Chapter 3Key issues raised in evidence
There are a lot of complexities in managing a very short supply chain in terms of the route. I don't believe there is an easy fix, otherwise it would have already been kicked into play a long time ago.
3.1As detailed in the previous chapter, the Tasmanian Freight Equalisation Scheme (TFES, the scheme) has been periodically reviewed, including as part of wider investigations into freight, and subject to modest amendments since itsestablishment.
3.2This chapter considers matters raised in evidence in submissions and at public hearings from a range of industry bodies, organisations, government entities and businesses, ranging from small and medium enterprises (SME's) to larger firms. Collectively, the issues raised and discussed in this chapterinclude:
the critical importance of the scheme to Tasmanianbusinesses;
stagnating levels of assistance provided by the scheme;
a lack of competition among freight providers across the BassStrait;
the impacts of increased intermodal costs on freight reliantbusinesses;
increasing reliance on air freight, particularly among BassStraitIslandbusinesses;
the complexity and accessibility of seeking assistance under the scheme; and
exacerbated cost of living pressures being experienced by Tasmanians and Bass Straitislanders.
The Tasmanian Freight Equalisation Scheme in practice
3.3Evidence recognised that, as an island state, Tasmania will always rely on freight to facilitate trade with mainland markets. With the overwhelming majority of freight travelling by sea, the reliability and accessibility of Bass Strait shipping services is and will remain vital to Tasmania’s economic sustainability into thefuture.
3.4Stakeholders recognised the reality that sea freight over relatively short distances is disproportionately more expensive than road and rail alternatives. Sea freight is typically not cost-effective compared to road transport over distances comparable to Bass Strait (approximately420kilometres).
3.5However, it was noted that in the absence of any cost-effective transport alternatives, the TFES was established to alleviate the freight disadvantage experienced by Tasmanian businesses and to provide equitable access to mainland and other markets.
3.6The Tasmanian Government, in its submission, estimated that approximately 99 per cent of Tasmanian goods sold outside Tasmania are freighted across Bass Strait by sea and that around 40 per cent of all twenty-foot equivalent units (TEUs) received TFES assistance. Itsubmitted:
Approximately 99 per cent of Tasmanian goods sold outside Tasmania, or outside goods brought into Tasmania, are freighted across Bass Strait by sea. Moving goods across Bass Strait is relatively expensive when compared to road and rail transport, due to the high-fixed costs of shipping over relatively short distances. Several studies have demonstrated that these additional costs are both unavoidable and materially impact the competitiveness and profitability of Tasmanian businesses.
3.7The Tasmanian Government further supported the critical importance of TFES in their submission, citing a 2022 Tasmanian Government survey which found two-thirds of Tasmanian businesses utilising freight had benefited from TFES assistance.
3.8A number of submitters sought to highlight the vital importance of the scheme to the viability of Tasmanian businesses, with several even suggesting that operating their business in Tasmania would not be viable without the scheme.
3.9For example, at the Hobart public hearing, Mr Patrick Dooley, General Manager of the Norske Skog Boyer Mill, articulated the importance of the scheme to the corporation, as well as the broader Tasmanian economy:
Without TFES, the Boyer Mill and, I dare say, many other Tasmanian businesses would not be operating today. And without appropriate future support, these businesses will not survive in the future, and Tasmania's economy and Australia's sovereign manufacturing capacity will be placedatrisk.
3.1Simplot, the largest claimant under the scheme according to the most recent reporting, submitted that:
The TFES is crucial for Tasmanian agriculture, providing essential support to offset the high costs of shipping goods across Bass Strait. The Scheme enables Simplot to remain competitive in national markets, supporting jobs and economic growth in Tasmania.
3.10Driscoll’s Australia similarly submitted that:
...without the TFES, the competitive landscape for Tasmanian berry producers would be even more challenging.
