Saturday, January 11, 2014

Repeal the economic vandalism crippling shipping

Anti-competitive coastal shipping laws have existed in Australia for more than a century.  While recent changes have made the laws worse, we shouldn't settle for winding back the changes:  the laws should be entirely repealed.

The economic case could not be stronger.  According to an impact statement prepared by the Department of Infrastructure and Transport, repealing coastal shipping laws has the potential to increase Australian GDP by up to $466 million to 2025.

Scrapping the generous subsidies offered to Australian-registered vessels will save more than $254.5m over four years.  Exempting foreign-registered vessels employing foreign crews from the Fair Work Act will cut production costs of Australian manufacturers, saving local jobs and boosting the nation's export competitiveness.

Over time, the coastal shipping trade has become more competitive.  While the number of Australian ships engaged in the coastal trade only slightly declined between 1996 and 2006, the number of foreign ships almost tripled.

Rather than recognising that increased competition was delivering cheaper freight for Australian commodity producers, in 2012 the federal Labor government introduced more than 250 pages' worth of new laws to ''revitalise'' the Australian shipping industry.  Of course, ''revitalise'' meant that the government was going to artificially protect Australian vessels by restricting or prohibiting foreign competition.

Labor's changes meant that foreign-owned vessels employing foreign crews now needed to comply with Australian labour laws.  The changes also overhauled the old licence and permit system with a complicated three-tiered licensing system.

While Australian vessels now have unlimited access to the coastal trade, foreign vessels can only apply for temporary licences that come with extensive conditions and reporting requirements.  Australian vessels are now also subsidised by various tax incentives.

The changes were economic vandalism.  In introducing them, the government consciously placed Australian-registered coastal shipping vessels above Australia's broader economic interest.  The Department of Infrastructure and Transport warned that the more effective the changes were at keeping Australian vessels afloat, the worse Australia's economic growth would be.  Economic evidence from Deloitte Access Economics projected long-term job losses for the shipping industry.

The coastal shipping trade exists primarily to service Australian producers of bulk commodities such as iron ore, alumina, and sugar.  About 85 per cent of all coastal shipping cargo comprises of dry and liquid bulk.

Coastal shipping favours these goods because the market for containerised transport is the most competitive in road and rail.

Astonishingly, the former government's changes to coastal shipping laws have increased the price of the producers of these bulk commodities.

By restricting or prohibiting foreign competition, the immediate economic effect is to drive up domestic transport costs for these commodities.

The Bell Bay Aluminium smelter in Tasmania's north is just one example.  Coastal shipping from Tasmania is already more expensive than shipping between mainland ports, and the 2012 changes have made costs unsustainable.

In a recent submission to the Productivity Commission, BBA gave evidence that as a result of the changes its freight costs had increased from $18.20 a tonne in 2011 to $29.70 in 2012 — an increase of 63 per cent.

BBA's demurrage rates more than doubled, from $14,000 in 2011 to $35,000 in 2012.  As a direct result of the changes, BBA's total costs increased by $4m per year.

BBA is a viable export manufacturer that contributes an estimated $690m per year to the Australian economy.  Yet this poor legislation has decreased its competitiveness at the same time as the price of aluminium is relatively low and the Australian dollar is relatively high.

With manufacturers such as Holden announcing that they will cease operations in Australia and food manufacturer SPC Ardmona looking for government handouts to remain viable, we need to do everything that we can to support viable Australian producers.

The 2012 changes missed the proper focus:  costal shipping reform needs to drive cost efficiencies for Australian producers of bulk goods.

The coastal shipping market will be most efficient if it is free from the burden of these anti-competitive laws.

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