Last year a leading maritime industry analyst Sandy Galbraith delivered a comprehensive report to the Australian Marine Pilots Institute at the Australian Maritime College, University of Tasmania. This speech, outlines in objective detail, the pros of having a strong coastal shipping policy backed by members of parliament, regardless of political opinion.
Deputy National Secretary Mick Doleman said this speech was more pertinent than ever, given the meetings the Abbott Government was having with industry.
“Deputy Prime Minister Warren Truss has continually maintained that eradicating cabotage will solve all of Australia’s woes from unemployment to cost of living,” Mr Doleman said.
“This insight by a shipping expert disproves these erroneous claims by pointing to shipping regimes implemented by countries such as Canada and Brazil that have been effective in revitalising shipping.
“All politicians should read this speech, instead of bowing to the vested interests intent on a deregulation race-to-the bottom.”
Thinking Outside the Box on Coastal Shipping and Cabotage: An extract from a speech delivered to the Australian Marine Pilots Institute at the Australian Maritime College, University of Tasmania on November 20, 2014. Published originally here.
By Sandy Galbraith
Australia generates massive demand for shipping services. It has the fourth largest shipping task on the globe, with 99 percent of all our international trade volume transported by ship at a value of A$418 billion.
However, at present Australia does not leverage maximum economic opportunity from its shipping dependency. This is despite the fact that the benefits of maritime clusters have been harnessed in many areas of the world – in particular Europe, South America and closer to home in Asia.
In Australia, freight transport services do not even rate among the top 25 goods and services exports and the domestic shipping fleet, as well as Australian involvement in both coastal and international trade, has been in decline for over 20 years.
When I arrived in Australia 25 years ago, we had a fleet of more than 70 ships. Today our fleet is just 21. Why has this happened?
Alternative governments since the 1980s have periodically reviewed the state of the Australian shipping industry. However, persistent failure to take a bipartisan approach in adapting to the fundamental changes in global vessel operating practices in the proactive manner of many other established maritime nations has resulted in a prolonged decline of our domestic shipping industry.
Despite the ongoing lack of investment in blue water ships in Australia, there are still factors which have the potential to create additional demand for these services over time.
Within the lifetime of a typical Australian, the number of people living in this country is expected to increase by some 60 percent by 2050. This will drive unprecedented demand for goods and services with the overall domestic freight task projected to triple by 2050.
This presents an exciting opportunity for Australian shipping and the Government has already acknowledged that shipping will have to play a stronger role in Australia’s transport task into the future. However, in the absence of determined Government action to level the playing field and encourage re-investment in blue water ships, most stakeholders expect the domestic shipping fleet to continue its long decline.
Some stakeholders have described the current state of the industry as “the worst in living memory” while others have said the industry is “withering on the vine” and unless something is done “the coast will be opened up by default”.
It is clear the Australian coastal shipping business in its current form needs some kind of revival. The Gillard Government’s reforms under the Coastal Trading Act have been an abject failure. The Australian International Second Register created under that government’s reforms has failed to produce a single new ship. And the signals coming from Canberra suggest that the Abbott Government may well opt for a broad and unrestricted opening of the coast to international ships.
For reasons I will now outline, I believe that this would be a catastrophic mistake. There are lots of vested interests shouting loudly in support of this approach, but the fundamental question that needs to be addressed by Government is whether it is prepared to maintain a workable and efficient cabotage regime that enables fair competition, or whether it wishes to return Australian shipping to the untenable position where it cannot compete with international ships, thus consigning the industry to a slow but inevitable demise.
The Government must also consider potential impacts on the maritime skills base.
Maintenance and replenishment of a maritime skills base is one of the legitimate policy rationales for maintaining a viable coastal shipping fleet. The blue water coastal trading fleet carries a disproportionately large share of training and maritime skills development responsibilities (compared to other non-coastal shipping sectors such as offshore oil and gas).