3.11Despite the importance that many Tasmanian businesses attribute to the scheme, over the course of this inquiry, evidence has confirmed what many claimants have long known–that the scheme has not kept pace with increasing Bass Strait freight costs over recent decades.
3.12Evidence to the inquiry has revealed that the class scale system is out of date and that the vast majority of claimants are seeing dramatically reduced levelsofassistance.
The sliding scale of assistance
3.13TFES assistance is calculated on a sliding scale, contained in Schedule 3 of the Ministerial Directions for the Operation of the Tasmanian Freight Equalisation Scheme. This scale determines the notional entitlement of claimants, stating:
Once the *notional entitlement has been calculated under subclause 3.11.1, the standard weight assistance per *TEU for that consignment, or part thereof, is calculated under Schedule 3. The application of the Schedule produces a sliding scale of *assistance depending on whether the claimant’s notional entitlement makes them a Class 1, Class 2, Class 3 or Class 4 claimant under Schedule3.
3.14In its submission, the Department of Infrastructure, Transport, Regional Development, Communications and the Arts (the department) stated that:
The sliding scale of payments is intended to provide an incentive to shippers to seek out lower freight rates, and to shipping companies not to raise freight rates to take advantage of the subsidy.
3.15The sense that many claimants are seeing dramatically reduced levels of assistance was shared near unanimously by submitters and witnesses to the inquiry, and evident in the Bureau of Infrastructure and Transport Research Economics(BITRE)’s2024consultationdraftTasmanianFreightEqualisation Scheme:MonitoringReview.
3.16In 2000-01, Class 1 claims reflected the highest percentage of all claims at 40.3 per cent, with just 8.1 per cent of claims at the highest classification of Class 4.
3.17However, in 2022-23, Class 1 claims had dropped to just 3.3 per cent of all claims, with an overwhelming majority of 78.4 per cent of claims at the highest classification of Class4.
3.18Fruit Growers Tasmania, the peak fruit grower association representing the interests of 94 grower members and 41 associate members in Tasmania, submitted that this shift:
… clearly shows that the scheme has not kept up with increasing shipping charges associated with port fees, wages, shipping operations and infrastructure costs.
3.19In their submission, Norske Skog Boyer Mill describe this phenomenon as ‘class slip’, and report that an increasingly high proportion of their claims have now met, and stagnated at, the maximum Class 4 amount per claim of $855.
3.20The TFES is demand-driven and expenditure is uncapped. This means that when budget forecasts are exceeded, the Commonwealth ensures there are enough funds to reimburse all eligible claims.
3.21In2023-24, a total of $185.2million was paid to eligible shippers under TFES, across approximately 17000claims.
3.22TFES funding is not indexed and the forecast budget is appropriated through the Portfolio Budget Statements(PBS) Forecasts. These forecasts are reflected in the submission from the Department, which includes Forward Estimates out to2026-27 and reflect a modest growth in expenditure.
3.23A number of submitters expressed the view that the metric for calculating TFES assistance should be entirely reconstructed to account for current Bass Strait freight costs and indexed to the Consumer Price Index(CPI), to avoid being outpaced by inflation moving forward.
Shipping costs, competition and shipping industry competitive structures across Bass Strait
3.24Bass Strait is recognised as Australia's busiest coastal shipping route. The main route between the main island of Tasmania and mainland Australia is serviced by three freight operators: Strait Link Shipping (formerly Toll Shipping), SeaRoad Shipping and TT-Line. Additionally, the Bass Strait Islands are serviced by Bass Strait Freight, Eastern Shipping Line, and Bass Island Line.
3.25When TFES was first introduced in 1976, freight across the Bass Strait was dominated by a small handful of firms, with the majority of trade carried by Australian National Line(ANL), United States Ship(USS),andHolymans.
3.26In 2024, despite the Bass Strait being Australia's busiest coastal shipping route, competition has remained moreorlessstagnant, with StraitLinkShipping (formerly Toll Shipping), SeaRoad Shipping, and TT-Line currently dominating freight across the BassStrait.
