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2013-2014-2015
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SHIPPING LEGISLATION AMENDMENT BILL 2015
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Infrastructure and Regional Development
the Hon Warren Truss MP)
SHIPPING LEGISLATION AMENDMENT BILL 2015
OUTLINE
The purpose of the Shipping Legislation Amendment Bill 2015 is to amend the Coastal
Trading (Revitalising Australian Shipping) Act 2012 and the Shipping Registration Act 1981.
The amendments to the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Coastal
Trading Act) will replace the existing three tiered licensing system with a single permit
system. A Coastal Shipping Permit (CSP) will be granted to the owner of a vessel, or a
person who has day to day responsibility for a vessel, and will provide the vessel with access
to coastal shipping for 12 months. The Coastal Trading Act will also be renamed to Coastal
Shipping Act 2015.
The amendments will establish a framework of entitlements for seafarers on foreign vessels
engaging or intending to engage in coastal shipping for more than 183 days. The amendments
will apply Part B of the Seagoing Industry Award 2010 (Award) to seafarers on vessels that
engage predominantly in coastal shipping when the Fair Work Act 2009 (Fair Work Act)
applies to them. Where a vessel traded for more than 183 days contrary to what was indicated
in a permit, the amendments will provide an enforcement mechanism for seafarers to recover
payments. The Bill also provides that a new coastal shipping permit must not be issued to a
foreign vessel in these circumstances if the Minister is satisfied that the applicant has not
correctly paid required amounts to seafarers under a previous permit.
Foreign vessels engaging in coastal shipping for more than 183 days will also need to have
two senior skilled crew members who are eligible to work in Australia because they are
citizens, residents, or hold a relevant visa.
The amendments to the Shipping Registration Act 1981 will replace the requirement to be
predominantly engaged in international trading to be registered on the Australian International
Shipping Register, with a requirement to undertake 90 days of international trading per year.
Entry into a collective agreement with the seafarers‟ bargaining unit will no longer be a pre-
requisite to becoming registered. The ability for seafarers on vessels registered on the AISR to
make collective agreements is unchanged.
The amendments will also apply Part B of the Award to seafarers on vessels registered under
the Australian International Shipping Register and not engaged in international trading.
These vessels will also need to have two senior skilled crew members who are eligible to
work in Australia because they are citizens, residents, or hold a relevant visa.
Financial impact statement
There will be no financial impact to the Commonwealth as a result of this Bill.
Regulation impact statement
A Regulatory Impact Statement for the coastal shipping reforms has been prepared. It is
attached to the back of this explanatory memorandum.
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Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Shipping Legislation Amendment Bill 2015
This Bill is compatible with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Overview of the Bill
The Shipping Legislation Amendment Bill 2015 provides a new framework for the regulation
of coastal shipping in Australia. The Bill will allow for the existing tiered licencing system
under the Coastal Trading (Revitalising Australian Shipping) Act 2012 to be replaced with a
single permit, available to both Australian and foreign vessels, which will provide access to
the Australian coast for a period of 12 months. These permits will be held by commercial
entities. In addition, the Bill will amend the Shipping Registration Act 1981 to allow for
vessels to be registered on the Australian International Register if they engage in international
shipping for a period of 90 days or more.
The Bill will establish a framework of entitlements for seafarers on foreign vessels engaging
or intending to engage in coastal shipping for more than 183 days and provide that those
foreign vessels have two senior skilled crew members who are eligible to work in Australia
because they are citizens or residents or hold a relevant visa.
The Bill will include minimum entitlements for seafarers on Australian vessels that are
registered on the Australian International Shipping Register when those vessels are engaged
in coastal shipping work covered by the Fair Work Act 2009 (Fair Work Act).
The Bill will make changes to the Shipping Registration Act 1981 to amend the conditions of
registration on the Australian International Shipping Register.
Human rights implications
The Bill would engage the following human rights:
the right to just and favourable conditions of work under Article 7 of the International
Covenant on Economic, Social and Cultural Rights (ICESCR);
the right to freedom of association under Article 8(1) of the ICESCR and Article 22 of
the International Covenant on Civil and Political Rights (ICCPR);
the right to non-discrimination under Article 2(2) of ICESCR and Article 26 of the
ICCPR;
the right to a fair hearing under Article 14 of the ICCPR;
the right to an effective remedy under Article 2(3) of the ICCPR.
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Right to just and favourable conditions of work
Article 7 of the ICESCR requires that State Parties recognise the right of everyone to the
enjoyment of just and favourable conditions of work which ensure, in particular,
remuneration that provides all workers with fair wages, a decent living and rest, leisure and
reasonable limitation of working hours and periodic holidays with pay, as well as
remuneration for public holidays.
Australia is not required to set wages and conditions under article 7 of ICESCR for seafarers
on foreign vessels.
Entitlements for seafarers
Part B of the Seagoing Industry Award 2010 (the Award) currently applies to vessels engaged
in coastal trading under a temporary licence. Temporary licences may be granted in relation
to vessels registered on the Australian International Shipping Register or foreign vessels.
Employees on foreign vessels that engage in coastal trading under transitional general
licences are currently covered by Part A of the Award when such vessels are covered by the
Fair Work Act.
The amendments apply the Award to seafarers on foreign vessels operating under a coastal
shipping permit when the Fair Work Act has application, and to vessels registered on the
Australian International Shipping Register when those vessels are not engaged in
international trading.
Providing for Part B of the Seagoing Industry Award to be taken as the minimum
entitlements does not limit seafarers‟ access to just and favourable conditions of work.
Part B of the Seagoing Industry Award contains provisions dealing with matters including
wages, overtime, rest periods and leave. Part B is underpinned by the 10 minimum standards
of employment contained in the National Employment Standards. In addition, seafarers to
which Part B of the Seagoing Industry Award applies will continue to enjoy the benefit of
other rights and protections under the Fair Work Act, including access to enterprise
bargaining.
Seafarers on Australian vessels registered on the Australian International Shipping Register
would presently be covered by Part B of the Award while those vessels are engaged in coastal
trading under a temporary licence. The Bill will continue to apply Part B to these seafarers
and accordingly would not affect existing entitlements of those employees.
Right to the Freedom of Association
The amendments engage, but do not limit, the right to freedom of association, by amending
requirements mandating collective bargaining as a pre-requisite for registration on the
Australian International Shipping Register. The right of seafarers to make a collective
agreement is unchanged.
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The content of the right to freedom of association provided in the ICESCR and the ICCPR is
informed by the International Labour Organisation (ILO) conventions, including relevantly
the Right to Organise and Collective Bargaining Convention, 1949 (No. 98) (Convention 98).
Article 4 of Convention 98 requires States Parties to (among other things) take measures
appropriate to national conditions to encourage and promote machinery for voluntary
negotiation between employers or employers' organisations and workers‟ organisations, with
a view to the regulation of terms and conditions of employment by means of collective
agreements.
Currently, the Shipping Registration Act 1981 provides that a vessel owner may make a
collective agreement with the seafarers‟ bargaining unit for the vessel about the terms and
conditions of employment or engagement for all seafarers working on the vessel when it is
used to engage in international trading. That agreement must be made before the vessel can
be registered on the Australian International Shipping Register.
The Bill maintains bargaining but repeals the requirement that an agreement must be made
before a vessel can be registered on the Australian International Shipping Register.
The Bill does not limit the right of seafarers to bargain for agreements. The Bill promotes
voluntary negotiation by not mandating an agreement as a pre-condition of registration on the
Australian International Shipping Register.
There are no vessels on the Australian International Shipping Register and therefore, there is
no impact to anyone‟s current entitlements.
Right to equality and non-discrimination
Articles 2 and 26 of the International Covenant on Civil and Political Rights require all
people to be treated equally before the law and prohibit discrimination on a range of grounds.
The Bill requires that ships operating predominantly in Australia employ a minimum
contingent of crew that are Australian citizens, Australian residents or that hold an
appropriate working Visa. This condition does not infringe requirements about distinction
between nationalities because it relates to the development and retention of seafaring skills in
the Australian maritime industry. Without positions for the development and retention of
these skills, it is likely there would be a shortfall in the future.
Right to a fair hearing
Article 14 of the ICCPR provides the right to a fair hearing.
The Bill promotes the right to a fair hearing through permitting the review of certain
decisions by the Administrative Appeals Tribunal. In particular, decisions about refusing to
exempt a vessel from the Act, refusing to grant or transfer a coastal shipping permit, or a
decision to cancel a coastal shipping permit are reviewable by the Administrative Appeals
Tribunal.
The Bill allows for the triggering of civil penalty and infringement notice provisions of the
Regulatory Powers (Standard Provisions) Act 2014, for example when engaging in coastal
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shipping without a permit. These existing mechanisms are not incompatible with Australia‟s
human rights obligations.
For the purpose of assessing their compatibility with Australia‟s human rights obligations,
civil penalty provisions cannot generally be considered to be criminal in nature unless there is
a clear possibility of a truly penal consequence, that is, imprisonmentThis is not the case with
the civil penalty provisions in the Shipping Legislation Amendment Bill 2015. Whilst these
provisions are intended to be in part punitive and act as a deterrent to unlawful conduct, they
are not so severe so as to impact on Australia‟s international human rights obligations.
Right to an effective remedy
Article 2(3) of the International Covenant on Civil and Political Rights provides the right to
an effective remedy.
The Bill promotes this right through measures supporting seafarers‟ rights to recovering
payments and through the treatment of vessels that fail to pay seafarers in the manner
prescribed in the Bill.
Recovering payments
The Bill will provide seafarers with the right to apply to the Federal Court or Federal Circuit
Court to recover an amount due to them arising under the Bill. These provisions will advance
the right to an effective remedy.
In addition, the Bill will provide that the Minister must not grant a future coastal shipping
permit to a foreign vessel if the foreign vessel has not complied with the pay requirements
under a former permit.
Conclusion
The Bill is compatible with human rights because it does not limit Australia‟s human rights
obligations.
Minister for Infrastructure and Regional Development, the Hon Warren Truss MP
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NOTES ON CLAUSES
Clause 1: Short Title
1. Clause 1 provides for the Act to be cited as the Shipping Legislation Amendment Act
2015.
Clause 2: Commencement
2. Sub-clause 2(1) provides that each provision of the Bill specified in column 1 of the table
commences, or is taken to have commenced, in accordance with column 2 of the table.
3. Item 1 of the table provides that sections 1 to 3 of the Bill, which provide for the short
title, commencement of the provisions of the Bill and outline the effect of the Schedules
to the Bill, and anything not covered elsewhere in the table, will commence on the day
this Act receives the Royal Assent.
4. Item 2 of the table provides that Part 1 of Schedule 1 "Main amendments" will commence
on a day to be fixed by Proclamation or, if the provisions do not commence within the
period of six months from when this Act receives the Royal Assent, the day after the end
of the six month period.
5. Item 3 of the table provides that Part 2 of Schedule 1 "Amendments relating to civil
penalties" will commence on a day to be fixed by Proclamation or, if the provisions do
not commence within the period of six months from when this Act receives the Royal
Assent, the day after the end of the six month period.
6. Item 4 of the table provides that Part 3 of Schedule 1 "Amendments relating to seafarers"
will commence at the same time as the provisions covered by table item 3.
7. Item 5 of the table provides that Part 4of Schedule 1 "Transitional provisions" will
commence at the same time as the provisions covered by table item 2.
8. Item 6 of the table provides that Schedule 2 "Shipping registration" will commence at the
same time as the provisions covered by table item 2.
9. Item 7 of the table provides that Schedule 3 "Consequential amendments" will commence
at the same time as the provisions covered by table item 3.
Clause 3: Schedules
10. Clause 3 outlines the effect of the Schedules to the Bill. Each Schedule amends or
repeals the Act specified in that Schedule as provided by the items of the Schedule. Any
other item in a Schedule has effect according to its terms.
SCHEDULE 1 - Coastal Shipping
Part 1 - Main amendments
Coastal Trading (Revitalising Australian Shipping) Act 2012
Item 1 - Title
11. Item 1 omits "trading" and substitutes "shipping" in the long title of the Act. The term
"coastal trading" is being replaced with "coastal shipping" in the Act (see Item 24).
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Item 2 - Section 1
12. Item 2 omits the short title of "Coastal Trading (Revitalising Australian Shipping) Act
2012" and substitutes it with a new short title of "Coastal Shipping Act 2015". The new
short title of the Act reflects the replacement of the term "coastal trading" with "coastal
shipping" throughout the Act (see Item 24).
Item 3 - Section 3
13. Item 3 repeals existing section 3 and substitutes a new section 3. The new section 3
provides that the object of the Act is to provide a regulatory framework for coastal
shipping in Australia that:
fosters a competitive coastal shipping services industry that supports the Australian
economy; and
maximises the use of available shipping capacity on the Australian coast.
14. This new object provides a clear aim for the Act compared to the existing object of the
Act, which contains a number of elements that are inconsistent with each other.
Item 4 - Section 5
15. Item 4 repeals existing section 5 and substitutes a new section 5. The new section 5
provides a new simplified outline of the Act. A new simplified outline of the Act is
required due to the replacement of the existing three tiered licensing system with a single
permit system (see Item 30).
Item 5 - Subsection 6(1)
16. Item 5 repeals the definitions of acceptable tolerance limits and Australian nationality in
subsection 6(1). The new coastal shipping permit (see Item 30) provides a vessel with
unrestricted access to coastal shipping, which means the definition of acceptable tolerance
limits is no longer required. The definition of Australian nationality is not required as no
provisions in the Act refer to Australian nationality.
Item 6 - Subsection 6(1)
17. Item 6 inserts a definition of Australian resident into subsection 6(1). An Australian
resident is a person who is a resident of Australia for the purposes of the Income Tax
Assessment Act 1936. A definition of Australian resident is required due to the Australian
crew requirement for certain foreign vessels (see Item 30).
Item 7 - Subsection 6(1)
18. Item 7 inserts definitions of coastal shipping and coastal shipping permit into subsection
6(1). The definition of coastal shipping is contained in section 7 of the Act. This new
definition is required as the term "coastal trading" is being replaced with "coastal
shipping" in the Act (see Item 24). Coastal shipping permit is defined as a coastal
shipping permit granted under Part 4 of the Act. This new definition is required as the
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coastal shipping permit is replacing the existing three tiered licensing system in the Act
(see Item 30).
Item 8 - Subsection 6(1) (definition of coastal trading)
19. Item 8 repeals the definition of coastal trading. The definition of coastal trading is no
longer required as the term "coastal trading" is being replaced with "coastal shipping" in
the Act (see Item 24).
Item 9 - Subsection 6(1)
20. Item 9 inserts a definition of docked for service into subsection 6(1). A vessel is docked
for service on a day if it is:
in dry dock; or
docked for maintenance, repairs, cleaning or painting and not engaged on a
voyage.
21. The definition of docked for service is required as permit holders will be required to
report on whether their vessel was docked for service during a permit period (see Item
30). A vessel will be covered by a permit when docked for service, which will mean that
the vessel is not imported into Australia for the purposes of the Customs Act 1901 (see
Item 38).
Item 10 - Subsection 6(1)
22. Item 10 repeals the definitions of emergency licence, energy security situation, general
licence, licence and loading date in subsection 6(1). The definitions of emergency
licence, energy security situation, general licence and licence are no longer required as
the existing three tiered licensing system is being replaced with a single permit system
(see Item 30). The definition of loading date is no longer required as the single permit
system provides unrestricted access to coastal shipping (see Item 30).
Item 11 - Subsection 6(1)
23. Item 11 inserts a definition of normal period into subsection 6(1). The normal period of
a coastal shipping permit is defined as the period of 12 months beginning on the day on
which the permit comes into force.
Item 12 - Subsection 6(1) (definition of notice in response)
24. Item 12 repeals the definition of notice in response. The definition of notice in response
is no longer required as the single permit system provides unrestricted access to coastal
shipping (see Item 30).
Item 13 - Subsection 6(1)
25. Item 13 inserts a definition of offshore facility into subsection 6(1). An offshore facility
has the same meaning as in the Maritime Transport and Offshore Facilities Security Act
2003 (see section 17A) and includes a floating product, storage and offtake unit (FPSO)
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and a floating storage unit (FSU). The definition of offshore facility is required due to the
expansion of the definition of coastal shipping (see Item 25).
Item 14 - Subsection 6(1)
26. Item 14 inserts definitions of parity amount and parity condition into subsection 6(1).
The definitions of parity amount and parity condition are contained in subsection 22(3).
Item 15 - Subsection 6(1) (definition of permanent visa)
27. Item 15 repeals the definition of permanent visa. The definition of permanent visa is no
longer required as the terminology of permanent visa is not being used in the Act.
Item 16 - Subsection 6(1)
28. Item 16 inserts a definition of rules into subsection 6(1). Rules is defined as rules made
under section 112A (see Item 33). The ability for the Minister to make rules under the
Act is a new power which will provide flexibility in the administration of the Act.
Item 17 - Subsection 6(1) (paragraph (f) of the definition of seafarer)
29. Item 17 omits "regulations" from paragraph (f) of the definition of seafarer in subsection
6(1) and substitutes "rules". This amendment is required as the ability for the Minister to
make rules is being inserted into the Act (see Item 33).
Item 18 - Subsection 6(1)
30. Item 18 inserts a definition of Seagoing Industry Award 2010 into subsection 6(1). The
Seagoing Industry Award 2010 is defined as the award of that name made by the Fair
Work Commission as in force from time to time.
Item 19 - Subsection 6(1)
31. Item 19 repeals the definitions of temporary licence and temporary visa. The definition
of temporary licence is no longer required as the existing three tiered licensing system is
being replaced with a single permit system (see Item 30). The definition of temporary
visa is no longer required as the terminology of temporary visas is not being used in the
Act.
Item 20 - subsection 6(1)
32. Item 20 inserts a definition of term declaration into subsection 6(1). The definition of
term declaration is contained in subsection 13(3).
Item 21 - Subsection 6(1) (definition of voyage)
33. Item 21 omits "or (c)" in the definition of voyage in subsection 6(1) and substitutes ", (c)
or (d)". This amendment is necessary as a new paragraph (d) is being added to
subsection 7(1) (see Item 25).
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Item 22 - Subsection 6(1A)
34. Item 22 repeals subsection 6(1)(A). Subsection 6(1)(A) contained a definition of energy
security situation, which is a type of authorised matters variation that could be made to a
Temporary Licence. This definition is no longer required as the existing three tiered
licensing system is being replaced with a single permit system (see Item 30).
Item 23 - Section 7 (heading)
35. Item 23 repeals the existing heading of section 7 and substitutes a new heading
"Definition of coastal shipping". This amendment is a result of the term "coastal
trading" being replaced with "coastal shipping" through the Act (see Item 24).
Item 24 - Subsection 7(1)
36. Item 24 omits "coastal trading" from subsection 7(1) and substitutes "coastal shipping".
The term "coastal trading" is being replaced throughout the Act with "coastal shipping"
as it is easier to understand.
Item 25 - At the end of subsection 7(1)
37. Item 25 inserts new paragraphs (d) and (e) into subsection 7(1). New paragraph (d)
provides that a vessel is used to engage in coastal shipping if it takes on board a liquid
fuel product from an offshore facility and carries the liquid fuel product to a port in State
or Territory where some or all of the cargo is unloaded. This amendment will expand the
coverage of coastal shipping and allow petroleum companies to gain a permit to transport
liquid fuel products from offshore facilities directly to the mainland, which is not able to
happen under the current licensing system. New paragraph (e) provides that a vessel is
used to engage in coastal shipping if the vessel is docked for service in connection with
an activity referred to in any of paragraphs (a) to (d). This amendment will expand the
coverage of coastal shipping permits to cover vessels docked for service.
Item 26 - Paragraph 7(2)(c)
38. Item 26 omits "regulations" from paragraph 7(2)(c) and substitutes "rules". This
amendment is required as the ability for the Minister to make rules is being inserted into
the Act (see Item 33).
Item 27 - At the end of Part 2
39. Item 27 adds a new section 7A into Part 2. New section 7A provides that for the purposes
of calculating the number of days on which a vessel is being used to engage in coastal
shipping, each day on which a passenger is embarked or disembarked, or cargo is loaded
or unloaded, is to be included, even if on those days the vessel does not move from one
port to another port, or from an offshore facility to a port, as mentioned in the definition
of voyage. This new section is required as permit holders will be obligated to report on
the number of days spent undertaking relevant voyages (see Item 30).
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Item 28 - Section 11
40. Item 28 repeals section 11, which allows the Minister to grant exemptions from the Act
for a vessel, a person, class of vessels or class of persons. The ability for the Minister to
grant exemptions from the Act is no longer required as the single permit system provides
access to coastal shipping with minimal administrative requirements.
Item 29 - After subsection 12(1)
41. Item 29 inserts new subsection 12(1A). New subsection 12(1A) provides that an
application for a declaration under subsection 12(2) (declaration that the Act applies to a
vessel on intrastate voyages) must be in writing and accompanied by the application fee
prescribed by the rules. This new subsection will allow a fee to be prescribed for
applications for subsection 12(2) declarations, consistent with the Australian
Government‟s cost recovery guidelines.
Item 30 - Part 4
42. Item 30 repeals existing Part 4 for licences and substitutes a new Part 4 for permits. The
new Part 4 for permits is based on the existing Division 1 of Part 4 for general licences.
New section 13 - Application for coastal shipping permit
43. Section 13 provides that a person who has a legal or beneficial interest in a vessel (other
than as a mortgagee), or a person who has day to day responsibility for the management
of a vessel, may apply to the Minister for a coastal shipping permit (permit) authorising
the vessel to be used to engage in coastal shipping (the applicant is required to satisfy the
criteria at the time the application is made - the relevant time). The vessel is required to
be registered in the Australian General Shipping Register, or in the Australian
International Shipping Register, or under the law of a foreign country.
44. The application for a permit must relate to one vessel only, be in writing and include the
following:
The applicant‟s business name and business address;
The day the permit is to come into force if a day later than the day the permit is
granted is sought;
If the application relates to a foreign vessel, it must also include a term declaration
stating whether or not it is intended that the vessel be used on more than 183 days
of coastal shipping during the normal period of the permit.; and
any other information prescribed by the rules.
45. The permit application must be accompanied by:
Evidence of a legal or beneficial interest in the vessel if the applicant has a legal
or beneficial interest in the vessel at the relevant time;
Evidence that the applicant has day-to-day responsibility for the vessel if the
applicant has day-to-day responsibility for the vessel and evidence that they have
the consent of a person who has a legal or beneficial interest in the vessel to make
the permit application;
A copy of the vessel‟s registration certificate and an English translation if the
registration certificate is not in English; and
The application fee prescribed by the rules.
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46. A term declaration for a permit is a declaration stating whether or not it is the intention of
the applicant that the vessel to which the permit relates will be used to engage in coastal
shipping on more than 183 days during the normal period of the permit.
47. As a permit is granted in relation to a vessel, the eligibility to apply for a permit has been
limited to people who have a direct relationship with a vessel - a person with a legal or
beneficial interest in a vessel (the owner of a vessel) and a person who has day-to-day
responsibility for the management of a vessel. To ensure that an applicant does have the
relationship to the vessel they claim to have, evidence must be provided with the
application to show that relationship (evidence of a legal or beneficial interest or evidence
of day-to-day responsibility for management of the vessel). Since only one permit can be
granted in relation to a vessel, an applicant with day-to-day responsibility for managing a
vessel must also provide evidence that they have the consent of a person with a legal or
beneficial interest in that vessel to apply for a permit in relation to that vessel.
48. To ensure that permits are only granted in relation to vessels that are registered, a copy of
the vessel‟s registration certificate must be provided with a permit application and an
English translation if the certificate is not in English. It is a condition of a permit that a
vessel remains registered at all times during the validity period of the permit (see section
22).
49. Applicants are able to nominate a start date for the permit if they want a start date other
than the date the permit is granted. This will allow applicants to choose a date that fits
with the vessel‟s schedule, for example if a vessel will not be commencing coastal
shipping for 3 months, the permit can commence in 3 months time.
New section 14 - Application for coastal shipping permit may be varied or withdrawn
50. Section 14 provides that the applicant may, at any time before the Minister decides an
application, notify the Minister in writing that they wish to vary or withdraw the
application. If an application is withdrawn the application fee is not refundable. This
allows applicants who make a mistake in their application to fix the mistake or to
withdraw an application if their plans for their vessel change.
New section 15 - Deciding applications for coastal shipping permits
51. Section 15 provides that the Minister decides an application by granting it or refusing it.
The Minister may have regard to the following when deciding an application:
Whether the application previously held a permit, or licence granted under the
Act, that was cancelled;
Whether the applicant has been issued with an infringement notice under the Act,
or relating to a civil penalty provision of this Act;
Whether the applicant has been ordered to pay a pecuniary penalty under this Act,
or for contravening a civil penalty provision of this Act;
Whether the Minister is satisfied that the applicant has previously breached a
condition of a coastal shipping permit, or other licence, under this Act;
Any other relevant matters.
52. If the applicant had previously held a coastal shipping permit (previous permit) that
related to a foreign vessel, the Minister must have regard to the following when deciding
an application:
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whether the term declaration for the previous permit stated that the intention of the
applicant was that the vessel would not be used to engage in coastal shipping on
more than 183 days during the normal period of the permit but the vessel was in
fact used on more than 183 days during that period; and
the object of the Act.
53. The Minister must decide an application for a permit within 10 business days after the
day the application is made or, if the application is varied under section 14, within 10
business days after the day the Minister receives the variation.
54. The Minister must not grant an application for a coastal shipping permit that relates to a
foreign vessel if the Minister is satisfied that the applicant has not complied with the
parity condition of a previous permit.
55. Section 15 is similar to existing section 15, with some changes made to reflect the permit
conditions and the triggering of the provisions in the Regulatory Powers Act (see Item
39). The time the Minister has to decide an application for a permit is the same time the
Minister currently has to determine a general licence application, due to the similar nature
of the application processes.
New section 16 -Period in force of coastal shipping permit
56. Section 16 provides that if the Minister grants an application for a permit under
subsection 15(1), the permit comes into force on whichever of the following is applicable:
The day the application is granted; or
If the application specified a day (as per subparagraph 13(2)(b)(ii)), on that
specified day.
57. The permit remains in force for 12 months unless it is cancelled earlier. Applicants are
able to nominate a start date for the permit if they want a start date other than the date the
permit is granted. This will allow applicants to choose a date that fits with the vessel‟s
schedule, for example if a vessel will not be commencing coastal shipping for 3 months,
the permit can commence in 3 months time.
New section 17 - Information to be published on website
58. For all granted permits, the Minister must cause the following information to be published
on the Department‟s website as soon as reasonably practicable after the grant:
The permit number;
The holder of the permit;
The holder‟s business name and business address;
The vessel to which the permit relates, including its name and IMO number;
The day the permit comes into force and the period for which the permit is in
force;
Any additional conditions imposed on the permit under section 23; and
Any other information prescribed by the rules.
59. Information on permits will be published on the Department‟s website, similar to the
information that is currently published for general, temporary and emergency licences.
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New section 18 - Only one coastal shipping permit per vessel
60. Section 18 provides that the Minister, in deciding whether or not to grant an application
for a permit, must ensure that no more than one permit is in force in relation to a vessel at
the same time.
61. Only one permit can be force in relation to a vessel at any time to ensure it is clear who is
responsible for the vessel whilst it is undertaking coastal shipping or docked for service.
One permit per vessel will also ensure that there is no doubling up on reporting (see
section 35).
New section 19 - Application for coastal shipping permit taken to be granted in certain
circumstances
62. Section 19 provides that if the Minister has not decided an application for a permit by the
end of the period within which the Minister is required to make a decision (subsection
15)(5)), the Minister is taken to have:
Granted the application on the day after the end of that period; or
Refused the application if the grant would result in more than one permit being in
force in relation to the vessel at the same time.
63. A permit taken to have been granted is taken to come into force on whichever of the
following days is applicable:
The day the application is taken to have been granted; or
If the application specified a day (as per subparagraph 13(2)(b)(ii)), on that
specified day.
64. The permit remains in force for 12 months unless it is cancelled earlier. The automatic
grant of an application if the Minister has not decided the application within the
timeframe set out in section 15 provides certainty to applicants that a decision will be
made on their applications. An automatic refusal, if a grant would result in more than one
permit being in force in relation to a vessel, is required to ensure that there will only be
one permit in force in relation to a vessel.
New section 20 - Minister must give coastal shipping permit to applicant
65. Section 20 provides that if the Minister decides to grant an application for a permit, or is
taken to have granted an application, the Minister must give the applicant the permit as
soon as practicable.
66. The permit must specify the following:
The permit number;
The holder of the permit;
The holder‟s business name and address;
The vessel to which the permit relates, including its name and IMO number;
The conditions to which the permit is subject to under section 22;
For a permit that relates to a vessel registered under the law of a foreign country -
whether or not it is the intention of the applicant that the vessel be used to engage
in coastal shipping on more than 183 days during the normal period of the permit.
That is, the term declaration made by the permit holder;
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Any additional conditions imposed on the permit under section 23;
The day the permit comes into force and the period for which the permit is in
force;
Any other matters prescribed by the rules.
67. As a copy of the permit is required to be displayed on the vessel to which it relates (see
section 22), the information required to be included in the permit will assist to identify the
holder of the permit, whether the permit is valid and the conditions the permit is subject
to.
New section 21 - Refusal of application for coastal shipping permit
68. Section 21 provides that if the Minister decides to refuse an application for a permit they
must, as soon as practicable, notify the applicant in writing of the decision and the
reasons for the decision. This will inform an applicant of why their application was
refused and allow them to determine whether they want to have the decision reviewed by
the Administrative Appeals Tribunal (see section 107).
New section 22 - Conditions imposed on all coastal shipping permits
69. Section 22 provides that a permit is subject to the following conditions:
The vessel to which the permit relates must continue to be registered (as per
paragraph 13(1)(a));
A copy of the permit must be displayed on the vessel in a conspicuous place
accessible to all persons on board at all times when the vessel is being used to
engage in coastal shipping;
The holder of the permit must comply with the reporting requirements in sections
35 and 36;
If section 38 applies to the vessel - the composition of the crew of the vessel must
comply with that section (the Australian crew requirement);
The holder of the permit must comply with any other condition prescribed by the
rules.
70. A coastal shipping permit that relates to a foreign vessel is also automatically subject to
the parity condition if the term declaration for the permit stated that it was intended that
the vessel would not be used to engage in coastal shipping on more than 183 days during
the normal period of the permit but the vessel was in fact used on more than 183 days
during that period.
71. The automatic parity condition that is inserted under new section 22 ensures that seafarers
are provided payment at least at Part B rates in respect of the first 183 days of the permit
period.
72. That is, the parity condition requires that seafarer are paid an amount (the parity amount)
equal to the difference (if any) between the notional award amount and the amount that
the seafarer has already been paid in respect of that employment.
73. The parity amount must be paid before the end of the period prescribed by the rules. A
failure to pay the parity amount by the time prescribed will prevent the permit holder
from obtaining any future permits - see proposed subsection 15(4).
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74. The majority of the permit conditions are the similar to the current conditions for general
licences. The condition to display the permit when undertaking coastal shipping, or
docked for service, allows people to quickly identified that the vessel is covered by a
permit and, for foreign flagged vessels, eligible for the statutory presumption against
importation under the Customs Act 1901 (see section 12B).
New section 23 - Additional conditions may be imposed by Minister
75. Section 23 provides that the Minister may impose an additional condition on a permit, or
vary or remove such a condition, at any time by notifying the holder of the permit in
writing. A condition imposed under section 23 must not be inconsistent with a condition
under section 22. If the Minister imposes, varies or removes an additional condition, they
must give the permit holder an updated permit as soon as practicable.
76. The ability for the Minister to impose additional conditions currently exists for general
and temporary licences and it will allow the Minister to impose an additional condition on
an individual permit if required. The requirement for the Minister to give the permit
holder an updated permit will ensure that the permit displayed (as per section 22) contains
all the current conditions on it.
New section 24 - Civil penalty - breaching condition of coastal shipping permit
77. Section 24 provides that a person contravenes section 24 if they hold a permit and do an
act, or omit to do an act, and that act or omission breaches, or results in a breach, of a
permit condition imposed under either section 22 or 23 of the Act. The civil penalty for
contravening section 24 is 50 penalty units for an individual and 250 penalty units for a
body corporate.
78. Section 24 creates a civil penalty for a permit holder that breaches a condition of their
permit. An infringement notice can be issued for contravening a civil penalty provision
or an authorised applicant can apply to a relevant court for an order that the permit holder
pay a monetary penalty to the Commonwealth (see sections 87 and 83).
New section 25 - Application for transfer of coastal shipping permit
79. Section 25 provides that the holder of a permit may apply to the Minister for the permit to
be transferred to another person (the proposed transferee) if, at the time of the application
(the relevant time) the proposed transferee has a legal or beneficial interest in the vessel
(other than as a mortgagee) or has day-to-day responsibility for the management of the
vessel.
80. An application for a transfer must be in writing and include the following:
The applicant‟s business name and business address;
The proposed transferee‟s business name and business address;
The reporting information required by paragraphs 36(1)(a), (b), (c) and (d) for
each voyage undertaken by the vessel during the period the applicant has held the
permit;
Whether the vessel has been docked for service during the period the applicant has
held the permit and if so, the days on which the vessel was docked for service;
Any other information prescribed by the rules.
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81. The application must also be accompanied by the following:
Evidence that at the relevant time the proposed transferee has a legal or beneficial
interest in the vessel (other than as a mortgagee) or has day to day responsibility
for the vessel;
If the proposed transferee does not have a legal or beneficial interest in the vessel
at the relevant time, evidence that they have the consent of a person who has a
legal or beneficial interest in the vessel, for the application to be made;
The application fee prescribed by the rules.
82. An application for a transfer of a permit must include the reporting information required
by paragraphs 36(1)(a), (b), (c) and (d) to ensure that the reporting for the permit is up to
date at the point of the transfer.
83. The ability to transfer a permit is required as only one permit can be granted in relation to
a vessel. If the ownership, or the day-to-day management, of a vessel changes, the permit
needs to be able to be transferred to the new owner or person with day-to-day
responsibility for the management of the vessel. The requirements a proposed transferee
must meet are the same as the requirements a permit applicant must meet for a grant of a
permit.
New section 26 - Application for transfer of coastal shipping permit may be varied or
withdrawn
84. Section 26 provides that the applicant may, at any time before the Minister decides an
application for a transfer, notify the Minister in writing that they wish to vary or withdraw
the application. If an application is withdrawn the application fee is not refundable. This
allows applicants who make a mistake in their application to fix the mistake or to
withdraw an application if their plans for their vessel change.
New section 27 - Deciding applications for transfer of coastal shipping permits
85. Section 27 provides that the Minister decides an application for the transfer of a permit by
granting it or refusing it. The Minister may have regard to the following when deciding
an application:
Whether the proposed transferee previously held a permit, or licence granted
under the Act, that was cancelled;
Whether the proposed transferee has been issued with an infringement notice
under the Act, or relating to a civil penalty provision of this Act;
Whether the proposed transferee has been ordered to pay a pecuniary penalty
under this Act, or for contravening a civil penalty provision of this Act;
Whether the Minister is satisfied that the proposed transferee has previously
breached a condition of a permit, or other licence granted under this Act;
Any other relevant matters.
86. If the proposed transferee had previously held a coastal shipping permit (previous permit)
that related to a foreign vessel, the Minister must have regard to the following when
deciding an application for the transfer of a coastal shipping permit:
Whether the term declaration for the previous permit held stated that the intention
of the applicant was that the vessel would not be used to engage in coastal
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shipping on more than 183 days during the normal period of the permit but the
vessel was in fact used on more than 183 days during that period;
The object of the Act.
87. The Minister must decide an application for a transfer of a permit within 2 business days
after the day the application is made or, if the application is varied under section 26,
within 2 business days after the day the Minister receives the variation.
88. The Minister must not grant an application for the transfer of a coastal shipping permit
that relates to a foreign vessel if the Minister is satisfied that the proposed transferee has
not complied with the parity condition of a previous permit.
89. Section 27 contains the same considerations the Minister may have regard to as section
15, with the proposed transferee replacing the applicant. The Minister has two business
days to decide an application to ensure that transfers can occur promptly.
New section 28 - Application for transfer of coastal shipping permit taken to be granted in
certain circumstances
90. Section 28 provides that if the Minister has not decided an application for a transfer of a
permit by the end of the period within which the Minister is required to make a decision
(section 27(5)), the Minister is taken to have granted the application immediately after the
end of that period.
91. The automatic grant of an application for a transfer if the Minister has not decided the
application within the timeframe set out in section 27 provides certainty to applicants that
a decision will be made on their applications.
New section 29 - Minister must give updated coastal shipping permit to transferee
92. Section 29 provides that if the Minister decides to grant an application for the transfer of a
permit, or is taken to have granted an application, they must give the transferee an
updated permit as soon as practicable. This requirement will ensure that the permit
displayed (as per section 22) contains up to date information on the permit holder.
New section 30 - Refusal of application for transfer of coastal shipping permit
93. Section 30 provides that if the Minister decides to refuse an application for a transfer of a
permit they must, as soon as possible, notify the applicant in writing of the decision and
the reasons for the decision. This will inform an applicant of why their application was
refused and allow them to determine whether they want to have the decision reviewed by
the Administrative Appeals Tribunal (see section 107).
New section 31 - Website to be updated after transfer of coastal shipping permit
94. Section 31 provides that if the Minister grants an application for the transfer of a permit
they must cause the information on the permit that is published on the Department‟s
website to be updated. This will ensure that up to date information on the permit is
publicly available.
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New section 32 - Cancellation of coastal shipping permit: show cause notice
95. Section 32 provides that the Minister may give a written notice, a show cause notice, to
the holder of a permit if the Minister reasonably believes that:
a condition of the permit has been breached; or
a condition of another permit, or of a licence previously granted under the Act,
was breached when the permit holder held that other permit or licence.
96. A show cause notice provided under section 32 must state the grounds on which the
notice is given and invite the holder of the current permit to give the Minister a written
statement showing cause as to why the permit should not be cancelled. The holder of the
permit must provide their written statement to the Minister within 10 business days from
the day after the show cause notice was given.
97. The show cause notice process allows permit holders to put a case to the Minister as to
why their permit should not be cancelled if it is alleged that they have breached a
condition of their permit. Subsection 32(3) is included to assist readers of the Act as a
show cause notice is not a legislative instrument within the meaning of section 5 of the
Legislative Instruments Act 2003.
New section 33 - Cancellation of coastal shipping permit
98. Section 33 provides that the Minister may cancel a permit if:
A show cause notice has been given to the current permit holder under subsection
32(1); and
The Minister, after considering any written statement provided in accordance with
the show cause notice, is satisfied that a condition of the current permit was
breached or a condition of another permit, or licence previously granted under the
Act, was breached at a time when the holder of the current permit held the other
permit or licence.
99. The Minister must give written notice of the cancellation of the permit to the current
permit holder. The notice must set out the day the cancellation takes effect, the reasons
for the cancellation and that the holder of the permit will contravene subsection 33(3) if
they do not return the permit to the Minister within 10 business days after the day the
cancellation takes effect. The civil penalty for contravening subsection 33(3) is 50
penalty units for an individual and 250 penalty units for a body corporate.
100. The Minister is only able to cancel a permit if the show cause notice process has
occurred, which provides procedural fairness to permit holders. The notice of
cancellation must include the reasons for the cancellation of the permit to inform an
applicant of why their permit was cancelled. This also allows the permit holder to
determine whether they want to have the decision reviewed by the Administrative
Appeals Tribunal (see section 107).
101. If the Minister does cancel a permit, the permit must be returned to the Minister.
Failure to return a cancelled permit is a contravention of a civil penalty provision. An
infringement notice can be issued for contravening a civil penalty provision or an
authorised applicant can apply to a relevant court for an order that the permit holder pay a
monetary penalty to the Commonwealth (see sections 87 and 83).
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New section 34 - No surrender of coastal shipping permit
102. Section 34 provides that a permit cannot be surrendered. The ability to surrender a
permit is not required as permits are only granted for 12 months and can be transferred if
the ownership or management of a vessel changes.
New section 35 - Reporting requirements for coastal shipping permits
103. Section 35 provides that a person who holds a permit relating to a vessel during a
reporting period must give the Minister a report containing the information specified in
section 36 for the reporting period for the permit.
104. A reporting period for a permit is:
The period of 6 months beginning on the day the permit comes into force (the first
reporting period); and
The period of 6 months immediately following the first reporting period (the
second reporting period); and
Any period specified in a request for an interim report under subsection (3).
105. The Minister may, at any time before the end of the first or second reporting period,
request the holder of a permit, or a person who held a permit at that time, to give an
interim report covering the period specified in the request. It is intended that interim
reports will be requested to check on compliance with permit conditions, including the
Australian crew requirement (see section 38). If the Minister requests an interim report
during the first or second reporting period, that reporting period is taken not to include the
period or periods covered by the interim report. This will ensure that permit holders do
not need to report on the same period of time in two separate reports.
106. Permit holders only need to cover the period or periods in a reporting period when they
held a permit. For example, if a permit was transferred three months into a reporting
permit, the person to whom the permit was transferred would only report on the second
three months of the reporting period and the first three months would have been reported
on when the transfer application was made (see section 25).
107. Section 22 provides that a condition of a permit is that the permit holder must comply
with the reporting requirements in sections 35 and 36. Breach of a condition permit can
result in a show cause notice being issued and cancellation of a permit (see sections 32
and 33).
