Reinvigorating Coastal Shipping in Australia: Shipping Australia Ltd Luncheon

Speech

WTS022/2014

18 September 2014

Doltone House, Sydney

E&OE

Good afternoon ladies and gentlemen, it is a pleasure to be with you.

Sydney, of course, embodies shipping’s importance to Australia’s history—so there are few more fitting places for exchanging ideas about building a confident future for Australia’s shipping industry.

My thanks then to Ken [Fitzpatrick—Chairman of Shipping Australia Limited] and Stephen [Cleary—Chief Executive Officer of NSW Ports] for bringing us together today.

As New South Wales’ Minister for Roads and Ports, Duncan knows how important it is to be able to efficiently and cost-effectively move freight around New South Wales, but also around our nation.

Shipping can, and must, play an increasingly significant role in our freight transport network.

Australia’s shipping industry faces challenges in building its future, especially in the coastal trade, and I will turn to some of these pivotal issues shortly.

The Federal Government is spending $50 billion to upgrade our road and rail networks to ensure that we have the infrastructure necessary to support our growing nation.

Freight movements on road and rail are expected to double between 2010 and 2030, and treble along the eastern seaboard.

Coastal shipping has the opportunity to take long distance cargo off our highways and railway lines and move it around our coast.

However, this will only be possible if coastal shipping is competitive and productive.

As everyone here knows, it is neither.

As an island nation with an export focused economy, Australia is, and always will be, a maritime mover. Encouraging coastal shipping in this country is not a nice extra, it is logical and essential.

Today, I release Australia Sea Freight 2012-13 from the Bureau of Infrastructure, Transport and Regional Economics—the research arm of my Department.

Unsurprisingly, the report indicates that the vast majority of Australia’s international trade, by volume, is transported by ship… 99.5 per cent in fact.

Over $400 billion worth of international cargo moved across Australian ports in 2012–13, and some 4,900 cargo ships made almost 14,000 visits from overseas to Australian ports.

Those numbers are ever-growing. So it is clear that the ocean will always be our key export and import gateway to the world.

But it is domestically where we need to refocus our attentions.

The current situation is not bright and on course for a wreck.

This Government wants to set sail to fix the problems.

Australian ports handled 97.4 million tonnes of coastal freight during 2012-13, an almost 2% decrease on 2011-12. This continues a longer-term trend of decreasing amounts of coastal trade.

Under Labor’s flawed, bureaucratic and protectionist tiered licencing system, there were over 100 fewer coastal voyages and almost two million fewer tonnes of freight moved by foreign flagged temporary licenced vessels in its first year of operation.

The Australian trading fleet also continued the downward trend, with the number of major Australian registered ships with coastal licences declining from 30 in 2006-07 to just 13 by 2012-13.

While the number of vessels has marginally increased in the last year since the period of the Report, the deadweight tonnage, or carrying capacity of the coastal fleet, is a shadow of its former self, plummeting by 64 per cent over the two years of Labor’s Coastal Trading Act.

Clearly, coastal voyages and tonnages by international and domestic ships should be growing… not shrinking… and as a result, increasing congestion on our land based transport network.

These figures demonstrate two points. Labor’s policies have failed the industry, its employees and our economic growth and that, with the right policies, there is huge potential and upside for coastal trading unconstrained by needless red tape.

Maintaining competitiveness in coastal trading is not a new problem.

A witness to a Royal Commission into the Navigation Act said that it was remarkable that goods could be transported more cheaply from New York to Western Australia than from Sydney—and that was in 1924!

Today, shippers tell me that container rates from Melbourne to Brisbane are almost twice the cost of those from Singapore to Melbourne; that bulk freight rates on the east-west route have doubled in the past year alone and that transporting sugar from Thailand is cheaper than shipping it from Queensland.

As noted by the Minerals Council of Australia in their submission, for some dry bulk commodities producers the cost of shipping final product around Australia is the same as shipping it from Asia to Australia.

The Cement Industry Federation notes in their submission that, at the moment, there is no cost disadvantage to move clinker from one Australian port to another over importing clinker cement straight from Asia.