3.27At face value, the scheme would appear to have contributed little to the competitiveness of freight across the Bass Strait. The lack of competition among freight providers across the Bass Strait is understandable and unlikely to change due to the geographic position and economic scale of Tasmania.
3.28The Tasmanian Government articulated this challenge in itssubmission:
Tasmania’s ability to attract investment from international shipping lines is limited by relatively low container freight volumes, and a need for shipping lines to invest in vessels that meet Bass Strait conditions and available on-land infrastructure. Additional services can be expected to lead to more competitive pricing across shipping lines servicing Tasmania. However, it is also Tasmania’s experience that international shipping lines do not have the same level of vested interest in maintaining dedicated Tasmanianservices.
3.29A number of submitters and witnesses contended that Bass Strait is one of, or even the ‘most expensive stretch of water in the world’ to ship freight across. Though this would be a challenging metric to quantify without access to international freight data sets, the view was held by many witnesses andsubmitters.
3.30Mr Saul Eslake supported this general assertion, while highlighting some comparable shipping routes internationally. Further speaking to the foundational importance of the connectivity of states to the Australian federation, Mr Eslakeobserved:
[T]here aren't many places in the world where you build a sealed highway and a railway through such empty territory as Australia has done between Port Augusta and Perth or Tarcoola and Alice Springs and then Alice Springs all the way up to Darwin. Again, these are unusual features of the Australian landscape that Australian governments have dealt with since the foundation of the country. Very few people question the fact that every year the Commonwealth government allocates tens of millions of dollars to the maintenance and upgrading of the national highway network. That's not considered a subsidy to businesses in Western Australia, Queensland, South Australia, New South Wales, Victoria or the Northern Territory. But somehow doing something that provides the equivalent to Tasmania is considered by people in mainland states as a'subsidy'.
3.31A 2012 report from the then-National Infrastructure Coordinator found that, rather than nurturing the competitiveness of Tasmanian freight, the scheme had been ‘built into industry's expectations.’ The report recommended, among other things,that:
The Commonwealth withdraw its direct funding of the Tasmanian Freight Equalisation Scheme and request the Commonwealth Grants Commission to consider the freight disadvantage in its work on the distribution of GSTrevenues.
3.32While acknowledging that the scheme is ‘deeply embedded in Tasmania’s freight arrangements’, the Tasmanian Government rejected the notion that the scheme had negatively impacted the competitiveness and efficiency of freight arrangements within the state, submitting that:
Despite the longstanding existence of the Scheme, it has not acted as a disincentive to reduce freight costs in all other aspects. Successive Tasmanian Governments and transport businesses have worked to improve freight transport and efficiencies within the State.
3.33There were, however, concerns raised in evidence around the efficiency and effectiveness of the administration of TasPorts, particularly as it relates to the facilitation of competitive trade between Tasmania and the mainland, and service delivery of Bass Island Line, being one of the three regular freight services to the Bass Strait Islands.
3.34At the Hobart hearing, the committee heard from Mr Anthony Donald, Chief Executive Officer, TasPorts, who spoke to some of the ways in which federal competition law limits the ability to reduce intermodal costs, specifically wharfage costs:
One of the obligations that we have is to comply with competition law. We compete with two other entities that move volumes directly into Victoria. The definition of 'wharfage' is such that when volumes move across the berth there's a cost associated with the upkeep of that wharf. That cost is a real cost. That obligation requires us to be even-handed in our approach and to make sure we don't reduce our costs below the real cost from a competition law perspective.
3.35At the King Island hearing, the committee heard from Mr Roger Clemons, a member of both TasFarmers and the King Island Beef Producers Group whostated:
You might as well say it's a monopoly and we've got very little power to do much. When the drought was on, just for your information, we needed two trips a week out of Devonport. If it wasn't for the Premier telling TasPorts to do it, they wouldn't have been interested. On the first sailing, I got a message to say there's no freight. I rang to check; I knew there was. There were 55 trailers waiting in a queue to get to King Island with feed and everything else, and that's the message we got from TasPorts. We got straight back to the minister and they pulled their heads in. That's the sort of stuff we get.