New section 36 - Contents and timing of reports
108. Section 36 provides that reports given under section35 for a reporting period must
include the following information for each voyage undertaken during the reporting period
by the vessel to which the permit relates:
If passengers were carried:
The number of passengers carried; and
The port at which the passengers embarked; and
The date the embarkation began; and
The port at which the passengers disembarked; and
The date that disembarkation finished;
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If cargo was carried:
The kinds and volumes of cargo carried; and
The port at which the cargo was taken on board; and
The date that loading began; and
The port at which the cargo was unloaded; and
The date that unloading finished;
If liquid fuel products were carried:
The types and volumes of each type of the liquid fuel product carried; and
The port or offshore facility at which the liquid fuel product was taken on
board; and
The date that loading began; and
The port at which the liquid fuel product was unloaded; and
The date that unloading finished;
Any other information prescribed by the rules.
109. The report must also state the total number of days during the reporting period on
which the vessel was used to engage in coastal shipping and whether the vessel was
docked for service during the reporting period, and if so, the days the vessel was docked
for service. The information required in the reports is similar to the information currently
required for Temporary Licence voyage reports, but the administrative burden of
providing reports is reduced as reporting is only done twice per year, instead of having to
report after every voyage.
110. The report must be given to the Minister no later than 15 business days after the end of
the first or second reporting period, or for interim reports, no later than 10 business days
after the date the interim report was requested.
111. A permit holder contravenes subsection 36(4) if they hold a permit at any time during
a reporting period and fail to give the Minister the report required by subsection 35(1)
within the timeframes required by subsection 36(3). The civil penalty for contravening
subsection 36(4) is 50 penalty units for an individual and 250 penalty units for a body
corporate. An infringement notice can be issued for contravening a civil penalty
provision or an authorised applicant can apply to a relevant court for an order that the
permit holder pay a monetary penalty to the Commonwealth (see sections 87 and 83).
112. Section 22 provides that a condition of a permit is that the permit holder must comply
with the reporting requirements in sections 35 and 36. Breach of a condition permit can
result in a show cause notice being issued and cancellation of a permit (see sections 32
and 33).
New section 37 - Summary of reports to be published on website
113. Section 37 provides that the Minister must cause a summary of the information
contained in the reports given to the Minister under section 35 during a financial year to
be published on the Department‟s website after the end of each financial year. This is
drafted in the same terms as the current requirement for General Licence reports and
provides the public with information on the volumes and types of cargo, or number of
passengers, moved by coastal shipping.
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New section 38 - Australian crew requirement for certain foreign vessels
114. Section 38 provides that the Australian crew requirement applies to a vessel if:
The vessel is registered under the law of a foreign country; and
A permit relating to the vessel is in force; and
Either the term declaration for the permit stated that the intention of the applicant
was that the vessel would be used to engage in coastal shipping on more than 183
days during the normal period of the permit, or, during the period for which the
permit is in force, the total number of days on which the vessel engages in coastal
shipping is more than 183.
115. The Australian crew requirement specifies that two of the following positions must be
held by an Australian citizen, Australian resident, or a person who holds a visa prescribed
by the rules that allows the person to work in that position:
Either the master or chief mate; and
Either the chief engineer or first engineer.
116. The Australian crew requirement will ensure that foreign vessels who predominantly
engage in coastal shipping have senior Australian crew on board for the entire permit
period. The Australian crew requirement is a minimum requirement and it does not stop
foreign vessels from having more Australian crew on board or having Australian crew if
the vessel will spend less than 183 days undertaking coastal shipping (including days
spent docked for service).
117. A person contravenes subsection 38(3) if section 38 applies to the vessel at a particular
time and the person is the holder of the permit relating to the vessel at that time and the
Australian crew requirement is not complied with. The civil penalty for contravening
subsection 38(4) is 50 penalty units for an individual and 250 penalty units for a body
corporate. An infringement notice can be issued for contravening a civil penalty
provision or an authorised applicant can apply to a relevant court for an order that the
permit holder pay a monetary penalty to the Commonwealth (see sections 87 and 83).
118. Section 22 provides that a condition of a permit is that the composition of a vessel‟s
crew must meet the Australian crew requirement if that requirement applies to the vessel
(registered in a foreign country and undertaking more than 183 days of coastal shipping in
a permit period). Breach of a condition permit can result in a show cause notice being
issued and cancellation of a permit (see sections 32 and 33).
New section 39 -Requests for further information - applications
119. Section 39 provides that the Minister may ask an applicant to provide further
information if the Minister needs further information to decide an application made under
section 13 or 25. The Minister, as soon as practicable after receiving the information,
must notify the applicant in writing whether the information provided satisfies the
request. A day is not to be counted as a business day under section 15 or 27 if it is on, or
after, the day the Minister asks for further information and on, or before, the day the
Minister notifies the applicant that the further information satisfies the request.
120. Section 39 is the same as existing section 76 of the Act and it allows the Minister to
seek further information to help in deciding an application for a permit or application to
transfer a permit. If the Minister does request further information, the time from the
request to the notification that the further information meets the request, is not counted as
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business days for the purposes of the decision times in sections 15 and 27 (the clock for
the decision is stopped).
New section 40 - Basis on which coastal shipping permits granted
121. Section 40 provides that a permit granted under this Act is granted on the basis that:
Conditions may be imposed on the permit, and varied or removed under section
23; and
The permit may be cancelled under section 33; and
The permit may be cancelled, revoked, terminated or varied by or under later
legislation; and
No compensation is payable if conditions are imposed on the permit, or varied or
removed, or if the permit is cancelled, revoked, terminated or varied.
122. Section 40 is drafted in the same terms as the existing section 78 in the Act and sets
out what can happen to a permit and that no compensation is payable if changes are made
to a permit, including cancellation, revocation, termination or variation of a permit.
Item 31 - Section 107
123. Item 31 repeals existing section 107 and substitutes a new section 107, which provides
that applications may be made to the Administrative Appeals Tribunal for review of the
following decisions:
A decision under section 12 refusing to make a declaration in relation to a vessel;
A decision under section 15 to refuse to grant an application for a permit;
A decision under section 27 to refuse to grant an application for the transfer of a
permit;
A decision under section 33 by the Minister to cancel a coastal shipping permit.
124. Permit applicants and holders are able to seek a review of all decisions the Minister
can make that can adversely affect them.
Item 32 - Subsection 111(1)
125. Item 32 omits "section 11" in subsection 111(1) and substitutes "section 112A". This
amendment is required as a result of section 11 of the Act being repealed (see Item 28)
and the inclusion of a power for the Minister to make rules under the Act, which is a
power that generally should not be able to be delegated (see Item 33).
Item 33 - Before section 113
126. Item 33 inserts new section 112A. Section 112A provides that the Minister may make
rules prescribing matters required or permitted by this Act to be prescribed by rules or
matters necessary or convenient to be prescribed for carrying out of giving effect to this
Act. The rules are made by legislative instrument, which means the rules are subject to
parliamentary scrutiny.
127. For the avoidance of doubt, the rules are not allowed to:
Create an offence or civil penalty provision;
Provide powers of arrest or detention, or entry, search or seizure;
Impose a tax;
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Set an amount to be appropriated from the Consolidated Revenue Fund under an
appropriation in this Act;
Amend this Act.
128. Rules that are inconsistent with the regulations have no effect to the extent of the
inconsistency. However, rules are taken to be consistent with the regulations to the extent
that the rules are capable of operating concurrently with the regulations.
Part 2 - Amendments relating to civil penalties etc.
Coastal Trading (Revitalising Australian Shipping) Act 2012
Item 34 - Subsection 6(1) (definition of civil penalty order)
129. Item 34 repeals the definition of civil penalty order in subsection 6(1). This definition
is no longer required due to the triggering of the provisions in the Regulatory Powers
(Standard Provisions) Act 2014 (Regulatory Powers Act) (see Item 39).
Item 35 - Subsection 6(1) (definition of civil penalty provision)
130. Item 35 repeals the definition of civil penalty provision in subsection 6(1) and
substitutes a new definition. A civil penalty provision is defined as having the same
meaning as in the Regulatory Powers Act. This new definition is required as the Act will
be triggering the provisions in the Regulatory Powers Act (see Item 39).
Item 36 - Subsection 6(1) (definition of evidential burden)
131. Item 36 repeals the definition of evidential burden in subsection 6(1). This definition
is no longer required as evidential burden is no longer referred to in the Act.
Item 37 - Subsection 6(1)
132. Item 37 inserts a definition of Regulatory Powers Act into subsection 6(1).
Regulatory Powers Act is defined as meaning the Regulatory Powers (Standard
Provisions) Act 2014. This new definition is required as the Act will be triggering
provisions in the Regulatory Powers Act (see Item 39).
Item 38 - Before Division 1 of Part 4
133. Item 38 inserts new Division 1A into Part 4. New Division 1A contains two sections -
new section 12A and new section 12B.
134. Section 12A provides that a person contravenes that section if they have a legal or
beneficial interest in a vessel (other than as a mortgagee), or have day-to-day
responsibility for the management of a vessel, and the vessel is used to engage in coastal
shipping when a permit is not in force in relation to the vessel. The civil penalty for
contravening section 12A is 300 penalty units for an individual and 1500 penalty units for
a body corporate.
135. This section is similar to current section 83 in the Act, with changes to reflect the
change in terminology and eligibility to apply for a permit. The civil penalty is large to
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deter people from using a vessel to engage in coastal shipping without a permit in place.
An infringement notice can be issued for contravening a civil penalty provision or an
authorised applicant can apply to a relevant court for an order that the permit holder pay a
monetary penalty to the Commonwealth (see sections 87 and 83).
136. Section 12B provides that a vessel is not imported into Australia for the purposes of
the Customs Act 1901 if a permit is in force in relation to that vessel. This section
replaces existing section 112 (see Item 40) and provides a statutory presumption against
importation for vessels registered in a foreign country. Importation has a number of
consequences, which would impact of a foreign registered vessel‟s ability to engage in
coastal shipping.
Item 39 - Divisions 2, 3 and 4 of Part 5
137. Item 39 repeals Divisions 2, 3 and 4 of Part 5 and substitutes new Divisions 2 and 3
into Part 5. New Division 2 contains civil penalty provisions and new Division 3 contains
infringement notice provisions.
New Section 83 - Enforceable civil penalty provisions
138. Section 83 provides that each civil penalty provision in the Act is enforceable under
Part 4 of the Regulatory Powers Act. Part 4 of the Regulatory Powers Act allows for a
civil penalty provision to be enforced by obtaining an order for a person to pay a
pecuniary penalty for contravention of the provision.
139. The civil penalty provisions in the Regulatory Powers Act are being triggered as they
provide standard regulatory powers and these standard powers are being progressively
rolled out across Commonwealth legislation. The triggering of the civil penalty
provisions in the Regulatory Powers Act will not expand the powers that currently exist in
the Act.
New section 84 - Authorised applicant
140. Section 84 provides that the Secretary is an authorised applicant in relation to the civil
penalty provisions of the Act for the purposes of Part 4 of the Regulatory Powers Act.
This means the Secretary can apply to a relevant court (see section 85) for an order that a
person alleged to have contravened a civil penalty provision pay the Commonwealth a
monetary penalty (see section 12 of the Regulatory Powers Act).
New section 85 - Relevant court
141. Section 85 provides that the Federal Court and the Federal Circuit Court are relevant
courts in relation to the civil penalty provisions of the Act for the purposes of Part 4 of the
Regulatory Powers Act. This means that the Federal Court, or Federal Circuit Court, can
hear applications for a person to pay to a monetary penalty for an alleged contravention of
a civil penalty provision in the Act. If the Federal Court, or the Federal Circuit Court, is
satisfied that a contravention has occurred, they can determine the amount the person is to
pay (see section 82 of the Regulatory Powers Act).
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New section 86 - Extension to external Territories
142. Section 86 provides that the application of Part 4 of the Regulatory Powers Act, in
relation to the civil penalty provisions in the Act, extends to every external Territory. The
Act extends to every external territory and therefore the application of Part 4 needs to
extend to every external Territory.
New section 87 - Provisions subject to an infringement notice
143. Section 87 provides that the civil penalty provisions in the Act are subject to an
infringement notice under Part 5 of the Regulatory Powers Act. Part 5 of the Regulatory
Powers Act creates a framework for using infringement notices in relation to provisions,
including civil penalty provisions.
144. The infringement notice provisions in the Regulatory Powers Act are being triggered
as they provide standard regulatory powers and these standard powers are being
progressively rolled out across Commonwealth legislation. The triggering of the
infringement notice provisions in the Regulatory Powers Act will not expand the powers
that currently exist in the Act.
New section 88 - Infringement officer
145. Section 88 provides that an authorised person is an infringement officer in relation to
the provisions mentioned in section 87 for the purposes of Part 5 of the Regulatory
Powers Act. An authorised person is appointed by the Secretary under section 108 of the
Act. An authorised person, as an infringement officer, may give a person an infringement
notice if they believe on reasonable grounds that a person has contravened a civil penalty
provision (see section 103 of the Regulatory Powers Act).
New section 89 - Relevant chief executive
146. Section 89 provides that the Secretary is the relevant chief executive in relation to the
provisions mentioned in section 87 for the purposes of Part 5 of the Regulatory Powers
Act. The relevant chief executive can extend the period for payment of an infringement
notice and withdraw an infringement notice (see sections 105 and 106 of the Regulatory
Powers Act).
New section 90 - Delegation by relevant chief executive
147. Section 90 provides that the relevant chief executive, in this case the Secretary, may
delegate the following powers and functions:
Extending the period referred to in paragraph 104(1)(h) of the Regulatory Powers
Act (the period of time in which an infringement notice must be paid); and
Withdrawing an infringement notice under section 106 of the Regulatory Powers
Act.
148. The powers and functions may be delegated to an SES employee, or acting SES
employee, in the Department. A person exercising powers or performing functions under
a delegation must comply with any directions of the relevant chief executive (the
Secretary).
27
New section 91 - Extension to external Territories
149. Section 91 provides that Part 5 of the Regulatory Powers Act, as it applies in relation
to the provisions mentioned in section 87 (the civil penalty provisions in the Act), extends
to every external Territory. The Act extends to every external territory and therefore the
application of Part 5 of the Regulatory Powers Act needs to extend to every external
Territory.
New section 92 - Amount payable under an infringement notice
150. Section 92 provides that the amount to be stated in an infringement notice for the
purposes of paragraph 104(1)(f) of the Regulatory Powers Act for an alleged
contravention of a civil penalty provision of this Act must be equal to one-fifth of the
maximum penalty that a court could impose for that contravention, despite subsection
104(2) of the Regulatory Powers Act.
151. Subsection 104(2) of the Regulatory Powers Act provides that, unless another Act
expressly provides otherwise, the amount to be stated in an infringement notice must be
the lesser of one-fifth of the maximum penalty that a court could impose or 12 penalty
units for an individual or 60 penalty units for a body corporate. The only civil penalty
provision in the Act that has a penalty higher than 12 penalty units for an individual and
60 penalty units for a body corporate is engaging in coastal shipping without a permit (see
section 12A). A higher penalty is justified in that case to deter vessels from engaging in
coastal shipping without a permit.
New Section 93 - Actions for breach of condition relating to payment to seafarers
152. Section 93 provides that the Federal Court or Federal Circuit Court may order a person
to pay a seafarer an amount that the person is required to pay to the seafarer, or is
required to ensure that the seafarer is paid, as a parity condition of a coastal shipping
permit under paragraph 22(3) if the person has not already paid the amount or ensured
that the seafarer has been paid the amount. Such an amount is the difference, if any,
between the notional award amount that the seafarer should have been paid and the
amount that the seafarer has already been paid.
153. Such orders can be made on application by the seafarer or a person prescribed by the
rules, with any such person being required to have gained the seafarer‟s consent in
writing before the application is made.
154. The order must specify the amount payable and the amount may be recovered as a debt
due to the seafarer.
Part 3 - Amendments relating to seafarers
Item 40 - Section 112
155. Item 40 repeals section 112. Section 112 provided a statutory presumption against
importation under the Customs Act 1901 for vessels operating under a Temporary or
Emergency Licence. New section 12B provides the same statutory presumption (see Item
38), which means that section 112 can be repealed.
28
Coastal Trading (Revitalising Australian Shipping) Act 2012
Item 41 - After Part 4
156. Item 41 inserts new Part 4A. Part 4A provides that the Seagoing Industry Award 2010
(Award) covers employers and employees in the seagoing industry. Parts A and B of the
Award set out minimum terms and conditions of employment. Part B is currently
expressed to apply to a licence type that will no longer be available as a result of these
amendments.
157. Section 41 provides that Part B of the Award will apply, in relation to seafarers
employed on board a foreign vessel at a particular time if, at that time:
the vessel is registered under the law of a foreign country;
the Fair Work Act applies to the vessel; and
a coastal shipping permit is in force in relation to the vessel.
158. The effect of Part B of the Award applying to the relevant vessels is that the provisions
of Part A of the Award will not apply to seafarers on those vessels at that time.
159. Section 41 also allows for regulations to be made to remove ambiguity or uncertainty,
or correct an error, omission or technical deficiency in the Award, that arises as a result of
the operation of this section. A regulation could be made to, for example, remove
ambiguity by the continued reference in the Award to a defunct licence category, or if the
name of the Award or the title of Part B changes.
160. The compliance and enforcement provisions in the Fair Work Act continue to apply
in relation to the Award.
Shipping Registration Act 1981
Item 42 - Subsection 3(1)
161. Item 42 inserts a definition of Seagoing Industry Award 2010 into subsection 3(1).
Seagoing Industry Award 2010 is defined to mean the award of that name made by the
Fair Work Commission, as in force from time to time.
Item 43 - After Division 2 of Part VA
162. Item 43 inserts new Division 2A. New Division 2A provides that the Seagoing
Industry Award 2010 (Award) covers employers and employees in the seagoing industry.
Parts A and B of the Award set out minimum terms and conditions of employment.
163. Section 61AKA provides that Part B of the Award will apply, in relation to seafarers
employed on board a ship at a particular time if, at that time:
the ship is registered on the Australian International Shipping Register; and
the Fair Work Act applies to the ship.
164. The effect of Part B of the Award applying to the relevant vessels is that the provisions
of Part A of the Award will not apply to seafarers on those vessels at that time.
165. Section 61AKA allows for regulations to be made to remove ambiguity or uncertainty,
or correct an error, omission or technical deficiency in the Award, that arises as a result of
the operation of this section. A regulation could be made to, for example remove
29
ambiguity by the continued reference in the Award to a defunct licence category, or if the
name of the Award or the title of Part B changes.
166. The compliance and enforcement provisions in the Fair Work Act continue to apply in
relation to the Award.
Part 3 - Transitional provisions
Item 44 - Definitions
167. Item 44 contains definitions of transition period and old law. Transition period is
defined as the period beginning at the commencement of Part 1 of Schedule 1 and ending
immediately before the commencement of Part 2 of Schedule 1. Old law is defined as the
Coastal Trading (Revitalising Australian Shipping) Act 2012 and the Coastal Trading
(Revitalising Australian Shipping) (Consequential Amendments and Transitional
Provisions) Act 2012 as in force immediately before the commencement of Part 1 of
Schedule 1.
Item 45 - Continued operation of old law subject to modifications
168. Item 45 provides that despite the repeals and amendments of the old law made by this
Schedule, Part 4 of the Coastal Trading (Revitalising Australian Shipping) Act 2012 (the
licensing provisions) and any other provisions of the old law necessary for the effectual
operation of the Part (including, but not limited to, section 3) continue in operation during
the transition period (as defined in Item 44), subject to the modifications set out below, as
if those repeals and amendments had not happened.
169. The modifications are:
A licence that was in force immediately before the commencement of the
transition period continues in force during the transition period - meaning coastal
trading continues to take place under existing licences;
A licence that is continued in force, or is granted during the transition period, is
taken to remain in force until the end of the transition period (or until cancellation
if it is cancelled) - meaning all licences will continue until the end of the
transition period, even if they are due to cease prior to the end of the transition
period;
Part 4 of the Coastal Trading (Revitalising Australian Shipping) Act 2012, as in
force immediately before the commencement Part 1 of Schedule 1, has effect as if:
All the words after "period" in section 28 were omitted - meaning any
person may apply to the Minister for a Temporary Licence during the
transition period;
Sections 30 to 33, paragraph 34(2)(d) and subsections 34(3) and (5) and
37(3) were repealed - meaning General Licence holders and third parties will
not receive notification of Temporary Licence applications and General
Licence holders will not be able to submit a notice in response for Temporary
Licence applications or comments in response to an authorised matters
application;
All the words from and including "variation" to and including "undertaken"
in subsection 43(1) were omitted and the words "variation of all or any
30
matters authorised by a temporary licence" were substituted - meaning all or
any matters can be changed in an authorised matters application;
Section 45 were repealed - meaning General Licence holders and third
parties will not be notified of authorised matters variation applications and
will not be able to provide the Minister with comments on the applications;
Subsection 46(3) were repealed - this is no longer required due to the repeal
of section 45;
The reference in section 53 to sections 30 to 34 were a reference to section
34 - meaning that General Licence holders and third parties will not receive
notification of new matters variation applications and General Licence
holders will not be able to submit a notice in response for new matters
variations applications;
Subsection 54(2), paragraph 77(1)(b) and subsection (2) were omitted - these
subsections and paragraph are no longer required due to the repeal of sections
30 to 33 and alteration of section 53.
170. Despite the repeals and amendments of the old law being made, sections 27, 62 and 75
continue in force after the end of the transition period for licences granted before the end
of the transition period. This means that licence holders must provide reports as per
section 27 (General Licences), section 62 (Temporary Licences) or section 75
(Emergency Licences) for voyages even after the transition period ends. This will ensure
that licence holders provide all reports that they are obliged to for voyages undertaken
under a licence.
171. Sub-item 45(4) makes clear that provisions in the Acts mentioned in Schedule 3, that
are repealed or amended at the end of the transition period, operate by reference to the
provisions repealed or amended at the start of the transition period, but continued in
operation by this item.
Item 102 - Permits granted during transition period do not come into force until after
that period ends
172. Item 46 states that if the Minister grants a permit under section 15 of the Coastal
Shipping Act 2015, or is taken to have granted a permit under section 19 of the Coastal
Shipping Act 2015, during the transition period then the permit is taken to come into force
on the day after the end of the transition period. This ensures that permits cannot
commence until the transition between the licence and permit systems is completed.
SCHEDULE 2 - Shipping registration
Shipping Registration Act 1981
Item 1 - Subsection 3(1) (definition of Australian resident)
173. Item 1 repeals the definition of Australian resident and substitutes a new definition.
An Australian resident is a person who is a resident of Australia for the purposes of the
Income Tax Assessment Act 1936.
31
Item 2 - Subsection 3(1) (definition of foreign resident)
174. Item 2 omits "a resident of Australia." from the definition of a foreign resident and
replaces this with the words "an Australian resident.". This is in order to ensure that the
definition remains consistent with the amendment in Item 2.
Item 3 - Subsection 3(1) (definition of resident of Australia or Australian resident)
175. Item 3 repeals the definition of resident of Australia or Australian resident. This is
because the definition of Australian resident has already been provided (see Item 1).
Item 4 - Subsection 11A(1)(note)
176. The note has been repealed as it is no longer a requirement of registration on the
International Register that a collective agreement is reached between the owner of a ship
and the seafarers‟ bargaining unit.
Item 5 - Paragraph 15C(b)
177. Item 5 omits ";" and substitutes "." This amendment is necessary as paragraph 15C(c)
is repealed (see Item 6).
Item 6 - Paragraph 15C(c)
178. Item 6 repeals the requirement for an application for registration in the International
Register to be accompanied by evidence that a collective bargaining agreement has been
made under section 11A of the Shipping Registration Act 1981. This ability to make a
collective bargaining agreement under section 11A, while no longer mandatory for
registration, will remain.
Item 7 - Subsection 15F(3)
179. Item 7 repeals existing subsection 15F(3) and substitutes new subsections 15F(3), (3A)
and (3B).
180. The Registrar must refuse to register a ship in the International Register if the
Registrar is satisfied that the ship will not be used to engage in at least 90 days of
international trade in the following financial year (if on the day the application is made,
there are fewer than 90 days in the financial year in which the day occurred) or if the
Registrar is satisfied that the ship will be not be used to engage in international trade on at
least the relevant number of days for that financial year (if on the day the application was
made, there were 3 months or more remaining in the financial year in which the day
occurred).
181. The relevant number of days for a financial year (for the purposes of paragraph
15F(3)(b)) is worked out by multiplying the number of whole months remaining in that
financial year by 7.5. This is so that a vessel joining the International Register part way
through a financial year is not obligated to undertake the 90 days of trading in a part year.
Seven and a half days per month has been selected as 90 divided by twelve is seven and a
half. For the purposes of calculating the number of days a ship will be used to engage in
32
international trade, a day on which a passenger is to be embarked or disembarked, or
cargo is to be loaded or unloaded, is included even if the ship is not underway on that day.
Item 8 - Paragraph 33A(1)(a)
182. Item 8 inserts the words ", or a person who holds a visa that allows the person to work
in Australia as a master or chief mate (as the case requires)," after the words "Australian
resident". This is in order to expand the scope of those who hold senior crew positions on
International Register ships to include people who have Australian work rights without
necessarily being Australian residents or nationals.
Item 9 - Paragraph 33A(1)(b)
183. Item 9 inserts ", or a person who holds a visa that allows the person to work in
Australia as a chief engineer or first engineer (as the case requires)," after the words
"Australian resident". This amendment expands the scope of those who hold senior crew
positions on International Register ships to include people who have Australian work
rights without necessarily being Australian residents or nationals, consistent with the
Australian crew requirement in the Coastal Shipping Act.
Item 10 - Subsection 33A(2)
184. Item 10 inserts ", or a person who holds a visa that allows the person to work in
Australia as a master or chief engineer (as the case requires)," after the word "resident".
This amendment aligns the subsection 33A(2) with the amended definition in subsection
33A(1) (see Item 9).
Item 11 - Paragraphs 33B(1)(c) and (d)
185. Item 11 repeals existing paragraphs 33B(1)(c) and (d) and substitutes new paragraphs
33B(1)(c) and (d). The Registrar may cancel the registration of a ship in the International
Register if they are satisfied that the ship will not, in the financial year the cancellation
will take effect, be used to engage in international trade for at least 90 days, or if a
relevant number of days applies, at least the relevant number of days. The Registrar may
also cancel the registration of a ship in the International Register if they are satisfied that
the ship was not, in a financial year preceding the financial year in which the cancellation
will take effect, used to engage in international trade for at least 90 days, or if a relevant
number of days applies, at least the relevant number of days.
186. This is consistent the international trading requirements required for initial registration
in the International Register as set out at section 15F (see item 7).
Item 12 - After 33B(1)
187. Item 12 inserts a new provision that provides that a relevant number of days
requirement, for the purposes of paragraphs 33B(1)(c) and (d) applies to a ship for a
financial year if an application for registration of the ship was made in that financial year
and when the application was made, there were 3 months or more remaining in the
financial year. This amendment ensures that if a ship joins the International Register part
way through a financial year and will not reach the relevant number of days of
33
international trading, or did not reach the relevant number of days of international trading
in an previous financial year, then the Registrar may cancel the registration of the ship.
SCHEDULE 3 - Consequential amendments
Australian Maritime Safety Act 1990
Item 1 - Paragraph 11(2)(e)
188. Item 1 omits "trading" and substitutes "shipping" as the term "coastal trading" is being
replaced with "coastal shipping" in the Act (see Item 24 of Schedule 1).
Coastal Trading (Revitalising Australian Shipping) (Consequential Amendments and
Transitional Provisions) Act 2012
Item 2 - The whole of the Act
189. Item 2 repeals the whole of the Act as it will be no longer required.
Occupational Health and Safety (Maritime Industry) Act 1993
Item 3 - Section 4
190. Item 3 inserts definitions of coastal shipping and coastal shipping permit into Section
4. This new definition is required as the term "coastal trading" is being replaced with
"coastal shipping" in the Act (see Item 24 of Schedule 1). Coastal shipping permit is
defined as a coastal shipping permit granted under Part 4 of the Act. This new definition
is required as the coastal shipping permit is replacing the existing three tiered licensing
system in the Act (see Item 30 of Schedule 1).
Item 4 - Section 4
191. Item 4 repeals the definitions of coastal trading, emergency licence and general
licence in Section 4. The definition of coastal trading is no longer required as the term
"coastal trading" is being replaced with "coastal shipping" in the Act (see Item 24 of
Schedule 1). The definition of emergency licence and general licence is no longer
required as the existing three tiered licensing system is being replaced with a single
permit system (see Item 30 of Schedule 1).
Item 5 - Section 4 (subparagraph (a)(i) of the definition of prescribed ship)
192. Item 5 inserts "assuming paragraph 10(b) of that Act were omitted" after "repealed" in
Section 4. This is required as the licence system referred to in the repealed Navigation
Act 1912 is being replaced with a single permit system.
Item 6 - Section 4 (definition of temporary licence)
193. Item 6 repeals the definition of temporary licence as a result of the removal of the
three tiered licensing system and the introduction of a single permit system for coastal
shipping.
34
Item 7 - Subsection 6(3A)
194. Item 7 repeals subsection 6(3A) and substitutes it with "This Act also applies to a
prescribed ship that is used to engage in coastal shipping under a coastal shipping permit"
as a result of the removal of the three-tiered licensing system and the introduction of
coastal shipping permits.
Seafarers Rehabilitation and Compensation Act 1992
Item 8 - Section 3
195. Item 8 inserts "coastal shipping has the same meaning as in the Coastal Shipping Act
2015" and "coastal shipping permit has the same meaning as in the Coastal Shipping
Act 2015" into Section 3. The definition of coastal shipping is required as the term
"coastal trading" is being replaced with "coastal shipping" in the Act (see Item 24 of
Schedule 1). The definition of coastal shipping permit is required as the coastal shipping
permit is replacing the existing three tiered licensing system in the Act (see Item 30 of
Schedule 1).
Item 9 - Section 3
196. Item 9 repeals the definitions of coastal trading, emergency licence and general
licence in Section 4. The definition of coastal trading is no longer required as the term
"coastal trading" is being replaced with "coastal shipping" in the Act (see Item 24 of
Schedule 1). The definition of emergency licence and general licence is no longer
required as the existing three tiered licensing system is being replaced with a single
permit system (see Item 30 of Schedule 1).
Item 10 - Section 3 (subparagraph (a)(i) of the definition of prescribed ship)
197. Item 10 inserts "assuming paragraph 10(b) of that Act were omitted" after "repealed"
in Section 4. This is required as the licence system referred to in the repealed Navigation
Act 1912 is being replaced with a single permit system.
Item 11 - Subsection 19(1AA)
198. Item 11 repeals the subsection and substitutes it with "This Act also applies to the
employment of employees on a prescribed ship that is used to engage in coastal shipping
under a coastal shipping permit". This amendment is required as a result of the removal
of licences and introduction of coastal shipping permits.
Shipping Registration Act 1981
Item 12 - Subsection 3(1)
199. Item 12 inserts coastal shipping has the same meaning as in the Coastal Shipping Act
2015 as the term "coastal trading" is being replaced with "coastal shipping" in the Act
(see Item 24 of Schedule 1).
35
Item 13 - Subsection 3(1) (definition of coastal trading)
200. Item 13 repeals the definition of coastal trading as the term "coastal trading" is being
replaced with "coastal shipping" in the Act (see Item 24 of Schedule 1).
Item 14 - Subsection 3(1) (definition of predominantly used to engage in international
trading)
201. Item 14 repeals the definition of predominantly used to engage in international
trading as being predominantly engaged in international trading is no longer a condition
of being registered on the International Register.
Item 15 - Paragraph 61AB(2)(a)
202. Item 15 omits "coastal trading" and substitutes with "coastal shipping" as the term
"coastal trading" is being replaced with "coastal shipping" in the Act (see Item 24 of
Schedule 1).
36
REGULATION IMPACT STATEMENT:
COASTAL SHIPPING REFORM
This Regulation Impact Statement has been prepared in accordance with the Australian
Government Guide to Regulation handbook (2014) by the Department of Infrastructure and
Regional Development with input from the Department of Employment. It is intended to assist
with the assessment of proposed options to reform coastal shipping regulation in Australia
through reducing regulatory burden and red tape, with a view to promoting a viable, vibrant
domestic maritime sector which contributes to the broader Australian economy.
37
FOREWORD
Coastal shipping is the movement of goods by sea on entirely domestic journeys. It has
generally been utilised in Australia for the movement of containers and bulk goods where road
and rail transport is unavailable or unviable but also includes the movements of passengers on
entirely domestic voyages.
The Australian Government regulated coastal shipping for more than 100 years through various
iterations of the Navigation Act 1912 and, more recently, through the Coastal Trading
(Revitalising Australian Shipping) Act 2012 (the Coastal Trading Act).
The primary interest of regulating coastal shipping has been to allow the participation in the
domestic economy by ships not registered in Australia where there is a shortfall of Australian
tonnage available to meet the demand of shippers. Over time, restrictions to foreign ships
operating in the domestic economy have generally eased (with the notable exception of the
Coastal Trading (Revitalisation of Australian Shipping) Act 2012) as the demand for services has
outgrown the supply of Australian ships.
A long term goal of successive Australian Governments has been to foster an efficient and
internationally competitive Australian maritime industry to provide domestic and international
transport services. The options set out in this Regulation Impact Statement all seek to deliver
this outcome.
xxxviii
CONTENTS
Foreword 38
Definitions 41
Overview - The Regulation Impact Statement Process 43
Executive Summary 44
Introduction: A Brief History Of Coastal Shipping Regulation in Australia 46
RIS Question 1 - The Policy Problem 48
The problem the Government is trying to solve 48
The Nature of the Problem 49
The Declining Ship Size and Carrying Capacity Of The Australian Fleet 49
An ageing Australian fleet 50
Labour Market Issues 50
Loss of Maritime Skills 51
The size of the problem 51
Current Regulatory Framework 52
Shortcomings in current measures 53
RIS Question 2 - the Need for Government Action 54
The Reason for Government Intervention 54
The Capacity of Government to Intervene 54
Alternatives to Government Action 54
Objectives, outcomes goals and targets 55
Constraints and barriers 55
SMART Checklist for proposed measures 55
Specific Targets 55
Success Measures 56
Accountability 56
Achievability 56
Timeliness 56
RIS Question 3 - Policy Options 58
Policy options considered 58
Specific options considered 59
Linkages between policy options and Government Objectives 61
Breadth of options considered 62
The Context for Options Considered 62
RIS Question 4 - The Likely Net Benefit of Each Option 64
Stakeholders 64
Overview of the Cost Benefit Analysis Process 64
Option 1 65
Benefits 65
Costs 65
xxxix
Deregulatory Savings 66
Option 2 68
Benefits 68
Costs 69
Deregulatory Savings 69
Option 3 71
Benefits 71
Costs 72
Deregulatory Savings 72
Option 4 (Preferred option) 74
Benefits 74
Costs 75
Deregulatory Savings 75
International Standards Harmonisation 76
RIS Question 5 - Consultation 77
The Purpose of Consultation 77
Consultation Strategy 77
Parties Consulted 78
Consultation Topics and Issues 79
Outcomes of consultation 79
RIS Question 6 - The Preferred Option 82
Key findings from Consultation 82
The Recommended Option 83
The Decision Making Process 84
RIS Question 7 - Implementation and Evaluation 86
Implementation Challenges 86
Implementation Risks 87
Transitional Arrangements 88
Evaluation Process 89
Appendix A Licence Types under the Coastal Trading (Revitalising 90
Australian Shipping) Act 2012 and associated legislation
Appendix B Cost Benefit Analysis 92
Appendix C List of Public Submissions 93
xl
DEFINITIONS
Australian General Register Sometimes referred to as the 'first register' the Australian
General Register is where Australian ships seeking to engage in
both domestic and international trade are registered. The
General Register is established through the Shipping Registration
Act 1981. This Act of Parliament is the responsibility of the
Minister for Infrastructure and Regional Development.
Australian International Shipping Sometimes referred to as the 'second register' the Australian
Register International Shipping Register is where Australian ships seeking
to primarily operate overseas may elect to register. This register
was introduced as a part of the 2012 reform package. The AISR
offers reduced regulatory burden and allows the use of foreign
labour in some circumstances but requires the ship to spend at
least 51% of its time engaging in international voyages. The AISR
is established through the Shipping Registration Act 1981. This
Act of Parliament is the responsibility of the Minister for
Infrastructure and Regional Development.
Australian ship An Australian ship is a ship registered either on the Australian
General Register or on the Australian International Shipping
Register. Ship nationality is established in Australia through the
Shipping Registration Act 1981.
Coastal Shipping The carriage of domestic passengers or cargoes on purely
domestic voyages.
Deadweight tonnage A measure of the total carrying capacity of a ship in tonnes. It is
calculated as the difference between the ship's lightship
(unloaded) and its loaded displacement. As such, it includes the
weight of crew, passengers, fuel, water, and stores as well as
cargo. Often abbreviated to "DWT".
Demurrage A cost payable to a chartered ship owner on failure to load or
discharge the ship within the time agreed. Based on stakeholder
feedback, demurrage is conservatively estimated to cost $12,000
per day on average.
Domestic Voyage A voyage carrying goods or passengers between two ports in
Australian territory. A domestic voyage does not include a
voyage not carrying cargo or passengers.
Exclusive Economic Zone Consistent with Article 57 of the United National Convention on
the Law of the Sea the exclusive economic zone shall not extend
beyond 200 nautical miles from the baselines from which the
breadth of the territorial sea is measured.
xli
Foreign ship A ship registered under the laws of a country other than
Australia.
Landside businesses Maritime related businesses located on land.
Major trading fleet Ships in the Australian trading fleet that have deadweight
tonnage greater than or equal to 2,000 tonnes (see deadweight
tonnage).
Maritime Crew Visas The Maritime Crew visa (subclass 988) is a temporary visa for
crew who are employed on non-military ships on international
voyages to Australia.
Roadstead An area affording less protection than a harbour where ships can
load, unload and anchor safety.
Seagoing Industry Award 2010 The modern award covering the seagoing industry which
provides for minimum pay rates and employment conditions.
Temporary Business Long Stay Temporary Work (Skilled) visas (subclass 457) allow skilled
visas (subclass 457) workers to come to Australia and work for an approved business
for up to four years. Skilled workers must be sponsored by an
approved business.
A business can sponsor someone for this visa if they cannot find
an Australian citizen or permanent resident to do the skilled
work. Requirements of sponsor businesses include that they
must contribute to the training of Australians.
xlii
OVERVIEW - THE REGULATION IMPACT STATEMENT PROCESS
The Regulation Impact Statement process is set out in the Australian Government Guide to
Regulation available at www.cuttingredtape.gov.au. The guide sets out seven primary areas
that must be addressed.
RIS Question 1 - What is the policy problem you are trying to solve?
RIS Question 2 - Why is government action needed?
RIS Question 3 - What policy options are you considering?
RIS Question 4 - What is the likely net benefit of each option?
RIS Question 5 - Who will you consult and how will you consult them?
RIS Question 6 - What is the best option from those you have considered?
RIS Question 7 - How will you implement and evaluate your chosen option?
This document has been arranged into seven sections aligned to the above questions in line
with advice from the Office of Best Practice Regulation. Each section addresses a RIS question
and the relevant sub questions set out in the Australian Guide to Regulation.
In line with the Australian Government Guide to Regulation, this Regulation Impact Statement
explores each of the considered policy options, their benefits and costs, relative merits and
alternatives.
xliii
EXECUTIVE SUMMARY
The cost of Australian domestic shipping services is uncompetitive on a global scale and the
movement of manufacturing inputs and completed products on the Australian coast can be
more expensive than importing inputs or finished products from other countries. Despite the
recent global oversupply of shipping capacity, the declining number of trading ships on the
Australian registry has exacerbated the existing shortage of Australian tonnage on domestic
routes. The current legislative framework allowing foreign ships to participate in the domestic
economy, the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Coastal Trading Act)
is inefficient and burdensome on both shippers and the shipping industry.
The current regulatory framework for coastal shipping has not arrested the decline of the
Australian shipping industry. Rather, it has restricted access to the Australian market and has
resulted in a situation where Australian businesses frequently cannot access efficient, flexible
and cost-effective shipping services suitable to meet their business needs. Given Australia's
export orientated economy, with its focus on minerals and energy, a viable shipping industry,
including a sustainable coastal trading sector is critical to the ongoing prosperity of the nation.
Four options were examined during the policy development process. These included a non-
regulatory option.
Option 1 - remove all regulation of access to coastal trading
This Option involves the repeal of the Coastal Trading Act without consideration of the residual
effects of other legislation and is the non-regulatory option considered. In practice, Option 1
would significantly increase the difficulty for foreign ships to compete in the coastal trading
market. Modelling agreed by the Office of Best Practice Regulation contends this option would
have a net economic cost of $2.5 Billion. In addition, the annual regulatory burden estimated
using the Regulatory Burden Measurement framework and agreed by the Office of Best Practice
Regulation is estimated to be $12.53 million.
Option 2 - remove all regulation of access to coastal trading and enact legislation to deal with the
effects of other Australian laws
This Option also involves the repeal of the Coastal Trading Act and introduction of a range of
other legislative provisions within a number of Acts to ensure open market access to coastal
trade by all vessels. Modelling agreed by the Office of Best Practice Regulation contends this
option would have a net economic benefit of $786.2 million. In addition, the annual regulatory
saving estimated using the Regulatory Burden Measurement framework and agreed by the
Office of Best Practice Regulation is estimated to be $27.9 million.