Coastal shipping currently provides training for 36 percent of maritime cadets annually, more than double compared to offshore oil and gas, which is the second largest contributor to training at 17 percent.
The reality for the Australian coastal merchant fleet is that having endured a prolonged period of decline and a lack of investment in training of new personnel, the industry is almost certainly at the tipping point in terms of long-term sustainability. A growing number of industry veterans argue that it is already past that crucial point.
Whilst it is widely acknowledged in the industry that a healthy domestic shipping fleet provides the foundation for many professional tasks based ashore (e.g. pilots, harbour masters, terminal managers, marine surveyors, etc.), there is a widespread and growing view within the maritime-related shoreside industries that Australian mariners no longer offer the same attraction as they did in the past. These employers are increasingly eschewing the local market and going directly overseas to source talent. Why?
Most obviously, the age profile is an issue. Australian mariners are on average getting older and moving beyond the “sweet spot” shore-based industries look for in terms of age when sourcing new staff. Next is the lack of skill sets. A diminishing Australian fleet that has been focussed on a narrow set of operational activities has worked against Australian mariners.
Personnel in fleets abroad may serve aboard five or six different types of ships in a five-year period with the result that they widen their skill sets considerably. For example, the Dutch, whose larger companies have fleets that can comprise anything from offshore supply, river barges and wind-farm service vessels through specialist heavy lift and semi-submersible ships to super panamax container vessels and extremely high-tech Q-Max LNG ships. Officers and crew in the Dutch (or the Danish, Swedish, German, Canadian or Japanese) merchant services can gain a broad range of professional experience during relatively short periods at sea. Little wonder then that these personnel are in high demand when jobs come up ashore in ports, pilotage services and maritime administration centres.
Interestingly Denmark, which is arguably the most successful shipping nation in the world today, has developed a model to make the seagoing profession more attractive
In brief, officers who have achieved the levels of master or chief engineer, typically having accumulated more than 10 or 15 years at sea, are eligible to pursue various marine-related qualifications (in insurance, maritime law, and finance, for instance) at recognised Danish universities with no additional costs or entry requirements. The objective of this scheme is to give young people considering a career in shipping some perspective on the various career paths they can pursue after their chosen timeframe at sea.
In many respects, this approach mirrors that of many military navies around the world where officers and crew know they can have a limited time at sea before coming ashore. The navies prepare and train them whilst at sea in a range of craft to optimise their professional knowledge and skills when required to come ashore.
In stark contrast, an Australian mariner may find him or herself spending most or all of his or her career employed on the same ro-ro vessel plying voyages back and forward across the Bass Strait. This offers little in the way of stimulation, career variation and can (and apparently often does) lead to what some employers describe as “poor attitude” perceptions.
In recent years, the developing offshore industry off Australia’s north west coast has increasingly drawn the best of the coastal shipping talent offering high wages, modern and sophisticated tonnage and arguably better working conditions. Many of those remaining on the coastal trade can be left somewhat embittered with those problems I have just outlined only being accentuated. Lack of motivation, lack of initiative, complacency and insubordination can result, all of which may have the potential to impact on vessel safety
Okay. Now that’s the downside. Let’s now look at the opportunities.
There is no quick fix to this problem and a long-term commitment will be required from all parties to grow this important facet of Australia’s economy. The current Government has an excellent opportunity to put the correct settings in place to foster investment, development, cooperation and growth of the Australian shipping industry.
Coastal shipping needs to figure more prominently and be better integrated into both State and Federal Government transport and freight infrastructure plans. The limited view of the role of the Australian blue water fleet as ancillary to the domestic manufacturing industry needs to be broadened to include its economic and skills development contribution. Limited perception of the strategic importance of the coastal shipping industry is undermining political support for cabotage.
There are valuable lessons to be taken from the various jurisdictions which have recognised the importance of cabotage protections to their national interests.
Canada, for example, has increased the scope of activities included in the definition of cabotage and the geographic area to which it applies, as well as introducing a range of financial incentives for ship owners/operators engaged in coastal trading.