The Australian Peak Shippers Association—which represents Visy Industries, Intermix, Sunrice, Bega Cheese and many other large employers that use shipping services—sums it up well in their submission, saying:

“When it is cheaper to buy product in New Zealand and land it in Brisbane for blending than it is to purchase the equivalent Australian raw material from Victoria and ship to Brisbane, or indeed when it is cheaper to ship product in containers from Melbourne to Singapore than it is to ship the same from Melbourne to Brisbane, it is not hard to realize that our Australian exports, who are competing with Singapore based companies for the same export market are finding it tough to do so.”

These reports are cause for great concern. Clearly, things are crook, out-of-whack and in need of an urgent overhaul.

If our industry is uncompetitive, board rooms around the world will inevitably consider whether Australia is the right place for their product to be manufactured or whether bulk goods should be shipped straight offshore for processing, or whether materials or products should simply be imported from overseas.

These issues intensified over recent years.

Between 2000 and 2012, coastal shipping’s share of the national freight task fell from around 27 per cent to just under 17 per cent of the total—over a period when the volume of Australian freight actually grew by 57 per cent.

Figures I am releasing today show that some 49 million tonnes of coastal freight was loaded in 2012–13, but that five years earlier (2007–08) it was over 59 million tonnes. This represents an average 2.4 per cent decline each year in the total weight of coastal freight.

As I mentioned earlier, current freight projections from 2010 to 2030 are for the national road and rail tasks to almost double, while coastal shipping movements are projected to grow a mere 15 per cent.

Higher freight rates, and the loss of market share from shipping businesses to road and rail increase commercial pressures on Australian shipping—they also increase the physical and financial pressures on our land freight infrastructure. 

The national interest demands that shipping carries its share of the freight load.

And while some aspects of the Australian shipping environment are outside our control, the more immediate causes of the decline in its freight share are not.

They can and must be tackled head-on.

The Coalition Government is systematically working through the issues to shoulder our share of the load in building a more competitive shipping industry.

As you know, in July we returned the Protection of the Sea Levy back to its original level of 11.25 cents per net registered tonne.

This reversal of Labor’s hike is saving the industry more than $9 million a year.

We’ve also abolished the carbon tax on the fuel used in domestic shipping—saving the industry millions more each year.

But we must do more.

We have started consultation with industry on ways to better regulate coastal shipping in Australia.

The Government’s Options Paper on approaches to regulating coastal shipping was released in April this year.

My Department has received submissions from 85 interested parties on the possible options for shipping regulation reform—and my thanks for your efforts and frankness in this watershed process.

The discussion covered many, often complex issues. We are considering these issues in detail—and your responses to them —very carefully.

But, today, I want to reaffirm that the Government is committed to a viable and feasible coastal shipping framework that enables the industry to operate effectively and serves the national interest.

Our response will be consistent with the guiding principles of the Coalition Government to reduce red tape and increase productivity and international competitiveness.

It is already clear that the operating costs of Australian ships, and particularly labour arrangements, are uncompetitive when compared with operating costs for foreign ships.

For example, Cristal Mining submitted that the difference between using Australian and foreign ships costs their business an additional $5 million every year.

We need to remedy this disadvantage to build a competitive shipping industry.

I want to be quite clear—no one with any sense wants to see workers exploited—anywhere—let alone in Australia or on Australian waters. 

Yet, we operate in a global arena. Global businesses like shipping need labour arrangements that are competitive—both to attract the right people and to ensure the business remains afloat.

Today, and particularly under the arrangements the shipping industry inherited from Federal Labor’s dubious reforms, these two requirements are not balanced in a way that encourages a buoyant coastal shipping industry.

For instance, Bell Bay Aluminium saw a 63% increase in their shipping freight rate from Tasmania to Queensland in the first year of operation of Labor’s Coastal Trading Act—an increase from $18.20 a tonne in 2011 to $29.70 a tonne in 2012.

This is compared to the freight rates offered by foreign vessels which sat at $17.50 a tonne in 2012. At the same time demurrage rates more than doubled from $14,000 to $35,000.

All up, this adds an extra $4 million per year cost to Bell Bay. This is a company that employs over 400 Tasmanians. If we want these sorts of industries to continue into the future in Australia then we need to ensure that their freight services are competitive.