Option 3 - continue to regulate coastal trade, but minimise industry burden and cost
This Option involves the Australian Government continuing to regulate coastal trade under an
amended Coastal Trading Act, which would see major burdens and costs to industry removed.
This option would retain some protection for the Australian flagged coastal fleet while
providing greater flexibility to buyers of shipping services and both Australian and foreign
flagged suppliers of coastal shipping services. Modelling agreed by the Office of Best Practice
Regulation contends this option would have a net economic benefit of $705.3 million. In
xliv
addition, the annual regulatory saving estimated using the Regulatory Burden Measurement
framework and agreed by the Office of Best Practice Regulation is estimated to be $27.9 million.
Option 4 - reduced regulatory burden option with provisions to retain skills and provide minimum
protections for seafarers on foreign vessels engaged predominantly in coastal shipping
This Option involves the Australian Government continuing to regulate coastal trade, with the
existing licensing system replaced by a single permit allowing unrestricted trading on the coast
for both Australian and foreign ships. Under this option reporting requirements would also be
reduced and simplified. To support an Australian skills base, foreign ships trading on the coast
for more than 183 days in a one year permit period would be required to have crew that are
Australian citizens or residents or that hold appropriate Australian work rights as the master or
chief mate and the chief engineer or first engineer of the ship. In addition, these ships would
also have minimum standards for crew pay and conditions set out in regulations. To further
strengthen skills development opportunities, the requirements for entry to the Australian
International Shipping Register will be amended to remove current restrictions and barriers to
entry. Modelling agreed by the Office of Best Practice Regulation contends this option would
have a net economic benefit of $667.4 million. In addition, the annual regulatory saving
estimated using the Regulatory Burden Measurement framework and agreed by the Office of
Best Practice Regulation is estimated to be $21.4 million.
During the development and examination of these options, extensive consultation was
undertaken with industry stakeholders, industry and employee representative groups and with
other interested parties. The consultation process included the publication of an Options Paper
and open and private consultative sessions across Australia. Stakeholders were also asked to
complete an online survey to assist in the development of the cost benefit analysis and were
consulted on the regulatory burden calculations for the current system. In addition, further
consultation was undertaken through an industry roundtable held by the Deputy Prime
Minister in February 2015.
Of the options considered, Option 4 is the preferred option. It will significantly reduce industry
costs and burden and will remove impediments to foreign ships seeking to access the Australian
coast. This option will retain measures to support the ongoing supply of maritime skills in the
Australian economy and protect wages and conditions for seafarers on foreign ships operating
primarily in the Australian coasting trade. It will not deliver the greatest economic benefit of
the options that have been identified, but the minimum protections for foreign seafarers and
Australian seafarer skills contained within the option are considered to be fundamental
parameters of a reformed coastal shipping regulatory framework.
The preferred option will be implemented by making legislative amendments to the Coastal
Trading Act. The preferred option will be evaluated through a range of mechanisms including
regular reviews under the regulator performance framework, monitoring by the Cabinet
Implementation Unit and internal reviews and audits within the Department of Infrastructure
and Regional Development.
xlv
INTRODUCTION: A BRIEF HISTORY OF COASTAL SHIPPING
REGULATION IN AUSTRALIA
Australian Governments have been considering with the issues involved in coastal shipping
regulation for over a century. The problem of a decline in cost effective and suitable Australian
ships has developed over a number of decades due to an undersupply of Australian ships
providing services in the domestic economy. This undersupply has led to foreign ships being
permitted to participate in the domestic economy to ensure efficient and timely freight
movement services are available to other sectors.
Successive governments have sought to facilitate this foreign access through a range of
regulatory approaches aimed at granting Australian industry access to competitive shipping
services, while also supporting the ongoing viability of an Australian flagged fleet.
Commencing in 1913, the Navigation Act 1912 provided a regulatory framework governing a
range of aspects related to maritime navigation, among these regulation of the coastal trade.
The Navigation Act has seen a number of developments with respect to coastal shipping, each
seeking to balance the need for services with the availability of British and then Australian
ships.
On commencement of the Act, all ships engaging in coastal trading were required to hold a
licence. The conditions placed on licence holders required adherence to standardised pay,
seafarer conditions, and employment levels. This original Act included provisions permitting
the Governor-General to declare the carrying of passengers between specified ports in Australia
by British ships to not be deemed coastal trading.
Single and continuing voyage permits, allowing an unlicensed British ship to engage in coastal
trading were first introduced in 1921. These permits were only available where the Minister
was satisfied that no licensed ship was available or that the serviced as carried out by a licensed
ship or ships would have been inadequate. Permits could be issued unconditionally or subject
to any condition the Minister saw fit.
In 1926 amendments to the Navigation Act allowed the Governor-General to grant permission
to unlicensed British Ships of such size and speed as specified to carry passengers between set
port pairs where the Governor-General was satisfied that the tourist traffic between the ports
was injured or retarded. While passengers were included in previous iterations of the
regulation, this was the first direct recognition of tourism related maritime transport.
In 1958, the Navigation Act was further amended to permit the Minister to grant a permit to a
foreign ship if no British ships were available. This amendment signalled the commencement of
the current coastal trading policy allowing foreign participation in the market. A permit could
not be granted if a British ship operating under a permit was available.
In 1979, a number of mechanical changes were made to Part VI of the Navigation act in addition
to a more significant amendment to tighten the requirement for ships operating under licence
or permit to not be in receipt of subsidies. Prior to this amendment, subsidies were permitted
from any Commonwealth country, after the amendment, subsidies were only permitted to be
paid by Australia.
In 1981, the Act was amended to remove protection for unlicensed British ships, evening the
treatment for all non-Australian ships plying the coast.
46
In 2006, the Act was amended to provide greater powers to cancel continuing voyage permits to
the Minister.
This series of amendments had the practical effect of progressively easing access to the coastal
trades for foreign ships where supplementation of the Australian fleet was necessary.
The Coastal Trading (Revitalising Australian Shipping) Act 2012 (the Coastal Trading Act) was
legislated by the previous Australian Government as part of a suite of reforms intended to arrest
the decline in the Australian shipping industry. The provisions of the Coastal Trading Act
provide the benchmark for the consideration of the reforms identified in this RIS.
47
RIS QUESTION 1 - THE POLICY PROBLEM
In line with the Australian Government Guide to Regulation, this section:
Clearly identifies and defines the problem the Government is trying to solve.
Demonstrates why it is a problem: and addresses risks or other dangers to be mitigated.
Offers evidence about the magnitude of the problem and the costs of not doing anything.
Describes the businesses, community organisations or individuals affected by the
problem.
Explains which, if any, current government measures have sought to address this
problem.
Establishes why those measures are not working.
THE PROBLEM THE GOVERNMENT IS TRYING TO SOLVE
The cost of Australian domestic shipping services is uncompetitive on a global scale and the
movement of manufacturing inputs and completed products on the Australian coast can be
more expensive than importing inputs or finished products from other countries.
Despite the recent global oversupply of shipping capacity, the declining number of trading ships
on the Australian registry has exacerbated an already existing shortage of tonnage on domestic
routes. There are sufficient foreign ships available to service the needs of the Australian
economy and the opportunities for competitive freight pricing are only likely to be achievable
through greater access to the buyers of shipping services as the Australian economy continues
to grow.
Successive governments have allowed access to foreign ships where no Australian ships are
available to provide a suitable service. In addition to this objective, the existing regulatory
framework seeks to balance industry demands for access to lower cost foreign shipping services
in the domestic economy with the preservation of an Australian maritime industry.
The current legislative framework allowing foreign ships to participate in the domestic
economy (the Coastal Trading (Revitalising Australian Shipping) Act 2012) is inefficient and
burdensome on both shippers and the shipping industry. It has neither revitalised the
Australian fleet, nor provided the flexibility required by shippers to efficiently and effectively
move goods around the Australian coast. In addition, it also does not effectively support
industry in making reasonable decisions about freight rates and multi-modal transport pricing.
Recent freight reports suggest the Coastal Trading Act has not increased the market share of
coastal shipping as a freight transport mode when compared with land-based modes. In an
environment where freight volumes are increasing, bulk commodities, such as aluminium ores,
iron ore and petroleum, account for over 70 per cent of domestic coastal shipping movements.
Despite this large market share and growth in the overall freight task, projected growth in
domestic coastal shipping movements is dramatically lower than for the national road and rail
freight task.1
The policy development process covered by this Regulation Impact Statement seeks to identify
and understand stakeholder concerns and to reshape the regulation of coastal shipping to
deliver a better balanced and less burdensome framework. The revised framework would
1
BITRE, 2014, Freightline 1 - Australian freight transport overview, BITRE, Canberra, pp.5, 8.
48
provide shippers with access to cheaper shipping services and would assist in making shipping
more attractive when compared to land transport options.
THE NATURE OF THE PROBLEM
As outlined above, the current situation is such that foreign participation in the Australian
domestic maritime industry is essential for the foreseeable future. The key question faced by
successive governments is one of the level of participation of foreign ships. In particular,
balancing the need for access to cost effective services with a desire to promote jobs in the
domestic Australian economy has been an issue carefully considered over numerous iterations
of coastal shipping regulation.
There are three central issues to the current situation - the Australian fleet is not large enough
to meet the demand of shippers, the Australian fleet is ageing and becoming increasingly
expensive to run and maintain compared to younger fleets, and Australian labour is relatively
expensive compared with international counterparts in a globally competitive industry. In
addition, future policy also needs to be made in consideration of Australia's long term skills
needs.
Stakeholder consultation indicated the current regulatory settings are not effectively balancing
these needs and that freight rates had increased unduly since the commencement of the current
regulatory framework. Extensive industry consultation indicated the existing framework adds
unnecessary regulatory and cost burden to users of shipping services and may have led to a
disproportionate increase in freight rates since the commencement of the legislation.
Further, consultation has indicated that without support beyond the measures introduced by
the former Government in the 2012 reform package, major reinvestment in the Australian fleet
is unlikely. On this basis, Australian reliance on foreign shipping services is likely to grow in the
coming years as ships continue to leave the Australian fleet due to retirement or reflagging
overseas to pursue more favourable taxation and employment environments.
The key considerations during the policy development process are the size and carrying
capacity of the Australian fleet, the costs of an ageing fleet, labour market issues, and issues
around the loss of maritime skills.
THE DECLINING SHIP SIZE AND CARRYING CAPACITY OF THE AUSTRALIAN FLEET
The fleet of Australian ships suitable for providing domestic maritime transport services is
relatively small. There are currently 49 Australian registered ships (general licence) permitted
to provide interstate maritime transport services in an unrestricted manner. A further 8 foreign
registered ships (transitional general licence) employing Australian crew are also permitted to
provide interstate maritime transport services with the same rights as Australian ships through
grandfathering arrangements from the previous regulatory framework. Many of these ships are
small and provide specialised services to remote communities in Northern Australia. The
increase in the number of smaller ships is indicative of a specialisation in service provision by
Australian shipping companies.
The fleet of major Australian registered ships with coastal licences has been declining over
decades and in the past decade alone, from 30 in 2006-07 to 15 in 2013-14. The introduction of
the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Coastal Trading Act) has not
49
revitalised Australian shipping - there has been a 63% decrease in the carrying capacity of the
major Australian coastal fleet since the Coastal Trading Act was introduced.2
A key reason for this decline is the retirement of older ships from the fleet without Australian
shipping industry action to replace these vessels.
The declining tonnage of trading ships on the Australian registry has led to a shortage in
Australian capacity on domestic routes and has brought about an increased reliance on foreign
ships to provide these services.
AN AGEING AUSTRALIAN FLEET
The higher operating costs of older vessels in the Australian fleet also contribute to the higher
freight rates typically charged by general licence and transitional general licence vessels.
Industry consultation conducted by the Department indicates that the current Australian fleet is
relatively old by international standards, where shippers tend to have a preference for ships
under 15 years old. The average age of an Australian major trading ship with a general licence
is currently around 23 years and none of these vessels are under 15 years.
Consulted parties advised these older ships are generally slower, less fuel efficient, less reliable
and more prone to breakdown, and require larger crew contingents than their more modern
counterparts. In addition, these ships generally attract higher insurance premiums. Combined,
these factors contribute to higher operating costs for older ships and the Australian shipping
fleet's participation in international trades is declining. Domestic coastal trade suffers from
either high freight charges or loss of business to the road and rail freight sectors.
LABOUR MARKET ISSUES
Crew costs are a major contributing factor to higher freight rates typically charged by general
licence and transitional general licence vessels. Combined with the higher costs of operating an
ageing fleet, higher labour costs impact the international competitiveness of Australian ships. In
the absence of a competitive advantage brought about by a higher level of service or more
efficient operations, the higher labour costs cannot be offset and Australian shipping remains
uncompetitive.
As outlined by a number of stakeholders, Australian labour costs are significantly higher than
the international standard. Modelling for the proposed options has estimated that the Seagoing
Industry Award 2010 (Seagoing Industry Award) Part A is between $4,169 and $5,202 more
expensive per ship per day than the International Transport Federation's Uniform Collective
Agreement (ITFUCA) rate.3 Part B of the Seagoing Industry Award is estimated to be between
$2,980 and $3,956 more per ship per day than the ITFUCA rate. There are also administrative
costs involved in applying Australian workplace relations laws under the current framework.
Previous regulatory interventions in this area have been based on the idea that when foreign
ships are engaged in domestic trading that is incidental to their international trading, they
should not be covered by domestic workplace relations laws. These interventions have also
recognised that in order to provide a more equitable operating environment for Australian
ships, foreign ships engaged predominantly in the Australian domestic economy should be paid
domestic wages.
2
Bureau of Infrastructure, Transport and Regional Economics, 2015, Unpublished Data.
3
Depending on whether the ship is manned by an 18 or 24 person crew.
50
The Government recognises the competing objectives of reducing detrimental costs within the
Australian shipping industry, while also ensuring that foreign ships engaged in significant
Australian trade abide by labour conditions more closely aligned with Australian ships. Based
on stakeholder experience and the continued decline of the Australian fleet, there is scope to
better balance these two objectives.
LOSS OF MARITIME SKILLS
Employee associations and some landside employers have raised concerns about the loss of
seagoing maritime industry experience within the Australian workforce. In particular, a global
shortage of skilled officers is increasing pressure on landside employers seeking personnel with
suitable seagoing experience to fill positions including marine pilots, harbourmasters, insurance
specialists and others.
As Australian tonnage continues on a long term declining trend, the availability of positions will
decrease. Like other industries, landside operators will likely need to seek skills in an
increasingly globalised market and at globally competitive wage rates.
THE SIZE OF THE PROBLEM
In 2012, analysis conducted by Deloitte Access Economics4 (DAE) found that the licensing
arrangements introduced under the current Coastal Trading Act would:
increase the cost of coastal shipping and, by extension, freight rates of up to 16 per cent;
likely see costs borne predominantly by users of coastal sea freight, which would
diminish competitiveness, encourage substitution of Australian-manufactured products
for imports (especially if the Australian dollar remained high), and bear negatively and
potentially significantly on future investment decisions;
have an aggregate impact of between -$242 million and -$466 million on Gross
Domestic Product over the 2012-2025 period in 2012 Net Present Value terms
(compared to the regulatory system under the Navigation Act); and
cause net job losses of 200 full time equivalent (FTE) employees over the long term,
although immediate displacement was estimated at a peak loss of 570 FTE employees.
Since the introduction of the Coastal Trading Act on 1 July 2012, stakeholders have noted an
increased administrative burden, operational uncertainty where Australian ships can contest
licence applications, and reluctance by international ships to participate in the current
regulatory system. Further, the Coastal Trading Act has not arrested the decline in the number
or capacity of the Australian major trading fleet, nor met demand from purchasers of shipping
services.
Stakeholder feedback from consultation supports DAE's first two findings. In particular, Bell
Bay Aluminium5 noted their experience of increased costs and reduced competition in the
coastal shipping market since introduction of the Coastal Trading Act. Bell Bay Aluminium
faced an increase in freight rates from $18.20/tonne in 2011 to $29.70/tonne in 2012, or,
compared with $17.50/tonne charged by international operators, and was effectively restricted
4
Deloitte Access Economics, 2012, Economic impacts of the proposed Shipping Reform Package, Sydney, NSW, pp iii-v.
5
Bell Bay Aluminium, 2014, submission to Department of Infrastructure and Regional Development Options Paper:
Approaches to regulating coastal shipping in Australia, p 4.
51
to use of a single Australian flagged vessel. Similarly, the Cement Industry Federation6 stated
that there is presently no cost advantage in shipping clinker (a cement input) between
Australian ports over importing from Asia, which has a negative impact on the Australian
cement industry's international competitiveness.
The current regulatory and policy settings for coastal shipping are expected to cost between
$242 and $466 million to 2025 and, to date, has had little appreciable effect upon the Australian
shipping industry. Consequently, maintenance of the current settings is not recommended.
These settings will likely continue to have a negative effect on growth in the broader Australian
economy due to the existing restrictions on access to timely, flexible and cost effective shipping
services.
CURRENT REGULATORY FRAMEWORK
Coastal shipping in Australia is currently regulated under the Coastal Trading (Revitalising
Australian Shipping) Act 2012 (the Coastal Trading Act), which commenced on 1 July 2012.
The Coastal Trading Act was intended to balance the interests of the Australian shipping
industry and users of shipping services by regulating Australian and foreign ships through a
licensing system. It provides an advantage to Australian ships by allowing them unrestricted
access to coastal trade along with the opportunity to compete for voyages proposed to be
conducted by foreign ships.
Four types of licence are available under the existing legislative framework; General Licence,
Transitional General Licence, Temporary Licence and Emergency Licence. An overview of each
of the licence types is included at APPENDIX A .
The existing framework rebalanced the use of Australian and foreign ships in a way that
continues to permit the use of foreign ships where suitable Australian ships are not available.
The current approach has been widely criticised by shippers and some sectors of the shipping
industry because it removed some of the flexibility previously available under the Navigation
Act.
Historically, foreign flagged ships operating domestically under permits issued under the
previous Navigation Act 1912 (Navigation Act) were generally not covered by Australian labour
laws. In 2010, the application of the Fair Work Act 2009 (Fair Work Act) was expanded to
certain foreign-flagged vessels operating in Australian waters and engaged in coastal trading.
Following the introduction of the Coastal Trading Act in 2012, consequential amendments were
made to the Fair Work Regulations 2009 (Fair Work Regulations) to maintain the alignment of
the Fair Work Act to crew on ships (both Australian and foreign flagged ships) engaged in
coastal shipping if the ships are:
• operating under a general, transitional general or emergency licence under the Coastal
Trading Act; or
• operating under a temporary licence and have made at least two other voyages under a
temporary licence in the last 12 months.
6
Cement Industry Federation, 2014, Submission to the Department of Infrastructure and Regional Development Options
Paper: Approach [sic] to Regulating Coastal Shipping, p 7.
52
In addition, the Seagoing Industry Award covers employers which are engaged in the seagoing
industry, and employees in a range of roles from crew to Master and Chief Engineer. Part A
applies to all ships except those which have been granted a temporary licence under the Coastal
Trading Act.
During the creation of the Seagoing Industry Award 2010, Part B was established with separate,
lower rates of pay and conditions for foreign seafarers on foreign ships. This decision
recognised stakeholder concerns that it was inappropriate to apply the same labour conditions
to seafarers on foreign ships as those that applied on Australian ships. Part B applies to ships
granted a temporary licence under the Coastal Trading Act. Entitlements provided under Part B
are less generous than Part A. Part B covers ordinary hours of work, overtime, rest periods,
leave and public holidays. It also provides for the accrual of 8 days leave per month of service.
While Part B wages are generally lower than equivalent classifications under Part A, they are
generally higher than minimum international seafarer wage rates sought by the International
Transport Workers' Federation. This means foreign seafarers working on temporary licenced
ships are entitled to more generous wages and conditions when engaged in coastal shipping in
Australia than when they are engaged in international shipping voyages.
SHORTCOMINGS IN CURRENT MEASURES
The current measures have failed to arrest the decline in the Australian fleet, the substantial
regulatory burden and high costs imposed by the system on shippers. While there has been a
small increase in the number of ships in Australia's major trading fleet engaged in coastal
trading, the overall tonnage of the fleet has continued to decline.
While the existing framework has supported the transition of the Australian industry to more
specialised niche market services, it has not provided adequate flexibility to the users of
shipping services wishing to access cheap, reliable and globally competitive services utilising
otherwise unoccupied foreign tonnage already on the coast.
Information provided by industry indicates that by limiting the ability for shippers to access
underutilised tonnage already on the coast, or for shippers to more efficiently use tonnage in
the global fleet; the existing regulatory framework is placing undue upward pressure on freight
rates.
More broadly, access to more efficient and cost effective transport services will enhance the
viability of transport reliant industry sectors and will increase choice for transport service
consumers.
Without remedial attention, these shortcomings will continue to entrench the existing issues in
the coastal shipping industry.
53
RIS QUESTION 2 - THE NEED FOR GOVERNMENT ACTION
In line with the Australian Government Guide to Regulation, this section:
Clearly identifies why there is a legitimate reason for government to intervene.
Demonstrates that government has the capacity to intervene successfully.
Identifies alternatives to government action.
Clearly identifies what objectives, outcomes, goals or targets Government is aiming for.
Identifies the constraints or barriers to achieving the goals of the Government.
Ensures Government objectives are:
o specific
o measurable
o accountable
o realistic
o timely.
THE REASON FOR GOVERNMENT INTERVENTION
The current regulatory framework for coastal shipping has not arrested the decline of the
Australian shipping industry. Rather, it has restricted access to the Australian market and has
resulted in a situation where Australian businesses reportedly cannot access efficient, flexible
and cost-effective shipping services suitable to meet their business needs. Given Australia's
export orientated economy, with its focus on minerals and energy, a viable shipping industry,
including a sustainable coastal trading sector is critical to the ongoing prosperity of the nation.
THE CAPACITY OF GOVERNMENT TO INTERVENE
The Australian Government already regulates the participation of foreign ships in the domestic
economy. The preferred option would be consistent with the generally progressive opening of
the Australian domestic shipping market to foreign participation that has taken place over the
past 100 years.
The Australian Government is the most appropriate level of government to intervene in this
issue due to the wide ranging national policy areas that are connected including taxation,
migration and tourism. In the absence of intervention to change the current approach, the
domestic market would remain under the existing regulatory framework and if this framework
were simply repealed, the domestic shipping market would effectively be closed to foreign
participation like the rest of the domestic economy.
Results from consultation conducted to support the development of the options presented
within this RIS indicated shippers, shipping companies, and industry representative groups all
agree the Government has the capacity to intervene in this matter and should as a matter of
urgency.
ALTERNATIVES TO GOVERNMENT ACTION
The nature of the situation is such that there is no alternative to government action. Because
legislation is already in place, the Australian Government will need to act to change the existing
regulatory framework if it wishes to change the policy approach to coastal shipping.
54
OBJECTIVES, OUTCOMES GOALS AND TARGETS
A key objective of coastal shipping policy is to stimulate growth in maritime transport with flow
on benefits to other industries by removing the existing administrative burden on shippers and
ship operators conducting business in Australia under the Coastal Trading (Revitalising
Australian Shipping) Act 2012.
If this objective is met, shippers will have access to more efficient services and will be better
able to choose the most appropriate transport mode to meet their business needs. This
increased flexibility will allow Australian industries reliant on domestic transport services to
optimise their business models free from existing constraints on the use of maritime transport
services.
Analysis indicates the preferred option could deliver a net present value benefit of
approximately $667.4 million over the forecast period. In addition, deregulatory savings per
year are estimated to be in the order of $21.4 million.
CONSTRAINTS AND BARRIERS
Supply side factors such as the availability of ships in the Australian market, particularly where
greater benefits for owners could be derived overseas is a key constraint to addressing the
problem. The policy set out in industry consultation activities addresses this issue to the best
ability of the Government by providing a flexible and cost effective regulatory framework with
minimal barriers to entry. Nevertheless, some operators may continue to perceive the
operating environment in Australia to challenging compared to some other countries.
Making Australia an attractive destination to provide shipping services is expected to largely
overcome supply shortage issues; combined with existing global pricing practices for shipping
services, this will ensure shippers are able to access transport services at globally competitive
rates.
In the current global environment with an oversupply of ships, shippers are unlikely to face
difficulty in sourcing transport services; however, in the future an increased exposure to global
market forces could result in a situation where Australian shippers are less able to source cheap
and reliable domestic sea freight services. Consultation indicated this is a risk the industry is
willing to assume in a globalised economy.
SMART CHECKLIST FOR PROPOSED MEASURES
SPECIFIC TARGETS
As outlined above, the specific target of each of the options explored is to improve access to cost
effective, reliable, and efficient maritime transport services for domestic shippers. With the
exception of Option 1, each of the options explored would meet this target.
An additional target for coastal shipping policy is to support the development seafaring skills to
ensure other industry sectors continue to have access to personnel with appropriate experience
and skill sets. Ensuring that foreign ships engaged in significant Australian trade abide by labour
conditions more closely aligned with Australian ships is also a target. Option 4 includes
measures to directly support the retention and development of seafaring skills for people with
55
Australian work rights and seeks to better balance the application of Australian workplace
relations arrangements.
SUCCESS MEASURES
The success of policies to address the identified problems will be measured in largely
qualitative terms through consultation with shippers and the shipping industry during a routine
policy review process. Industry feedback about the relative ease of securing cost effective,
reliable and efficient transport services in a deregulated market, along with the ongoing
availability of skilled personnel for other maritime industry sectors will indicate the level of
success of the preferred option.
Some quantitative information, such as changes to the volume of goods transported
domestically by sea, may be indicative of growth in the sector but would need to be considered
in light of growth in the overall domestic freight task and any modal shift to or away from
maritime transport.
ACCOUNTABILITY
The administration of coastal shipping policy will be held to account through the provision of
regular industry policy bulletins ensuring consistent and fair advice is provided across the
industry, regular reporting on KPIs and through the provisions of the regulator performance
framework being implemented from 1 July 2015.
Industry will be held accountable through a range of compliance and enforcement measures
available to the Minister responsible for the Act. These include the power to cancel a licence
granted to a ship and powers to take action linked to strong civil penalty provisions.
Government and industry will also be held accountable under the preferred option through
reporting and publication requirements. These will ensure activities conducted under licence
are transparent and publically visible.
ACHIEVABILITY
The delivery of a successful coastal shipping policy is achievable and will deliver the intended
outcomes for shipping companies, shippers and the broader Australian economy. Legislating to
clear existing impediments to market participation, while retaining protection for key skill
bases will ensure Australian businesses are able to compete in a global marketplace. Further,
key skill groups will be supported through minimum crewing requirements to ensure landside
and in-port service providers have access to experienced Australian seafarers as part of a
broader international workforce.
TIMELINESS
The proposed measures are timely and will be introduced in a reasonable timeframe. At this
stage, the Government proposes commencement of the new regulatory framework as soon as
practicable. This timeframe provides sufficient lead in for business to optimise their operations
in line with the incoming framework and for the issuing of permits as required ahead of the
commencement date. An earlier start would not provide sufficient transition time for business
and a later start date would bring about undue uncertainty in the industry.
56
Consultation with industry will determine lead times and transitional arrangements for the new
measures.
57
RIS QUESTION 3 - POLICY OPTIONS
In line with the Australian Government Guide to Regulation, this section:
Identifies a range of genuine and viable alternative policy options.
Ensures any of the live options can achieve the Government's stated policy
objectives.
Gives the decision maker confidence you have identified all of the available options
open to the Government.
Identifies the context for the options considered.
POLICY OPTIONS CONSIDERED
The Department of Infrastructure and Regional Development commissioned independent
economic modelling from the Predictive Analytics Group on the three options to regulating
coastal shipping in Australia outlined in the Options Paper.7 For each of the three options, the
report modelled the costs/benefits to the Australian economy over a 20 year period
commencing from 1 July 2015. The preliminary impact assessment indicated a controlled
deregulation of the industry was likely to deliver the greatest benefit to the Australian economy
of approximately $786.2 million. The retention of a regulatory framework with reduced
industry burden was likely to deliver a significant benefit to the Australian economy of
approximately $705.3 million, while a simple repeal of the Coastal Trading (Revitalising
Australian Shipping) Act 2012 would result in an estimated economic cost of approximately
$2.5 billion.
The preliminary impact assessment did not model the transfer of freight from the road and rail
sectors to coastal shipping and assumed the potential for transfer from land to maritime
transport would be low, even in a market with reduced shipping costs. This is because many
shippers could already access these lower cost services through the existing system. The above
benefits are anticipated to increase if cargoes are able to be transferred to a lower cost
transport system, for example long distance container movements, container repositioning or
other low urgency freight.
Following the consultative process undertaken in connection with the options paper,
the Deputy Prime Minister and Minister for Infrastructure and Regional Development,
the Hon. Warren Truss MP held an industry roundtable in early February 2015 to canvass views
on a further option to those presented in the options paper.
The additional option was developed in light of the outcomes of the consultative process and
better reflected industry views about the advantages of an option that captured most of the
benefits of full deregulation but with additional protections for wages and conditions for
workers onboard ships trading in Australia for most of the year. The additional option also
better reflects the desire of the industry to develop maritime skills for future needs in landside
roles and associated industries. The additional option (option 4) is similar to the controlled
deregulation option but would require the employment of people with Australian work rights in
some circumstances, and the application of the Fair Work Act to foreign ships engaged
predominantly in coastal trade. This option is anticipated to deliver a benefit of approximately
$667.4 million.
7
Australian Government, Options Paper: Approaches to regulating coastal shipping in Australia, April 2014.
58
Maintaining the status-quo was not considered as this would entrench the existing issues in the
market highlighted previously in this Statement.
SPECIFIC OPTIONS CONSIDERED
In coming to the preferred approach, the Australian Government initially considered three
options. These were outlined in the Options Paper on Approaches to regulating coastal shipping
in Australia.8 Following extensive consultation on the three options, a fourth option was
developed. The fourth option included changes to the Australian International Shipping
Register (AISR) which are outlined below. The Deputy Prime Minister and Minister for
Infrastructure and Regional Development led consultation on this option with key industry
stakeholders during an industry roundtable event in February 2015.
DEREGULATORY OPTIONS
Option 1: Remove all regulation of access to coastal trading
This Option involves the repeal of the Coastal Trading Act without consideration or treatment of
the residual effects of other legislation. As a result, all foreign flagged ships undertaking coastal
shipping would subject to all applicable Australian laws currently disapplied by the Coastal
Trading Act.
This option was considered due to calls from the shipping industry and business lobby groups
for the existing laws to simply be repealed. Upon further investigation, it became quickly
apparent that such a move would remove the exemption from importation currently afforded to
ships operating under a temporary licence. Without this exemption, ships carrying domestic
cargo would be imported, requiring the payment of duties and leading to the loss of work rights
for members of the ship's crew unable to obtain an Australian work visa. The removal of the
Coastal Trading Act would also result in the application of the Fair Work Act and the Seagoing
Industry Award Part A to all seafarers engaged in coastal trading.
This option was not considered in great detail due to the significant negative effect it would
have on Australian industry reliant on foreign shipping services. The option was costed in net
present value terms as a part of the economic contribution analysis.
Option 2: Remove all regulation of access to coastal trading and enact legislation to deal with the
effects of other Australian laws
This Option also involves the repeal of the Coastal Trading Act and introduction of a range of
other legislative provisions within a number of other Acts to ensure the policy objective of open
market access to coastal trade by all ships is realised.
This option was considered as a workable alternative to option one and would, in effect, open
the Australian coast entirely to foreign ships carrying domestic cargo. Such a liberalisation
would be world leading and would have significant benefits for users of shipping services. It is
likely that under Option 2, shipping freight rates would be significantly lower than present;
however these benefits would come at a cost to the Australian shipping industry. Under this
option, the existing application of the Fair Work Act and the Seagoing Industry Award to foreign
registered ships is removed entirely and on-board arrangements in line with international
8
Australian Government, Options Paper: Approaches to regulating coastal shipping in Australia, April 2014.
59
practice would apply. Under Option 2, it is unlikely Australian ships would be able to compete
with foreign ships on price. This would likely lead to a significant decline in the Australian
industry with associated lost opportunities for skills development and retention for positions in
landside or in-port operations requiring seafaring experience.
This option was costed in net present value terms as part of the economic contribution analysis.
The deregulatory benefit was also costed as part of this RIS process.
REDUCED REGULATION OPTIONS
Option 3: Continue to regulate coastal trade, but minimise industry burden and cost
This Option involves the Australian Government continuing to regulate coastal trade under an
amended Coastal Trading Act, which would see major burdens and costs to industry removed.
This option would remove the aspects of the current legislation causing the greatest
inconvenience to industry without fundamentally changing the framework. In particular, this
option would remove the requirement for new temporary licences to include five or more
voyages and would clarify the number of voyages required in applications to add new voyages
to a licence. It would also clarify the aspects of a voyage permitted to be varied through an
authorised matters variation. This model would retain the existing provisions around
contestability but would more clearly set out the matters required to be considered by the
decision maker and their relative importance. Under this option, the existing application of the
Fair Work Act and the Seagoing Industry Award to foreign registered ships is removed entirely
and on-board arrangements in line with international practice would apply.
This option was costed in net present value terms as part of the economic contribution analysis.
The deregulatory benefit was also costed as part of this RIS process.
Option 4: Reduced regulatory burden option with provisions to preserve skills
Following extensive industry consultation this option was developed to provide additional
flexibility to users of foreign shipping services while supporting the development and retention
of an Australian skills base in the maritime industry. This skills base will support landside and
in-port operations by providing suitably experienced seafarers for positions in these sectors
requiring personnel with seafaring experience.
Under this option, the existing licensing system would be replaced with a single permit allowing
unrestricted trading on the coast. A permit would be available to both Australian and foreign
ships and the existing contestability provisions would be removed. In addition, reporting would
be simplified to six monthly voyage reports.
Those seafarers working onboard ships trading for less than 183 days in a permit period would
remain on their existing employment arrangements with the ship, while those working on ships
trading in Australia for more than 183 days in a permit period would be entitled to pay and
conditions set out in Australian law.
To support an Australian skills base, foreign ships trading on the coast for more than 183 days
in a one year permit period would be required to have crew with Australian work rights as the
Master or Chief Mate and the chief engineer or first engineer of the ship. International labour
arrangements will continue to apply to foreign ships that engage in less than 183 days of coastal
60
trade. This would mean that ships predominantly engaged in international trade, without a
strong connection to Australia's domestic economy will not be covered by Australian labour
law. Foreign ships that do engage predominantly in Australia's coastal trade will be required to
conform with the minimum standards for crew pay and conditions currently set out in the Fair
Work Act and Part B of the Seagoing Industry Award. These requirements would apply from the
first day of the permit period.
To further strengthen skills development opportunities, the requirements for entry to the
Australian International Shipping Register will be amended to remove current restrictions and
barriers to entry. In particular, the reaching a collective agreement with the seafarers'
bargaining unit will remain an option but will not be a mandatory condition for registration.
The requirement to engage in predominantly international trade will be removed. Instead, AISR
ships would be required to engage in at least 90 days of international trade per year. In order
for AISR ships to be competitive with other foreign ships, similar workplace relations
requirements would apply as for foreign ships.
This option was costed in net present value terms as part of the economic contribution analysis.
The deregulatory benefit was also costed as part of this RIS process.
LINKAGES BETWEEN POLICY OPTIONS AND GOVERNMENT OBJECTIVES
The key government objectives in a revised policy on coastal shipping are reducing red tape,
easing access to shipping services and increasing competition between Australian and foreign
ships. In addition, the Government supports the development and retention of Australian
maritime skills and jobs, as well as better balancing the application of Australian labour law to
foreign ships.
While Option 1 would remove red tape in the licensing system, it would also remove existing
protections for ships operating under licence. As a result, a significant net increase in red tape
and administrative burden would be incurred by ships required to comply with a range of
legislation currently disapplied by the licensing system. This would likely be passed on to
shippers and lead to higher freight rates. Option 1 would also reduce the availability of ships
providing services in the domestic market, therefore further increasing the cost of obtaining
shipping services in Australia. Effectively closing the coast to all but Australian ships could lead
to the creation of more Australian jobs with associated skills benefits; however, the possible
skills benefits would be outweighed by the other detriments stemming from this option. For
these reasons, Option 1 is not consistent with the Government's objectives.
Option 2 is clearly linked to most of the above outlined objectives. Removing the existing
licencing system and allowing foreign ships the freedom to operate in the domestic market
while remaining not imported by Customs would reduce red tape in the application and
Customs compliance processes. It would also significantly increase access to foreign ships and
benefit competition between Australian and foreign ships. This option would likely lead to a
significant decline in the Australian registered fleet, and for this reason would likely not align
with the Government's objective of promoting skills development and retention in the maritime
workforce. The measure also fails to adequately address public expectations regarding the
payment of Australian wages to workers who work predominantly in the domestic economy.
For these reasons, Option 2 would be broadly consistent with the Government's stated
objectives with the exception of skills development and retention.
61
Option 3 is clearly linked to most of the above outlined objectives. This option would reduce
red tape for licence applicants by clarifying the existing legislative framework. It would also
ease access to shipping services, although to a lesser degree than Option 2 or Option 4. Option 3
would retain the existing competition and dispute resolution mechanisms and therefore would
not enhance competition beyond the existing framework. Option 3 fails to adequately address
public expectations regarding the payment of Australian wages to workers who work
predominantly in the domestic economy. This option would also not have any benefit over the
status quo in terms of skills development and retention.
Option 4 has the clearest and strongest links to each of the Government's objectives for this
policy development process. It harnesses the benefits of deregulation while balancing the
interests of a strong domestic industry and workforce. International labour arrangements will
apply to foreign ships engaged predominantly in international trade, whereas Australian labour
arrangements will apply to foreign ships engaged predominantly in Australia's domestic trade.
This option would meet the Government's objectives in the same way as Option 2 and, as a
result of the minimum crewing requirements for ships trading for more than 183 days on the
coast, would also provide opportunities for skills development and retention. For this reason,
Option 4 is most closely aligned with the Government's objectives for coastal shipping policy.
BREADTH OF OPTIONS CONSIDERED
The options considered cover the full breadth of reasonably available policy directions the
Government could take. They include a complete deregulation of coastal shipping (bringing
about a closure of the Australian coast), a controlled deregulation also removing aspects of
customs, taxation and workplace relations legislation, a reduced regulation option granting
greater access than is presently given to foreign ships, and a reduced regulation option granting
greater access but addressing the concerns of associated industries around skills development
and retention.
THE CONTEXT FOR OPTIONS CONSIDERED
In the options paper, the Government announced it would review the existing arrangements for
coasting shipping with a view to revising or reversing measures that hinder the competitiveness
of Australia's shipping services.
Following an extensive consultative process, the Government plans to amend the existing policy
and regulatory framework for coastal shipping to:
foster a competitive coastal shipping services industry that better supports the
Australian economy;
maximise the utility of existing shipping assets on the Australian coast by enabling the
efficient allocation of coastal shipping services in line with industry demand;
facilitate market development in the provision of shipping services to Australia; and
to support the development and retention of seafaring skills in the Australian maritime
industry.
Easing the current regulatory burden on the maritime industry through the removal of barriers
to accessing the market for coastal shipping services will provide opportunities for more
62
efficient and competitive services. These may deliver cost savings to shippers and the broader
Australian economy in line with the Australian Government's deregulation agenda.
63
RIS QUESTION 4 - THE LIKELY NET BENEFIT OF EACH OPTION
In line with the Australian Government Guide to Regulation, this section:
Identifies who is likely to be affected by each regulatory option and assess the economic,
social and environmental costs and benefits as well as how those costs and benefits are
likely to be distributed.
Quantifies the benefits and costs of the Government's policy proposal on businesses,
community organisations and individuals to a level of detail commensurate with the
impact of the policy proposal.
Identifies and assesses the cost of offsetting deregulatory measures.
Assesses the costs and benefits of all proposed options.
Analyses qualitative impacts as well as quantitative impacts.
Provides information on applicable international standards and whether the policy
proposal differs from or adopts those standards.
STAKEHOLDERS
The principal stakeholders that would be affected by the options are shippers of goods and
shipping service providers, both Australian and foreign. The majority of stakeholders provided
written submissions or met with the Department during the options paper process.
OVERVIEW OF THE COST BENEFIT ANALYSIS PROCESS
A key part of preparing this RIS was contracting an independent economic modelling specialist,
Predictive Analytics Group (PAG), to prepare a cost benefit analysis for the Department. The
cost benefit analysis was undertaken based on an updated shipping cost model prepared by the
Bureau of Infrastructure, Transport and Regional Economics in support of the RIS prepared for
the 2012 reform package and assessed as a high quality model by the Office of Best Practice
Regulation (OBPR).
For consistency, the freight task (and its growth in the years modelled) was assumed to be the
same in the base case and in each of the policy cases.
Some general assumptions, consistent across the modelling were made about ship costs
including crew costs and other operating costs. Port and fuel costs were not considered in the
model as they do not depend on the flag of the vessel. A general assumption that a rate of return
on capital invested of 5% is appropriate and a discount rate of 7% was applied to the economic
capital costs. Foreign ships were assumed to be open registry ships paying ITF wages and
minimal company tax (except where a different wage structure is applied in a policy option).