3.36At the Hobart hearing, Mr Donald, responded,stating:
I might just try to describe the complexity and challenge that we have and hope the committee can take something away from that. There are three operators that service the islands, both the Furneaux Island Group and also King Island. Bass Island Line is a business owned as a subsidiary of TasPorts. There are two other privately owned entities. The three businesses are very different. We all move livestock, but we all move livestock differently. We all move containers, but we all move containers differently. The Bass Island Line service runs on a weekly cycle. We commit to a minimum of 52 sailings a year. It's an 80-odd metre-long vessel, a flat-bottom barge. It performs really well. There are some months where it's absolutely full and there are other months where we're pushing clean airaround.
3.37Strait Link, the largest carrier, responsible for carrying $5. l billion of trade across Bass Strait, alleged that TasPorts’ control of all commercial ports in Tasmania, coupled with poor maintenance of critical infrastructure, has resulted in a ‘monopoly’ that is failing to best serve Tasmanian businesses and theircustomers.
3.38Strait Link’s submission argued that:
Burnie's port infrastructure has fallen into disrepair with the existing wharf needing substantial repairs.
TasPorts has determined that several large operational areas of the wharf are unsafe. These areas have been marked off-limits, significantly impacting Strait Link's operations in both cost and daily capacity.
3.39At the Longford hearing, the committee heard from Mr Matthew Ryan, Director and Partner, Jaytric Logistics Pty Ltd and MD & TJ Ryan, that the differential pricing utilised by TasPorts subsidiary TT-Line poses an additional layer of complexity for claimants to the scheme. In effect, resulting in claimants paying a higher price to ship the same volume of onions as they would for carrots, despite being shipped ‘on a curtain-sided trailer the same as most other generalproduce.’
3.40The committee also heard that intermodal costs, including increasing port charges, fuel surcharges, terminal access and storage, can be almost as high a proportion of total costs as freight charges themselves. Yet, the fixed TFES intermodal reimbursement remains at $100.
3.41Mr Nick Steel, Chief Executive Officer, Tasmanian Forest Products Association, described the intermodal costs as ‘the changeover from when you're going from road to port, to port from there and then port to road’.Mr Steel further explained that the fixed intermodal reimbursement rate was inadequate,stating:
That's obviously a big disadvantage, comparing that to the mainland, where you're going rail straight through to the destination or road straight through to the destination. The intermodal gives some assistance in terms of alleviating that. Again, that hasn't been indexed over time. That's something that potentially should be reviewed, to consider if that $100 is enough—we would say it's not—and look to increase that. That's something that can happen, I would have thought, quite quickly, to provide more assistance to Tasmanianbusinesses.
3.42A number of submitters and witnesses argued that the intermodal reimbursement should be reviewed, with a view to fixing it to CPI, to ensure it remains adequate into the future.
Alternative freight options
3.43When TFES was first introduced in 1976 sea freight was the primary mode of transportation that would allow Tasmanian businesses to access mainlandmarkets.
3.44However, in recent decades, with the rise of cottage industries in Tasmania, particularly the artisanal food industry, smaller producers are increasingly reliant onair freight to get their products to mainlandmarkets.
3.45The department acknowledged this in their submission:
The alternative freight option for moving freight to Tasmania is via aircraft from either Launceston Airport in Tasmania's north or Hobart Airport in the south… Air shipments of freight are generally high value cargos shipped in low volumes, for time sensitivefreight.
3.46A number of submitters to the inquiry argued that air freight should be eligible for TFES assistance, citing clause 2.16 in the Ministerial Directions allowing for transport by air in exceptional circumstances.