Ill-considered knee-jerk protectionist dogma masquerading as labour reforms did not save Australian jobs on the water and has cost jobs on land.

Labor’s sop to the maritime union is costing jobs and has the potential to cost a lot more jobs in our manufacturing industries, aluminium and mineral sands processing, gypsum, cement and sugar to name a few.

Australia’s economic health depends on its competitive efficiency in a tough global marketplace, which will not get any easier.

It does not help our national cause when coastal shipping is bound by regulations which can require a ship to wait idle in port for a day before loading can commence.

Various submissions to the Government’s Options Paper, including from Bell Bay Aluminium, tell us that delays like this can cost foreign vessels around $10,000 a day—and more than $20,000 a day for Australian ships.

Nor can it help, as in Cristal Mining’s case, when ta Temporary Licence Holder had to move 50 kilograms of product onto their ship before it berths, just so they could commence loading within their required timeframe.

Enough is enough. It just doesn’t make sense.

Yet this is what the shippers experience in complying with the terms of their Temporary Licences.

The absence of coverage under the Temporary Licence system for ships carrying petroleum products to the mainland is just weird, to say the least, especially in a nation that seeks to harvest its off-shore oil reserves.

Floating Production Storage and Offloading units fall outside the coverage of Labor’s Coastal Trading Act because they do not fit within the scope of the Act.

This means the costs of moving petroleum from an installation to the mainland are exorbitant. The status quo is anti-business and anti-trade.

I know that most of you have voiced your complaints with the restrictions and red tape on business caused by the Coastal Trading Act.

The five voyage minimum and the paperwork surrounding variations under the Act are a salient case in point.

It does not help anyone when a piece of oversized, heavy machinery cannot be moved by ship and must go by road—just because this would constitute a single voyage, and you cannot get a Temporary Licence for a single voyage. 

Or, as noted by the Aluminium Council in its submission, even when alumina supply at smelters reaches critically low levels, because of a lack of flexibility in the current Act, suppliers cannot adjust the dates and shipping voyage routes in a timely way.

In fact, the Business Council of Australia estimates that Labor’s system has inflicted over 1,000 extra administration hours per year on the industry to comply with the new system.

This system does not support the needs of business, and changes to remove these unnecessary and nonsensical barriers to the modern, flexible demands of business are needed now.

I am sure that many of you encounter similar examples—and these imposts on the industry, and the nation, have galvanized the Government’s focus on fixing shipping.

To this end, the Government is considering the best way to implement a significantly more flexible permit system to stimulate the use of coastal shipping in Australia.

We are also considering options to reform the Australian International Shipping Register and expand its scope to potentially include coastal shipping services.

I am cognisant of the interaction between Customs importation requirements and the Coastal Trading Act and I am working with my Ministerial colleagues to also resolve this issue.

There are also special circumstances related to the cruise industry which need to be taken into account.

Labor sunk shipping in a diabolical bid to keep their maritime union mates onside during the dark days of the Rudd-Gillard-Rudd era. We were elected to end the wreckage and calm the industry waters.

The coastal trading sector has problems, but, as a government, we also see its great opportunities for growth and expansion once we can get the regulatory monkey off the industry’s back.

Developing sustained solutions depend on genuine reform to free up the sector, not wishful thinking and a nod to unionists.

Shipping needs to be treated as a vital part of our national transport system—not a failed jobs for the boys scheme.

The Coalition Government is determined to alleviate the misplaced burdens our predecessors imposed on Australian shipping —and to help create the conditions for the industry’s growth and success.

A major part of this success has to involve providing Australia with access to efficient and competitive shipping services.

We need a shipping industry that can meet competitive challenges—not be sheltered from them.

Protectionism is a mirage provided by strangling red tape at excessive cost to the industry, its customers, and to the nation. 

So we need to develop an industry that can make the most of domestic and international opportunities, and be responsive to changing patterns of demand.

I know that once on an even keel, the coastal shipping industry has the ‘will’ to overcome the obstacles and build its future.

You can rest assured that the Coalition Government can match that ‘will’ in pursuing approaches that encourage solutions and shipping industry progress.

Together, I believe this combination bodes well for shipping’s future and its ability to contribute so much more to our nation’s prosperity.

Thank you very much.