Based on the above assumptions, a set of base case and policy case ship operating models with
various crewing arrangements and taxation treatments was prepared and daily financial and
economic costs were estimated using the ship cost model. These costs were then applied in line
with the market share assumptions made for the base case and each of the policy cases. For
each ship model, daily costs were prepared for a handy size bulk carrier, a panamax bulk
carrier, a capsize bulk carrier, a product tanker, a container ship, a product tanker with a DWT
of 20,000 tonnes and a crude tanker with a DWT of 100,000 tonnes.
In developing the market share assumptions, PAG considered the Bauxite trade from Weipa to
Gladstone, a triangulated Bauxite route, iron ore, other dry bulk, crude oil, petroleum, other
liquid bulk, cruise shipping, inter capital containers, and Bass Strait non bulk freight. Market
64
share predictions were prepared for each of these sectors under the base case and each policy
option.
A copy of the Cost Benefit Analysis prepared by Predictive Analytics Group (the PAG report) is
included at Appendix B. This report sets out the full set of assumptions and modelled scenarios
prepared to support the consideration of the policy options set out in this RIS. The assumptions
underpinning the report were developed by PAG in consultation with the Department and the
report provides an overview of the best available estimates of the effect of the reforms
considered during the policy development process discussed in this RIS. The actual outcomes of
the reform process will be dependent on commercial decisions by ship operators that will likely
take account of a broader range of factors; however, the ranking of the reforms in terms of the
relative benefit provided would not be expected to change even if the magnitude of the benefits
were to increase or decrease.
It is important to note the PAG report considers a number of additional options not discussed in
this RIS process. Options 1,2 and 3 in this RIS corresponds to Options 1, 2 and 3 in the PAG
report. Option 4 in the RIS corresponds to Option 6 in the PAG report. Options 4 and 5 in the
PAG report were examined to provide a more diverse range around the minimum crewing
requirements and to test the overall economic impact of having no minimum Australian crewing
requirement or having a more stringent minimum Australian crewing requirement. These
options were not considered in detail as options in and of themselves during the final policy
development process.
OPTION 1
Option 1 is the removal of all regulation of access to coastal trading by repealing the Coastal
Trading Act. This option received very little support in the consultative process conducted by
the Department of Infrastructure and Regional Development, with only one consulted party
preferring this option. All other respondents that commented on this option were strongly
unsupportive of the adoption of a system that would, in practice, greatly restrict foreign access
to the Australian coast.
BENEFITS
The benefits for this option are decreased compliance costs for foreign and Australian ships
from the removal of licensing system contained in Coastal Trading Act and a potential increase
in the number of Australian flagged vessels undertaking coastal trading. However, these
benefits would be outweighed by the significant cost from all foreign ships providing services in
the domestic economy ships being imported under the Customs Act 1901 (the Customs Act).
COSTS
The Coastal Trading Act provides for foreign ships used to carry passengers or cargo under
temporary or emergency licences to not be considered as 'imported' under the Customs Act.
Repeal of the Coastal Trading Act under this option would remove this provision, meaning all
foreign flagged ships participating in coastal shipping would be considered imported and
therefore subject to the Customs Act and a range of other legislative provisions triggered by
importation. Such requirements relate to prohibited and restricted goods regulations,
immigration, quarantine and revenue laws.
65
This option confers significant costs on ships treated as imported, predominantly from changes
to labour and employment conditions. Importation requires ships to repatriate all foreign crew
possessing Maritime Crew Visas within five days, and replace them with Australian crew, or with
foreign crew possessing appropriate Australian work rights such as Temporary Business Long
Stay (subclass 457) visas. Holders of a 457 visa would be required to be working in an
occupation eligible for the visa class, meet English language competency requirements and
would attract sponsorship and nomination costs, which were not included in the modelling.
While Masters, engineers and officers are eligible for a 457 visa, lower level crew
(ratings/ordinary seamen) are not included in the list of permissible occupations. Maritime
industry skill shortages may place further upward pressure on wage costs, or make filling these
crew vacancies difficult under this scenario. Some foreign ships may also become liable for GST
charges upon importation, which, although a much smaller cost, may act as a further
disincentive.
It would be extremely impractical for certain ships to be imported and have their crew replaced,
for example container ships undertaking an international liner service. In this situation the
coastal containers that would ordinarily be moved on an international liner service would have
to be moved by rail instead. The requirement for foreign ships to be imported would be a
significant and often insurmountable barrier to entry for these ships.
This option could increase costs to Australian shippers, driven by the higher wage costs for
Australian crew. The application of the Fair Work Act and Seagoing Industry Award Part A to all
seafarers engaged in coastal trading would increase costs to business. The increase in labour
costs for foreign ships would make participation in the Australian coastal trading less attractive.
This option has the potential to increase the market share for Australian flagged ships.
However, this option could increase costs to Australian shippers, driven by the higher wage
costs for Australian crew.
As a result it is likely many foreign ships would elect to not participate in the domestic market.
The result of this would be a decline in the supply of ships for coastal trading which would
further increase costs to Australian shippers and would likely result in a shift towards road and
rail freight transport.
Option 1 would result in an estimated economic cost of approximately $2.5 billion over a 20
year period commencing on 1 July 2015.9
DEREGULATORY SAVINGS
LICENSING FRAMEWORK
There would be no licensing system under this option, which results in savings to businesses as
they will not have to incur the significant administration, compliance and delay costs that result
from the current regulatory framework. Business will receive savings under this option as a
result of not having to use the online licensing system (establishment and maintenance of user
account and training costs), not having to apply, and pay the fee, for licences and not notifying
and reporting on voyages. There will also be no delay costs associated with application
approvals.
9
This net present value has been calculated using a 7 per cent discount rate as per the Office of Best Practice
Regulation's Guidance Note on Cost-Benefit Analysis.
66
The annual deregulatory savings to businesses from the removal of licensing system has been
estimated by the Department of Infrastructure and Regional Development and the Department
of Employment to be $2.5 million.
TERMS AND CONDITIONS OF EMPLOYMENT
The application of the Fair Work Act and Seagoing Industry Award Part A to all seafarers
engaged in coastal trading would result in a direct increase in costs to business of
approximately $14.9 million per year.
COMBINED SAVINGS
Under this option, the combined deregulatory cost to business is approximately $12.3 million.
Suitable potential offsets from within the Infrastructure and Regional Development portfolio
have been identified, but as the option is not considered to be practical and the Government has
stated it will not be adopted, these savings have not been included in the RIS.
Average Annual Regulatory Costs for (from Business as usual)
Change in costs ($ Business Community Individuals Total change
million) organisations in cost
Total by Sector $12.3 $0 $0 $12.3
Costs offset($ million) Business Community Individuals Total change
organisations in cost
Agency $0 $0 $0 $0
Within Portfolio $0 $0 $0 $0
Outside Portfolio $0 $0 $0 $0
Total by Sector $0 $0 $0 $0
Are all new costs offset?
yes, costs are offset no, costs are not offset deregulatory, no offsets required
Total ($million) $12.3
(Change in costs -
Costs offset)
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OPTION 2
Option 2 is the removal of all regulation of access to coastal trading by repealing the Coastal
Trading Act, and the enactment of legislation to deal with the effects of other Australian laws.
This option received moderate support in the consultative process conducted by the
Department of Infrastructure and Regional Development. Support for this option generally
came from foreign shipping companies and shippers of goods.
BENEFITS
Repealing the Coastal Trading Act and enacting legislation to deal with the effects of other
Australian laws would encourage foreign ships to increase their participation in coastal trading.
Foreign ships may be able to increase their market share in sectors where there is not 100%
market share for foreign ships currently, for example cruise shipping, the dry bulk trade
(excluding bauxite and iron ore10) and non-bulk freight on Bass Strait. The potential to increase
market share will depend on the type of service a foreign ship can offer compared to the service
Australian ships are currently providing.
Australian shippers would be able to transport their goods at a potentially lower cost due to the
increase in foreign ships and their lower operating costs. In addition, it is expected the
reduction in costs to shippers will generate new business opportunities for sea freight that are
currently too expensive to optimise or which currently utilise land-based freight.
The realisation of the benefits detailed above is based on two key assumptions. Firstly, it is
assumed that new legislation would allow foreign ships to continue to be exempt from being
considered as 'imported' under the Customs Act 1901. This would allow Maritime Crew Visas to
continue to operate (so foreign ships would not be subject to the associated higher crew costs)
and GST payment would not be required. Secondly, it is assumed that the new legislation would
be successful in eliminating the all undesired effects of repealing the Coastal Trading Act.
The Fair Work Act and Seagoing Industry Award would not apply to foreign ships engaged in
coastal trading under option 2. This policy decision would result in savings to foreign ship
operators as those temporary licence and transitional licence ships currently subject to the Fair
Work Act would no longer be required to pay according to Part A (for transitional general
licence ships) and Part B (for temporary licence ships) of the Seagoing Industry Award. Instead,
foreign crew on foreign ships would likely return to the lower international standard set by the
International Transport Federation Uniform Collective Agreement. The reduction in labour
costs for foreign ships may encourage competition in the coastal shipping market, with cost
savings likely to be passed on to users of shipping services.
Option 2 would result in an estimated economic benefit of approximately $786.2 million over a
20 year period commencing on 1 July 2015.11
10These cargoes are already predominantly carried under temporary licence.
11This net present value has been calculated using a 7 per cent discount rate as per the Office of Best
Practice Regulation's Guidance Note on Cost-Benefit Analysis.
68
COSTS
Under this option there is the potential for some Australian seafarer jobs to be lost. Australia's
coastal seagoing workforce is estimated at 1177 jobs12.
Should a less regulated coastal shipping regulatory system be implemented, it is likely that some
operators of Australian ships will seek to move to the lower cost model and flag their ships
overseas. This would allow operators to pay all workers on the now foreign flagged ships
internationally competitive wages and conditions.
The issue of any impact on Australian jobs must be considered in the broader context of
increased domestic shipping activity - the increase in associated on-shore work and the impact
lower shipping costs will have on onshore industries reliant on shipping services. The reforms
may allow these industries to be more competitive and this may prevent further job losses in
Australian manufacturing, resources and other industries. The modelling undertaken for the
cost-benefit analysis did not include the cost of the potential losses of Australian seafarer jobs.
The modelling for the cost-benefit analysis also did not include any costs associated with
identifying and enacting new legislation to negate the undesired effects of repealing the Coastal
Trading Act.
DEREGULATORY SAVINGS
LICENSING FRAMEWORK
There would be no licensing system under this option, which results in savings to businesses as
they will not have to incur the significant administration, compliance and delay costs that result
from the current regulatory framework. Business will receive savings under this option as a
result of not having to use the online licensing system (establishment and maintenance of user
account and training costs), not having to apply, and pay the fee, for licences and not notifying
and reporting on voyages. There will also be no delay costs associated with application
approvals.
The annual deregulatory savings to businesses from the removal of licensing system has been
estimated by the Department of Infrastructure and Regional Development and the Department
of Employment to be is $2.5 million.
TERMS AND CONDITIONS OF EMPLOYMENT
Removing the requirement for foreign ships to pay their seafarers according to the Fair Work
Act and the Seagoing Industry Award would result in foreign seafarers on foreign ships being
more cost effective than Australian labour on Australian ships. This would increase cost
pressures on the Australian fleet and make the option for Australian ships to re-flag and re-crew
more attractive. Option 2 results in a direct saving of $25.4 million to foreign ship operators per
year.
12
This is the number of seafarers working in the blue water - ocean going ships category as identified in
the Maritime Workforce Development Forum Australian Maritime Industry Census (p. 16)
69
COMBINED SAVINGS
Under this option, the combined deregulatory saving is approximately $27.9 million.
Average Annual Regulatory Costs for (from Business as usual)
Change in costs ($ Business Community Individuals Total change
million) organisations in cost
Total by Sector ($27.9) $0 $0 ($27.9)
Costs offset($ million) Business Community Individuals Total change
organisations in cost
Agency $0 $0 $0 $0
Within Portfolio $0 $0 $0 $0
Outside Portfolio $0 $0 $0 $0
Total by Sector $0 $0 $0 $0
Are all new costs offset?
yes, costs are offset no, costs are not offset deregulatory, no offsets required
Total ($million) ($27.9)
(Change in costs -
Costs offset)
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OPTION 3
Option 3 is the continued regulation of coastal trading, but with a reduction in industry burden
and cost. This option received moderate support in the consultative process conducted by the
Department of Infrastructure and Regional Development. Support for this option generally
came from Australian shipping companies.
BENEFITS
A more flexible licensing system is likely to be more attractive for foreign ship operators and
therefore may increase the number of foreign ships participating in Australian coastal shipping.
Foreign ships may be able to increase their market share in sectors where there is not 100%
market share for foreign ships currently, for example cruise shipping, the dry bulk trade
(excluding bauxite and iron ore) and non-bulk freight on Bass Strait. The potential to increase
market share will depend on the type of service a foreign ship can offer compared to the service
Australian ships are currently providing. The more flexible system is also likely to reduce the
number of coastal shipping voyages that are cancelled or forgone, saving licence holders both
time and money.
As with options 2 and 4, Australian shippers would be expected to benefit from lower costs of
shipping, as more competitive foreign ships are encouraged to enter the market. This has the
potential to generate new business, for example where shipping costs would be prohibitive
under current arrangements, and to make sea freight more competitive with land-based freight
transport.
Additionally, the geographic reach of the Coastal Trading Act would be expanded to cover the
carriage of liquid fuel products from offshore installations, floating production, storage and
offtake vessels and floating storage units to the mainland. This will allow petroleum companies
to gain a licence enabling a foreign flagged vessel to undertake this type of movement, removing
the risk of importation under the Customs Act.
The Fair Work Act and Seagoing Industry Award would not apply to foreign ships engaged in
coastal trading under option 3. This policy decision would result in savings to foreign ship
operators as those temporary licence and transitional licence ships currently subject to the Fair
Work Act would no longer be required to pay according to Part A (for transitional general
licence ships) and Part B (for temporary licence ships) of the Seagoing Industry Award. Instead,
foreign crew on foreign ships will likely return to the lower international standard set by the
International Transport Federation Uniform Collective Agreement. The reduction in labour
costs for foreign ships may encourage competition in the coastal shipping market, with cost
savings likely to be passed on to users of shipping services.
Option 3 would result in an estimated economic benefit of approximately $705.3 million over a
20 year period commencing on 1 July 2015.13
13
This net present value has been calculated using a 7 per cent discount rate as per the Office of Best Practice
Regulation's Guidance Note on Cost-Benefit Analysis.
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COSTS
Under this option there is the potential for some Australian seafarer jobs to be lost, although the
potential for job losses is less compared to options 2 and 4. Australia's coastal seagoing
workforce is estimated at 1177 jobs14. Should a less regulated coastal shipping regulatory
system be implemented, it is likely that some operators of Australian ships will seek to move to
the lower cost model and flag their ships overseas. This would allow operators to offer all
workers on the now foreign flagged ships internationally competitive wages and conditions.
The issue of any impact on Australian jobs must be considered in the broader context of
increased domestic shipping activity - the increase in associated on-shore work and the impact
lower shipping costs will have on onshore industries reliant on shipping services. The reforms
may allow these industries to be more competitive and this may prevent further job losses in
Australian manufacturing, resources and other industries. The modelling undertaken for the
cost-benefit analysis did not include the cost of the potential losses of Australian seafarer jobs.
DEREGULATORY SAVINGS
LICENSING FRAMEWORK
Under this option there will be savings to industry due to the easing of some restrictions in the
licensing system. A significant reduction in delay costs has been assumed due to the broadening
of the tolerance provisions. The broadening of the tolerance provisions will result in less
authorised matters and new matters applications being made, which will result in vessels
spending less days waiting for approval of an application.
The administration costs will increase very slightly compared to the status quo. A moderate
increase in the number of Temporary Licence applications and new matters applications has
been assumed due to the ability to submit applications containing less than 5 voyages. As a
result of the assumed increase in applications, the number of voyages undertaken has been
assumed to increase slightly, which leads to slight increase in the amount of reporting.
Authorised matters variations have been assumed to decrease moderately due to the
broadening of the tolerance provisions. Overall, a decrease in the number of transactions
occurring has been assumed as the decrease in authorised matters applications is greater than
the increase in Temporary Licence and new matters applications.
There will be no change in substantive compliance costs as the training requirements for the
online licensing system will not change.
The annual deregulatory savings to businesses from the easing of some restrictions in the
licensing system is $1.2 million.
TERMS AND CONDITIONS OF EMPLOYMENT
Removing the requirement for foreign ships to pay their seafarers according to the Fair Work
Act and the Seagoing Industry Award would result in foreign seafarers on foreign ships being
more cost effective than Australian labour on Australian ships. This would increase cost
pressures on the Australian fleet and make the option for Australian ships to re-flag and re-crew
more attractive. Option 3 results in a direct saving of $25.4 million to foreign ship operators per
year.
14
This is the number of seafarers working in the blue water - ocean going ships category as identified in
the Maritime Workforce Development Forum Australian Maritime Industry Census (p. 16)
72
COMBINED SAVINGS
Under this option, the combined deregulatory saving has been estimated by the Department of
Infrastructure and Regional Development and the Department of Employment to be
approximately $26.6 million.
Average Annual Regulatory Costs for (from Business as usual)
Change in costs ($ Business Community Individuals Total change
million) organisations in cost
Total by Sector ($26.6) $0 $0 ($26.6)
Costs offset($ million) Business Community Individuals Total change
organisations in cost
Agency $0 $0 $0 $0
Within Portfolio $0 $0 $0 $0
Outside Portfolio $0 $0 $0 $0
Total by Sector $0 $0 $0 $0
Are all new costs offset?
yes, costs are offset no, costs are not offset deregulatory, no offsets required
Total ($million) ($26.6)
(Change in costs -
Costs offset)
73
OPTION 4 (PREFERRED OPTION)
Option 4 is the replacement of the existing tiered system with a single permit system that
provides unrestricted access to coastal shipping, with a minimum crewing requirement if a
foreign vessel undertakes more than 183 days of coastal shipping in a permit period.
In relation to labour arrangements, option 4 seeks to balance interests through applying
Australian workplace relations conditions to those foreign ships predominantly engaged in the
domestic economy. The Fair Work Act and Seagoing Industry Award Part B will apply to foreign
ships that engage in more than 183 days of coastal trading in a permit period.
This option was developed as a result of strong stakeholder support for an option that was
somewhere between options 2 and 3. In particular, the Department of Infrastructure and
Regional Development observed a significant degree of support for a 'light touch' licensing
system, which provided legislated certainty along with a high degree of openness and flexibility.
BENEFITS
This option would encourage the increased participation of foreign ships in coastal trading,
encouraged by a new single permit system with minimal compliance costs. Foreign ships may
be able to increase their market share in sectors where there is not 100% market share for
foreign ships currently, for example cruise shipping and the dry bulk trade (excluding bauxite
and iron ore). The potential to increase market share will depend on the type of service a
foreign ship can offer compared to the service Australian ships are currently providing.
As with options 2 and 3, Australian shippers would be expected to benefit from lower costs of
shipping, as more competitive foreign ships are encouraged to enter the market. This has the
potential to generate new business (where shipping costs would be prohibitive under current
arrangements), and to make sea freight more competitive with land-based freight transport.
Additionally, the geographic reach of the Coastal Trading Act would be expanded to cover the
carriage of liquid fuel products from offshore installations, floating production, storage and
offtake vessels and floating storage units to the mainland. This will allow petroleum companies
to gain a licence enabling a foreign flagged vessel to undertake this type of movement, removing
the risk of importation under the Customs Act.
The requirement to retain a minimum contingent of crew with Australian work rights on board
vessels undertaking more than 183 days of coastal shipping in a one year permit period would
ensure the ongoing availability of personnel with seafaring skills and experience in the
Australian economy.
Consultation indicated the importance of ongoing access to these skill sets for a range of
harbour and landside roles in the maritime industry. Several stakeholders were concerned
about the retention of appropriate maritime skills in the Australian workforce. Under a
scenario which could see fewer Australian ships, particular concerns included a diminished
availability of seafaring skills for specialised landside positions, and possible lag times and
limited training berths to train new personnel. Others suggested these skills could be sourced
globally in the same way as foreign shipping services, while some cruise operators suggested
the passenger industry could play a greater role in training.
Some foreign ships would continue to be subject to the Fair Work Act under option 4, however
the threshold for coverage will be lifted to ships that engage in more than 183 days of coastal
trading in a permit year. This policy change acknowledges the concerns of stakeholders that
74
current Fair Work Act coverage is burdensome, while also requiring adherence to Australian
wages and conditions for ships engaged in significant Australian coastal trade.
Option 4 would result in an estimated economic benefit of approximately $667.4 million over a
20 year period commencing on 1 July 2015.15
COSTS
Under this option there is the potential for some Australian seafarer jobs to be lost, even with
the requirement to maintain a minimum contingent of Australian crew on board vessels
spending more than 183 days undertaking coastal shipping in a permit period.
The issue of any impact on Australian jobs must be considered in the broader context of
increased domestic shipping activity - the increase in associated on-shore work and the impact
lower shipping costs will have on onshore industries reliant on shipping services. The reforms
may allow these industries to be more competitive and this may prevent further job losses in
Australian manufacturing, resources and other industries. The modelling undertaken for the
cost-benefit analysis did not include the cost of the potential loss of Australian seafarer jobs.
DEREGULATORY SAVINGS
LICENSING FRAMEWORK
Under this option there will be savings to industry due to the simpler single permit system and
the fact that a permit provides unrestricted access to coastal shipping. There will be savings in
administration costs as permits provide unrestricted access to coastal shipping, compared to
the existing licence system where every voyage needs to be approved for a Temporary Licence.
There will also be a saving from the reduction in reporting, from pre and post voyage reporting
for Temporary Licence holders to one report every six months. Savings in administration costs
will also occur due to the removal of the notice in response process.
There will also be a reduction in substantive compliance costs for businesses. The time
required to train staff to use the online licensing system will be reduced as less interactions will
be required with the online permit system. Delay costs will be eliminated as the single permit
system provides unrestricted access to coastal shipping.
The annual deregulatory savings to businesses from the single permit system is $2.4 million.
TERMS AND CONDITIONS OF EMPLOYMENT
Part B of the Seagoing Industry Modern Award was created by the then Australian Industrial
Relations Commission to apply to foreign ships engaged in coastal trading. Option 4 will
continue to utilise Part B for foreign ships, replacing the current link to a temporary licence
(after the first two voyages) to a ship's engagement in coastal trading for more than 183 days in
a permit year. Modelling for option 4 estimates that a total of ten foreign ships are likely to
reach this threshold and therefore be covered by the Fair Work Act and Part B. These wages and
conditions will apply from day one of the permit period. For the purposes of modelling, ten
ships are anticipated to trade for more than 183 days, based on current trading practices.
15
This net present value has been calculated using a 7 per cent discount rate as per the Office of Best Practice
Regulation's Guidance Note on Cost-Benefit Analysis.
75
Administrative savings resulting from option 4 are estimated to total approximately $85,000,
and labour cost savings are estimated to total approximately $19 million per year.
COMBINED SAVINGS
Under this option, the combined deregulatory saving has been estimated by the Department of
Infrastructure and Regional Development and the Department of Employment to be
approximately $21.4 million.
Average Annual Regulatory Costs for (from Business as usual)
Change in costs ($ Business Community Individuals Total change
million) organisations in cost
Total by Sector ($21.4) $0 $0 ($21.4)
Costs offset($ million) Business Community Individuals Total change
organisations in cost
Agency $0 $0 $0 $0
Within Portfolio $0 $0 $0 $0
Outside Portfolio $0 $0 $0 $0
Total by Sector $0 $0 $0 $0
Are all new costs offset?
yes, costs are offset no, costs are not offset deregulatory, no offsets required
Total ($million) ($21.4)
(Change in costs -
Costs offset)
INTERNATIONAL STANDARDS HARMONISATION
There are no international standards for the regulation of participation in domestic economies.
Coastal shipping is regulated in a range of ways ranging from highly prescriptive and restrictive
approaches such as the Jones Act in the USA through to more open arrangements such as those
in New Zealand. All options considered are consistent with international practice.
76
RIS QUESTION 5 - CONSULTATION
THE PURPOSE OF CONSULTATION
Consultation was undertaken with industry stakeholders, industry and employee representative
groups, government agencies and with other interested parties to assist the Government in
developing an understanding of the key issues faced by each stakeholder group. These initial
stakeholder consultation activities assisted in further shaping the policy options presented to
Government for consideration.
Given the broad spectrum of stakeholders interested in coastal shipping, conducting a thorough
consultation process was essential to ensure the best possible advice was prepared about the
most effective policy for coastal shipping.
CONSULTATION STRATEGY
The consultation process began with the publication of an options paper "Options Paper:
Approaches to regulating coastal shipping in Australia". The options paper highlighted
questions for discussion by industry and called for submissions from interested stakeholders.
Submissions were received from 85 interested parties including major Australian and foreign
shipping companies, Australian industry reliant on shipping services, and from industry and
employee representative groups (see Appendix B
COST BENEFIT ANALYSIS
[Provided as a separate Attachment to the email transmitting the RIS to OBPR].
77
APPENDIX C ).
Supporting the options paper process, the Department of Infrastructure and Regional
Development met with 103 stakeholder organisations through a series of open and private
consultation sessions. These sessions took place in Brisbane, Canberra, Hobart, Melbourne,
Perth and Sydney. Open consultation sessions included a presentation explaining the different
options followed by an open discussion; private sessions complemented these open sessions
and supported the discussion of more sensitive issues. During the private sessions, the
Department sought targeted information about the effects of the current framework and any
potential changes. The consultative process was publicised broadly through emails to industry
and information on the Department's webpage. Advertisements were also published in the
Lloyd's List DCN, The Australian Financial Review and The Australian regarding the consultation
process.
To establish the likely economic benefits or costs of each option, the Department commissioned
independent research and an online data collection exercise. This work provided an
independently verified net present value for each proposed option and the results are reflected
in this Regulation Impact Statement.
Consultation was also undertaken to determine the regulatory burden imposed by the current
system. For this purpose, businesses regulated under the current coastal trading regime were
asked to respond to a questionnaire. The information provided during this process assisted in
the refinement of policy options and in establishing the regulatory burden of the existing system
and of the options considered.
After the Government had time to consider the submissions made to the options paper process
and had further refined the options under consideration, the Deputy Prime Minister held an
industry roundtable on 2 February 2015. This meeting drew together and sought views from
senior representatives from a range of businesses and industry associations affected by the
existing regulatory framework. During this meeting, the Deputy Prime Minister put forward
how the Government envisaged the proposed reforms proceeding and encouraged feedback
from stakeholders. Following the industry roundtable, the Government received an additional
19 submissions from industry members. This feedback assisted in shaping the preferred option
set out in this Regulation Impact Statement.
PARTIES CONSULTED
A wide range of stakeholders were canvassed as part of the consultation process. Various
stakeholders engaged in or with an interest in coastal shipping were consulted with, including
ship owners and operators, manufacturers, industry bodies, unions and state and territory
governments. Both General Licence holders and Temporary Licence holders were present
amongst those stakeholders who were consulted with. In total, 85 parties provided a
submission to the review and 103 stakeholders were met with through public and private
consultation sessions. A list of submissions is included at Appendix B
COST BENEFIT ANALYSIS
[Provided as a separate Attachment to the email transmitting the RIS to OBPR].
78
APPENDIX C .
Following this process the Deputy Prime Minister hosted a roundtable discussion at Parliament
House in February 2015 to further refine the proposed model. The attendees at this meeting
were the largest companies and stakeholder groups in the industry, the majority of which had
made earlier submissions to the process.
CONSULTATION TOPICS AND ISSUES
During the consultative process associated with this regulatory development program, the
Government canvassed a wide range of issues. These included what the regulation of coastal
shipping should seek to achieve, the efficacy of the existing measures and a range of future
policy options including complete deregulation, a more controlled deregulatory process,
relatively minor changes to the existing framework, and a controlled deregulation with
protections for Australian skills and jobs.
Three options were presented for the consideration of stakeholders in the options paper:
Option 1 - remove all regulation of access to coastal trading involves repeal of the Coastal
Trading (Revitalising Australian Shipping) Act 2012 (Coastal Trading Act) without
consideration of the residual effects of other legislation. All foreign flagged vessels
undertaking coastal shipping would subject to all applicable Australian laws, including
the Customs Act 1901.
Option 2 - remove all regulation of access to coastal trading and enact legislation to deal
with the effects of other Australian laws involves repeal of the Coastal Trading Act and
introduction of a range of other legislative provisions to ensure open market access to
coastal trade by all vessels.
Option 3 - continue to regulate coastal trade, but minimise industry burden and cost
involves the Australian Government continuing to regulate coastal trade under an
amended Coastal Trading Act, which would see major burdens and costs to industry
removed. This option would retain some protection for the Australian flagged coastal
fleet while providing greater flexibility to buyers of shipping services and both
Australian and foreign flagged suppliers of coastal shipping services.
In addition to these options, and in light of industry feedback, a controlled deregulation option
with protections for Australian skills and jobs was developed after the options paper process.
This fourth option is the recommended option and was presented to an industry roundtable
meeting by the Deputy Prime Minister in February 2015.
Consultation during the industry roundtable focused on a proposed regulatory framework
developed from the earlier canvassed options but building on industry feedback to date. This
discussion focussed on the theme of workability in the proposed model, industry impacts and
timing practicalities.
OUTCOMES OF CONSULTATION
Stakeholder support was divided between Options 2 and 3. Australian shipping companies
generally preferred Option 3, while foreign shipping companies and shippers of goods preferred
the less restrictive Option 2.
One party supported Option 1 but indicated support for the removal of other regulatory
barriers for foreign vessels, aligning with Option 2. In practice, Option 1 would significantly
increase the difficulty for foreign vessels to compete in the coastal trading market.
79
A number of stakeholders supported a position somewhere between options 2 and 3. In
particular, the Department observed a significant degree of support for a 'light touch' licensing
system, which provided legislated certainty along with a high degree of openness and flexibility.
Overall, stakeholders felt that the Coastal Trading Act has acted as an unreasonable barrier to
competition and market entry by foreign vessels, having the effect of increasing the price of
coastal shipping services and thus the viability of Australian business.
Several stakeholders perceived conflict within the different aims or 'object' of the Coastal
Trading Act; some aims clearly support, develop and protect use of the Australian shipping
industry while others aim to provide Australian export industries with the most efficient and
competitive shipping services available (which may not always be Australian).
Stakeholders were most concerned by the cost of Australian shipping, which was stated to be
almost double that of using foreign flagged vessels. The primary driver of higher costs was seen
to be high Australian wage costs relative to foreign vessel wage costs. As such, many
stakeholders criticised the 2010 extension of the Fair Work Act to (some) foreign ships. Other
cost drivers related to the high average age of Australian vessels, such as higher fuel
consumption and insurance premiums.
Stakeholders called for policy certainty to create greater certainty in business planning and
perceived a propensity in Australia to change shipping regulations on a semi-regular basis,
which they felt posed a high sovereign risk for coastal shipping operations in Australia.
The current Temporary Licence system was seen as a further disincentive to the participation of
foreign vessels, due to high compliance costs and operational uncertainty. Temporary Licences
were seen as overly inflexible because foreign vessels are currently required to apply for a
minimum of five voyages (seen as impractical for last-minute shipping), and abide by tolerance
provisions for volume and loading date (±20 per cent; ± five days). Of particularly concern was
the ability of Australian vessels to contest the granting and amendment of Temporary Licences
to foreign vessels; in light of foreign vessels' 'inflexible' requirements, this ability to contest was
seen as overly advantageous for Australian vessels. Purchasers of shipping services, who prefer
cheaper foreign services, felt that required negotiations with more expensive Australian
shipping companies rarely resulted in mutually acceptable outcomes being reached.
During consultations, many participants expressed concern about the application of the Fair
Work and Part B of the Seagoing Industry Award. They had concerns with both labour costs and
the administrative complexity in interpreting and applying the legislated requirements. Some
stakeholders also suggested that the switching on and off of the Fair Work Act and complexities
associated with Part B are a particular disincentive for foreign ships looking to engage in
domestic coastal trading, reducing the availability of certain coastal routes.
Not all stakeholders consider Part B is a significant cost driver in setting freight rates. During
consultations, a limited number of ship operators suggested the additional labour costs were
minimal when compared to other factors affecting freight rates, such as the cost of fuel. The
Maritime Union of Australia also argued for the retention of the Fair Work Act and Part B on the
basis that foreign flagged ships engaged in coastal trading are participating in the domestic
freight market and are in competition with Australian ships and other modes of transport.
Service reliability was noted as of critical concern to some shippers, such as fresh produce
shippers with lower volumes. Under the current regulatory system, these stakeholders felt that
the compliance burden deterred and even prevented use of existing capacity on foreign vessels
on the Australian coast to move coastal cargo. Some users who supported Option 3 were
concerned about long-term commitment from foreign vessels; Tasmanian fresh produce
exporters also expressed concerns about whether services could be maintained at an
appropriate price. However, bulk shippers were confident of sourcing sufficient services from
the global market under an open coast scenario.
80
Specific representations were made of business opportunities for lower cost shipping services
to Tasmania. These opportunities have not been pursued due to the need to reveal the
proposed voyage and cargo patterns to General Licence holders (Australian shipping
companies) through the Temporary Licence application process, with the fear they will be
either challenged by General Licence holders or cannibalised by other Temporary Licence
holders.
Feedback during the industry roundtable and provided afterwards indicated general support
for option 4.
81
RIS QUESTION 6 - THE PREFERRED OPTION
In line with the Australian Government Guide to Regulation, this section:
Describes what Government learned from consultation.
Indicates which of the identified options has been recommended to Government.
Explains the decision making process and clearly outlines any:
o caveats or qualifications
o assumptions
o unresolved issues
o weightings applied to evidence or arguments.
KEY FINDINGS FROM CONSULTATION
Stakeholder feedback has signalled the Coastal Trading Act has resulted in:
(a) an increased administrative burden and cost for foreign employers, resulting in higher
shipping costs for purchasers of shipping services;
(b) operational uncertainty, due to the ability of Australian flagged ships to contest licence
applications and variations by foreign flagged ships; and
(c) a reluctance by international ship operators to participate in coastal shipping under the
current regulatory system, resulting in underuse of international ships' capacity
between stops along the Australian coast.
Stakeholder opinions were divided between a complete deregulation of the sector (through
Option 2) and the maintenance of a minimalist regulatory framework (Option 3). Australian
shipping companies generally preferred the retention of a minimalist regulatory framework,
while foreign shipping companies and shippers of goods preferred a more extensive
deregulation of the sector. The Department observed a significant degree of support for a 'light
touch' licensing system which provided legislated certainty along with a high degree of
openness and flexibility.
Some key observations from the consultation process include:
the ongoing availability of people with seafaring experience, local knowledge and an
understanding of the specifics of how the Australian industry operates is considered to
be essential by many landside businesses. In particular, the need for people with these
skills and knowledge to fill key roles in Australia's ports was highlighted as a concern in
the absence of measures to ensure such people continue to be available.
perceived conflict within the different aims or 'object' of the Act; some aims clearly
support, develop and protect use of the Australian shipping industry while others aim to
provide Australian export industries with the most efficient and competitive shipping
services available (which may not always be Australian).
the majority of general licence holders for coastal shipping prefer to see regulation
maintained in some form;
82
users of foreign shipping services feel little is achieved by the Coastal Trading Act
requirement to negotiate with general licence companies. The more expensive nature of
Australian shipping services is such that a mutually acceptable outcome can almost
never be reached with the shipper preferring the cheaper foreign service;
opportunities for lower cost services to Tasmania had been identified by foreign
competitors but have not been pursued due to the current requirement to reveal the
proposed voyage and cargo patterns to general licence holders through the application
process, with the fear they will be either challenged by general licence holders or
cannibalised by other temporary licence holders;
there are opportunities to remove the inflexibility in the temporary licencing process by
removing the five voyage minimum, the 20 per cent tolerances and the 5 day time
window for loading. This would recognise the often 'last minute' nature of shipping
consignments and ease the compliance burden as an immediate concession to the
business needs of shippers; and
while its level of significance across consultation participants varied, many stakeholders
cited the application of the Fair Work Act to foreign ships as a priority issue, voicing
concerns both with increased labour costs and administrative complexity. Some
stakeholders indicated the complexities associated with the application of the Fair Work
Act are a particular disincentive for foreign ships looking to engage in domestic coastal
shipping, reducing the availability of certain coastal routes and impacting on a shipper's
ability to move their cargo to meet business requirements.
Maintenance of the current regulatory settings will likely have a negative effect on growth in the
broader Australian economy due to the existing restrictions on access to timely, flexible and
cost effective shipping services. Government is considering options to reset the regulatory
framework to better support an efficient shipping industry to in turn benefit the broader
Australian economy.
In addition, the existing framework continues to protect an Australian fleet that is old and
expensive by global standards.
THE RECOMMENDED OPTION
The preferred approach is to pursue reform to the existing legislative framework to significantly
reduce industry costs and burden and to remove impediments to foreign ships seeking to access
the Australian coast while retaining measures to support the ongoing supply of maritime skills
in the Australian economy through option 4.
This approach would replace the existing four tiered licensing framework with a single coastal
trading permit for both Australian and foreign ships. Under this framework:
ships covered by a permit would not be imported by Customs;
Australian and foreign ships would be afforded equal access rights to carry coastal
goods or passengers;
a foreign ship operating in Australia under a permit for more than 183 days would be
required to meet minimum Australian crewing requirements and be covered by the Fair
Work Act and Part B of the Seagoing Industry Award; and
83
voyages loading or unloading at roadsteads outside state waters, and voyages loading at
offshore oil and gas installations for transport to the mainland would be eligible for
coverage under the permit system.
While consultation revealed strong support for both a controlled deregulation of coastal
shipping and amendments to simplify the existing regulatory and policy framework, it appears
the most satisfactory and beneficial approach for business and government lies between the
two options.
Although the costings for a reduced regulatory framework appear to provide the greatest
economic benefit, adopting this option (as presented in the options paper) would not resolve a
number of significant concerns raised during the consultative process and would only provide
an additional $5.94 million per year in benefits across the Australian economy. While Option 2
may have been assessed as having the highest net economic benefits, it is not feasible to
introduce reforms to coastal shipping without balancing the benefits of increased use of foreign
vessels with measures to ensure that the services delivered by foreign ships are provided in a
manner that meets the expectations of the Australian community as to crewing and
employment standards. These measures are foundation elements of the new regulatory and
policy framework, and the comparison of net economic benefits needs to be considered in this
context.
Option 4 is preferable to Option 2 because it more closely aligns with Government priorities in
the area of skills development and protections for seafarers on foreign ships and would ensure a
reasonable ongoing availability of skilled and qualified mariners with local knowledge and
experience to fill positions in on-land transport and logistics industry sectors. Although it is
possible these skills could be brought in at global market rates, consultation indicated the
industry highly values local knowledge.
Key aspects of Option 4 are:
removing licensing impediments, particularly the requirement to apply for specific
voyages and to vary voyages already approved;
removing the ability for Australian ships to challenge the granting of a licence to foreign
ships;
allowing the carriage of petroleum products from offshore installations in Australian
territory to the mainland;
retaining the application of the Fair Work Act 2009 to foreign ships predominantly
engaged in Australia's domestic trade; and
maintaining career paths for the skilled professions of Masters and Officers and
Engineers, by requiring ships wishing to trade on the coast for more than 183 days in
the licensing period to meet minimum Australian crewing requirements.
The combination of measures in Option 4 would address the specific concerns of stakeholders
about the loss of skills in the market, and would provide a preference to employing Australians
over foreign nationals in the domestic economy in line with Government policy.
THE DECISION MAKING PROCESS
The following process was followed in order to ensure the best possible policy would be chosen
and implemented by the Government with regards to the regulation of coastal shipping in
Australia.
84
The first step in the decision making process was the publication of an options paper titled
"Options Paper: Approaches to regulating coastal shipping in Australia". This paper put forward
three broad options for the consideration of stakeholders:
(a) Option 1 - remove all regulation of access to coastal trading
(b) Option 2 - remove all regulation of access to coastal trading and enact legislation to deal
with the effects of other Australian laws
(c) Option 3 - continue to regulate coastal trade, but minimise industry burden and cost
The options paper also posed questions for industry to consider in relation to the current
coastal trading framework as well as in relation to potential changes to the regulation of the
sector. The options paper also called for submissions from industry and other stakeholders
with an interest in the coastal shipping sector. The Department received submissions from 85
parties, including major Australian and foreign shipping companies, Australian industry reliant
on shipping services, and from industry and employee representative groups.
Supporting this process, the Department also met with 103 stakeholder organisations in a series
of open and private consultation sessions. These sessions were held in cities around the country
as outlined in the response to question 5.
Following the discussion paper and submissions process, a range of options were presented to
the Government. These options reflected the outcomes of consultation with industry and
relevant stakeholder groups.
Reflecting industry feedback an additional policy option for the regulation of coastal shipping
similar to option 2 but with additional measures to preserve skills, preference employing
Australians over foreign nationals in the domestic economy, and to provide assurances about
wages and conditions was developed. This preferred option was tested with various coastal
shipping stakeholders at an industry roundtable meeting hosted by the Deputy Prime Minister
at Parliament House in Canberra on 2 February 2015. Following this meeting, additional
submissions were received and the preferred policy option was further refined and developed
based on this input.
85
RIS QUESTION 7 - IMPLEMENTATION AND EVALUATION
In line with the Australian Government Guide to Regulation, this section:
Discuss any implementation challenges you may face in this policy proposal.