3.47This clause states:
The *Secretary may make an Exceptional Circumstances declaration under
this clause in relation to goods transported by air if satisfied that:
(a)in normal circumstances the goods would have been shipped by sea;and
(b)the goods were, or will be, transported by air because of the temporary unavailability of a regular shipping service.
3.48These proposals cite the Exceptional Circumstances clause in the Ministerial Directions, which would allow TFES support provided that the delegate is satisfiedthat:
…in normal circumstances the goods would have been shipped by sea and the goods were, or will be, transported by air because of the temporary unavailability of a regular shipping service.
3.49The reliance on freight is just as much, if not more critical for the sustainability of regional communities on King Island and the Furneaux Group islands, than it is for the main island of Tasmania.
3.50This emerged from stakeholders from these regions. Flinders Council and King Island Council, as well as businesses and community groups based on the Bass Strait Islands, submitted that air freight is critical to ensure sustainable access for the region and proposed to include air freight to the Bass Strait Islands inthescheme.
3.51According to submission from the department, this clause was last used in September 2016 to freight goods to King Island, when the regular sea freight vessel was occupied responding to a marine emergency.
3.52King Island Council supported its proposal to include air freight in the scheme by providing the following evidence:
For King Island, there are just two sailings scheduled, both requiring transhipment in northern Tasmania, and both will cancel their trip in the case of poor weather. On top of the 12 hour journey from Devonport to Melbourne, King Island produce will also have a similar journey from Grassy to Devonport and an indeterminate amount of time on the wharf at Devonport awaiting transhipment. This is not a "regular shipping service". As such, King Island producers with short shelf-life and other time-sensitive freight have to rely on air freight.
3.53Similarly, Flinders Council further submitted that:
[B]usinesses relying on air transport face higher costs without any relief from the scheme… By integrating air freight support and revising eligibility for island-specific businesses, the TFES could better serve its original purpose of reducing the freight disadvantage.
3.54Evidence from the Bass Strait Island councils also indicated a number of inconsistencies in the treatment and eligibility of the Bass Strait Islands inrelation to the scheme, presenting an opportunity for harmonisation, specifically around the issues of:
inconsistent eligibility for assistance for northbound goods heading to mainland Australia; and
inconsistent eligibility for assistance under the Charitable organisations (southbound) clause.
Operation and administration of the scheme
3.55A number of submitters and witnesses raised concerns about the complexity and accessibility of the scheme, particularly for small and medium sized enterprises that are less practiced at, and have fewer resources dedicated to, makingclaims.
3.56However, over the course of the inquiry the committee heard from a range of former and prospective claimants who argued that the complexity and administrative burden involved in making a claim was a significant deterrent to lodging TFESclaims.
3.57The complexity of claiming the rebate is evidenced by the existence of commercial services that submit claims on behalf of businesses but take a substantial percentage of the claim, thereby reducing the rebate amount for the individual businesses TFES intended to support.
3.58As Mr Corey Harris articulated at the Longford hearing, these businesses exist specifically because the scheme is ‘just too hard’ for everyday claimants tonavigate.
3.59Mr Harris further explained that:
With the low value of our products and the small consignment sizes of our freight, the assistance is disproportionately unfavourable for the smallplayers.
3.60This is particularly true among small and medium sized operators, who unlike larger firms, are less well resourced and do not have staff dedicated towards making TFES claims, nor can they afford to access the services of an external registered claims agent. In many cases, these are small business owners and farmers, that have to juggle a range of pressures and responsibilities. For many, the administrative burden imposed by the TFES claims process is not worth the time investment required.
3.61This sentiment was well captured in the submission from Ms Sally Walker, who runs Walker’s Supermarket on Flinders Island. She submitted that:
It took me a couple of hours a week to copy and collate invoices with consignment notes and fill the required forms out and send off. No doubt the receiver at Services Australia had just as much work at the other end... The amount of money I received would never cover the time invested inprocess.
3.62This sense that the administrative burden of TFES claims is outstripping the benefits was shared by other submitters and witnesses.
