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Productivity Commission refloats case for coastal shipping reform

Coastal shipping reform has been on the agenda for as long as the Coalition has been in Government, so why do we need it, and what’s taking so long?

Australia’s coastal shipping rules have made sea freight unaffordable for many farmers. Approximately two-thirds of all Australian produce is exported – and for many farmers, shipping is an essential link in the supply chain.

Goods that would once have been shipped are now transported on trucks and trains, increasing pressure on our already strained road and rail networks. In Tasmania, where freight options are limited, costs are high and farm gate margins suffer as a result.

Figures released by the Productivity Commission on 21 July 2016 estimate average transport costs from farm gate to destination (both domestic and international) at 21% of farm gate value. Of course, this is only an average – in some cases it can be as much as 50%. In a sector where every cent counts, making shipping more affordable for farmers can improve profitability and free up revenue to support greater work/life balance or business growth.

Shipping costs are high because there is a lack of competition around the Australian coast. Despite rhetoric about “revitalising the Australian shipping industry” at the time, coastal shipping rules introduced in 2012 have served to hasten the long term industry decline. In the first two years of operation, there was a 63% decline in carrying capacity across the major registered Australian vessels and there are now no more than 6 ships remaining in the Australian fleet.

Coastal shipping rules give preference to Australian-flagged ships, pricing foreign vessels out of the market before they even attempt to gain a license to carry domestic cargo. Under the current regime, a person can contract with a shipping company to ship their goods at an agreed price. If the ship that will carry the goods is not registered in Australia, it must be covered by a temporary licence – the application for which triggers notification to all Australian registered ship operators that a proposed voyage is up for grabs and they can do it themselves if the Infrastructure and Transport Department approves. Assume for a minute that the Department approves the contract takeover - the new operator can then renegotiate the contract at will, increase the tonnage rate, and leave it to the original contracting parties to work out who should cover the extra cost.

As the Productivity Commission found, barriers to entry for foreign vessels need to be removed to create greater competition and improve the efficiency of coastal shipping services.  This will be particularly beneficial for Tasmanian producers, who rely more than most Australians on shipping to get their goods to market. Which is why it was so surprising when Independent Senator Jacqui Lambie voted against coastal shipping reform introduced by the Coalition in the last term.

Claims that stopping coastal shipping reform was saving “Aussie jobs” are unjustified – a point made clearly by the Productivity Commission in its draft report on agricultural red tape. If the current rules protect some Australian jobs in the short term, they do so at the cost of job growth in a range of other industries, including agriculture. And in the longer term, those same Aussie jobs will go anyway, as the shipping industry slowly dies.

No-one wants seafarers sitting on the shore watching foreign ships sail by. Sadly, that is what is happening now – and will continue to happen – without much needed reform to restore competition around the coast. The new Minister for Infrastructure and Transport, Darren Chester MP, may yet fare better with the Senate cross-bench than his predecessor did – and let’s hope so - the economy can’t afford to let coastal shipping reform sail away.

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