Assess the implementation risks: their likelihood, consequences and management.
Outline transitional arrangements in moving from one policy to another.
Describe how the performance of your policy will be evaluated against its objectives,
during and after implementation.
IMPLEMENTATION CHALLENGES
While some legislative complexities in establishing the new framework are anticipated,
implementation of the preferred option is anticipated to be relatively straightforward. The
legislation drafted to give effect to the changes includes transitional measures providing for a
clean switchover between the current and future regulatory frameworks. Further, the long lead
time from introduction of a bill to commencement provides sufficient time for industry to
secure appropriate permits ahead of the commencement of the new system.
A comprehensive communications plan will be delivered to ensure all affected parties are aware
of their obligations as the existing system comes to a conclusion and the new system
commences.
86
IMPLEMENTATION RISKS
For the preferred option, the key implementation risks and their likelihood, consequence,
treatment measures and residual risk level are:
Risk Likelihood Consequence Treatment Residual Risk
1 - Ships unable to move cargo
Permits not Low Severe Administrative Low
issued on time processes
developed to
ensure permits
are issued within
legislated
timeframes.
Application for Medium Severe Communications Medium
Permit not lodged campaign with
existing and
future licence
holders to ensure
applications are
lodged with
sufficient
processing time
allowed.
2 - Administrative Risks
Administrative Low Medium Administrative Low
framework not in processes will be
place ahead of developed ahead
commencement, of
or is inadequate commencement
to deal with and a supporting
circumstances IT system will be
arising during the deployed.
early stages of
implementation.
Volume of Low Medium IT system will be Low
applications tested to ensure
causes a failure of it is capable of
supporting IT handling
systems applications in
expected
volumes.
Permits not Low Severe Transitional Low
issued on time arrangements
due to volume of and a long lead
87
applications time have been
built in to the
new system to
avoid this
likelihood
Insufficient Low Severe The Shipping Low
resources to Business Unit is
process currently staffed
applications appropriately and
ahead of extra staff are
commencement available if
needed
3 - Communications risks
Industry unaware Low Medium There has already Low
of changes been an extensive
consultation
process, coupled
with a broad
publicity program
there is little risk
of industry being
unaware of the
changes
Industry unable Low Medium Extensive Low
to meet consultation on
requirements the proposed
model, and the
design linking
permits to ships
rather than
voyages will
minimise the
likelihood of this
risk
TRANSITIONAL ARRANGEMENTS
The recommended option will be implemented through amendments to the Coastal Trading
(Revitalising Australian Shipping) Act 2012 and the Shipping Registration Act 1981.
Legislative changes to bring about a new permit framework would commence on as soon as
practicable after the requisite legislation is passed.
A post implementation evaluation of the efficacy of the new measures introduced under the
Coastal Shipping Act will be conducted in five years. This evaluation would consider whether
access to shipping services had increased, whether costs had noticeably decreased, and the
extent of any broader economic stimulus brought about by the revised market access
framework.
88
Timing for any changes to the Fair Work Regulations will be determined by the Minister for
Employment, in consultation with the Prime Minister and the Deputy Prime Minister, having
regard to the progress of the Bill to amend the Coastal Trading Act.
EVALUATION PROCESS
If agreed by the Parliament, the preferred option will be evaluated through a range of
mechanisms including regular reviews under the regulator performance framework, monitoring
by the Cabinet Implementation Unit and internal reviews and audits within the Department of
Infrastructure and Regional Development. In addition to these Government monitoring
programs, the significant profile of the proposed amendments is such that the maritime
industry and users of shipping services will also provide public and private evaluative feedback
on the efficacy of the new system.
89
APPENDIX A
LICENCE TYPES UNDER THE COASTAL TRADING (REVITALISING
AUSTRALIAN SHIPPING) ACT 2012 AND ASSOCIATED
LEGISLATION
GENERAL LICENCE
A General Licence is available to vessels on the Australian General Shipping Register and
provides unrestricted access to engage in coastal trading in Australian waters for five years.
The licence affords holders the opportunity to compete for trade on the Australian coast and is
intended to maximise the use of vessels registered in the Australian General Shipping Register
in coastal trading.
Each seafarer working on the vessel must be an Australian citizen or permanent resident or
hold a visa with appropriate work rights. A copy of the licence must be displayed on the vessel
and the holder of the licence must comply with the relevant reporting requirements. The vessel
must continue to be registered on the Australian General Shipping Register to meet the
conditions of holding a General licence.
TRANSITIONAL GENERAL LICENCE
A Transitional General Licence is available to eligible vessels that held a licence under the
previous arrangements in place under part VI of the Navigation Act 1912. A Transitional
General Licence is intended to assist ships operating under the former arrangements to
transition to Australian registration, is issued for a period of five years and may be renewed
once. A Transitional General Licence affords the ship it is issued to the same rights as a General
Licence.
TEMPORARY LICENCE
A Temporary Licence may be granted to a shipper, or the owner, charterer, master or agent of a
vessel registered on the Australian International Shipping Register or under a law of a foreign
country and provides restricted access to engage in specific coastal trading voyages over a 12
month period.
Applications for new temporary licences must include a minimum of five voyages - for cruise
shipping this means five end to end journeys, not five stops on a single ticket. The same
requirement applies to cargo with a licence being required for each end to end cargo movement
conducted by the ship.
Temporary licences can be varied after they are issued, to either add additional voyages (in
minimum groups of five) or to amend the details of already authorised voyages (for example to
vary departure or arrival dates or the number of passengers to be carried).
Information about applications is provided by the Department to all General Licence holders
and allows them to provide notice that a General Licensed vessel is available to conduct any of
the notified voyages. This triggers a mandatory consultation process between the shipper and
the General Licence holder that may be arbitrated by the Department.
This is a competitive process and does not automatically grant voyages to Australian operators.
A decision is made by the Minister or their delegate and a challenge does not guarantee that the
90
Temporary Licence application will be rejected. Few applications are contested but this process
reduces productivity and increases uncertainty.
Once issued, a copy of the licence must be displayed on the vessel and the holder of the licence
must comply with the relevant conditions and reporting requirements.
EMERGENCY LICENCE
An Emergency Licence may be granted to a shipper, or the owner, charterer, master or agent of
a vessel registered in the Australian General Shipping Register, the Australian International
Shipping Register or under a law of a foreign country to respond to significant national
emergencies, as outlined in the regulations, for a period of no more than 30 days.
The licence allows an applicant to respond to a specific emergency of a kind identified in the
regulations and must give details of each aspect of the intended voyages including the reasons
why the voyages cannot be undertaken by a vessel authorised to be used to engage in coastal
trading under a general licence.
A copy of the licence must be displayed on the vessel and the holder of the licence must comply
with the relevant conditions and reporting requirements.
91
APPENDIX B
COST BENEFIT ANALYSIS
[Provided as a separate Attachment to the email transmitting the RIS to OBPR].
92
APPENDIX C
LIST OF PUBLIC SUBMISSIONS
1 Mr Peter Wilson
2 Maersk Line Australia
3 Australian Peak Shippers Association Inc.
4 North Queensland Bulk Ports Corporation
5 North Star Cruises
6 K&L Gates
7 Australian Maritime College
8 Seacare Authority
9 South Australian Tourism Commission
10 Coral Princess Cruises
11 Australian Expedition Cruise Shipping Association
12 Teekay Shipping
13 Launceston Chamber of Commerce
14 Australian Shipping Consultants Pty Ltd
15 Fremantle Ports
16 Cristal Mining Australia Limited
17 National Public Lobby
18 Institute of Public Affairs
19 Freight Logistics Council of Western Australia
20 Koppers Carbon Materials and Chemicals
21 Bell Bay Aluminium
22 CSL Australia
23 Australian Competition and Consumer Commission
24 South Australian Freight Council
25 Cruise Down Under
26 Asciano
27 Oceania Economic Development Corporation
28 Gearbulk Australasia
29 CSR
30 BlueScope
31 MMG Limited
32 University of Queensland
33 Caltex
34 National Farmers Federation
35 Australian Institute of Marine and Power Engineers
93
36 Inco Ships Pty Ltd
37 Rio Tinto Alcan
38 Bunbury Wellington Economic Alliance
39 Gypsum Resources Australia
40 Australian Industry Group
41 Chamber of Minerals and Energy of WA
42 Ashurst
43 International Marine Contractors Association
44 Maritime Engineers Pty Ltd
45 APT
46 Braemar Seascope
47 Port of Townsville
48 Australian Maritime Officers Union
49 Australian Coastal Shipping
50 Minerals Council of Australia
51 Sea Swift
52 Tasmanian Farmers & Graziers Association
53 Alcoa of Australia
54 Australia Aluminium Council
55 Arrium
56 Port of Brisbane
57 Incitec Pivot
58 Australian Shipowners Association
59 Business Council of Australia
60 Ports Australia
61 Woodside
62 Tourism and Transport Forum
63 Shipping Australia Limited
64 Cement Industry Federation
65 Compagnie Du Ponant
66 Australian Institute of Petroleum Ltd
67 Cruise Lines International Association Australasia
68 Silversea
69 SeaRoad
70 Australian Railway Association
71 Australian Mines & Metals Association (AMMA)
72 Maritime Union of Australia
94
73 ANL
74 Carnival Australia
75 Shell Australia
76 BP Australia
77 Hartmann Project Lines
78 Origin
79 Tasmanian Government
80 Northern Territory Government
81 Manufacturing Australia
82 Wilmar Sugar
83 Australian Food and Grocery Council
84 Grain Trade Australia
85 Australian International Marine Export Group and Superyacht Australia
95
Department of Infrastructure and
Regional Development -
Cost Benefit Analysis of Regulatory
Coastal Shipping Options
Final Report
April 2015
96
Inherent Limitations
This report has been prepared as outlined in Section 1 of this report.
No warranty of completeness, accuracy or reliability is given in relation to the statements and representations
made by, and the information and documentation provided by, the Department of Infrastructure and Regional
Development (the Department) consulted as part of the process.
Predictive Analytics Group (PAG) has indicated within this report the sources of the information provided.
We have not sought to independently verify those sources unless otherwise noted within the report.
PAG is under no obligation in any circumstance to update this report, in either oral or written form, for events
occurring after the report has been issued in final form.
The findings in this report have been formed on the above basis.
Third Party Reliance
This report is solely for the purpose set out in Section 1 of this report and for the Department's information,
and is not to be used for any other purpose or distributed to any other party without PAG's prior written
consent.
This report has been prepared at the request of the Department in accordance with the terms set out in
Schedule 1 - Order for Services dated 20 October 2014. Other than our responsibility to the Department,
neither PAG nor any member or employee of PAG undertakes responsibility arising in any way from reliance
placed by a third party on this report. Any reliance placed is that party's sole responsibility.
Forecasts and simulations
In the course of our work, forecasts and/or simulations have been prepared on the basis of assumptions and
methodology which have been described in our report. It is possible that some of the assumptions
underlying our forecasts and/or simulations may not materialise. Nevertheless, we have applied our
professional judgement in making these assumptions, such that they constitute an understandable basis for
estimates and projections. Accordingly, readers of this Report must appreciate that, to the extent that certain
assumptions do not materialise, our estimates and projections may vary.
97
Contents
Executive Summary 102
1. Introduction 108
1.1 Background 108
1.2 Terms of Reference and Scope 109
1.3 Approach 110
1.4 Structure of the Report 112
2. Overview of current regulatory context 113
2.1 Current legislative regime 113
2.1.1 The Coastal Trading Act 113
2.1.2 Shipping Registration Act 114
2.2 Summary of regulatory settings by ship type 114
3. Policy options 116
3.1 Option 1: Removal of all regulation of access to coastal trading 116
3.2 Option 2: Option 1 plus enactment of legislation to account for potential undesired 119
effects of other Australian laws
3.3 Option 3: Maintain current coastal trading licensing scheme with amendments to 120
regulatory settings to minimise industry burden and costs
3.4 Option 4: Introduce single permit system for coastal trading to replace current 121
licensing scheme, with amendments to regulatory settings to create equal
opportunity between Australian and foreign ship operators
3.5 Option 5: Australian Master and Chief Engineer required if the vessel operates 121
more than 120 days
3.6 Option 6: Australian Master and Chief Engineer required if the vessel operates 122
more than 183 days
4. Framework 123
4.1 Overview of CBA framework 123
4.2 Evaluation of policy options 125
5. Assumptions 127
5.1 Ship cost assumptions 127
5.1.1 Crew costs 127
5.1.2 Other operating costs 129
5.1.3 Capital costs 129
5.1.4 Foreign ship costs 130
5.2 Daily time charter costs by ship type 130
5.3 Market share assumptions 136
5.3.1 Bauxite - Weipa to Gladstone 142
5.3.2 Bauxite - Triangular route 143
5.3.3 Iron Ore 143
5.3.4 Other Dry Bulk 144
98
5.3.5 Crude Oil 146
5.3.6 Petroleum 147
5.3.7 Other Liquid Bulk 148
5.3.8 Cruise shipping 149
5.3.9 Inter-Capital containers 151
5.3.10 Bass Strait Non-Bulk Freight 151
5.4 Cargo forecasts 152
5.4.1 Introduction 152
5.4.2 PAG Forecasting methodology 153
6. Results 155
6.1 NPV Results 155
6.2 Sensitivity analysis 158
6.2.1 Reduced manning 158
6.2.2 Shadow price factor 162
6.2.3 SIA Part A wages 164
6.2.4 3% NPV 167
6.2.5 10% NPV 169
6.4 Limitations 171
Appendix A - Refinements to the BITRE shipping cost model 172
Appendix B - Shipping industry survey 175
Appendix C - Data collection 182
Appendix D - Compliance requirements 183
Forecast results 184
General limitations associated with forecasting 203
99
List of Tables
Table 4.1 - OBPR CBA Framework 123
Table 5.1 - Vessel characteristics (base case scenario) 132
Table 5.2 - Vessel characteristics (policy scenarios) 133
Table 5.3 - Daily time charter financial costs ($ per day) 134
Table 5.4 - Daily time charter economic costs ($ per day) 135
Table 5.5 - Market share assumptions for Bauxite - Weipa to Gladstone Trade 142
Table 5.6 - Market share assumptions for Bauxite - Triangular Trade 143
Table 5.7 - Market share assumptions for Iron Ore Trade 144
Table 5.8 - Other dry bulk market shares based on volumes traded in 2014 145
Table 5.9 - Tax treatment of General Licence vessels 145
Table 5.10 - Market share assumptions for Other Dry Bulk Trade 146
Table 5.11 - Market share assumptions for Oil 147
Table 5.12 - Market share assumptions for Petroleum 148
Table 5.13 - Market share assumptions for Other Liquid Bulk 149
Table 5.14 - Market share assumptions for cruise shipping 150
Table 5.15 - Market share assumptions for Bass Strait non-bulk freight 152
Table 6.1 - NPV results ($m) (main scenario) 155
Table 6.2 - NPV results ($m) (main scenario) 157
Table 6.3 - Crew cost /benefit across cargo sectors 158
Table 6.4 - NPV results ($m) (Reduced Manning Scenario) 161
Table 6.5 - NPV results ($m) (lower shadow price factor scenario) 163
Table 6.6 - NPV results ($m) (SIA Part A wages scenario) 166
Table 6.7 - NPV results ($m) (3% NPV scenario) 168
Table 6.8 - NPV results ($m) (10% NPV scenario) 170
100
List of Figures
Figure 4.1- Base case scenario for each cargo trade by financial year 124
Figure 5.1- Percentage of foreign vessels registered in each flag state 128
Figure 5.2- Oil freight per vessel (in aggregate) per financial year 138
Figure 5.3 -Iron Ore freight per vessel (in aggregate) by financial year 139
Figure 5.4 -Other Liquid freight per vessel (in aggregate) by financial year 140
Figure 5.5 -Bass Strait freight by vessel for 2014 financial year 140
Figure 5.6 -Other Dry Bulk freight by vessel 27/7/2012 - 2/11/2014 141
Figure 5.7: Statistical Modelling Framework 153
Figure 6.1- Main Scenario NPV results ($m) 156
Figure 6.2- NPV results ($m) (Reduced Manning vs Main Scenario - Part A) 159
Figure 6.3- NPV results ($m) (Reduced Manning vs Main Scenario - Part B) 160
Figure 6.4- NPV results ($m) (Lower Shadow Price Factor vs Main Scenario - Part A) 162
Figure 6.5- NPV results ($m) (Lower Shadow Price Factor vs Main Scenario - Part B) 162
Figure 6.6- NPV results ($m) (SIA Part A Wages vs Main Scenario - Part A) 164
Figure 6.7- NPV results ($m) (Reduced Manning vs SIA Part A Wages - Part B) 164
Figure 6.8- NPV results ($m) (Main Scenario vs Discount Factor = 3% - Part A) 167
Figure 6.9- NPV results ($m) (Main Scenario vs Discount Factor = 3% - Part B) 167
Figure 6.10- NPV results ($m) (Discount Factor = 10% vs Main Scenario - Part A) 169
Figure 6.11- NPV results ($m) (Discount Factor = 10% vs Main Scenario - Part B) 169
101
Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
Executive Summary
Background and Scope
The Department of Infrastructure and Regional Development (the Department) engaged Predictive
Analytics Group (PAG) in May 2014 to conduct a cost-benefit analysis (CBA) of three coastal trading
regulatory options to inform a Regulation Impact Statement (Phase 1). These regulatory options were
outlined in the Department‟s Options Paper: Approaches to regulating coastal shipping in Australia,
April 2014 (the Options Paper).
Phase 1 also included certain intermediate deliverables, namely:
the refinement and update of the existing Bureau of Infrastructure, Transport and Regional
Economics (BITRE) Ship Cost model having regard to the PwC review of the previous BITRE
CBA of the proposed (at the time) 2012 shipping reform package; and
the capture and analysis of industry data.
At the conclusion of Phase 1, PAG delivered a comprehensive report to the Department outlining the
results of its CBA. PAG was re-engaged in October 2014 to model the costs and benefits associated
with three additional options and the inclusion of Cruise Shipping as a new sector (Phase 2). PAG was
again re-engaged in March 2015 to remodel the costs associated with the six options based on
updated license data provided by the Department (Phase 3). This report outlines the CBA results in
relation to all six regulatory options under consideration by the Department, namely:
1. Option 1: Removal of all regulation of access to coastal trading via a repeal of the Coastal
Trading (Revitalising Australian Shipping) Act 2012 (the Coastal Trading Act).
2. Option 2: Removal of all regulation of access to coastal trading and enactment of legislation to
account for potential undesired effects of other Australian laws, such as the Customs Act 1901
(the Customs Act).
3. Option 3: Maintain current coastal trading licensing scheme with amendments to regulatory
settings to minimise industry burden and costs.
4. Option 4: Continued regulation of coastal trading but with amendments to regulatory settings
to create equal opportunity between Australian and foreign ship operators.
a. This approach would replace the existing four tiered licensing framework with a single
coastal trading permit for both Australian and foreign ships.
5. Option 5: Australian Master and Chief Engineer required if the vessel operates more than 120
days (Variant 1 of Option 4).
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
a. This requires foreign vessels to operate with an Australian Master and Chief Engineer
on the Seagoing Industry Award 2010 (SIA) Part B wages for Australian and foreign
crew, if performing coastal voyages for more than 120 days per year.
6. Option 6: Australian Master and Chief Engineer required if the vessel operates more than 183
days per year (Variant 2 of Option 4).
a. This requires foreign vessels to operate with an Australian Master and Chief Engineer
on SIA Part B wages for Australian and foreign crew, if performing coastal voyages for
more than 183 days.
Approach
In Phase 1 of the engagement, PAG undertook the following steps to identify the costs and benefits
associated with the proposed regulatory options:
1. A project initiation meeting was held with the Department in the week following
commencement of the engagement to confirm the scope of the engagement and key
deliverables.
2. A shipping industry survey was developed to serve as a data collection tool for the CBA.
This included development of a web-based survey.
3. The BITRE Ship Cost model (2011) was reviewed and the refinements and updates required
to be made were identified and implemented.
4. Data collected from the shipping industry survey were analysed and assessed for usefulness
for incorporation into updates of the BITRE Ship Cost model (where appropriate).
5. Remaining data required were collected from the Department and other sources.
6. Projected net benefits were developed under each regulatory scenario and sensitivity analysis
conducted using (and after updating) the Department‟s previous CBA workbook.
7. Finally, a report was produced outlining the expected net benefits associated with each
regulatory option.
Following completion of Phase 1, PAG undertook the following steps for Phase 2:
1. A project initiation meeting was conducted via teleconference on the 30th of October 2014.
2. Dialogue with the Department and BITRE to clarify and update assumptions was conducted -
the current model was examined to determine whether additional variables were required for
inclusion in the execution of the current cost-benefit analysis.
3. Data collection and analysis of three additional scenarios.
4. The model was updated with the latest observations and source information relating to any
additional variables required to model the three new options.
5. Following data collection, PAG examined the underlying properties of the data and applied
statistical techniques to identify anomalies.
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
6. Development of base case and the 3 additional policy scenario projections, using quantitative
and qualitative techniques to isolate and quantify each relevant item.
7. A workshop was conducted to present key findings and seek feedback from the Department,
BITRE and key participants.
8. This report was then updated to reflect the modelling results of the new policy scenario
variants and expected net benefits associated with each regulatory option.
Key Findings
The CBA is conducted from 1 December 2014 with any change in regulatory settings assumed to
commence from 1 July 2015 and the net economic benefits of a regulatory change measured over a
20 year horizon. We define net economic benefit in Net Present Value (NPV) terms.16 The chart below
summarises the key results of the NPV analysis.
NPV results ($m) over the 20 year horizon
Option 2015 2016 2017 5 years 10 years 20 years
1 -184.9 -194.4 -204.1 -886.5 -1624.9 -2510.7
2 41.3 57.8 68.9 280.7 531.5 786.2
3 38.6 51.0 61.3 252.0 476.9 705.3
4 41.3 57.8 68.9 280.7 531.5 786.2
5 32.7 45.8 57.0 231.9 442.8 653.6
6 33.2 46.5 57.9 235.8 450.7 667.4
NPV results (main scenario)
16
where t denotes the time of the cash flow, I is the discount rate, and Rt is the cash
flow. Note, when the NPV > 0 the policy has net positive benefits (compared to the base case), when NPV < 0
the policy under examination would subtract value from the industry and the economy, and when NPV = 0
the industry and the economy as a whole would neither gain nor lose from the implementation of the
particular policy option.
104
Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
Note: In accordance with the Office of Best Practice Regulation - Department of Prime Minister and Cabinet (OBPR)
guidance a discount value of 7 per cent is assumed to facilitate the CBA. Tables and charts presenting results at discount
rates of 3 per cent and 10 per cent can be found in section 6.3.4 and 6.3.5 respectively. Note: For Inter-capital containers,
we observe large economic costs for Option 1 whilst there are no economic costs/benefits for all other Options.
The results show that Options 4 and 2, are the most favourable options in the medium to long-term
from an economic benefit standpoint. According to the CBA, Option 4 generates net benefits of
approximately $786.2m. Option 2 also generates net benefits of approximately $786.2m. Options 4
and 2 are closely followed by Options 3 and 6 which produce net benefits of approximately $705.3m
and $667.4m respectively. The table below summarises the results for all cargo types and options.
NPV results - all cargo types and options (main scenario)
Dry Bulk Liquid Bulk
Bass
Inter-
Policy Strait Cruise
Bauxite Other Petroleu Other capital Total
Options Bauxite Iron Sub- Sub- Non- Shipping
Weipa- Dry Oil m Liquid containers
Triangular Ore total total Bulk
Gladstone Bulk Products Bulk
Option 1 -100.9 -105.0 -91.0 -296.9 -593.8 -24.9 -172.6 -37.0 -234.5 -1662.1 0.0 -20.2 -2510.7
Option 2 0.0 249.6 29.9 262.9 542.4 9.4 71.7 14.0 95.1 0.0 103.5 45.2 786.2
Option 3 0.0 249.6 29.9 182.0 461.5 9.4 71.7 14.0 95.1 0.0 103.5 45.2 705.3
Option 4 0.0 249.6 29.9 262.9 542.4 9.4 71.7 14.0 95.1 0.0 103.5 45.2 786.2
Option 5 0.0 168.0 29.9 247.0 444.9 9.4 66.1 13.4 88.9 0.0 74.6 45.2 653.6
Option 6 0.0 181.3 29.9 247.0 458.2 9.4 66.1 14.0 89.5 0.0 74.6 45.2 667.4
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
The results in the above table are presented in terms of the relative impact of each policy option to the
base case. For example, Options 4 and 2 generate a positive economic cost savings of $786.2
compared to the base case. The difference in total NPV economic cost savings across policy options
2-4 can largely be attributed to Other Dry Bulk where large volumes of trade is undertaken by
domestic vessels. Domestic vessels are more sensitive to variation across the policy options since
they have the most to gain from changing their crew composition. Accordingly, we observe greater
variation in NPV economic cost savings for this trade. All other cargo trades are undertaken by
predominantly foreign vessels and thus the economic cost savings are relatively similar across policy
options 2-4.
Option 1 results in a significant NPV economic cost of $2,510.7m. The primary reason is that the cost
of replacing foreign crew on Maritime Crew Visas (MCV) with either Australian crew or crew who hold
457 visas greatly increases the crew cost for a foreign vessel previously paying SIA Part B or ITF
wage rates.17 Furthermore, the cost associated with moving inter-capital containers onto rail under
Option 1 is approximately $1,662.1m.
Option 2, generates a NPV economic cost saving of $786.2m. The removal of temporary licences
under this option means that foreign vessels gain an increased share of the market. Furthermore, ship
owners may have little incentive to register vessels in the Australian General Register (Australian
flagged) and may opt to register their vessels under a foreign register (foreign flagged) and employ an
entirely foreign crew. It is assumed that foreign vessels manned entirely by foreign crew incur lower
economic costs compared with Australian flagged vessels. As such, foreign vessels may capture
tonnage away from Australian flagged vessels.18
Option 3 yields NPV economic cost savings of $705.3m. The cost reductions under Option 3 result
purely from an increase in the share of the freight task attributed to foreign vessels. Relative to Option
2, Option 3 generates less economic cost savings.19 The reason for this is that it is assumed (under
Option 3) that ship owners continue to register vessels in the Australian General Register and maintain
Australian crew rather than register in a foreign register and employ foreign crew. Isolating and
quantifying the exact number of jobs Australian seafarer jobs displaced under Option 3, relative to
Option 2, is a complicated task. Notwithstanding, it is assumed that since, under Option 3 foreign
vessels ship an increased share of the freight task, there may be some displacement of Australian
operated vessels and Australian seafarer jobs relative to the base case scenario.
NPV results - all cargo types and options (main scenario)
17
It is important to note that this result does not change if GST is factored. GST charged on importation may
only serve to further reduce the market share of foreign vessels; as Australian vessels take up an increased
freight task, higher net costs are still incurred as Australian vessels (under the modelling assumptions) have
higher economic daily time charter costs than foreign vessels.
18
It is important to note that not all possible costs and benefits that may be associated with Option 2 are not
captured entirely by the CBA and the ensuing NPV results. These include a potential loss of Australian
seafarer jobs which may have flow-on implications for shore-based maritime skills and the shore-based
maritime sector in general. Legislative costs associated with the identification, and enactment, of new
legislation to negate the undesired effects of a repeal of the Coastal Trading Act are also not captured.
19
Inter-capital containers has been purposefully excluded from the chart as it only relates to Option 1 and the
magnitude of the impact (-$1,662.1) skews the chart making the remaining results unintelligible.
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
Similar to Option 2, Option 4 yields NPV economic cost savings of $786.2m. Options 2 and 4
represent the highest economic cost savings of all policy options. The basis for this result is three-fold.
First, the assumed increase in the market share of foreign vessels. Second, the proposed extension of
the legislation to cover offshore operations where licence holders opt in. Third, through relaxed
licensing arrangements. In essence, it is assumed that many of the operators currently operating
under the Australian General Register, incurring Australian Enterprise Agreement (EA) wage rates,
would re-flag their vessels in order to compete with the foreign operators who enjoy the benefit of
comparatively lower ITF wage rates. Notably, although ship operators are likely to replace Australian
seafarers with foreign seafarers, a portion of the crew may still be represented by Australian seafarers
due to the world-wide shortage of high ranking positions.
Options 5 and 6 result in economic cost reductions of $653.6m and $667.4m respectively. The
economic cost reductions are somewhat similar to Options 4 and 2 due to minimal changes in the
proposed amendments. The economic cost reduction for Option 5 is less than that of Option 6 due to
more stringent crew conditions proposed under Option 5, where foreign vessels must operate with two
senior Australian crew if the vessel conducts coastal voyages for more than 120 days.
Options 6 is less stringent in this regard as this requirement is extended to 183 days leading to more
favourable crew composition impacts.
We note that the cost-benefit framework used in our analysis is not without limitations. To the extent
that a different view may be taken with any of the assumptions (including market share assumptions,
cargo trade forecasts and discount rate), the NPV analysis may lead to different results and thus
rankings. As outlined above, the ranking of the NPV results for the policy options are predominantly
driven by the market share assumptions for the „other dry bulk‟ trade. The „other dry bulk‟ trade is
influenced by many variables which adds to the speculative nature of the market share assumptions.
In turn, our results should be considered as forming „part‟ of an evidence base of information rather
than absolute findings.
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
1. Introduction
1.1 Background
Coastal trading plays an important role in the Australian economy. This importance was recognised by
the implementation of a shipping reform package in 2012 aimed at fostering a vibrant domestic
shipping industry. As part of the reforms, the Coastal Trading (Revitalising Australian Shipping) Act
2012 (the Coastal Trading Act) was introduced which establishes the licensing system that regulates
access to coastal trading. This effectively replaced, from 1 July 2012 onwards, the previous permit
system that was established under Part VI of the Navigation Act 1912.
A vessel engages in „Coastal trading‟ within the meaning of the Coastal Trading Act if, for or in
connection with a commercial activity, the vessel transports cargo or carries passengers between
ports:
- in different Australian States or Territories; or
- within the same Australian State or Territory where some passengers disembark or some
cargo is unloaded, and the remaining passengers or cargo are then carried to a port in
another Australian State or Territory where some or all of the passengers disembark or some
or all of the cargo is unloaded; or
- within the same Australian State or Territory and pursuant to an application made by the
vessel‟s owner, and where a declaration has been made by the Minister that the Coastal
Trading Act applies in relation to the vessel. 20
The Coastal Trading Act offers some protection to the domestic shipping industry by restricting the
participation of foreign flagged (registered) vessels in coastal trading, and enables Australian vessels
to compete for voyages proposed to be undertaken by foreign flagged vessels. However, the objects
of the Coastal Trading Act has caused confusion as to whom the Coastal Trading Act is intended to
support. Section 3 of the Coastal Trading Act provides that:
1) The object of this Act is to provide a regulatory framework for coastal trading in Australia that:
a. promotes a viable shipping industry that contributes to the broader Australian economy; and
b. facilitates the long term growth of the Australian shipping industry; and
c. enhances the efficiency and reliability of Australian shipping as part of the national transport system;
and
d. maximises the use of vessels registered in the Australian General Shipping Register in coastal trading;
and
e. promotes competition in coastal trading; and
f. ensures efficient movement of passengers and cargo between Australian ports.
20
Sections 7 and 12 of the Coastal Trading Act.
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
The Department‟s Options Paper: Approaches to regulating coastal shipping in Australia, April 2014
(the Options Paper) notes that users of shipping services may have interpreted the object of the
Coastal Trading Act as supporting their claims to competitive freight rates and shipping services,
including those offered by foreign flagged vessels. Further, no clear weighting has been given to the
elements that comprise the object of the Coastal Trading Act (or any other part) regarding the relative
importance of each of these objects. The Department noted that this has made effective administration
of the Coastal Trading Act particularly challenging. The Options Paper also suggests that the Coastal
Trading Act has created uncertainty for market participants and as such, created an environment of
higher shipping costs and restricted access to timely and efficient shipping services impacting the
broader Australian economy.
In light of the above regulatory ambiguity, the Department requires a Cost Benefit Analysis (CBA) of
different coastal shipping regulatory options to inform the Regulation Impact Statement and potential
amendments to current regulatory settings.
This report outlines the results of the CBA in relation to the six regulatory options currently under
consideration, namely:
1. Removal of all regulation of access to coastal trading via a repeal of the Coastal Trading Act.
2. Removal of all regulation of access to coastal trading and enactment of legislation to account
for potential undesired effects of other Australian laws, such as the Customs Act 1901 (the
Customs Act).
3. Maintain current coastal trading licensing scheme with amendments to regulatory settings to
minimise industry burden and costs.
4. Continued regulation of coastal trading but with amendments to regulatory settings to create
equal opportunity between Australian and foreign ship operators.
a. This approach would replace the existing four tiered licensing framework with a single
coastal trading permit for both Australian and foreign ships.
5. Australian Master and Chief Engineer required if the vessel operates more than 120 days
(Variant 1 of Option 4). Furthermore, the Fair Work Act and SIA Part B wage rates would
apply to the whole crew for the entire permit period.
6. Australian Master and Chief Engineer required if the vessel operates more than 183 days
(Variant 2 of Option 4). Furthermore, the Fair Work Act and SIA Part B wage rates would
apply to the whole crew for the entire permit period.
Further details of these options can be found in Section 3.
1.2 Terms of Reference and Scope
The Department engaged PAG to conduct a CBA of the aforementioned coastal trading regulatory
options. While the engagement ultimately entailed a CBA, it included intermediate deliverables,
namely:
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the refinement and update of the existing BITRE Ship Cost model having regard to the PwC
review of the previous BITRE CBA of the proposed (at the time) 2012 shipping reform
package;
the inclusion of Cruise Shipping as a new sector; and
the capture and analysis of industry data.
1.3 Approach
The following steps outline the approach taken by PAG to complete the CBA of the proposed
regulatory options in Phase 1 of the engagement:
1. A project initiation meeting was held with the Department in the week following
commencement of the engagement to confirm the scope of the engagement and key
deliverables.
2. A shipping industry survey was developed by PAG on behalf of the Department to serve as a
data collection tool for the CBA.
a. This included the development of a web-based survey tool to distribute the survey.
i. The survey was intended to enhance understanding of industry cost
structures, and comprised five questions for capturing information on cargo
volumes delivered, crew size, crew cost, other ship operating expenses and
compliance costs.
3. The BITRE Ship Cost model (2011) was reviewed and the refinements and updates required
to be made were identified and implemented. These are summarised in Appendix A.
4. The Cruise shipping sector was added to the CBA model. Ship cost and occupancy levels
were estimated for the purpose of the CBA.
5. Data collected from the shipping industry survey were analysed and assessed for usefulness
for incorporation into the BITRE Ship Cost model.
a. The analysis produced summary statistics for each question which are detailed in
Appendix B.
6. Remaining data were collected from the Department and other sources. A list of data sources
is available in Appendix C.
7. Projected net benefits were developed under each regulatory scenario and sensitivity analysis
conducted using (and after updating) the Department‟s previous CBA workbook.
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8. Finally, this report was produced outlining the expected net benefits associated with each
regulatory option.
Following completion of Phase 1, PAG was engaged to model the costs and benefits associated with
the three additional options referred to above, and undertook the following steps for Phase 2:
1. A project initiation meeting was conducted via teleconference on the 30th of October 2014.
2. Dialogue with the Department and BITRE to clarify and update assumptions was conducted -
the current model was examined to determine whether additional variables were required for
inclusion in the execution of the current CBA. Updates included:
a. revision of freight growth forecasts for all sectors to reflect recent trends;
b. clarification of assumptions for the bauxite trade;
c. justification for market share assumptions for the base case and policy scenarios and
undertake additional sensitivity tests for the market share assumptions; and
d. clarification of assumptions for coastal containers with possible revision to
calculations.
3. Data collection and analysis of three additional scenarios
4. The model was updated with the latest observations and source information relating to any
additional variables required to model the three new options.
5. Following data collection, PAG examined the underlying properties of the data and applied
statistical techniques to identify anomalies.
6. Development of base case and the 3 additional policy scenario projections, using quantitative
and qualitative techniques to isolate and quantify each relevant item. Specifically, PAG
undertook the following steps:
a. modelling of the three additional policy scenario variants, with modelling of anticipated
economic benefits for 2015, 2016 and 2017 as well as over 5, 10 and 20 years for all
scenarios with the results to include expression in Net Present Value (NPV) terms;
b. utilised the current/refined BITRE shipping costs model where applicable to forecast
(or make assumption) about costs over the forecast horizon; and
c. where the BITRE costs model and/or other economic models could not be applied,
PAG made reasonable assumptions about projected costs on the basis of past and
current trends, and discussions with the Department, BITRE and industry experts.
This included assumptions regarding:
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i. freight volume growth;
ii. market share of Australian flagged and foreign flagged vessels; and
iii. supply of skilled seafarers.
7. A workshop was conducted to present key findings and seek feedback from the Department,
BITRE and key participants.
8. This report was then updated to reflect the modelling results of the new policy scenario
variants and expected net benefits associated with each regulatory option.
1.4 Structure of the Report
This report is structured as follows:
Section 2 outlines the current regulatory context;
Section 3 discusses the proposed regulatory options and potential implications for the CBA
modelling;
Section 4 discusses the CBA framework;
Section 5 discusses the assumptions; and
Section 6 discusses the CBA results and concludes.
The report concludes with a series of appendices which detail the shipping industry survey questions,
the data collection and the survey findings and refinements made to the BITRE model.
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2. Overview of current regulatory context
2.1 Current legislative regime
Coastal trading is currently regulated by the following legislation:
1. Coastal Trading Act; and
2. Shipping Registration Act 1981 (the Shipping Registration Act).
This section outlines the provisions of the aforementioned legislation which informs the base case
scenario which we assume remains constant for the forecast horizon.21
2.1.1 The Coastal Trading Act
The Coastal Trading Act establishes the licensing system enabling coastal trading activities. There are
four main types of licences available under the Coastal Trading Act. Each is summarised below.
General Licence
A General Licence is available to vessels registered in the Australian General Register and grants
unrestricted access to coastal trading activities for five years. This licence offers the licensee the
opportunity to compete for coastal voyages that are proposed to be undertaken by foreign flagged
vessels.
Transitional General Licence
A Transitional General Licence is available to eligible vessels that held a licence under the previous
permit system that was in effect under part VI of the Navigation Act 1912. This licence provides the
holder with the same rights as a General Licence holder for a period of five years. However these
vessels are registered under the law of a foreign country. A condition of this licence is that crew
employed on board such vessels must be Australian citizens or permanent residents, or hold
permanent or temporary visas with appropriate work rights.
Temporary Licence
A Temporary Licence is available to a shipper, or the owner, charterer, master or agent of a vessel for
the purposes of enabling a vessel to be used in coastal trading activities for a period of up to 12
months. As a condition, the Temporary Licence requires the vessel to be registered either in the
Australian International Shipping Register (AISR) or in a foreign register, i.e. under a law of a foreign
country.
21
A detailed overview is available in the Department Options Paper, Approaches to regulating coastal
shipping in Australia (2014).
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Applications must be for the proposed undertaking of at least five voyages and are subject to the
availability of a General Licence holder to undertake one or more of the proposed voyages. General
Licence holders are provided with notice of voyages proposed to be undertaken by a foreign flagged
vessel and are permitted to submit a notice in response indicating that they are able to undertake one
or more of the proposed voyages. Subject to Ministerial direction, in consideration of the availability of
General Licence holders to undertake the proposed voyages, and other factors (e.g. shippers‟
requirements), an application for a Temporary Licence may then be either approved or refused.22
In general, by restricting foreign flagged vessels from engaging in coastal trading and providing
unrestricted access to Australian flagged vessels, the Coastal Trading Act aims to "maximise the use
of vessels registered in the Australian General Register in coastal trading".23
Emergency Licence
An Emergency Licence can be granted for coastal trading to vessels registered in any register
(whether it is the Australian General Register, the AISR or a foreign register). The purpose of this
Licence is to manage situations relating to significant national emergencies and is valid for a period of
up to 30 days. According to the Department‟s website reports, no Emergency Licences have been
issued to date.
2.1.2 Shipping Registration Act
The Shipping Registration Act operates in conjunction with the Coastal Trading Act and was amended
as part of the 2012 shipping reforms to rename the shipping register as the Australian General
Register, as well as to create a new AISR and the rules governing eligibility for registration in the
AISR. Registration according to the Shipping Registration Act ultimately governs the eligibility for
applying for General Licences or otherwise. An important provision in the Shipping Registration Act
requires that every Australian owned ship "be registered through the Shipping Registration Act unless
the ship is operated by a foreign resident under a demise charter and the Australian Maritime Safety
Authority has exempted the ship from registration".24
2.2 Summary of regulatory settings by ship type
For the purposes of establishing the base case scenario, it is important to consider the current
regulatory settings. Below we outline the relevant provisions affecting each vessel type in relation to
licensing and labour laws available to ship owners and/or operators.
22
Full details are available in the Coastal Trading (Revitalising Australian Shipping) Act 2012 at
http://www.comlaw.gov.au/Details/C2012A00055.
23
Section 3 of the Coastal Trading Act 2012.
24
Coastal Trading Options Paper: Approaches to regulating coastal shipping in Australia, p. 5
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Australian flagged vessels
Australian flagged vessels are registered either in the Australian General Register or the AISR.
