Coastal Shipping Reform: Industry Saviour or Regulatory Nightmare?

With Aaron Lane

Executive Summary: On July 1 2012, the Gillard Government passed the most extensive suite of changes to coastal trading since the Navigation Act 1912 in the form of the Coastal Trading (Revitalising Australian Shipping) Act 2012 and its associated Acts.

They come on top of the Fair Work Act 2009, which imposed Australian labour standards on foreignregistered ships operating with foreign crews in the Australian coastal shipping trade.

The combination of these changes have negative effects for the Australian economy and for Australian businesses and consumers.

  • These changes are intended to reduce the number of foreign vessels currently carrying coastal freight, and to make Australian ships more competitive. They do so by significantly increasing the regulatory burden on foreign-flagged ships.
  • Foreign-registered ships temporarily operating on the coastal trade must undertake at least five voyages in twelve months, and the loading dates, origin and destination, cargo types and volumes are specified at the start of that period.
  • Foreign-registered ships can only carry cargo if there are no Australian-flagged ships (or foreign-flagged ships transitioning to Australian flags) that can do so.
  • Foreign-flagged ships carrying foreign crews have to pay Australian award wages, which are far in excess of International Transport Workers’ Federation rates.

These changes are aimed at encouraging the use of vessels that employ solely Australian resident crews. In doing so, the changes have the effect of significantly reducing the flexibility in the coastal shipping trade, and squeezing foreign-flagged ships out of the market. As a result of the 2012 changes alone, the net present value of the coastal shipping industry’s net economic benefit to the Australian economy is between $76 million and $150 million less than it would be in the absence of these changes.

It is clear that the changes will increase transport costs. This could result in bulk commodities being sourced from cheaper overseas markets, thus negatively affecting Australian commodity producers.

Increased transport costs could also be passed downstream to consumers. This paper examines the broader economic effects that seem likely to arise as a result of these changes.

Finally, this paper asks what ought to be done about coastal shipping. It concludes that a marketdriven, open regulatory framework should instead govern Australian shipping, and it calls on the Abbott Government to implement changes as a matter of priority.

Available in PDF here.