3.63One example of this, in Hobart, the committee heard from Ms Sheralee Davies, Wine Tasmania who shared that:
Our research indicated that 40 per cent of our wine businesses are not claiming the Tasmanian Freight Equalisation Scheme because the rebate on those individual shipments—the smaller scale shipments—is too small to justify it and the process to claim is unjustified.
3.64While the committee acknowledges that Services Australia publishes a range of written guidance materials to support the lodging of TFES claims, evidence to the inquiry suggests that there is still a considerable amount of confusion and an excessive administrative burden for many claimants.
3.65Evidence also reflected frustration regarding the timeliness of claims processing. On King Island, Ms Heidi Weitjens, President of the King Island Chamber of Commerce and Industry, articulated this frustration:
the application process is described as onerous—nicely, of course—contradictory and resource intensive, with prolonged waiting times for claimoutcomes.
3.66There is no question that there is ample information published online across the websites of the department and Services Australia relating to TFES. However, knowing where and how to access this information, assess eligibility and lodge an accurate claim is clearly proving difficult for many prior and prospectiveclaimants.
3.67The committee notes that there is an expected degree of administrative burden to claiming any government assistance and it is important that all recipients of taxpayer funded subsidies are well evidenced and compliant with the appropriate checks and balances.
3.68The committee acknowledges that Services Australia has an agreed Key Performance Measure (KPM) to process 80 per cent of TFES claims within 30-days from the date the claimant submits, which has been consistently achieved. However, while data provided by Services Australia indicates that this KPM is consistently being met, there are a small number of submitters that have reported delays to claims processing.
Cost of living pressures
3.69In recent years, the impact of cost of living pressures has gained increased public attention, as many Australians struggle to meet the costs of essential goods and services including food, housing, energy, and healthcare.
3.70These pressures are well-documented across several recent Senate inquiries, including the Select Committee on the Cost of Living and the Select Committee on Supermarket Prices, which have both reported this year.
3.71This select committee was established to examine the Tasmanian Freight Equalisation Scheme, and the committee has received a range of evidence from submitters and witnesses that highlight what is working with the scheme and areas for improvement. As the committee conducted the inquiry and held hearings around Tasmania it became apparent that many of the burdens experienced by businesses and individuals are adjacent to the scheme, rather than arising from the scheme itself.
3.72As an island state, with high rates of social and economic disadvantage and limited economic competition, Tasmania is uniquely exposed to exacerbated cost of living pressures. So, too, are the Bass Straitislands.
3.73The committee heard evidence that the cost of everyday essentials like milk, eggs and petrol are even higher on the Bass Strait islands than on the main island of Tasmania and the mainland, and many island residents and businesses are struggling to make ends meet.
3.74The Mayor of King Island, Mr Marcus Blackie, told the committee:
At the moment, we are enduring disproportionately high shipping freight costs which are stifling our economy and also creating increased costs of living here on King Island. If something isn't done soon, we are concerned it might ultimately become unsustainable.
3.75The committee is sympathetic to the cost of living pressures being experienced right across the country, including the exacerbated pressures being experienced by Tasmanians and Bass Strait islanders specifically. The causes and solutions to these issues are complex and there is no single solution or silver bullet toaddress them.
3.76However, with respect to the Tasmanian Freight Equalisation Scheme specifically, Tasmanian disadvantage is narrowly defined as the difference between the freight costs of shipping goods by sea and the notional freight costs of shipping them by road over an equivalent distance.
3.77Addressing class slip and realigning the policy intent of the scheme, as this committee recommends, is one small way that the Commonwealth Government can alleviate the cost-of-living pressures being experienced by Tasmanians right across the state.
3.78In saying that, the broader disadvantages and economic challenges facing Tasmanians are well beyond the remit of the scheme alone to influence. More work is required at all levels of government to ensure Tasmanian communities and businesses, regardless of location and geography, can survive intothefuture.