Vessels in the Australian General Register must employ Australian crew subject to the Fair Work Act
2009 (the Fair Work Act) and Part A of the SIA. 25 The SIA sets out additional provisions
supplementary to the Fair Work Act specifically for the maritime industry including minimum wage
rates; allowances for meals, study, accommodation; ordinary hours of work; and leave entitlements.26
Although ships operating under a Transitional General Licence are covered by the same legislation,
they are nevertheless foreign flagged.
Vessels in the AISR must employ an Australian national (or resident) master or chief mate, and an
Australian national (or resident) chief engineer or first engineer. Seafarers employed on these ships
are covered by the Fair Work Act only while the ship is engaged for domestic voyages. AISR ships are
subject to Part B of the SIA if they have conducted at least two other voyages under a Temporary
Licence in the last 12 months. The SIA applies from the third (coastal) voyage onwards (on a rolling 12
month period) but not to AISR ships while engaged on international voyages. Ships registered in the
AISR must be predominantly engaged in international trading. No ships are currently registered in the
AISR.
Foreign flagged vessels
For foreign flagged vessels, the Fair Work Act and Part B of the SIA also apply under the same
conditions as those outlined for Australian vessels registered in the AISR. That is, the Coastal Trading
Act and SIA apply from the third (coastal) voyage onwards (in a rolling 12 month period) assuming the
vessel is also licenced under a Temporary Licence. The first two coastal voyages are not subject to
the Fair Work Act or the SIA. As such, wages may be set below SIA rates, such as at International
Transport Federation (ITF) rates, for the first two coastal voyages.
25
Provisions encompass the National Employment Standards, the national minimum wage and workplace
protections (e.g. from unfair dismissal). Refer to the Fair Work Act 2009 for full details.
26
Refer to the Seagoing Industry Award 2010 for further details.
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3. Policy options
This section discusses each policy option and their potential implications in further detail.
3.1 Option 1: Removal of all regulation of access to coastal trading
Under Option 1, the Coastal Trading Act would be repealed in its entirety, along with all other
associated legislative provisions currently in operation due to the existence of the Coastal Trading Act
(without any amendments to other Commonwealth legislation that may interact with the Coastal
Trading Act). There are several possible implications which are discussed below.
Importation status may be triggered
Repealing the Coastal Trading Act will remove the provision that allows the Australian Customs and
Border Protection Service (ACBPS) to consider a vessel otherwise imported, as not being imported for
the purposes of the Customs Act 1901 (the Customs Act). Consequently, all foreign vessels
engaging in coastal trading would be considered "imported" under the Customs Act and therefore
required to be entered into home consumption in accordance with the Customs Act. The act of
importation triggers the application of a range of other laws, including but not limited to quarantine,
prohibited and restricted goods, immigration and revenue laws.
The main consequences associated with importation status are discussed as follows:
a) Customs duty, regulatory compliance and GST
Some of the adverse impacts associated with "importation" status include potential customs duty and
GST. In general, a 5 per cent customs duty applies to imported vessels if they are less than 150 gross
construction tons. In the case of cargo ships and tankers with greater than 150 gross construction
tons, this will not apply.27 Customs duty may apply on the ship‟s parts and equipment alternatively.
However, given the complexity of legal provisions, this will not apply in all cases and not with
certainty.28
GST may apply to imported vessels. In general, where ship owners „carry on an enterprise‟ and are
entitled to an Australian Business Number and GST registration, the imposition of GST upon
importation attracts a small interest cost associated with the time value of foregone interest earnings.
As the GST paid can be claimed back through input tax credits, the net cost of the GST payment is
reduced. A GST deferral scheme also exists that allows GST payments on imported goods to be
deferred until the next Business Activity Statement (BAS) subject to satisfying specific requirements
such as monthly submission of BAS. This effectively offsets the GST payment as it can be claimed
back in the form of an input tax credit at the time of payment. In some cases, the ship owner may not
„carry on an enterprise‟ and so be ineligible for GST registration and input tax credits. This would
impose a significant 10% increase in the ship yard cost.
27
Refer to Schedule 3 of the Customs Tariff Act 1995 (http://www.comlaw.gov.au/Details/C2013C00072).
28
For example, a fully imported vessel is required to pay duty on the bunker fuel; however, this treatment of
„importation‟ and customs duty on bunker fuel according to the ATO is not directly related to importation as
defined under the Customs Act or related to the Coastal Trading Act exemption of ships from importation.
Moreover, there is ambiguity around GST that may apply to ship‟s equipment and stores including bunker fuel.
Currently, foreign vessels engaged on a voyage that has a destination outside of Australia are not required to
pay GST on bunker fuel as it is considered part of ships‟ stores under item 5, subsection 38-185(1) of the GST
Act.
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Note that an import declaration processing charge may apply under section 71 of the Customs Act
1901 but this is of a negligible amount.29
b) Maritime crew visas
An important regulatory consequence of repealing the Coastal Trading Act is the impact on crewing of
foreign vessels once importation is triggered. Currently, foreign crew require either a Maritime Crew
Visa (MCV) or a 457 temporary skilled visa when engaged in coastal trading along the Australian
coast. The MCV only applies to foreign workers employed on a non-military ship. The definition of a
non-military ship in the Migration Regulations 1994 applies only to ships that have not been imported
or entered into home consumption, with the exception of AISR vessels. AISR vessels are exempt in
that MCV-holders on AISR vessels will still satisfy visa requirements even if they are deemed
imported.30 For non-AISR ships, MCV privileges cease once the ship is imported and foreign crew with
MCVs must depart Australia within five days. This may result in several possible scenarios having
various implications for the shipping industry and the coastal freight task. In particular:
1. Foreign flagged vessels may replace MCV-holders with crew possessing appropriate work
rights, i.e. crew with 457 visas.
2. Foreign flagged vessels may replace MCV-holders with a combination of 457 visa holders and
Australian residents.
3. Foreign flagged vessels cease to operate in Australia due to a lack of supply of Australian
seafarers and foreign seafarers possessing appropriate work rights (457 visas).
The likely scenario that would result depends on the supply of seafarers with 457 visas and the
number of foreign crew holding MCV visas. It is possible that foreign flagged vessels may need to
replace only a small number of crew per vessel if most foreign crew are already in possession of 457
visas. However, this appears to be unlikely since a 457 visa is not currently required for coastal
voyages for foreign vessels with the simpler MCV as a substitute option. Moreover, according to the
House of Representatives Standing Committee on Infrastructure, Transport, Regional Development
and Local Government‟s report „Rebuilding Australia‟s Coastal Shipping Industry‟ - Inquiry into coastal
shipping policy and regulation paper31, 457 visa approvals for maritime crew are the exception rather
than the norm.
29
The charge does not exceed $98.60 for a documentary import declaration; further details are at
http://www.comlaw.gov.au/Details/C2013C00150.
30
Refer to the Migration Regulations 1994 for further details.
31
Available at
http://www.aph.gov.au/parliamentary_business/committees/house_of_representatives_committees?url=itr
dlg/coastalshipping/report.htm
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In general, ship operators/owners must hire from the Australian maritime pool first. This also suggests
that the number of 457 visa holders on foreign flagged vessels may be limited at the current time. The
457 visas are intended to allow foreign maritime crew to be employed where employers are "unable to
meet their skill needs from the Australian labour market."32
In another scenario, foreign ships may not be able to source their labour from the Australian maritime
labour pool given potential shortages in local maritime skills despite evidence suggesting that there
are a large number of applicants each year for maritime training.33
Under the third aforementioned scenario, foreign vessels may cease to undertake coastal trading in
Australia if there is an inadequate supply of relevant skilled seafarers. If foreign vessels are unable to
fill crew positions with either 457 visa holders or Australian resident seafarers, it is possible that the
freight task carried by foreign vessels will fall if the Coastal Trading Act is repealed.
In general, it may be expected that upon importation, given the provisions of the Migration Act 1958
and Migration Regulations 1994, crew costs may increase. If foreign vessels replace MCV holders with
457 visa holders, the 457 visa holders must be paid market wages which may be higher than SIA Part
B wages as a condition of 457 visas. Specifically, sponsors of 457 holders must show that they are
"providing no less favourable terms and conditions of employment to the nominee than they are
providing or would provide to an Australian performing equivalent work in the sponsor‟s workplace at
the same location".34 A market wage may prevail that is equivalent to Australian Enterprise Agreement
(EA) wage rates assuming that Australian workers may choose not to work on a foreign vessel if paid
below market standards. The replacement of foreign crew with resident Australians will likely also
attract EA wage rates; this may apply particularly in occupations not covered by the 457 visa eligibility
requirements.35
According to 457 visa occupation listings, the occupations that are acceptable include:
Ship Officer.
Ship Master.
Ship Engineer.
An additional cost associated with replacing MCV crew may be visa sponsorship and nomination fees
(of $420 and $330 respectively) for 457 visas.
32
House of Representatives Standing Committee on Infrastructure, Transport, Regional Development and
Local Government's report 'Rebuilding Australia's Coastal Shipping Industry' - Inquiry into coastal shipping
policy and regulation, p. 44.
33
Ibid. p. 56.
34
Temporary Work (Skilled) (subclass 457) visa booklet (2014), Department of Immigration and Border
Protection, http://www.immi.gov.au/allforms/pdf/books9.pdf, p. 14.
35
According to the APH Rebuilding Australia's Coastal Shipping Industry paper, foreign maintenance crew
are not listed as a skilled occupation; hence, foreign vessels may need to hire Australian workers (paid
Australian EA rates) for maintenance, or recruit under labour agreements, which may substantially increase
costs.
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SIA Part B wage rates and conditions
SIA Part B wages and conditions will no longer apply if the Coastal Trading Act is repealed since the
SIA Part B applies to Temporary Licence holders. Also, in the absence of a Temporary Licence
system, there would be no such Temporary Licenced vessels to attract the SIA Part B provisions.
Moreover, the Fair Work Act applies to vessels operating under a Temporary Licence only if they have
conducted at least 2 coastal voyages under the licence in the last 12 months (over a rolling 12-month
period).36 As the SIA is operative via the Fair Work Act, this means that foreign flagged vessels would
no longer be subject to Australian minimum wages and conditions, and there may be a return to ITF or
similar rates.
3.2 Option 2: Option 1 plus enactment of legislation to account for
potential undesired effects of other Australian laws
It is not apparent what types of legislative provisions may be enacted to account for the potential
undesired effects of other Australian laws if the Coastal Trading Act is repealed. For the purposes of
this CBA, we assume that foreign ships remain exempt from treatment as „imported‟. Therefore, there
will be no customs duty or GST provisions applying to foreign vessels and MCVs will continue to be
operative. Without the Coastal Trading Act the coverage provisions of the Fair Work Act would not be
triggered and SIA Part B wages would no longer apply to foreign vessels.
Another consequence of Option 2 is that the relative advantage previously afforded to General (and
Transitional General) Licence vessels via unrestricted access to coastal trading over Temporary
Licence vessels would cease. There would be reduced incentive to register in the Australian General
Register given the more attractive tax incentives and minimum wage obligations in other registries. As
such, existing ships already registered in the Australian General Register may be re-flagged to a
foreign register.
Ship owners may also choose to register new vessels (not yet registered) in a foreign register rather
than in the Australian General Register, i.e. ship owners may have originally registered vessels in the
Australian General Register if the Act remained operative in the base case scenario, but in the event
of a repeal of the Coastal Trading Act, may find it more attractive to register new vessels in a foreign
register.37 The re-flagging of vessels to a foreign register or the registering of new vessels in a foreign
register over the Australian General Register may lead to re-crewing, or increased crewing, of vessels
with foreign crew.
Under Option 2, compliance costs for vessels operating in the coastal trade will be reduced as a result
of the elimination of the licensing system governing coastal trading.
36
Refer to the Fair Work Regulations 2009 at
http://www.comlaw.gov.au/Details/F2013C00049/Html/Text#_Toc345666886
37
Transitional General Licence vessels which are already registered in a foreign register may also discontinue
a transition to registration in the Australian General Register if the Coastal Trading Act is repealed.
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3.3 Option 3: Maintain current coastal trading licensing scheme with
amendments to regulatory settings to minimise industry burden
and costs
There are five amendments associated with this option as outlined in the aforementioned Options
Paper. We briefly discuss each amendment below:
a) Extending the geographical reach of the Coastal Trading Act
The Coastal Trading Act does not currently cover voyages from the mainland to and between places
outside the coastal waters of Australian states or territories including offshore installations and floating
production, storage and offtake vessels. Extending the geographical reach of the Coastal Trading Act
to cover these voyages would allow operators to apply for temporary licences that permit such
voyages. Foreign vessels undertaking these voyages would otherwise be treated as imported under
the Customs Act.
b) Changing the five voyage minimum rule
Currently, Temporary Licence applicants can only apply to undertake voyages in groups of five or
more per application. If the five voyage minimum rule is removed, a greater number of Temporary
Licence applications may be expected; the current requirements restrict foreign vessels from applying
to undertake only one to four voyages within a 12 month period.
c) Temporary Licence variations
Temporary Licence applications can be varied to add new voyages (in groups of five or more) or to
amend existing voyage details. Amendments of existing voyages or additions of voyages are both
subject to consultative processes. Current considerations outlined in the Options Paper are to remove
or reduce the consultative process in order to expedite Temporary Licence variations. Aside from
reducing compliance costs, this may reduce the likelihood of cancelled voyages where existing voyage
details cannot be amended on time.
d) Amending tolerance provisions
Tolerance provisions currently allow Temporary Licence voyages undertaken to deviate from the
voyage details specified upon initial licence application or upon licence variation within acceptable
tolerance limits. These are 20 per cent of the nominated cargo volume and 5 days for the specified
loading date. The provisions do not consider force majeure or other unexpected occurrences that may
affect shipping volumes and schedules. Under consideration is the broadening of existing tolerance
limits to provide greater flexibility to operators particularly for container cargoes and to accommodate
disruptive weather events. This includes allowing the Minister or their delegate to provide exceptions
to licence holders unable to accord with voyage details within existing tolerance allowances where this
is beyond the reasonable control of the licensee. Alternatively, changes to legislation may permit
Temporary Licence applications to be granted on the basis of the type of cargo to be carried rather
than the specific volume. Overall, this may lead to fewer cancelled voyages.
e) SIA Part B wage rates and conditions
SIA Part B wages will be removed through legislative amendments to remove the link between the Fair
Work Act and foreign vessels.
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3.4 Option 4: Introduce single permit system for coastal trading to
replace current licensing scheme, with amendments to regulatory
settings to create equal opportunity between Australian and
foreign ship operators
There are five amendments outlined under this option. Each amendment is briefly discussed below.
Extending the geographical reach of the Coastal Trading Act
This amendment is identical to amendment a) under Option 3. Increasing the geographic reach of the
Coastal Trading Act to offshore facilities may increase the presence of foreign operators undertaking
coastal shipping.
Removing the five voyage minimum rule
This amendment is identical to amendment b) under Option 3. Removing the voyage minimum would
allow foreign operators greater flexibility when applying for a new temporary licence or when applying
to add voyages to an existing temporary licence. Foreign operators who plan to conduct less than five
voyages within the 12 month licence period would be eligible to apply for a temporary licence.
Removing tolerance provisions
This amendment is similar to amendment c) under Option 3. Removing the tolerance provisions would
further increase the number of foreign operators as the restrictions imposed on nominated cargo
volume and loading date would no longer exist. This would lead to a reduction in voyage cancellations.
Single Licence system
Under this amendment, the current four-licence system would be combined into a single licence. The
trading advantage previously held by the General and Transitional licence holders over Temporary
licence holders would no longer exist. Operators currently in the Australian General Register or AISR
may re-flag their vessels to a foreign register to benefit from the lower foreign wage rates (compared
to EA wage rates).
SIA Part B wage rates and conditions
SIA Part B wages will be removed through legislative amendments to remove the link between the Fair
Work Act and foreign vessels.
3.5 Option 5: Australian Master and Chief Engineer required if the
vessel operates more than 120 days
This option is a variant of Option 4. It imposes a restriction on the crew composition of foreign flagged
vessels. The amendment would require a foreign flagged vessel to operate with an Australian Master
and Australian Chief Engineer if it conducts coastal trading for more than 120 days. It is assumed that
the Fair Work Act and SIA Part B wage rate would apply to both the Australian and foreign crew for the
whole permit period.
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3.6 Option 6: Australian Master and Chief Engineer required if the
vessel operates more than 183 days
This option is a variant of Option 4. According to Option 6, crew composition criteria described in
Option 5 (120 days) is adjusted to 183 days.
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4. Framework
4.1 Overview of CBA framework
The analysis set out in this report follows the framework promulgated by the OBPR and is summarised
in Table 4.1 below.
Table 4.1 - OBPR CBA Framework
Step Action
1 Specify the set of options.
2 Decide whose costs and benefits count.
3 Identify the impacts and select measurement indicators.
4 Predict the impacts over the life of the proposed regulation.
5 Monetise (attach dollar values to) impacts.
6 Discount future costs and benefits to obtain present values.
7 Compute the net present value of each option.
8 Perform sensitivity analysis.
9 Reach a conclusion.
Source: Department of Prime Minister and Cabinet, Office of Best Practice Regulation, Guidance Note, Cost-Benefit
Analysis, p 2.
The CBA is conducted from 1 December 2014 with any change in regulatory settings assumed to
commence from 1 July 2015 and the net economic benefits of a regulatory change measured over a
20 year horizon. The CBA is modelled in terms of the economic cost savings associated with coastal
shipping. In the base case scenario, regulatory settings are assumed to be unchanged and the
Coastal Trading Act continues to operate unamended. Accordingly, the base case forms the
benchmark by which the costs and benefits of each policy option are determined.
The net economic cost savings for each regulatory option is compared to the base case (for which
there is no regulatory change) and discounted at a (real) rate of seven per cent in line with guidance
issued by the Office of Best Practice Regulation.
The base case is the cost of cargo trade under the current coastal trading regulatory setting, as
demonstrated by Figure 4.1 below. The cost for cargo trade is calculated by multiplying the yearly
cargo freight (Mt) by the cost of transporting cargo ($/T). Cost of transporting cargo is defined by the
market share assumptions detailed in Section 5.7. These calculations are performed over a 20 year
forecast horizon - between the 2014 and 2035 financial years.
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Figure 4.1- Base case scenario for each cargo trade by financial year
The high cost of the inter-capital container trade compared to the other cargo trades is due to different
cost components being included in the analysis. For the inter-capital container trade, costs relate to
stevedoring, wharfage, and surpluses earned by foreign overseas-going container vessels, while for
other trades, costs comprise time charter costs only for the assumed average voyage length. Note
that costs per tonne vary with voyage length. The costs for the inter-capital container trade were
adopted from the 2010 BITRE shipping reform model. Costs for other cargo trades were taken from
the updated (BITRE) cost model.
Internal BITRE modelling undertaken in 2010 shows a cost of $67.11 per tonne for container vessels.
This cost has been updated to $86.57 per tonne using CPI index. The 2010 BITRE shipping model
also estimates a cost of $109.44 per tonne for rail to undertake the task. After inflation, this cost
becomes $145.56 per tonne.
The economic cost savings of each regulatory option are expressed in real terms in 2013 prices. A
long-term average exchange rate of 0.9 for the analysis period is adopted which is relevant for
converting costs expressed in USD to AUD.38
38
Australian Government, Budget 2014-15, Budget Overview, Appendix F, Detailed Economic Forecasts found
at: http://www.budget.gov.au/2014-15/content/overview/html/overview_35.htm. According to this
document "the exchange rate is assumed to remain around its recent average level -- a trade-weighted index
of around 71 and a $US exchange rate of around 93 US cents.". For the purposes of this CBA we have taken a
slightly more conservative long-term view of 90 US cents given the recent downward trend in the exchange
rate.
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There are two broad ship types modelled in the base case scenario. It is assumed that the only ships
that are operative are General Licence, Transitional General Licence and Temporary Licence vessels
(registered in a foreign register). However, as Transitional General Licence vessels are required to
man vessels with Australian residents or crew with appropriate work rights (and hence, may have
similar cost structure) and may be transitioning to registration in the Australian General Register, they
are treated as foreign flagged vessels for the purposes of this analysis. According to the Options
Paper, there are no AISR ships at the current time. Accordingly, operating costs of these vessels have
not been modelled.
The Australian and foreign ship types are further subdivided into types of vessels, namely:
handy size;
panamax;
capesize;
product tanker;
container ship;
crude tanker; and
cruise ship.
The CBA is conducted across sectors (cargo type). The sectors are dry bulk, liquid bulk, containerised
cargo and cruise shipping where dry bulk encompasses commodities including iron ore, bauxite and
other dry bulk (e.g. cement, fertiliser); and liquid bulk comprises of oil, petroleum and other liquid bulk
(e.g. chemicals, LNG).
Although the financial costs of Australian flagged vessels will be affected by differing tax incentives,
because these incentives are a redistribution between the government and the domestic shipping
industry (with a net economic impact of zero) they will not be considered in this analysis.
For the CBA, we exclude voyages (and their associated costs) undertaken under Emergency Licences
as they will likely be exceptions rather than the norm. Given the inherently unpredictable nature of
events qualifying for the issuance of an Emergency Licence, it would also be difficult to make accurate
or realistic assumptions about the freight carried by Australian or foreign vessels operating under such
a licence. Since the commencement of the Coastal Trading Act on July 1 2012, there have also been
no Emergency Licences that have been issued.
4.2 Evaluation of policy options
To evaluate the aforementioned policy options, the following steps are taken:
market shares are assumed for each ship type by sector for the base case scenario and each
regulatory option (policy scenario);
daily ship costs associated with each ship type under the base case and policy scenarios are
estimated;
- these daily ship costs are calculated on a per tonne basis;
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forecast freight volumes are obtained for each cargo type/sector over the analysis period;
the market shares of each ship type in the base case and for each regulatory scenario are
multiplied by the respective ship‟s daily cost per tonne to obtain the weighted average cost per
tonne;
the difference in weighted average cost per tonne is calculated between the base case and
each regulatory scenario;
the difference in weighted average cost per tonne for each regulatory scenario is multiplied by
the freight volume for each sector; the costs are discounted at a rate of 7 per cent to obtain
the Net Present Value (NPV) of a regulatory option for each sector; and39 40
the NPVs are summed across the sectors to obtain the total NPV associated with each
regulatory option (relative to the base case).
39
http://www.dpmc.gov.au/deregulation/obpr/reporting-publications/publications.cfm#Guidance
40
In accordance with the OBPR guidance a discount value of 7 per cent is assumed to facilitate the cost-
benefit analysis. Tables presenting results at discount rates of 3 per cent and 10 per cent can be found in
section 6.3.4 and 6.3.5 respectively.
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5. Assumptions
This section outlines the key assumptions underpinning the CBA and relate to the following:
1. Ship costs including crew costs, operating and capital costs.
2. Foreign ship costs.
3. Ship daily time charter costs (by ship type).
4. Market shares.
5. Forecasts of cargo freight volumes.
5.1 Ship cost assumptions
The ship costs modelled in the CBA are daily time charter costs and can be segmented into crew
costs, other operating costs and capital costs. The assumptions and method of calculating each cost
type are discussed in turn below.
5.1.1 Crew costs
Crew costs are estimated for both Australian flagged and foreign vessels. Crew costs for Australian
vessels are calculated on the basis of EA wage rates and conditions. The EA wages are estimated
from a sample of EAs. Foreign vessels in the base case are assumed to pay their crew SIA Part B
minimum salaries from the third voyage in a 12 month period.41 Leave for Australian seafarers is
offered at a rate of 0.926 days for each day at sea. According to ITF rates, foreign crew are assumed
to receive leave of 7 days for every 30 days worked for ratings from low-wage countries; and for senior
officers, one day‟s leave per day worked.
Salaries are multiplied by a factor for leave and on-costs of 2.982 for Australian seafarers. Foreign
crew leave factors range from 2.0 to 2.4 for the ship master, deck officers and engineers and for
ratings, 1.48 is assumed. Market wages for Australian seafarers are believed to be greater than the
opportunity cost of labour and hence, the financial costs for Australian vessels of employing seafarers
are multiplied by a shadow price factor of 0.9 to derive economic costs.42
In competitive markets, employers hire additional labour until the incremental cost of an extra unit of
labour is equal to the value of the marginal product of that unit of labour. The opportunity cost of labour
represents the true cost, i.e. the value of the output a seafarer would produce if employed in their next
best alternative use in the economy (that is foregone when their labour is utilised in seafaring).
41
SIA Part B rates were calculated assuming 10 hours of overtime per week.
42
Department of Infrastructure, Transport, Regional Development and Local Government: Review of BITRE
Cost Benefit Analysis of Shipping Reform Package, May 2010.
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It is assumed in the main scenario that there is no further reduced manning. Bulk carriers and product
tankers for Australian vessels are assumed to be manned by 17 seafarers on average which is
generally in line with one seafarer per berth. Sensitivity analysis is later conducted assuming reduced
manning and the use of riding gangs which reduces time spent in dry docking. In the case of no
reduced manning, Australian registered ships operate for 353 days per year on average compared
with 360 days for foreign ships because less maintenance work is undertaken compared with foreign
crews, causing the ships to spend longer in dry-dock.
In the absence of SIA Part B regulation, foreign vessels incur crew costs in line with (lower) ITF wage
rates, or costs close to ITF wages. Most foreign vessels are registered in open registry countries.
Worldwide, 73 per cent of ships were registered under open registry settings in January 2013, i.e.
under a foreign flag that differs from the nationality of the ship owner.43
An analysis of the ships that operated under a Temporary Licence between July 2012 and June 2014
using Lloyds data indicates that foreign vessels operating in Australian coastal shipping are registered
mostly in open registry countries including Panama, Liberia, the Marshall Islands or the Bahamas, or
otherwise registered in low-wage countries or countries offering favourable conditions to foreign ship
owners (Figure 1).44 These include international shipping registers such as the Norwegian International
Shipping Register (NIS). At least 48 per cent and upwards of approximately 60 per cent of foreign
vessels that operated in Australian coastal trade at some point between July 2012 and June 2014 are
covered by ITF arrangements.45 Singapore and Hong Kong are other popular countries of registration.
Figure 5.1- Percentage of foreign vessels registered in each flag state
25%
20%
15%
10%
5%
0%
43
Review of Maritime Transport (2013), United Nations,
http://unctad.org/en/PublicationsLibrary/rmt2013_en.pdf, p. 55
44
E.g. Seafarers on vessels registered in Hong Kong and Singapore may be entitled to personal income tax
exemptions.
45
Some vessels are covered by national agreements but may still be covered by ITF-related policies.
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5.1.2 Other operating costs
Other ship operating costs accounted for in the overall vessel operating costs include victualling, ship
stores, insurance costs, administration costs and repair and maintenance costs. These are estimated
using the BITRE ship cost model. Port and fuel costs are not included as they do not depend on the
flag of the vessel and because the freight task is assumed to be the same in the base and policy
cases.
5.1.3 Capital costs
Financial capital costs
Financial ship capital costs are calculated using the BITRE ship cost model as the real required annual
freight rate (RRAFR) on the initial ship yard cost. The RRAFR represents the equivalent real annual
cash flow required by a ship owner to obtain a particular rate of return on capital invested, assumed to
be 5 per cent. In relation to Australian vessels, after-tax cash flows are estimated for each year of the
ship‟s life (20 years) and these are discounted to the present at the assumed after-tax real rate of
return of 5 per cent. Given the present value, the equivalent annual cash flows (in the form of an
annuity) required (RRAFR), is calculated using the same discount rate. This is then converted to a
before-tax required annual freight rate. It is assumed that the ship owner has sufficient profits from
alternative sources to receive the depreciation and interest tax deductions in the year the expenses
are incurred.
The capital cost calculation assumes that the ship is purchased on favourable terms of the type
offered by governments of major shipbuilding nations. 65 per cent of the ship cost is repaid over 10
years at a 4 per cent interest rate (that is lower in real terms given assumed 3 per cent annual
inflation), with the principal repaid in equal amounts semi-annually along with interest on the
outstanding balance. (The remainder of the ship cost is financed by equity).
Economic capital costs
A discount rate of 7 per cent is applied to represent the social opportunity cost of capital. An annual
economic cost is calculated in a similar manner as for financial capital costs, using the social
opportunity cost of capital as the discount rate. The cash outflows made to foreigners are discounted
to obtain a net present value which is then annuitized to obtain annual economic costs of capital.
Second-hand ship prices will bear some relation to the purchase price of a new ship particularly when
freight rates are high and ship owners are willing to incur similar costs as new ships to capitalise on
higher freight rates immediately. Annual economic capital costs for Australian ships are estimated to
be $0.0828 for each dollar of ship yard (purchase) cost.
As part of the 2012 shipping reform package, a royalty withholding tax exemption now applies to
bareboat charter arrangements. For bareboat chartered ships, the capital cost is taken to be the
annualised rate of return required by a foreign ship owner from capital invested.
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In calculating the financial capital costs of Australian vessels, tax incentives such as accelerated
depreciation and shipping income tax exemption (ITE) may reduce the required freight rate on capital
invested. Typically, these tax incentives and their effect on capital costs are not relevant to economic
capital costs as the taxation are transfers between the government and the ship owner. However, in
the case of claiming an income tax exemption, vessel operators must maintain minimum training
arrangements which may increase economic crew costs despite reducing financial capital costs (but
not economic capital costs).46 The crew costs of trainees were calculated as follows:
Trainee integrated ratings attract Certificate III National Training Wage costs of $366.80 per
week in line with school leavers with Year 12 as their highest qualification.
Deck and Engineer trainees are assumed to be paid the national minimum wage of $640.90
per week since diplomas are not covered by the national training wage.
5.1.4 Foreign ship costs
As CBAs consider relative costs and benefits of regulatory reform from a national perspective, the
costs incurred by foreigners are not of direct importance. However, freight rates paid to foreigners are
considered to be relevant costs. The freight rates paid for foreign shipping services are estimated on
the basis of financial costs incurred by foreign vessels as a long term average.
As noted earlier, most foreign vessels operating in the Australian coastal trade are open-registry ships
that pay ITF wages (in the absence of Seagoing Industry Award 2010 minimum wages and conditions)
and minimal company tax. As most foreign ships are either open registry ships or ships registered in
low-cost countries, ITF wage rates are used as benchmarks for the crew cost of operating a foreign
ship in the absence of SIA Part B wage conditions. SIA Part B wage rates are used to measure foreign
crew costs when required by the permit framework.
For foreign vessels, the capital costs are estimated assuming no Australian company tax and no
tonnage tax in line with the low taxation arrangements in open registry countries and other non-open
registry countries in which foreign vessels operating in Australian coastal trade are typically
registered.47 Given the low taxation arrangements, these are disregarded in capital cost calculations.48
Annualised foreign capital costs are estimated as $0.0725 per dollar of ship yard cost computed using
a real rate of return of 4.9315 per cent. This compares with financial capital costs of $0.0751 and
$0.0688 for Australian ships attracting accelerated depreciation and an ITE respectively per dollar of
ship purchase cost.
The purchase cost of ships is assumed to be the same between foreign and Australian ship owners.
5.2 Daily time charter costs by ship type
The ship types modelled in the CBA are summarised in the tables below (Table 5.1 - Table 5.4),
followed by a summary of the daily time charter costs by ship type (financial and economic).
46
For vessels claiming an ITE, three additional berths for trainees are assumed to apply.
47
E.g. Registration in Singapore and Hong Kong attracts low or no shipping income tax.
48
Further detail on these taxation arrangements are available in the Reforming Australia‟s Shipping -
Regulation Impact Statement 2011, p. 61.
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In regards to ship type B1a, shipping companies continue to be taxed at 30 per cent for profits earned
and claim depreciation tax deductions over an assumed ship life of 20 years. Under B1b, companies
claim an ITE for „qualifying shipping activities‟ but also comply with training requirements. Under B1c,
companies claim accelerated depreciation tax deductions under a reducing balance under a statutory
cap of 10 years and continue to pay company tax at the 30 per cent rate.49 The benefits of the ITE are
reduced by the cost of maintaining training berths.
49
A reducing balance depreciation method is assumed over a prime cost method as it tends to yield a lower
annual capital cost for shipowners.
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Table 5.1- Vessel characteristics (base case scenario)
Officers Ratings
Ship Company
Register Tax treatment Nationality Wage rates Nationality Wage rates Min. wages Depreciation
code tax
Australian
No special 20 years prime
B1a General Australian EA Australian EA SIA Part A 30%
treatment cost
Register
Australian
B1b General ITE Australian EA Australian EA SIA Part A 0% N/A
Register
Australian
Accelerated 20% reducing
B1c General Australian EA Australian EA SIA Part A 30%
depreciation balance
Register
Temporary
B3a Foreign Foreign ITF Foreign ITF ITF 0% N/A
Licence
Temporary
B3b Foreign Foreign SIA Part B Foreign SIA Part B SIA Part B 0% N/A
Licence
Transitional
B3c Foreign Australian EA Australian EA SIA Part A 0% N/A
General Licence
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Table 5.2 - Vessel characteristics (policy scenarios)
Officers Ratings
Ship Min. Company
Register Tax treatment Nationality Wage rates Nationality Wage rates Depreciation
code wages tax rate
Australian
No special SIA Part 20 years prime
P1a General Australian EA Australian EA 30%
treatment A cost
Register
Australian
SIA Part
P1b General ITE Australian EA Australian EA 0% N/A
A
Register
Australian
Accelerated SIA Part 20% reducing
P1c General Australian EA Australian EA 30%
depreciation A balance
Register
Temporary
P3a Foreign Foreign ITF Foreign ITF ITF 0% N/A
Licence
Temporary
P3b Foreign Foreign/Aust. SIA Part A Foreign SIA Part A ITF 0% N/A
Licence
Temporary 2 Australian;
P3f Foreign SIA Part B Foreign SIA Part B ITF 0% N/A
Licence foreign
Transitional SIA Part
P3g Foreign AUS EA AUS EA 0% N/A
General Licence A
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Table 5.3 - Daily time charter financial costs ($ per day)
Base Case
Handy Panamax Capesize
Product Container
Code Register Ship type Size Bulk Bulk Bulk PT 20 CT 100
Tanker Ship
Carrier Carrier Carrier
B1a General Register Reduced crew - no special tax treatment 31665 35817 47219 42883 28377 36129 45579
B1b General Register Reduced crew - ITE 31156 34868 44728 41406 28199 35532 43661
B1c General Register Reduced crew - accelerated depreciation 30986 34896 45450 41672 27880 35402 44125
B3a Foreign Temporary licence - ITF 15486 18752 28259 22201 13974 16233 24075
B3b Foreign Temporaray Licence - SIA B 19285 22551 32059 26134 17773 20166 28007
B3c Foreign Temporary General Licence 28770 32035 41543 38482 25655 32513 40355
Policy Case
P1a General Register Reduced crew - no special tax treatment 31665 35817 47219 42883 28377 36129 45579
P1b General Register Reduced crew - ITE 31156 34868 44728 41406 28199 35532 43661
P1c General Register Reduced crew - accelerated depreciation 30986 34896 45450 41672 27880 35402 44125
P3a Foreign Temporary licence - ITF 15486 18752 28259 22201 13974 16233 24075
P3b Foreign Temporary licence - SIA A 19484 22914 32565 27585 17972 21617 29187
P3f Foreign Mix crew (Australian Master & Chief Engineer 16228 19531 29083 23231 14716 17262 25104
P3g Foreign Transitional General Licence 28770 32035 41543 38482 25655 18654 26496
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Table 5.4- Daily time charter economic costs ($ per day)
Base Case
Handy
Panamax Capesize
Size Product Container
Code Register Ship type Bulk Bulk PT 20 CT 100
Bulk Tanker Ship
Carrier Carrier
Carrier
B1a General Register Reduced crew - no special tax treatment 30026 34179 45580 40937 26899 34183 43632
B1b General Register Reduced crew - ITE 30678 34830 46232 41589 27551 34834 44284
B1c General Register Reduced crew - accelerated depreciation 30026 34179 45580 40937 26899 34183 43632
B3a Foreign Temporary licence - ITF 15486 18752 28259 22201 13974 16233 24075
B3b Foreign Temporaray Licence - SIA B 19285 22551 32059 26134 17773 20166 28007
B3c Foreign Temporary General Licence 27131 30397 39905 36535 24177 30567 38408
Policy Case
P1a General Register Reduced crew - no special tax treatment 30026 34179 45580 40937 26899 34183 43632
P1b General Register Reduced crew - ITE 30678 34830 46232 41589 27551 34834 44284
P1c General Register Reduced crew - accelerated depreciation 30026 34179 45580 40937 26899 34183 43632
P3a Foreign Temporary licence - ITF 15486 18752 28259 22201 13974 16233 24075
P3b Foreign Temporary licence - SIA A 19484 22914 32565 27585 17972 21617 29187
P3f Foreign Mix crew (Australian Master & Chief Engineer 19285 22551 32059 26134 17773 20166 28007
P3g Foreign Transitional General Licence 27131 30397 39905 36535 24177 30567 38408
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AISR ships are not directly modelled because there are currently no AISR vessels conducting coastal
trading. Hypothetically, an AISR ship may occur if the ship is manned by one Australian Master and
one Australian Chief Engineer, both attracting the seafarer tax offset.50 The costs of AISR ships would
remain higher than for foreign vessels. This remains the case for the individual cost of an Australian
Master or Chief Engineer even with a seafarer tax offset and therefore reduces the likelihood of AISR
ships coming into existence.
5.3 Market share assumptions
Market share assumptions are established for the base case and each of the regulatory options.
Various factors influence shipping service user‟s decision to ship cargo with an Australian or foreign
carrier. These include:
1. Cost.
2. Availability.
3. Maximising the efficiency of the shipping schedule.
To a lesser extent, factors such as reliability of vessel also play a role. Cost and availability are
related. An agent may prefer to ship with a particular vessel for several reasons. In particular if:
The shipping service user is engaged in a long-term contract with a shipper.
The vessel is carrying cargo that is already owned by the same agent and it makes
operational sense to load the same vessel (which in many instances may be foreign flagged)
with cargo for delivery to an Australian coastal port;
- the agent will decide on the optimal visiting routes/sequences for ships. In doing so,
price/cost will be just one of many variables in the decision making process.
Given the planning period, the ships and ports involved, constructing a set of ship schedules and
cargo routings that allow for efficient service and minimisation of operating cost means that various,
equally important factors, in addition to price/cost, are taken into account. This is an important point as
the ensuing analysis, in lieu of detailed information and data relating to agents‟ shipping decisions,
implies that cost is an overriding factor in the determination of market shares. Whilst this may be
regarded as a simplifying assumption it is a necessary assumption in the context of this analysis. The
model framework takes few variables into consideration and is designed almost exclusively to model
ship costs.
50
To calculate the offset, it is necessary to know the number of days spent on overseas voyages. It is assumed
for the purposes of estimating financial crew costs and the appropriate offset that seafarers are engaged for 91
days on overseas voyages. This minimises the cost saving and is line with typical leave arrangements of one
day on, one day off for Australian seafarers, and with an AISR vessel engaging slightly over 50 per cent of the
time in international voyages.
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The task at hand is further compounded by the fact that close examination of the Coastal Trading
Licensing System (CTLS) database shows a consistent story in the vessels chosen to undertake
coastal trading. For example, crude oil is shipped exclusively by vessels with a Temporary Licence as
shown in Figure 5.2 below.
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Figure 5.2- Crude Oil freight per vessel (in aggregate) per financial year
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The information presented in this section reflects the current state of coastal trading within Australia.
The information is based on data from the CTLS database provided by the Department. The data
spans July 2012 - November 2014 and relates to Temporary, General and Transitional General
Licence Registers. The data includes information relating to voyage number, category of trade, cargo
description, load port, discharge port, aggregated volume, volume type, and vessel name.
According to Figure 5.2 over the period Jun-2013 to Nov-2014 crude oil was carried exclusively by
foreign flagged vessels (as indicated by the ship name) with Temporary Licences. Similarly, according
to Figure 5.3, Iron Ore was freighted predominantly by foreign flagged vessels. Over the period Aug-
2012 to Sep-2014, Iron Ore was sea freighted around Australia by vessels with a Transitional General
Licence. On all other occasions, this cargo type was shipped by foreign vessels holding a Temporary
Licence.
Figure 5.3 -Iron Ore freight per vessel (in aggregate) by financial year51
For completeness, similar charts are presented for the following cargo types:
Other liquid.
Bass Strait.
Other dry bulk.
In all cases we see that either foreign or Australian vessels dominate the freight task of particular
cargo types.
51
Note, CSL Whyalla holds a GL and transhipped iron ore in 2012/13 and 2013/14.
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Figure 5.4--Other Liquid freight per vessel (in aggregate) by financial year
According to the licence data summarised in Figure 5.4 above, the Other Liquid cargo type is shipped
predominantly by foreign vessels with a Temporary Licence.
Figure 5.5-Bass Strait freight by vessel for 2014 financial year
According to Figure 5.5, freight across Bass Strait (non-bulk) involves only Australian flagged vessels
with a General Licence. Regarding Other Dry Bulk outlined in Figure 5.6, we find that this category is
shipped by both Australian and foreign flagged vessels.
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Figure 5.6 -Other Dry Bulk freight by vessel 27/7/2012 - 2/11/2014
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This information presented in the above charts was utilised to develop market share assumptions for
each policy option. Of particular interest was the assumed change in the number of Australian and
foreign vessels under each option and the change in crew composition for a particular vessel. Each
cargo type is discussed below.
