the Competition and Consumer Act 2010 be reformed to ensure that it supports operators' continued access to frequent and reliable liner cargo shipping services at competitive rates and to ensure that liner service providers do not engage in anti-competitive behaviour.