5.3.1 Bauxite - Weipa to Gladstone
At present, there are 5 Rio Tinto vessels shipping Bauxite on the Weipa-Gladstone route which
accounts for 90 per cent of the total Bauxite trade. The vessels are of the same vessel class, i.e. bulk
carriers with the same capacity. As such, the market share attributed to each vessel is set at 20 per
cent.52 All 5 vessels are foreign flagged. The crew composition for all 5 vessels is 100 per cent
Australian, paid EA waged rates. Given that these vessels are foreign flagged, the base case market
share for the Weipa-Gladstone route is assumed to be 100 per cent foreign with Australian crew.
Under Option 1, we assume that all 5 Rio Tinto vessels will register as Australian flagged vessels
since the crew composition on these vessels is already 100 per cent Australian and the cost of
registration is minimal.
In relation to Options 2, 3 and 4, we assume that Rio Tinto will keep all vessels foreign flagged but
may alter the crew composition of its vessels from 100 per cent Australian to 100 per cent foreign, in
order reduce operating costs. It is assumed that Rio Tinto will alter the crew composition at a rate of
one vessel per year.
Under Option 5, it is assumed that Rio Tinto‟s 5 vessels will require Australian crew. Accordingly, it is
assumed that the crew composition under this option will be 100 per cent foreign. In contrast, under
Option 6 it is assumed that only one of Rio Tinto‟s vessels will not reach the 183 day limit and
therefore can have a fully foreign crew. The market share assumption pertaining to the Weipa-
Gladstone route are summarised in Table 5.5 below.
Table 5.5 - Market share assumptions for Bauxite - Weipa to Gladstone Trade
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 0 100 100 0 0
Option 1 100 0 100 0 0
Option 2 0 100 0 100 0
Option 3 0 100 0 100 0
Option 4 0 100 0 100 0
Option 5 0 100 0 0 100
Option 6 0 100 0 20 80
52
Note that data pertaining to the exact number of voyages carried out by each vessel is not available.
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5.3.2 Bauxite - Triangular route
According to the CTLS data, the Triangular route accounts for 10 per cent of Bauxite trade. The CTLS
data show that in 2014 only 2 voyages were completed using 1 foreign vessel within the Triangular
Route. As such, the base case market share of the Triangular Route is 100 per cent foreign. We note
that for the Triangular route, only the Gladstone - Newcastle section of the voyage is captured by the
Coastal Trading Act.
Under Option 1, foreign flagged vessels (and Australian flagged vessels) engaged in the trading of
domestic cargo on the Australian coast will be subject to all applicable Australian laws. In particular,
Australian workplace relation laws will, in the absence of the Coastal Trading Act, require foreign
workers who want to work in Australia to hold relevant visas. Accordingly, foreign flagged vessels may
only carry crew who are either Australian residents or foreign residents who hold the appropriate visas
(collectively referred to as „Australian crew‟).
The outcomes of Options 2, 3, 4, 5 and 6 would not change from the base case, as the vessel would
continue to operate under a foreign register using foreign crew. As such, the market share would be
100 per cent foreign and the vessel would enjoy the benefit of ITF rates. The market share assumption
pertaining to the Triangular route are summarised in Table 5.6 below.
Table 5.6- Market share assumptions for Bauxite - Triangular Trade
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 0 100 0 100 0
Option 1 0 100 100 0 0
Option 2 0 100 0 100 0
Option 3 0 100 0 100 0
Option 4 0 100 0 100 0
Option 5 0 100 0 100 0
Option 6 0 100 0 100 0
5.3.3 Iron Ore
In 2014, Iron Ore trade was undertaken by a total of 9 vessels, comprised of 6 Temporary Licence
holders and 3 Transitional General Licences owned by Teekay (all foreign flagged).53 Given that 9
vessels are in operation, the market share allocated to each vessel has been rounded to 10 per cent.
53
CSL Whyalla is not included in the analysis as it is only conducting trans-shipping.
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The market share under the base case is 100 per cent foreign, as all vessels are foreign flagged. It is
further assumed that 70 per cent of vessels (i.e. 6 vessels/9 total vessels) employ all foreign crew and
the remaining 30 per cent of vessels (i.e. the 3 Transitional General Licence vessels owned by
Teekay) employ all Australian crew.
Under Option 1, it is assumed that the Transitional General Licence vessels will register as Australian
flagged vessels since the crew composition on these vessels is already 100 per cent Australian and
the cost of registration is minimal. It is assumed that the 6 Temporary Licence vessels will continue to
operate as foreign flagged vessels whilst there is still demand in the market. Accordingly, the market
shares under this option will be 30 per cent Australian and 70 per cent foreign. The foreign flagged
vessels will be imported and the foreign crew would lose their work rights enjoyed under the Coastal
Trading Act. To continue trading domestic cargo along the Australian coast, foreign flagged vessels
will be required to carry only Australian crew.
Under Options 2, 3, 4, 5 and 6, all vessels currently shipping iron ore will remain in a foreign register
(100 per cent foreign market share) with all crew being paid ITF wage rates. The market share
assumptions pertaining to iron ore are summarised in Table 5.7 below.
Table 5.7- Market share assumptions for Iron Ore Trade
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 0 100 30 70 0
Option 1 30 70 100 0 0
Option 2 0 100 0 100 0
Option 3 0 100 0 100 0
Option 4 0 100 0 100 0
Option 5 0 100 0 100 0
Option 6 0 100 0 100 0
5.3.4 Other Dry Bulk
According to CTLS data, in 2014 Other Dry Bulk trade was performed by 104 Temporary Licence
vessels, 4 Transitional General Licence vessels and 4 General Licence vessels. Using the volume of
cargo transported in 2014 (consider Table 5.8 below), the base case assumes that market share is 20
per cent Australian and 80 per cent foreign. It is also assumed that the Transitional General Licence
and General Licence vessels employ 100 per cent Australian crew and Temporary Licence vessels
employ 100 per cent foreign crew.
Out of the 112 vessels operating the Other Dry Bulk trade, 8 vessels (7 per cent) operate with 100 per
cent Australian crew, and 93 per cent of vessels operate with foreign crew. The same applies for
Option 1, as there are still 8 vessels operating with 100 per cent Australian crew.
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Table 5.8 - Other dry bulk market shares based on volumes traded in 2014
Cargo Volume
Licence Market Share Comment
(k/tonnes)
Assume Australian vessels
General Licence 1,814 1,814/9,204 = 19.7% hold 20% market share under
the base case.
Transitional Assume foreign vessels hold
2,727 2,727/9,204 = 29.6%
General Licence 80% market share under the
base case. Note under Option
1 the ~30% market share held
by Transitional General
Licence shift to Australian. As
Temporary
4,663 4,663/9,204 = 50.6% such, under Option 1
Licence
(described below), the market
share is 50/50
foreign/Australian.
9,204
Of the Australian vessels (4 General Licence), we assume that those which are not subject to a
specific tax treatment have a market share of 25 per cent and the remaining 75 market share pertains
to vessels receiving accelerated depreciation tax. Consider Table 5.9 below:
Table 5.9 - Tax treatment of General Licence vessels
Number of
vessels (applies
Tax Treatment Comment
only to General
Licence)
Dry bulk is shipped by all 3 vessels including
Goliath, Iron Chieftain and CSL Thevenard
accounting for 75% (i.e. 3 / 4) of Australian
Accelerated Depreciation 3 vessels transporting dry bulk and receiving
accelerated depreciation. The remaining vessel
carrying dry bulk, i.e. Accolade II is in the „no
special treatment‟ category.
ITE 5
No special treatment 39
Grand Total 47
Source: Adapted from information provided by the Department of Infrastructure and Regional Development.
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Under Option 1, it is assumed that all 4 Transitional General Licence vessels will register as Australian
flagged vessels since the crew composition on these vessels is already 100 per cent Australian and
the cost of registration is minimal. It is assumed that the Temporary Licence vessels will continue to
operate as foreign flagged vessels assuming there is still demand in the market. Foreign vessels will
be imported and foreign crew will lose their work rights. To continue trading domestic cargo along the
Australian coast, foreign flagged vessels will be required to carry only Australian crew. Accordingly, it
is assumed that the market share for Other Dry Bulk will shift in favour of Australian vessels. The
market share will be split evenly between foreign and Australian. According to information provided by
the Department, 40 per cent of the Australian vessels enjoy the benefit of accelerated depreciation
treatment.
Under Option 2, foreign market share would increase to 100 per cent, with all crew paid under ITF
wage rates. The regulations under Option 3 are less favourable for foreign operators compared to
Option 2 (though more favourable than the base case). Accordingly, the market share under Option 3
is assumed to be 15 per cent Australian and 85 per cent foreign (i.e. between the base case and
Option 2).
Option 4 provides the most favourable conditions for foreign operators. Australian market share is
assumed to reduce to zero and foreign market share increases to 100 per cent.
Since Options 5 and 6 are variations of Option 4, the same Australian and foreign market share values
are adopted. Under Options 5 and 6, CTLS data shows the majority of vessels would not be required
to hire Australian crew. Market share for foreign crew vessels is assumed to be 90 per cent and mixed
crew vessels to be 10 per cent. A summary of these assumptions in provided in Table 5.10 below.
Table 5.10 - Market share assumptions for Other Dry Bulk Trade
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 20 80 7 93 0
Option 1 50 50 100 0 0
Option 2 0 100 0 100 0
Option 3 15 85 5 95 0
Option 4 0 100 0 100 0
Option 5 0 100 0 90 10
Option 6 0 100 0 90 10
5.3.5 Crude Oil
For the crude oil trade, CTLS data shows a total of 14 vessels, all trading under Temporary Licences.
Accordingly, the case base market share is 100 per cent foreign.
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Under Option 1, it is assumed foreign flagged vessels will be imported and the foreign crew would lose
their work rights enjoyed under the Coastal Trading Act. To continue trading domestic cargo along the
Australian coast, foreign flagged vessels will be required to carry only Australian crew.
For Options 2, 3, 4, 5 and 6 the market share assumptions remain identical to the base case, as all
coastal trading for oil is already performed by foreign vessels. A summary of the market share
assumption relating to crude oil is provided in Table 5.11 below.
Table 5.11- Market share assumptions for Oil
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 0 100 0 100 0
Option 1 0 100 100 0 0
Option 2 0 100 0 100 0
Option 3 0 100 0 100 0
Option 4 0 100 0 100 0
Option 5 0 100 0 100 0
Option 6 0 100 0 100 0
5.3.6 Petroleum
For the Petroleum trade, CTLS data indicates 5 vessels operating under Transitional General Licences
and 69 vessels operating under Temporary Licences. Accordingly, the base case market share is 100
per cent foreign flagged. All Transitional General Licence vessels carry 100 per cent Australian crew
whilst Temporary Licence vessels carry 100 per cent foreign crew.
Under Options 1, we assume that the 5 Transitional General Licence vessels will register as Australian
flagged vessels since the crew composition on these vessels is already 100 per cent Australian and
the cost of doing so is therefore minimal. It is assumed foreign flagged vessels will be imported and
the foreign crew would lose their work rights enjoyed under the Coastal Trading Act. To continue
trading domestic cargo along the Australian coast, foreign flagged vessels will be required to carry
only Australian crew.
In relation to Options 2, 3 and 4, Transitional General Licence vessels may alter the crew composition
from 100 per cent Australian to 100 per cent foreign, to reduce operating costs. It is assumed that
Transitional General Licence vessels will alter the crew composition of their respective fleets at a rate
of one vessel per year.
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Since Options 5 and 6 are variations of Option 4, the same Australian and foreign market share values
are adopted. Under Option 5, CTLS data shows the majority of vessels would not be required to hire
Australian crew as they do not meet the 120 or 183 day limit respectively. Market share for mixed
crew vessels is assumed to be 10 per cent and foreign crew vessels to be 90 per cent. A summary of
the market share assumption relating to petroleum is provided in Table 5.12 below.
Table 5.12 - Market share assumptions for Petroleum
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 0 100 10 90 0
Option 1 70 30 100 0 0
Option 2 0 100 0 100 0
Option 3 0 100 0 100 0
Option 4 0 100 0 100 0
Option 5 0 100 0 90 10
Option 6 0 100 0 90 10
5.3.7 Other Liquid Bulk
For 2014, CTLS data shows that 25 Temporary Licence vessels serviced the Other Liquid Bulk trade.
Accordingly, the base case market share is 100 per cent foreign. For the purposes of our model we
elected SIA Part B wages to apply as the proportion of voyages covered under SIA Part B wages
exceed the proportion of voyages covered under ITF wages for the 2014 year.54
Under Option 1, it is assumed that the Temporary Licence vessels will continue to operate as foreign
flagged vessels as it is assumed that coastal trading in Australia comprises a small portion of a
Temporary Licence holder‟s core activities. It is assumed foreign flagged vessels will be imported and
the foreign crew would lose their work rights enjoyed under the Coastal Trading Act. To continue
trading domestic cargo along the Australian coast, foreign flagged vessels will be required to carry
only Australian crew.
Contrary to the base case where SIA Part B wages are applied, under Options 2, 3, 4 and 6, the 25
vessels would all remain foreign flagged, using ITF wage rates.
54
We note that ITF wages ought to apply to vessels conducting less than three voyages, however the model
only allows for the election of one wage structure.
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For Option 5, while all vessels remain foreign flagged, the licensing data indicates that 1 of the 25
vessels would exceed the 120 day limit and would therefore be required to hire Australian crew.
Accordingly, 4 per cent of the foreign flagged vessels are assumed to employ mixed crew and 96 per
cent are assumed to employ foreign crew. Table 5.13 below summarises the market share
assumptions underpinning other liquid bulk.
Table 5.13 - Market share assumptions for Other Liquid Bulk
Market share (%) Crew composition (%)
Option
Australian
Foreign flag Australian Foreign Mixed
flag
Base case 0 100 0 100 0
Option 1 0 100 100 0 0
Option 2 0 100 0 100 0
Option 3 0 100 0 100 0
Option 4 0 100 0 100 0
Option 5 0 100 0 96 4
Option 6 0 100 0 100 0
5.3.8 Cruise shipping
To model the cruise ship sector we relied on information and data pertaining to the Australian
expedition cruise vessels published in The Australian Expedition Cruise Shipping Association‟s
(AECSA) public submission (Submission 11). 55 Currently, 3 Australian vessels (all Australian crew)
and 4 foreign vessels (all foreign crew) are in operation with a combined passenger capacity of 554.56
The public submission by AECSA states that a cruise operator‟s business is viable at 95% occupancy
level, but becomes unviable when the occupancy level drops to 85%. For the purpose of conducting
the CBA, a mean of 90% occupancy is assumed. Using this assumption, the number of passengers
carried by cruise vessels would be 500 (554*0.9).
55
http://www.infrastructure.gov.au/maritime/business/coastal_trading/review/submissions.aspx
56
A list of International vessels can be found on http://kimberleycruises.com/; such as the Caledonian Sky.
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According to the Cruise Industry Report 201357, 8-14 day cruise trips represents 57% of the market.
The Kimberley cruise data show a majority of cruise trips have a duration of 10 days.58 Therefore, we
assume that the average number of days per trip is 10. The Department provided an estimate of the
crew cost for cruise ships, based on a mid-sized cruise vessel for all ranks and including rotation crew
(inclusive of tax and superannuation). The Australian crew cost is estimated at USD3,500,000 and
mixed crew is estimated at USD1,350,000 (including USD250,000 paid for two senior Australian crew).
The daily operating cost is derived by dividing the total cost by 180 days, which is assumed to be the
length of the cruise ship season.
There are currently 7 vessels operating in the expedition cruise ship market, with 3 General Licences 1
Temporary Licence and a further 3 ships exempted from the operation of the Coastal Trading Act.
Passenger capacities of the vessel types have been taken into account in determining the base case
market shares are as follows:
3 Australian registered vessels have a combined capacity of 172 passengers per voyage; and
4 Foreign registered vessels have a combined capacity of 382 passengers per voyage.59
Taking the passenger capacities into account, the market share for the base case is determined as 30
per cent for Australian (172 passengers/554 total passengers) and 70 per cent for foreign (382
passengers/554 total passengers). Forty per cent of the market share is comprised of Australia crew
(3 of the total 7 vessels).
For Option 1 we do not include the three foreign cruise vessels which are exempt from the operation of
the Coastal Shipping Act. The market share based on passenger capacity is 60 per cent domestic and
40 per cent foreign. It is assumed foreign flagged vessels will be imported and the foreign crew would
lose their work rights enjoyed under the Coastal Trading Act. To continue trading domestic cargo
along the Australian coast, foreign flagged vessels will be required to carry only Australian crew.
Options 2, 3 and 4 are assumed to result in the three Australian cruise vessels registering under a
foreign register, using all foreign crew to reduce operating costs. Accordingly, the market share is
assumed to be 100 per cent foreign flagged vessels.
Under Options 5 and 6, the Australian crewing requirements would not be triggered. For the purposes
of this CBA, it is assumed that cruise ships do not operate for more than 120 days.
Table 5.14 - Market share assumptions for cruise shipping
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 30 70 40 60 0
Option 1 60 40 100 0 0
57
www.cruising.org.au/downloads/CLIA-Report-2013.pdf
58
Found at http://kimberleycruises.com/tours/list-of-boats/
59
Found at http://kimberleycruises.com/tours/list-of-boats/
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Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Option 2 0 100 0 100 0
Option 3 0 100 0 100 0
Option 4 0 100 0 100 0
Option 5 0 100 0 100 0
Option 6 0 100 0 100 0
5.3.9 Inter-Capital containers
The inter-capital containers are transported by foreign vessels using spare capacity on international
voyages between Australian ports. We assume that for the base case and Options 2, 3, 4, 5 and 6 that
the costs associated with transporting inter-capital containers are limited to: stevedoring
(loading/unloading) costs, wharfage charges and the surpluses earned by foreign containerships from
charging what the market will bear above costs.
Under Option 1, no foreign vessels would be available for the transportation of inter-capital containers.
Rather, the transportation of the inter-capital containers would be conducted via rail. The
transportation costs are taken from the 2010 BITRE shipping reform report. These costs are inflated
using the rail freight transport and water transport support producer price indices to 2014 terms. The
overall cost or benefit of this sector under Option 1 is determined by the difference in cost between rail
and shipping.
5.3.10 Bass Strait Non-Bulk Freight
The Bass Strait non-bulk trade is modelled separately to the inter-capital containers trade. Non-bulk
freight is considered to be containers and other freight such as transport equipment, break bulk freight,
pallets and timber. This avoids data issues arising from potentially inconsistent classification, and
takes into account the same commodities may switch between the two according to ship availability.
Approximately 70 per cent of the Bass Strait non-bulk trade is containerised.
The key differences between the two sectors are:
Bass Strait non-bulk freight is only transported via vessels; and
Transportation of Bass Strait freight is only performed by Australian vessels for the base case.
For the Bass Strait non-bulk sector, the CTLS data shows 6 vessels operating under General Licences
and are therefore Australian flagged. The base case market share is 100 per cent Australian.
According to information provided by the Department, 65 per cent of those vessels are receiving ITE
tax treatment.
For Option 1, there are no changes to the market share as all vessels remain Australian flagged.
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Under Options 2, 3 and 4, we assume 4 vessels will register under a foreign register to reduce
operating costs. However the two Spirit of Tasmania vessels are very unlikely to reflag given that they
are owned by the Tasmanian Government. For the purposes of our analysis we assume that they will
remain Australian flagged (Options 2 to 6 inclusive). Accordingly, the market share under these
options will be 65 per cent foreign (under ITF wages) and 35 per cent domestic (under EA wages).
The two Spirit of Tasmania vessels (which comprise the domestic market share) will be composed of
100% Australian crew. In the crew composition columns in Table 5.15 below, the figures represent the
total percentage of crew composition across all vessels for this trade.
For Option 5 and 6, all vessels would exceed the 120 and 183 day limits and so all foreign flagged
vessels will be required to employ mixed crew. Table summarises the market share assumptions
relating to Bass Strait.
Table 5.15 - Market share assumptions for Bass Strait non-bulk freight
Market share (%) Crew composition (%)
Option
Australian flag Foreign flag Australian Foreign Mixed
Base case 100 0 100 0 0
Option 1 100 0 100 0 0
Option 2 35 65 35 65 0
Option 3 35 65 35 65 0
Option 4 35 65 35 65 0
Option 5 35 65 35 0 65
Option 6 35 65 35 0 65
5.4 Cargo forecasts
5.4.1 Introduction
Assumptions relating to the total freight task (for each cargo type) are an important element of the
CBA model. The assumptions have implications for the volume of trade which influences the
behaviour of both Australian and foreign vessels. Forecasts of freight data for each cargo type were
provided by BITRE. PAG developed forecasts of total freight volumes for each cargo type using
econometric models. PAG adopts and makes forecast comparisons with BITRE‟s forecasts for each
cargo type below.
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5.4.2 PAG Forecasting methodology
PAG developed econometric models of the freight volumes associated with each cargo type. Figure
5.7 below summarises the methodology employed by PAG.
Figure 5.7: Statistical Modelling Framework
Estimation
Estimation Forecasting
Forecasting Application
Application
Data
Data of
of Hypothesis
Hypothesis or
or of
of
collection
collection econometric
econometric testing
testing prediction
prediction model
model
model
model
Graphical
Graphical analysis
analysis
Correlation
Correlation analysis
analysis
Causality
Causality test
test
Dynamic
Dynamic regression
regression
Diagnostic
Diagnostic test
test
The model specifications for each of the cargo types are presented in
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Appendix E - Freight forecasting models. Note, the forecast horizon in all cases is t=2014, 2015,
... , 2035.
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6. Results
6.1 NPV Results
Table 6.2 and Table 6.2 below summarises the results of the CBA using NPV analysis.
Table 6.1 - NPV results ($m) (main scenario)
Option 2015 2016 2017 5 years 10 years 20 years
1 -183.9 -194.4 -204.1 -886.5 -1624.9 -2510.7
2 41.3 57.8 68.9 280.7 531.5 786.2
3 38.6 51.0 61.3 252.0 476.9 705.3
4 41.3 57.8 68.9 280.7 531.5 786.2
5 32.7 45.8 57.0 231.9 442.8 653.6
6 33.2 46.5 57.9 235.8 450.7 667.4
Table 6.1 above shows the NPV results of all policy options across various time horizons. Option 1
results in a significant NPV economic cost of $2,510.7m. The reason for this is twofold. Firstly, the cost
associated with replacing foreign crew on MCVs with either Australian crew or crew who hold 457
visas - it is assumed that the replacement crew are paid Australian EA rates which greatly increases
the crew cost for a foreign vessel previously paying SIA Part B or ITF wage rates. Secondly, the cost
of moving inter-capital container from ship to rail is relative high, i.e. approximately $1,662.1m under
Option 1 (20 year horizon). This result does not change if GST is considered. GST charged on
importation may only serve to further reduce the market share of foreign vessels.
Under Options 2 and 4, the analysis shows NPV positive economic cost savings of approximately
$786.2m. This result is driven by existing foreign vessels increasing coastal shipping operations
pursuant to the removal of the requirement to apply for temporary licences. Since ship owners may
have minimal incentive under Option 2 to register vessels in the Australian General Register, they may
opt to register ships in a foreign register and hire only foreign crew. These vessels may capture
tonnage away from Australian vessels. Foreign vessels with 100 percent foreign crew incur lower
economic costs than Australian flagged vessels.
There are other relevant costs associated with Options 2-6 that are not reflected in the NPV results.
These include a loss of Australian seafarer jobs which may have ramifications for the shore-based
maritime sector in general. Legislative costs associated with the identification and enactment of new
legislation (to negate the undesired effects of a repeal of the Coastal Trading Act) are also not
modelled.
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Option 3 yields NPV economic cost savings of $705.3m. The cost reductions under Option 3 result
purely from an increase in the share of the freight task attributed to foreign vessels. Relative to Option
2, there may be a smaller loss of Australian seafarer jobs as ship owners may continue to register
vessels in the Australian General Register and maintain Australian crew rather than register in a
foreign register and employ foreign crew. However, since foreign vessels ship an increased share of
the freight task, there may nevertheless be some displacement of Australian operated vessels and
Australian seafarer jobs relative to the base case scenario.
Options 2 and 4 reflect the highest economic benefit of all the policy options. This result is driven by
the assumed increase in the market share of foreign vessels, the extension of the Coastal Trading Act
to cover offshore installations where applicants opt in and the relaxed licensing and crewing
conditions. Many of the operators currently operating under the Australian General Register would
likely re-flag their vessels in order to compete with the foreign operators who enjoy the benefit of
comparatively lower wage rates. Australian seafarer jobs would be adversely affected as Australian
operators re-flag from the Australian General Register.
Ship operators are likely to replace Australian seafarers (paid under EA rates) with foreign seafarers
(paid under ITF rates). Nevertheless, a portion of the crew may remain Australian due to the world-
wide shortage of high ranking positions.
Options 5 and 6 result in NPV economic cost savings of $653.6m and $667.4m respectively. The
economic cost reductions are similar to Option 4 due to minimal changes in the proposed
amendments. The economic cost reduction for Option 5 is less than that of Option 6 due to more
stringent crew conditions, where foreign vessels must operate with two senior Australian crew if the
vessel conducts coastal voyages of more than 120 days. It is also important to note that Fair Work Act
and SIA Part B wage rates would apply to the whole crew for the entire permit period. Under Options
6, the temporal requirement is extended to 183 days leading to less onerous requirements.
The results for the base case and each policy option above will be collectively referred to as the „Main
Scenario‟ for the purposes of the sensitivity analysis below.
Figure 6.1 - Main Scenario NPV results ($m)
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Table 6.2 - NPV results ($m) (main scenario)
Dry Bulk Liquid Bulk
Bass
Inter-
Policy Strait Cruise
Bauxite Other capital Total
Options Bauxite Other Dry Petroleum Sub- Non- Shipping
Weipa- Iron Ore Sub-total Oil Liquid containers
Triangular Bulk Products total Bulk
Gladstone Bulk
Option 1 -100.9 -105.0 -91.0 -296.9 -593.8 -24.9 -172.6 -37.0 -234.5 -1662.1 0.0 -20.2 -2510.7
Option 2 0.0 249.6 29.9 262.9 542.4 9.4 71.7 14.0 95.1 0.0 103.5 45.2 786.2
Option 3 0.0 249.6 29.9 182.0 461.5 9.4 71.7 14.0 95.1 0.0 103.5 45.2 705.3
Option 4 0.0 249.6 29.9 262.9 542.4 9.4 71.7 14.0 95.1 0.0 103.5 45.2 786.2
Option 5 0.0 168.0 29.9 247.0 444.9 9.4 66.1 13.4 88.9 0.0 74.6 45.2 653.6
Option 6 0.0 181.3 29.9 247.0 458.2 9.4 66.1 14.0 89.5 0.0 74.6 45.2 667.4
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The table below highlights the reduction in daily crew costs (averaged across all ship types) between
the base case and each policy option. Crew costs are the sum of the annual salaries for each
employee crew class i.e. Master, Chief Engineer etc. These crew costs differ across ship type
according to tonnage (vessel size).
Table 6.3 - Crew cost /benefit across cargo sectors
Bass
Wage Bauxite Other Strait
cost/benefit Weipa- Bauxite Iron Other Dry Liquid Non Cruise
per day Gladstone Triangular Ore Bulk Oil Petroleum Bulk Bulk Shipping
Option 1 0 -$12,592 -$8,814 -$6,569 -$8,735 -$7,861 -$8,735 0 -$10,550
Option 2 $12,592 0 $3,778 $4,589 $3,857 $12,592 $3,857 $12,592 $4,522
Option 3 $12,592 0 $3,778 $3,873 $3,857 $12,592 $3,857 $12,592 $4,522
Option 4 $12,592 0 $3,778 $6,023 $3,857 $12,592 $3,857 $12,592 $4,522
Option 5 $12,592 -$746 $3,361 $5,501 $3,260 $4,321 $3,521 $11,846 $4,522
Option 6 $12,592 -$746 $3,361 $5,501 $3,335 $4,470 $3,633 $12,219 $4,522
The values in Table 6.3 above reflect the differences in crew composition between the base case and
the options. For example, in Table 5.5 relating to Bauxite Weipa to Gladstone trade, the crew
composition for the base case and Option 1 are the same (100 per cent Australian crew). As such, the
net impact on crew costs in Table 6.3 above for the Bauxite Weipa to Gladstone trade is 0. However,
for the same cargo trade, Table 5.5 reflects differences in the crew composition between the base
case and options 2-6. In fact, the difference relates to a movement away from Australian crew to 100
per cent foreign crew (consider crew composition in Table 5.5 for Options 2-6). This benefit in cost is
reflected in Table 6.3, in the order of $12,592 per day, relating to Options 2-6.
6.2 Sensitivity analysis
Sensitivity analysis is utilised to show the changes in economic cost impact (and the overall option
rankings) through marginal adjustments to key variables, namely:
Reduced manning.
Shadow price factor.
SIA Part A wages.
Discount factor.
By adjusting the above variables we were able to isolate and quantify the impact on the final option
rankings. The results of the sensitivity testing together with associated assumptions are outlined
below.
6.2.1 Reduced manning
Reduced manning is considered where crew numbers are assumed to fall below the current crew
numbers for Australian vessels in the base case scenario. Figure 6.2 and Figure 6.3 below compare
the NPV results of the base case and each policy option under reduced manning as against the Main
Scenario for each cargo trade.
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Reduced manning only impacts Australian vessels in accordance with our assumptions. Due to
reductions in crew numbers and associated crew costs, economic cost savings for policy options 2-6
are smaller as compared to the Main Scenario. Simultaneously, economic costs are reduced for option
1.
Bass Strait non-bulk is the most sensitive to changes in crew numbers (manning) as trade of this
cargo type is only undertaken by domestic vessels. The reduction in economic cost under Option 1 for
the petroleum trade is due to the 5 Transitional General Licence vessels assumed to register under
the Australian General Register. Following registration, these vessels will operate with reduced crew
numbers. Accordingly, associated crew costs decrease.
Figure 6.2- NPV results ($m) (Reduced Manning vs Main Scenario - Part A)
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Figure 6.3 - NPV results ($m) (Reduced Manning vs Main Scenario - Part B)
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Table 6.4 - NPV results ($m) (Reduced Manning Scenario)
Dry Bulk Liquid Bulk
Bass
Inter-
Policy Strait Cruise
Bauxite Other capital Total
Options Bauxite Other Sub- Petroleum Sub- Non- Shipping
Weipa- Iron Ore Oil Liquid containers
Triangular Dry Bulk total Products total Bulk
Gladstone Bulk
Option 1 -100.9 12.5 -77.9 -253.4 -419.8 -24.9 -126.6 -37.0 -188.5 -1662.1 0.0 -20.2 -2290.6
Option 2 0.0 249.6 29.9 231.1 510.6 9.4 71.7 14.0 95.1 0.0 77.8 45.2 728.7
Option 3 0.0 249.6 29.9 172.9 452.4 9.4 71.7 14.0 95.1 0.0 77.8 45.2 670.6
Option 4 0.0 249.6 29.9 231.1 510.6 9.4 71.7 14.0 95.1 0.0 77.8 45.2 728.7
Option 5 0.0 168.0 29.9 215.2 413.1 9.4 66.1 13.4 88.9 0.0 48.9 45.2 596.1
Option 6 0.0 181.3 29.9 215.2 426.4 9.4 66.1 14.0 89.5 0.0 48.9 45.2 610.0
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6.2.2 Shadow price factor
According to the BITRE model, a shadow price factor of 0.9 is applied to the crew costs for Australian
vessels. By assuming a shadow price factor of 0.7 (rather than 0.9), we observe changes in the NPV
differential between the regulatory options. Policy option NPV rankings remain constant. Consider
Figure 6.4, and Table 6.5 below.
Similar to reduced manning, changes to the shadow price factor only impacts Australian vessels. A
reduction in the shadow price factor results in decreases to crew costs. Accordingly, economic cost
savings for policy options 2-6 are less than they would be under the Main Scenario. Simultaneously,
economic costs are reduced for option 1.
Figure 6.4 - NPV results ($m) (Lower Shadow Price Factor vs Main Scenario - Part A)
Figure 6.5- NPV results ($m) (Lower Shadow Price Factor vs Main Scenario - Part B)
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Table 6.5 - NPV results ($m) (lower shadow price factor scenario)
Dry Bulk Liquid Bulk
Bass
Inter-
Policy Strait Cruise
Bauxite Other capital Total
Options Bauxite Other Sub- Petroleum Sub- Non- Shipping
Weipa- Iron Ore Oil Liquid containers
Triangular Dry Bulk total Products total Bulk
Gladstone Bulk
Option 1 -100.9 -21.0 -82.5 -261.9 -466.4 -24.9 -139.4 -37.0 -201.3 -1662.1 0.0 -20.2 -2350.0
Option 2 0.0 249.6 29.9 237.3 516.8 9.4 71.7 14.0 95.1 0.0 79.9 45.2 737.0
Option 3 0.0 249.6 29.9 174.7 454.2 9.4 71.7 14.0 95.1 0.0 79.9 45.2 674.4
Option 4 0.0 249.6 29.9 237.3 516.8 9.4 71.7 14.0 95.1 0.0 79.9 45.2 737.0
Option 5 0.0 168.0 29.9 221.5 419.3 9.4 66.1 13.4 88.9 0.0 51.0 45.2 604.4
Option 6 0.0 181.3 29.9 221.5 432.6 9.4 66.1 14.0 89.5 0.0 51.0 45.2 618.3
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6.2.3 SIA Part A wages
To facilitate the sensitivity analysis regarding SIA Part A wages, it is assumed that foreign crew are
replaced with 457 visa holders and Australian seafarers who are paid under EA rates. There is a
possibility that the market wages required under 457 visas do not equate to EA rates but may be
closer to SIA Part A wages. The results are outlined in Table 6.6 below. By altering SIA Part A wages,
Options 4 and 2 generate the highest economic benefit and the rankings remain unchanged. A
comparison across the cargo types is provided below in Figure 6.6 and Figure 6.7.
Figure 6.6- NPV results ($m) (SIA Part A Wages vs Main Scenario - Part A)
Figure 6.7-NPV results ($m) (Reduced Manning vs SIA Part A Wages - Part B)
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The other dry bulk trade is undertaken by 104 foreign vessels, 4 General Licences and 4 Transitional
General Licences. Under option 1, foreign vessels will re-crew to only Australian seafarers whom are
paid SIA Part A wages instead of EA wages. This lower wage rate means lower crew costs and a
reduction in economic cost. For policy options 2 - 4, General Licence and Transitional General Licence
vessels will register under foreign registers and re-crew to have only foreign seafarers who are paid
under ITF wages. Consequently, SIA Part A wages will not apply to these policy options. Notably,
policy options 5 and 6 already assume SIA Part A wages and so will remain unchanged from the Main
Scenario.
The Bauxite Weipa-Gladstone cargo trade is only undertaken by Transitional General Licence vessels.
Under option 1, these vessels already have Australian crew and therefore will not be impacted by a
change to SIA Part A wages. For options 2 - 6, the vessels will re-crew from all Australian to all
foreign crew. This is identical to the Main Scenario. Accordingly there is no change to the NPV values.
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Table 6.6 - NPV results ($m) (SIA Part A wages scenario)
Dry Bulk Liquid Bulk
Bass
Inter-
Policy Strait Cruise
Bauxite Other capital Total
Options Bauxite Other Sub- Petroleum Sub- Non- Shipping
Weipa- Iron Ore Oil Liquid containers
Triangular Dry Bulk total Products total Bulk
Gladstone Bulk
Option 1 -36.3 -105.0 -41.0 -105.6 -288.1 -2.8 -119.9 -5.2 -127.9 -1662.1 0.0 -20.2 -2098.3
Option 2 0.0 249.6 31.7 262.9 544.1 9.4 71.7 14.0 95.1 0.0 103.5 45.2 788.0
Option 3 0.0 249.6 31.7 182.0 463.3 9.4 71.7 14.0 95.1 0.0 103.5 45.2 707.1
Option 4 0.0 249.6 31.7 262.9 544.1 9.4 71.7 14.0 95.1 0.0 103.5 45.2 788.0
Option 5 0.0 235.4 31.7 260.3 527.4 9.4 70.5 13.6 93.5 0.0 98.8 45.2 764.8
Option 6 0.0 242.0 32.7 260.3 535.0 9.4 70.5 14.0 93.9 0.0 98.8 45.2 772.9
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6.2.4 3% NPV
The base NPV rate of 7 per cent is adjusted to 3 per cent (see Table 6.7 below). While the magnitude
of the CBA results (absolute values) increases significantly, the option rankings remain constant as the
changes are proportionate across each cargo trade and each policy option. As a result, policy options
4 and 2 remain the preferred options.
Figure 6.8- NPV results ($m) (Main Scenario vs Discount Factor = 3% - Part A)
Figure 6.9- NPV results ($m) (Main Scenario vs Discount Factor = 3% - Part B)
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Table 6.7 - NPV results ($m) (3% NPV scenario)
Dry Bulk Liquid Bulk
Bass
Inter-
Policy Strait Cruise
Bauxite Other capital Total
Options Bauxite Other Sub- Petroleum Sub- Non- Shipping
Weipa- Iron Ore Oil Liquid containers
Triangular Dry Bulk total Products total Bulk
Gladstone Bulk
Option 1 -147.2 -153.2 -133.2 -435.7 -869.3 -34.3 -254.2 -54.0 -342.5 -2533.4 0.0 -29.4 -3774.6
Option 2 0.0 380.8 44.7 389.3 814.8 13.0 104.6 20.4 138.0 0.0 159.2 66.7 1178.8
Option 3 0.0 380.8 44.7 265.5 691.1 13.0 104.6 20.4 138.0 0.0 159.2 66.7 1055.0
Option 4 0.0 380.8 44.7 389.3 814.8 13.0 104.6 20.4 138.0 0.0 159.2 66.7 1178.8
Option 5 0.0 256.3 44.7 365.7 666.7 13.0 96.4 19.6 128.9 0.0 114.7 66.7 977.1
Option 6 0.0 277.7 44.7 365.7 688.1 13.0 96.4 20.4 129.8 0.0 114.7 66.7 999.3
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6.2.5 10% NPV
The NPV discount rate is adjusted from 7 per cent to 10 per cent (see Table 6.8 below). While the
magnitude of the CBA results (absolute values) decreases, the option rankings remain constant as the
changes are proportionate across each cargo trade and each policy option. As a result, policy options
4 and 2 remain the preferred option. Consider Figure 6.10 and Figure 6.11 below.
Figure 6.10- NPV results ($m) (Discount Factor = 10% vs Main Scenario - Part A)
Figure 6.11-NPV results ($m) (Discount Factor = 10% vs Main Scenario - Part B)
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Table 6.8 - NPV results ($m) (10% NPV scenario)
Dry Bulk Liquid Bulk
Bass
Inter-
Policy Strait Cruise
Bauxite Other capital Total
Options Bauxite Other Sub- Petroleum Sub- Non- Shipping
Weipa- Iron Ore Oil Liquid containers
Triangular Dry Bulk total Products total Bulk
Gladstone Bulk
Option 1 -78.9 -82.1 -70.9 -231.1 -463.0 -20.3 -133.9 -28.9 -183.1 -1260.6 0.0 -15.8 -1922.4
Option 2 0.0 188.2 22.9 203.1 414.2 7.7 56.1 10.9 74.7 0.0 77.6 35.0 601.4
Option 3 0.0 188.2 22.9 142.3 353.4 7.7 56.1 10.9 74.7 0.0 77.6 35.0 540.7
Option 4 0.0 188.2 22.9 203.1 414.2 7.7 56.1 10.9 74.7 0.0 77.6 35.0 601.4
Option 5 0.0 126.6 22.9 190.8 340.4 7.7 51.6 10.5 69.8 0.0 56.0 35.0 501.1
Option 6 0.0 136.2 22.9 190.8 350.0 7.7 51.6 10.9 70.2 0.0 56.0 35.0 511.1
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6.4 Limitations
It must be noted that the CBA was conducted on the basis of a large number of assumptions including:
ship size;
ship type;
market share; and
ship crew, operating and capital costs.
For example, some cargo volume data from 2012-13 was measured in Twenty-Foot Equivalent Units
(TEU). This made it difficult to determine current cargo volumes (in metric tonnes) and market share
for market segments. However, to the extent possible, this information was used to inform
assumptions made about market share in the base case scenario.
In light of the limitations of the CBA, the net economic cost savings for each regulatory option are
merely indicative. Notwithstanding these limitations, it is noted that the overall ranking of the regulatory
options (according to the NPV figures) may not necessarily change if alternative assumptions are
adopted.
To the extent that a different view may be taken in relation to any of the assumptions (including market
share assumptions, cargo trade forecasts and discount rate), it should be noted that the NPV analysis
may lead to different results and thus rankings. As outlined above, the ranking of the NPV results for
the policy options are predominantly driven by the market share assumptions for the „other dry bulk‟
trade. The „other dry bulk‟ trade is influenced by many variables which adds to the speculative nature
of the market share assumptions. In turn, our results should be considered as forming „part‟ of an
evidence base of information rather than absolute findings.
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Appendix A - Refinements to the BITRE shipping
cost model
Introduction
The CBA approach that PAG has adopted builds on the pre-existing BITRE shipping costs model
(2011) that was used to inform the Regulatory Impact Statement in 2011 regarding the shipping reform
package implemented in 2012. Refinements and updates are made to the BITRE model to perform the
CBA of the current proposed reforms. These refinements are conducted in two steps, namely:
1. Updating the model to establish a new „base case‟ scenario to model the current regulatory
settings, and policy scenarios; and
2. Refining the model to incorporate findings from the PwC review of the BITRE CBA of the
shipping reform package (2010)
Updating the model to establish a new base case scenario to
model the current regulatory settings, and policy scenarios
The main updates required for establishing a new base case scenario and the policy scenarios were:
accounting for the ITE and removing the tonnage tax from calculations of capital costs
- tonnage tax was previously considered in the 2012 shipping reform package but was
not implemented;
- to claim the ITE, companies must support training of ship crew by maintaining a
minimum of one person per ship undertaking training in each of engineer officer, deck
officer, and integrated ratings and steward training; and
- this comes at a wage cost and offsets some of the benefits associated with obtaining
exemptions from income tax on income earned.
incorporating accelerated depreciation over a statutory cap on vessel life of 10 years
accounting for the seafarer tax offset
incorporating SIA Part B foreign ship costs
a specification of ship types and cost estimates for each regulatory option, including:
- estimating foreign vessel costs assuming EA rates are paid to 457 visa holders and
Australian residents/nationals under regulatory Option 1
- estimating „mixed crew‟ ship costs where Australian ratings are assumed to be
replaced with foreign ratings
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Data updated in the BITRE ship cost model included:
- Seagoing Industry Award 2010 minimum salaries
- ITF TCC agreement salaries
- Australian EA rates
Capital yard costs were not updated. This is since updated data could not be sourced from a credible
source. However, it is noted that capital yard costs may not have increased greatly and may have
fallen slightly given the oversupply of ship capacity worldwide according to United Nations Review of
Maritime Transport 2012 and 2013 reports. Low freight rates worldwide may have reduced the
demand for new ships.
Other operating costs (victualling, stores, lubricating oils, etc.) were inflated by 2 per cent for three
years as data for updating these costs were unable to be obtained.
Refining the model to incorporate findings from the PwC
review (2010)
The PwC review identified a set of key assumptions underpinning the previous BITRE CBA that could
be improved upon. Some of these assumptions were considered for the current CBA; however, not all
of these assumptions bear the same relevance as for the previous CBA for the 2012 shipping reform
package.
1. The PwC review identified issues pertaining to crew costs and capital costs.
Specifically, the PwC review suggested that using open registry vessel crew costs as a benchmark for
all foreign vessels‟ crew costs may not be reasonable. This assumption was checked by determining
the number of foreign vessels registered in open registry countries or in low-wage and other countries
offering favourable terms to ship owners. As outlined earlier in the report, in the absence of SIA Part B
wage conditions, it appears reasonable to benchmark foreign vessel crew costs using ITF wage rates
given the large number of vessels registered in open registry countries or countries offering favourable
terms to ship owners. This is further supported by findings reported in the Reforming Australia‟s
Shipping: Regulation Impact Statement (2011). Notwithstanding the above, in the base case scenario,
foreign ships are assumed to pay crew SIA Part B wage rates which tend to be higher than ITF rates.
The PwC review also suggested that capital costs for foreign vessels may have been understated
given that tonnage and company taxes were assumed to be zero in the previous CBA. It is noted that
given the open registry countries and countries offering favourable tax arrangements that temporary
licensed vessels tend to be registered in, the assumption of low tonnage and company taxes for
foreign ship owners appears to be reasonable.
2. The crew leave factors and on-factors were identified as areas potentially requiring further
justification
It is noted that the previous crew leave factors appear to be reasonable. Australian vessels tend to
employ a two crew manning system whereby two seafarers are employed per berth. It also appears
reasonable that higher leave factors are assumed for foreign officers as opposed to foreign ratings as
this appears consistent with international practice.
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3. Regulatory compliance costs were not estimated for the previous CBA
For the current CBA, estimation of regulatory compliance costs was considered. However, as there is
inadequate information to draw reliable estimates and to make an informed assessment, this was not
incorporated into the final modelling. Although a general question was raised in the shipping industry
survey, the minimal responses do not allow for reliable estimates to be obtained. Overall, compliance
costs may be small relative to other ship operating costs.
4. A shadow price factor of 0.9 was assumed for the previous CBA
For the current CBA, sensitivity analysis is conducted around the shadow price factor, namely a rate of
0.7 is applied in line with the 46 per cent differential between union and non-union wages in the
transport sector suggested by the PwC review as estimated in recent studies of the Australian
transport sector.
5. Other assumptions were identified by the PwC review as potentially important
Other assumptions identified by the PwC review included the assumption that demand for shipping
freight is perfectly inelastic (i.e. unresponsive) to changes in daily time charter costs. This is not
modelled in the current CBA given the complexity associated with estimating the costs. Reduced
freight transported by ship may have impacts on shipper‟s businesses and their profits which is
inherently difficult to estimate. The implicit elasticity assumption is likely to be more relevant for Option
1 where the total freight task may fall in response to the need to replace foreign crew with Australian
seafarers or those with 457 visas. However, this is not expected to affect the overall ranking of the
regulatory options in terms of which yields higher net benefits as accounting for the reduced total
freight task may only serve to inflate the costs associated with Option 1 relative to the other regulatory
options.
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Appendix B - Shipping industry survey
Purpose of survey
A shipping industry survey was developed in May 2014 "to assist government in further developing its
understanding of the Australian coastal shipping market by obtaining accurate information about
current pricing regimes."60 It is intended to enhance understanding of industry cost structures.
The survey comprised five questions intended to capture information on cargo volumes delivered,
crew size, crew cost, other ship operating expenses and compliance costs. PAG developed a web-
based tool on behalf of the Department to distribute the survey. Each question is discussed in turn
below.61
Analysis of Question 1
Question 1 was intended to obtain general information about the ships operating in the industry partly
for the purposes of relating such information to subsequent questions. It was structured as follows:
"Please list each vessel owned/operated and record:
1. whether it is listed on the Australian General Register or on a Foreign Register;
2. the vessel‟s size in terms of deadweight tonnage (dwt);
3. the number of coastal voyages; and
4. the annual Australian coastal freight volume (in tonnes) carried by each vessel for each
cargo type."
The sample size for Question 1 was 47, i.e. there were 47 vessels for which details were recorded.
Respondents predominantly listed vessels as registered in a foreign register (37) as opposed to the
Australian General Register (10).
The freight task for respondents‟ vessels for financial year 2012-13 is shown in Figure A1 below. Iron
Ore and „Other Dry Bulk‟ categories attracted a higher fraction of total freight. Note that the freight
volumes recorded do not capture industry total volumes as not all ship operators/owners participated
in the survey.62
Vessel cargo carrying capacity measured in terms of deadweight tonnage was, on average, greater for
foreign registered vessels than Australian vessels, approx. 68,000 and 58,000 respectively, for this
small sample of respondents (Table A1).63 The average deadweight tonnage across sectors are
outlined in the below table:
60
Department of Infrastructure and Regional Development front matter to online survey.
61
Note: all figures reported are in Australian dollars unless otherwise stated.
62
The figures should not be used consequently to draw inferences about relative freight volumes delivered by
Australian and foreign vessels across sectors.
63
Deadweight tonnage is measured in tonnes and is specifically the "difference between the vessel's lightship
(unloaded) and its loaded displacement"; hence, it represents the weight of cargo, crew, passengers, fuel,
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Figure A1: Freight volume by sector (metric tonnes), 2012-13
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
Container Shipping Iron Ore Other Dry Bulk Other Liquid Bulk
Australian General Register Foreign Register
Table A1: Average deadweight tonnage by sector
Sector Average deadweight tonnage
Container Shipping 42,755
Iron Ore 161,538
Other Dry Bulk 14,982
Other Liquid Bulk 4,396
The large deadweight tonnage of ships (in this sample) carrying Iron Ore is consistent with Capesize
bulk carriers while „Other Dry Bulk‟ may be carried by smaller Handy Size bulk carriers.
Analysis of Question 2
Question 2 was targeted at obtaining information on crew numbers and costs. It was structured as
follows:
"What is the typical crew size, and what are the gross annual crew costs, inclusive of on-costs
(superannuation, leave and payroll tax), of each vessel?"
ballast water and ship stores, among other things that the ship can carry (source:
https://www.bitre.gov.au/publications/2013/files/asf_2011_12.pdf, p. 69).
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Average crew size for the small sample of Australian General Register respondents was 17. This was
for ships engaging in Dry Bulk trade.64 Average annual crew cost across the six Australian vessels was
approx. $5.8 m (which is in fact close to the BITRE ship crew cost estimate for Dry Bulk carriers).
Average crew size in the sample of foreign registered vessels was 18 across Container ships, Liquid
Bulk and Dry Bulk categories. For Dry Bulk, this was approx. 17 on average; for Container ships, 19;
and for Liquid Bulk, 15 on average. However, it is noted that the sample size was small in all
instances. For foreign Dry Bulk carriers, the annual average crew cost was slightly less than $1.3 m.
No figures are available for Liquid Bulk. Some respondents noted the incremental cost of operating on
the Australian coast associated with complying with the Seagoing Industry Award. Estimates of the
incremental annual cost are approx. $0.2 m (assuming an exchange rate of 1AUD:1USD for 2012-13)
for Container ships.
Analysis of Question 3
Question 3 was aimed at obtaining information on other ship operating costs besides crew costs and
was structured as below:
"What are the total, other operating expenses of each vessel? Other operating expenses
include: victualling, administration, insurance, repairs and maintenance, dry docking, lubes
and riding gang expenses."
Australian General Register vessels for which other operating costs were reported tended to incur, on
average, annual operating costs for 2012-13 of approx. $2.6 m to $2.7 m for Dry Bulk carriers, and
ranged from approx. $1.1 m to $3.0 m. This calculation is only over 4 to 5 bulk carrier vessels.
Amongst foreign flagged Dry Bulk carriers, the average operating cost was lower at approx. $2.4 m for
2012-13, and ranged from approx. $1.7 m to $3.0 m.
Analysis of Question 4
Question 4 was intended to gauge the approximate range of compliance costs faced by vessel
owners/operators under the Coastal Trading Act and was structured as below:
"What are your average annual costs associated with regulatory/legal compliance and
reporting obligations under the Coastal Trading Act and associated shipping regulations?
Estimate the costs based on staff required to manage compliance obligations."
There were only 6 responses to this question. As some ship companies operate both Australian and
foreign-registered vessels, an aggregate compliance cost is measured, rather than a compliance cost
specific to General Licence and Temporary Licence operators. Annual costs were on average $60,000
for 2012-13 but ranged from $600 to $225,000. It is possible that some respondents entered in a 1 to
represent 100 per cent instead of entering 100 as the measure of the percentage of year a regulatory
compliance staff member may spend on compliance matters pertaining to the Coastal Trading Act.
Excluding the highest and lowest annual compliance cost figures reported gives an average of
approximately $32,700.
Analysis of Question 5
64
However, note that there were only seven responses for this.
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Question 5 of the survey aims to examine the costs associated with complying with wage rates and
conditions of Part B of the SIA. Specifically, the question is structured as below:
"What is the additional crew cost associated with paying crew at least Seagoing Industry
Award Part B wage rates (inclusive of on-costs and leave entitlements) relative to the cost that
may have been incurred if crew could be paid less than Part B wage rates? [Report at the
voyage average or annual level for FY2013, whichever is easier]."
Summary statistics related to the figures are set out in the tables below.
Table A2 displays summary measures where zero figures are excluded, i.e. some respondents have
as their response a value of zero (which is in place by default). In cases where this occurred, the
currency recorded was "AED" (default currency in list) rather than "AUD". It appears that respondents
may have intended to leave the response blank and hence, inclusion of these figures may distort the
result.
Costs are, on average, just slightly over $0.5 m with a median of $0.5 m. A maximum additional cost
was recorded of slightly below $1 m. The BITRE ship cost model indicate that costs of complying with
SIA Part B wages are, on average, $1.37 m with the cost varying somewhat with ship type (e.g.
Handysize bulk carriers vs. product tankers). The BITRE ship cost estimate compares the difference
between a ship paying SIA B wage rates and a ship paying ITF Total Crew Cost Agreement rates. The
estimates from the current version of the BITRE ship cost model may be higher due to the fact that
leave factors and salary on-costs are considered and these may have been excluded in the cost
estimates of survey respondents. With ITF market rates65, the incremental cost narrows to approx.
$1.1 m. According to an ASA submission to PC in relation to Tasmanian shipping, the cost of
compliance is approx. $0.73 m.66 Given that the cost estimates in the survey may be inflated, we may
expect the compliance costs to be less than $0.5 m for some fraction of ships in the industry, but not
for the entire industry - the sample size is too small for an industry-wide conclusion.
In Table A3, zero figures are included in the calculation of the compliance costs. This should be
treated with caution as it appears the zero figures may not be accurate reflections of the intended
response of survey participants. The average crew cost is slightly lower than when zero figures are
included at approx. $0.371 m.
Table A2: Additional crew cost incurred to comply with SIA Part B
65
According to a Deloitte Access Economics report into shipping, ITF market rates may be "26 per cent
greater than basic ITF rates",
http://www.cement.org.au/Portals/0/Documents/CIF%20Publications/DAE%20Shipping%20Reform%20Analy
sis.pdf, p. 7
66
http://www.pc.gov.au/__data/assets/pdf_file/0015/131244/sub029-tasmanian-shipping.pdf, p. 11
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Additional crew cost
Summary measure AUD ($)
Average (mean) $ 525,350.25
Standard deviation $ 153,222.30
Median $ 500,000.00
Mode $ 500,000.00
Range (max. - min.) $ 662,857.00
Minimum $ 320,673.00
Maximum $ 983,530.00
BITRE ship cost model* $ 1,370,000.00
Note: Excludes figures where the cost was listed as zero.
* BITRE ship cost model estimate is an estimate of the
difference between Award B crew costs and ITF TCC
Agreement crew costs.
Table A3: Additional crew cost incurred to comply with SIA Part B (zeros
included)
Additional crew cost
Summary measure AUD ($)
Average (mean) $ 370,835.47
Standard deviation $ 277,527.06
Median $ 500,000.00
Mode $ 500,000.00
Range (max. - min.) $ 983,530.00
Minimum $ -
Maximum $ 983,530.00
BITRE ship cost model* $ 1,370,000.00
Note: Includes figures where the cost was listed as zero.
* BITRE ship cost model estimate is an estimate of the
difference between Award B crew costs and ITF TCC
Agreement crew costs.
Limitations of survey
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As there are several limitations associated with the survey, the survey findings should be treated with
caution. In developing the survey, there was a trade-off between reducing the likelihood of non-
response by potential survey participants and obtaining detailed information on industry costs. As a
lengthy survey may have deterred responses, a short survey was developed. However, this limited the
quality and depth of information that could be obtained. It is recognized that the questions were of a
general nature and did not address specific details that may distinguish between ship companies and
ship types operated.
The figures reported in the survey are useful only as an indication of the potential range of ship costs
in the industry that pertain to some but not necessarily all ships. A summary of the limitations of the
survey include:
a small sample size
- minimal responses to the survey do not enable industry-wide conclusions to be drawn
some respondents may have interpreted questions differently or misinterpreted questions
- this will create variability in responses even if, for instance, vessel costs overall may
be the same across certain types of vessels
- for Question 2, some elements of crew costs such as on-costs may have been
included by some respondents but excluded by others
- for Question 3, some elements of other operating costs such as fuel, port and
management fees may have been included in the figure reported by some
respondents but excluded by others
- for Question 4, it is possible that some respondents entered in a 1 to represent 100%
instead of 100% as the measure of the fraction of year a regulatory compliance staff
member may spend on compliance matters pertaining to the Coastal Trading Act.
- for Question 5, leave factors and on-costs may have been included in estimates of
cost by some respondents but excluded by others; moreover, costs will vary across
ship types
figures reported can only be approximate as the questions do not allow for a detailed
breakdown of costs by e.g. crew position, ship type and crew size
response bias may be present in some figures with costs inflated, for example, the cost of
compliance with the Coastal Trading Act
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measurement error in responses are possible given that respondents may not have
information on costs readily available and may have responded with a general estimate of the
cost without obtaining more detailed, accurate information
sample response bias is possible given that some shipping industry participants chose not to
respond which can lead to a biased sample, i.e. skewed representation of the industry given
the types of respondents and non-respondents
In light of the inherent limitations of the survey questions and responses, the summary figures reported
in this section should not be relied upon in ship cost modelling and any other such analysis where
more accurate estimates should be obtained. However, they may be useful for informing a general
understanding of the possible range of ship costs that may be expected for some ships operating in
the industry, but not necessarily for all ships.
To obtain detailed, on-going information on the shipping industry, it may be necessary to develop a
more comprehensive survey series not necessarily for the sole purposes of informing a Regulation
Impact Statement, and that also minimize non-response.
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Appendix C - Data collection
Data sources
Data were obtained from multiple sources:
International Transport Federation (ITF) Uniform Total Crew Cost (TCC) Agreement rates
were obtained from the ITF seafarers website, and were publicly available.
Seagoing Industry Modern Award 2010 minimum wage rates and conditions were obtained
from the Fair Work Commission.
General Licence reports were obtained from the Department.
Temporary Licence voyage reports were obtained from the Department‟s website as they are
publicly available.
Web-based shipping industry survey.
The following Australian shipping Enterprise Agreements (EAs) were obtained from the Fair
Work Commission website (for shipping companies including, but not limited to Teekay
Shipping):
1. ASP Ship Management Aimpe Engineers‟ (Alcoa) Enterprise Agreement 2013
2. ASP Ship Management / Aimpe Zemira Bunkering Service Union Collective Agreement 2013
3. ASP Ship Management Pty Ltd Integrated Ratings, Cooks, Caterers And Seafarers (Offshore Oil
And Gas) Greenfields Agreement 2012
4. ASP Ship Management/Aimpe Engineers Enterprise Agreement 2013
5. Varley Ship Services Collective Agreement 2012
6. Aimpe / Searoad Shipping Engineers Officers Enterprise Agreement 2011
7. Teekay Shipping (Australia) Pty Limited Seagoing Ratings Enterprise Agreement 2011
8. Teekay Shipping Australia Pty Ltd/Amou Seagoing Deck Officers Dry Cargo Enterprise Agreement
2011
9. Three Ocean Maritime Pty Ltd and Maritime Union of Australia Enterprise Agreement 2012
10. V Ships Australia Pty Ltd Officers Collective Agreement 2012 MV CSL Brisbane
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Appendix D - Compliance requirements
The compliance requirements under the Coastal Trading Act include:
Submitting an application for General, Temporary or an Emergency Licence and providing the
required evidence that conditions are met or information necessary for assessment against
required conditions, namely:
- registration on the Australian General Register for General Licence applications, and
statement of declaration that each seafarer on coastal voyage is an Australian.
- for Temporary Licence applications, the number of voyages; the types and volume of
cargo to be carried, type and size of vessel; name of vessel; ports for
loading/unloading cargo.
- for Emergency Licence applications, similar information to that required for Temporary
Licence applications.
For Temporary Licence applicants, consultation with General Licence holders in response to a
„notice in response‟.
For Temporary Licence holders, Temporary Licence variation applications if voyage details
are required to be amended
Reporting requirements.
- For General Licenced vessels, this includes submitting an annual report detailing type
and volume of cargo carried; ports at which cargo was loaded and unloaded.
- For Temporary Licenced vessels, this includes pre-voyage notice of each voyage‟s
details (vessel used, date of voyage, evidence of vessel registration, type and volume
of cargo carried; ports for loading/unloading).
- For Temporary Licenced vessels, this includes reporting on actual voyage details
post-voyage.
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Appendix E - Freight forecasting models
Table E1 below provides details in relation to the freight forecasting models developed by PAG to facilitate this analysis.
Table E1 - PAG Freight Volume Forecasting Models
Cargo Type (freight
Model Specification Model Parameters/Initial Predictions
volumes)
Bauxite =0.51, =0.28; =13.67, =16.32, 2.57
Iron Ore =-0.37, -0.54, =-0.05; = 6.5, = 3.95, =3.52, -1.55
Other Dry Bulk =-0.92, -0.84, =-0.30; =13.59 , =15.56, =12.85, -1.09
=-0.42, -0.03, 0.41, =0.51; =4.61, =2.45, =2.88, =2.46,
Oil
-0.61
Petroleum =0.34, -0.45, =-0.52; =6.29, =5.7, =6.36,
Other liquid Bulk =-0.01, -0.67, =-0.78; =0.61, =0.98, =0.68,
=0.22, -0.15, =0.45, 0.34, =0.14, =-0.96; =1.56, =1.31,
Inter-capital containers =1.74, =1.85, =1.58,
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, , , , ,
, ,
Bass Strait Non-bulk , =4.24, = 4.53, = 4.75
= 4.4, = 4.39, = 4.45, = 4.41, = 4.39.
= -0.06, =-0.04 , =0.04 , = -0.01
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Forecast results
In the following figures, the PAG forecast are represented by the black perforated line and the BITRE
forecast are represented by the green lines.
Figure E.1 below presents forecasts of Bauxite trade. There is little difference in the forecasts provided
by the BITRE and those generated by PAG. A significant increase in Bauxite trading in 2014-2015 will
occur due to the ramp-up of production at the Yarwun alumina refinery in Gladstone after a large
capacity expansion (the initial phase of the ramp-up was also responsible for the increases seen in the
coastal bauxite trade between 2011-12 and 2013-14). However, beyond this point, it is reasonable to
assume no refinery closures and no further increase in exports. Taking these factors into account,
PAG agrees with and adopts (for modelling purposes) the forecasts represented by the green line.
Figure E.1 - Comparison of Bauxite forecast (financial years)
Table E.2 below summarises the size and assumed growth rates for Bauxite (Weipa-Gladstone)
forecasts.
Table E.2 - Size and assumed growth rate of Bauxite (Weipa-Gladstone) forecasts
Bauxite (Weipa-
Financial Gladstone) PAG Forecast BITRE Forecast
Historic PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Coastal (Mt)
2000 9.21
2001 9.18
2002 9.04
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Bauxite (Weipa-
Financial Gladstone) PAG Forecast BITRE Forecast
Historic PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Coastal (Mt)
2003 9.20
2004 9.62
2005 11.02
2006 12.73
2007 13.13
2008 13.01
2009 13.11
2010 13.20
2011 13.49
2012 13.67
2013 16.32
2014 16.61
2015 19.46 18.61 5.77% 12.02%
2016 20.00 18.55 2.78% -0.33%
2017 20.28 18.50 1.38% -0.23%
2018 20.42 18.48 0.70% -0.11%
2019 20.49 18.42 0.35% -0.32%
2020 20.53 18.42 0.18% 0.00%
2021 20.55 18.42 0.09% 0.00%
2022 20.55 18.42 0.05% 0.00%
2023 20.56 18.42 0.02% 0.00%
2024 20.56 18.42 0.01% 0.00%
2025 20.56 18.42 0.01% 0.00%
2026 20.56 18.42 0.00% 0.00%
2027 20.56 18.42 0.00% 0.00%
2028 20.56 18.42 0.00% 0.00%
2029 20.56 18.42 0.00% 0.00%
2030 20.56 18.42 0.00% 0.00%
2031 20.56 18.42 0.00% 0.00%
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Bauxite (Weipa-
Financial Gladstone) PAG Forecast BITRE Forecast
Historic PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Coastal (Mt)
2032 20.56 18.42 0.00% 0.00%
2033 20.56 18.42 0.00% 0.00%
2034 20.56 18.42 0.00% 0.00%
2035 20.56 18.42 0.00% 0.00%
Figure E.2 below provides a comparison of the PAG and BITRE Iron Ore forecasts. Both forecasts
assume a stationary trend over the forecast horizon.
Figure E.2 - Iron Ore (to Port Kembla) forecasts (financial years)
Table E.3 below summarises the size and assumed growth rates of Iron Ore forecasts.
Table E.3 - Size and assumed growth rate of Iron Ore forecasts
Iron Ore Historic
Financial PAG Forecast BITRE Forecast
Freight Loaded PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
(Mt)
2000 6.44
2001 6.75
2002 6.50
2003 6.59
2004 6.51
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Iron Ore Historic
Financial PAG Forecast BITRE Forecast
Freight Loaded PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
(Mt)
2005 6.87
2006 6.57
2007 6.48
2008 6.73
2009 4.65
2010 6.67
2011 6.50
2012 3.95
2013 3.52
2014 5.14 3.52 45.98% 0.00%
2015 4.77 3.52 -7.13% 0.00%
2016 4.03 3.52 -15.49% 0.00%
2017 4.50 3.52 11.68% 0.00%
2018 4.73 3.52 5.00% 0.00%
2019 4.39 3.52 -7.14% 0.00%
2020 4.39 3.52 0.08% 0.00%
2021 4.58 3.52 4.13% 0.00%
2022 4.51 3.52 -1.50% 0.00%
2023 4.43 3.52 -1.61% 0.00%
2024 4.50 3.52 1.44% 0.00%
2025 4.51 3.52 0.34% 0.00%
2026 4.47 3.52 -0.89% 0.00%
2027 4.48 3.52 0.15% 0.00%
2028 4.50 3.52 0.43% 0.00%
2029 4.49 3.52 -0.24% 0.00%
2030 4.48 3.52 -0.15% 0.00%
2031 4.49 3.52 0.18% 0.00%
2032 4.49 3.52 0.01% 0.00%
2033 4.49 3.52 -0.10% 0.00%
2034 4.49 3.52 0.03% 0.00%
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Iron Ore Historic
Financial PAG Forecast BITRE Forecast
Freight Loaded PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
(Mt)
2035 4.49 3.52 0.04% 0.00%
As nearly all of the iron ore shipped around the coast goes to Port Kembla for use in BlueScope
Steel‟s Port Kembla steelworks, this analysis concentrates only on this trade. In October 2011,
BlueScope Steel closed one of its two remaining smelters, in response to its lack of export
competitiveness, halving the steelwork‟s capacity and leading to a near halving of iron ore being
shipped to Port Kembla from around 6.5 Mt per annum to 3.5 Mt per annum. All of BlueScope Steel‟s
remaining steel production is used to supply the domestic steel market. According to information
provided by BITRE it is reasonable to assume the remaining Port Hedland to Port Kembla Iron Ore
trade continues at current volumes while the Whyalla to Port Kembla and the Port Latta to Port
Kembla trade is negligible.
Figure E.3 below shows that the PAG and BITRE forecasts relating to Other Dry Bulk are very close.
Figure E.3 - Comparison of Other Dry Bulk (financial years)
Table E.4 below summarises the size and assumed growth rates of Other Dry Bulk forecasts.
Table E.4 - Size and assumed growth rate of Other Dry Bulk forecasts
Other Dry Bulk
Financial PAG Forecast BITRE Forecast
Historic Freight PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Loaded (Mt)
2000 14.90
2001 13.31
2002 16.48
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Other Dry Bulk
Financial PAG Forecast BITRE Forecast
Historic Freight PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Loaded (Mt)
2003 14.94
2004 14.19
2005 15.47
2006 15.18
2007 13.92
2008 15.38
2009 14.95
2010 13.92
2011 13.59
2012 15.56
2013 12.85
2014 14.01 14.00 9.06% 8.96%
2015 15.22 14.00 8.58% 0.00%
2016 13.13 14.00 -13.70% 0.00%
2017 14.04 14.00 6.92% 0.00%
2018 14.95 14.00 6.49% 0.00%
2019 13.35 14.00 -10.72% 0.00%
2020 14.06 14.00 5.32% 0.00%
2021 14.75 14.00 4.91% 0.00%
2022 13.52 14.00 -8.35% 0.00%
2023 14.07 14.00 4.10% 0.00%
2024 14.60 14.00 3.72% 0.00%
2025 13.65 14.00 -6.49% 0.00%
2026 14.08 14.00 3.17% 0.00%
2027 14.48 14.00 2.82% 0.00%
2028 13.75 14.00 -5.03% 0.00%
2029 14.09 14.00 2.45% 0.00%
2030 14.39 14.00 2.13% 0.00%
2031 13.83 14.00 -3.89% 0.00%
2032 14.09 14.00 1.90% 0.00%
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Other Dry Bulk
Financial PAG Forecast BITRE Forecast
Historic Freight PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Loaded (Mt)
2033 14.32 14.00 1.61% 0.00%
2034 13.89 14.00 -3.00% 0.00%
2035 14.10 14.00 1.48% 0.00%
According to Figure E.3 a slight downward trend persistent in the historical data is modelled over the
forecast horizon. For the CBA, PAG adopts the BITRE assumptions.
Figure E.4 below compares the BITRE and PAG forecasts for crude oil trade. The recent downward
trend in the volume of freight loaded (measured in metric tonnes) is assumed to persist over the
forecast horizon in both cases, although the PAG case levels out over 2026 - 2034.
Figure E.4 - Comparison of Crude Oil forecasts (financial years)
Table E.5 below summarises the size and assumed growth rates of Oil forecasts.
Table E.5 - Size and assumed growth rate of Oil
Oil Historic
Financial PAG Forecast BITRE Forecast
Freight Loaded PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
(Mt)
2000 4.45
2001 7.65
2002 7.06
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Oil Historic
Financial PAG Forecast BITRE Forecast
Freight Loaded PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
(Mt)
2003 7.34
2004 7.94
2005 6.44
2006 8.17
2007 9.01
2008 6.98
2009 5.10
2010 4.61
2011 2.45
2012 2.88
2013 2.46
2014 1.44 2.34 -41.62% -5.00%
2015 2.06 2.22 43.25% -5.00%
2016 1.65 2.11 -19.67% -5.00%
2017 1.39 2.01 -15.94% -5.00%
2018 1.77 1.91 27.10% -5.00%
2019 1.45 1.81 -17.94% -5.00%
2020 1.46 1.72 1.10% -5.00%
2021 1.62 1.63 10.63% -5.00%
2022 1.43 1.55 -12.06% -5.00%
2023 1.51 1.47 5.95% -5.00%
2024 1.54 1.40 2.20% -5.00%
2025 1.45 1.33 -6.23% -5.00%
2026 1.52 1.26 5.14% -5.00%
2027 1.51 1.20 -1.00% -5.00%
2028 1.47 1.14 -2.31% -5.00%
2029 1.52 1.08 3.09% -5.00%
2030 1.49 1.03 -1.61% -5.00%
2031 1.49 0.98 -0.35% -5.00%
2032 1.51 0.93 1.44% -5.00%
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Oil Historic
Financial PAG Forecast BITRE Forecast
Freight Loaded PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
(Mt)
2033 1.49 0.88 -1.25% -5.00%
2034 1.49 0.84 0.36% -5.00%
2035 1.50 0.80 0.47% -5.00%
Between 2006-07 and 2012-13 coastal shipments of crude oil declined substantially from 9 Mt per
annum to about 3 Mt per annum. This fall was larger than the fall in production as most new domestic
crude oil production occurred off the coast of north-west Australia and is export focused. The
forecasts assume that over the next 20 years coastal shipments of crude oil fall at the same rate as
production, or about 5 per cent per annum, based on BREE‟s long-term forecasts of production.67
Figure E.5 below compares the PAG and BITRE forecasts of petroleum freight volumes. Although the
trend shows an increase in freight in recent years, several reports express negative sentiment about
the future of coastal petroleum flows. For example, an article in Llyods List DCN, "Australia's coastal
confusion has a long, inglorious history" suggests that demand for coastal shipping will decrease as
product tankers deliver closer to consumption.
Figure E.5 - Comparison of Petroleum forecasts (financial years)
Table E.6 below summarises the size and assumed growth rates of Petroleum forecasts.
67
BREE (Bureau of Resources and Energy Economics) (2012). Australian Energy Projections to 2049-50.
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Table E.6 - Size and assumed growth rate of Petroleum
Petroleum
Financial PAG Forecast BITRE Forecast
Historic Freight PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Loaded (Mt)
2000 8.70
2001 7.90
2002 6.38
2003 6.72
2004 6.53
2005 5.76
2006 5.17
2007 5.81
2008 5.14
2009 6.11
2010 5.70
2011 6.29
2012 5.70
2013 6.36
2014 6.13 6.12 -3.58% -3.85%
2015 6.35 6.12 3.57% 0.00%
2016 6.32 6.12 -0.43% 0.00%
2017 6.41 6.12 1.41% 0.00%
2018 6.43 6.12 0.28% 0.00%
2019 6.48 6.12 0.72% 0.00%
2020 6.50 6.12 0.37% 0.00%
2021 6.53 6.12 0.45% 0.00%
2022 6.55 6.12 0.32% 0.00%
2023 6.57 6.12 0.31% 0.00%
2024 6.59 6.12 0.25% 0.00%
2025 6.60 6.12 0.22% 0.00%
2026 6.61 6.12 0.19% 0.00%
2027 6.62 6.12 0.16% 0.00%
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Petroleum
Financial PAG Forecast BITRE Forecast
Historic Freight PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Loaded (Mt)
2028 6.63 6.12 0.14% 0.00%
2029 6.64 6.12 0.12% 0.00%
2030 6.65 6.12 0.10% 0.00%
2031 6.65 6.12 0.09% 0.00%
2032 6.66 6.12 0.08% 0.00%
2033 6.66 6.12 0.07% 0.00%
2034 6.67 6.12 0.06% 0.00%
2035 6.67 6.12 0.05% 0.00%
Furthermore, according to the Australian Institute of Petroleum in its "Submission to the Department of
Infrastructure and Regional Development on the Approaches to Regulating Coastal Shipping in
Australia" coastal shipping of refined petroleum will decrease with the closure of Australian refineries.
Due to the uncertainty on whether Petroleum freight will actually decline and the rate which it will
decline, both PAG and the BITRE forecasts assume a growth rate close to zero.
Figure E.6 below outlines the forecasts of other liquid freight volumes. Again, both sets of forecasts
assume a relatively flat growth rate over the forecast horizon. Historic trends suggest that the sector is
somewhat volatile. As such a conservative approach, i.e. assuming a flat growth rate is reasonable.
Figure E.6 - Comparison of Other Liquid forecasts (financial years)
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Table E.7 below summarises the size and assumed growth rates of Other Liquid forecasts.
Table E.7 - Size and assumed growth rate of Other Liquid
Other Liquid
Financial PAG Forecast BITRE Forecast
Historic Freight PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Loaded (Mt)
2000 0.99
2001 0.52
2002 0.78
2003 0.95
2004 0.83
2005 0.41
2006 0.67
2007 0.73
2008 1.05
2009 0.70
2010 0.32
2011 0.61
2012 0.98
2013 0.68
2014 0.50 0.76 -26.25% 11.87%
2015 0.70 0.76 40.46% 0.00%
2016 0.82 0.76 16.66% 0.00%
2017 0.68 0.76 -16.69% 0.00%
2018 0.61 0.76 -11.27% 0.00%
2019 0.70 0.76 15.26% 0.00%
2020 0.75 0.76 7.24% 0.00%
2021 0.69 0.76 -8.35% 0.00%
2022 0.65 0.76 -4.83% 0.00%
2023 0.70 0.76 6.46% 0.00%
2024 0.72 0.76 3.13% 0.00%
2025 0.69 0.76 -3.98% 0.00%
2026 0.68 0.76 -2.07% 0.00%
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Other Liquid
Financial PAG Forecast BITRE Forecast
Historic Freight PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Loaded (Mt)
2027 0.70 0.76 2.86% 0.00%
2028 0.70 0.76 1.35% 0.00%
2029 0.69 0.76 -1.85% 0.00%
2030 0.69 0.76 -0.89% 0.00%
2031 0.69 0.76 1.28% 0.00%
2032 0.70 0.76 0.58% 0.00%
2033 0.69 0.76 -0.85% 0.00%
2034 0.69 0.76 -0.38% 0.00%
2035 0.69 0.76 0.58% 0.00%
Forecasts of inter-capital containers as displayed in Figure E.7 show a steady increase over the
forecast horizon in both the PAG and BITRE cases. The forecasts are influenced by projections of
economic activity as proxied by Gross Domestic Product (GDP) which is used as a regressor (i.e.
explanatory variable) in both models.
Figure E.7 - Comparison of Inter-capital container forecasts (financial years)
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Table E.8 below summarises the size and assumed growth rates of Inter-capital Container forecasts.
Table E.8 - Size and assumed growth rate of Inter-capital Containers
Inter-capital
Financial Containers PAG Forecast BITRE Forecast
PAG Forecast BITRE Forecast
Year Loaded (Mt) Growth Rate Growth Rate
Historic
2000 0.54
2001 0.53
2002 0.69
2003 1.02
2004 0.91
2005 1.01
2006 0.98
2007 1.26
2008 1.52
2009 1.56
2010 1.31
2011 1.74
2012 1.85
2013 1.58
2014 1.83 1.92 16.05% 21.30%
2015 2.09 2.01 13.82% 4.49%
2016 2.08 2.11 -0.35% 4.89%
2017 2.08 2.20 0.05% 4.45%
2018 2.24 2.29 7.83% 4.33%
2019 2.40 2.39 6.82% 4.21%
2020 2.44 2.49 1.79% 4.11%
2021 2.50 2.59 2.45% 3.99%
2022 2.63 2.69 5.23% 3.89%
2023 2.74 2.79 4.31% 3.80%
2024 2.81 2.90 2.49% 3.71%
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Inter-capital
Financial Containers PAG Forecast BITRE Forecast
PAG Forecast BITRE Forecast
Year Loaded (Mt) Growth Rate Growth Rate
Historic
2025 2.90 3.00 2.97% 3.63%
2026 3.01 3.11 3.86% 3.54%
2027 3.11 3.21 3.31% 3.47%
2028 3.19 3.32 2.64% 3.40%
2029 3.28 3.43 2.86% 3.33%
2030 3.38 3.55 3.11% 3.26%
2031 3.48 3.66 2.81% 3.20%
2032 3.57 3.78 2.54% 3.14%
2033 3.66 3.89 2.63% 3.09%
2034 3.76 4.01 2.66% 3.04%
2035 3.85 4.13 2.50% 2.99%
In regards to the inter-capital containers sector, the output of the structural time series model closely
aligns with the assumptions developed by the BITRE.
Figure E.8 below compares the PAG and BITRE forecasts relating to Bass Strait non-bulk freight.
Projections of Gross State Product (GSP) in Tasmania of between 1.5 - 2.0 per cent per annum
influence the forecasts in both cases.
Figure E.8- Comparison of Bass Strait non-bulk forecasts (financial years)
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Table E.9 below summarises the size and assumed growth rates of Bass Strait Non-Bulk forecasts.
Table E.9 - Size and assumed growth rate of Bass Strait Non-Bulk
Bass Strait Non-
Bulk Freight
(sum of
Financial PAG Forecast BITRE Forecast
Tasmania as PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Destination and
Origin) Historic
(Mt)
2000 3.03
2001 2.85
2002 3.54
2003 3.47
2004 3.96
2005 4.31
2006 4.24
2007 4.53
2008 4.75
2009 4.40
2010 4.39
2011 4.45
2012 4.41
2013 4.39
2014 4.59 4.65 4.64% 6.04%
2015 4.80 4.75 4.43% 2.12%
2016 5.25 4.83 9.37% 1.74%
2017 5.43 4.92 3.51% 1.79%
2018 5.60 5.03 3.17% 2.12%
2019 5.96 5.15 6.35% 2.41%
2020 6.10 5.24 2.30% 1.91%
2021 5.96 5.34 -2.25% 1.80%
2022 5.97 5.42 0.13% 1.55%
2023 5.91 5.49 -0.97% 1.34%
2024 5.88 5.57 -0.48% 1.38%
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
Bass Strait Non-
Bulk Freight
(sum of
Financial PAG Forecast BITRE Forecast
Tasmania as PAG Forecast BITRE Forecast
Year Growth Rate Growth Rate
Destination and
Origin) Historic
(Mt)
2025 5.86 5.65 -0.26% 1.37%
2026 5.85 5.72 -0.22% 1.35%
2027 6.10 5.80 4.24% 1.34%
2028 6.46 5.88 5.88% 1.32%
2029 6.62 5.95 2.45% 1.31%
2030 6.90 6.03 4.34% 1.29%
2031 7.26 6.11 5.12% 1.28%
2032 7.42 6.18 2.30% 1.26%
2033 7.49 6.26 0.84% 1.25%
2034 7.46 6.34 -0.36% 1.24%
2035 7.41 6.42 -0.68% 1.23%
The table below provides reports the results of the diagnostic tests for normality (N), heteroscedasticity
(H) and the Rd2 measure of goodness of fit relating to each of the PAG forecasts. The standard error
(SE) associated with each of the models is also presented. In all cases the forecasting models pass
the diagnostic tests. In each case, the models passed the relevant diagnostic tests, indicating that the
forecasts are statistically robust.
Table E.11 - Diagnostic tests associated with PAG forecasting models
Test Bauxite Iron Ore Other Oil Petroleum Other Inter- Bass
statistic Dry Bulk Liquid capital strait
Containers Non-
0.78 0.69 0.86 0.37 0.52 0.58 0.42 Bulk
0.39
1.62 1.11 1.84 1.20 1.39 3.36 2.79 1.88
0.95 8.2 0.64 6.89 1.67 8.35 4.80 8.98
0.85 1.76 1.22 0.92 0.95 4.32 0.98 0.07
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Deprtament of Infrastructure and Regional Development
Cost Benefit Analysis of Regulatory Coastal Shipping Options
April 2015
General limitations associated with forecasting
It is important to note that the forecasts contained in this report have been prepared on the basis of
assumptions and methodology which have been described in this report. It is possible that some of
the assumptions underlying the forecasts may not materialise. Nevertheless, we have applied our
professional judgement in making these assumptions, such that they constitute an understandable
basis for estimates and projections. Accordingly, readers of this report must appreciate that, to the
extent that certain assumptions do not materialise, the estimates and projections may vary.
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