Brazil has turned around the decline of its domestic fleet by adopting a flexible cabotage regime which retains the requirement for coastal trading ships to be owned and operated by Brazilian based companies but allows major international lines (e.g. Maersk) to take a position in those companies and thus buy into the Brazilian shipping market. The Brazilian Government also took advantage of the significant offshore developments off the coast of Brazil to introduce cabotage rules that have resulted in vibrant maritime clusters that contribute to the economic growth of the nation.
Various other jurisdictions have also introduced competitive taxation regimes to attract interest from ship operating businesses, which has resulted in the growth of their respective shipping fleets.
There is nothing that prevents Australia from exploring and adopting similar initiatives to improve the health of its domestic shipping industry. The possibility of adopting select elements (e.g. fiscal incentives, foreign participation rules etc.) of the Brazilian, Canadian or other cabotage regimes should be considered.
In addition to the opportunities presented by looking at lessons in other jurisdictions, there are also opportunities to be found in Australia that, with appropriate policy settings, can result in the growth of the Australian coastal (and international) trading fleet.
Carrier interests consider that, with the right framework in place, there is potential for several Australian ships to be registered on the Australian International Second Register, including bulk, multipurpose and project cargo vessels. These ships could engage in both coastal and international trading.
Coastal shipping of dry bulk can potentially grow in Australia. There may be potential for Australian vessels to be introduced to contest some of the dry and liquid bulk coastal trades that are currently handled by Temporary Licensed ships.
Several carriers have expressed an interest in introducing additional multipurpose vessels on to the Australian coast. The flexibility of the multipurpose vessel opens up many potential cargo markets, both in terms of cargo type and geographical placement.
Coastal LNG shipping is another area of potential with a number of large production development projects underway. The future of LNG shipping in Australia is only just beginning to be explored by related industry and represents a longer-term prospective development.
Perhaps most significant of all, there may be opportunity for Australian ships to take on a greater role in the coastal container trade, particularly with growth in containerisation of mineral and agricultural products from regional ports needing transshipment to international ports as well as the possibility of a hub and spoke port configuration developing in Australia.
The realisation of these opportunities should involve extensive industry consultation – including both carrier and cargo interests – to arrive at the most appropriate initiatives for improving the regulatory framework and the overall state of the Australian coastal shipping industry. It is easy to point the finger at Government but they are not the only actors – unions, shipping companies and shippers must all coalesce to be part of a cohesive and cooperative solution backed up by a progressive and robust policy framework set by Government with their direct input.
Where, not so very long ago, the container shipping industry was operating fleets with ships mostly in the sub-8,000 TEU range and talking of 12,000 TEU ships being about as high as we need go for some years to come; today, the majority of containership deliveries are in the 8,500 to 18,000 TEU range. We now have a significant surplus of ships, an associated surplus of cargo capacity and inevitably, a surplus of containership operators.
The shipping lines are in the midst of a crisis, seeking out alliances with others so as to reduce their mounting costs and losses. There will be some market failures – some shipping lines will go to the wall. Ultimately, when the dust has settled, there will be fewer shipping lines servicing the Australian market than there are today and those that remain will be looking to streamline their operations in the most efficient manner.
Some of the biggest container lines are discussing the prospect of hubbing in Australia; in other words, making one port call in the country instead of five, with boxes distributed around the country by related coastal shipping services. This is already starting to occur in the other southern trades – South America, Africa and New Zealand.
Currently, container ships on our major trades work in a cycle through the nation’s five container ports – (Brisbane, Sydney, Melbourne, Adelaide and Fremantle).
Policy makers here should not ignore what is happening in the global containership industry, which is dominated by the east-west/west-east trades – Asia to the US to Europe to the Middle East, back to Asia.
The largest ships – the leviathans that are capable of carrying up to 18,000 containers will dominate those trades. Smaller vessels – though increasingly these days, that is a relative term – operate on the North-South trades: Asia to Australia/New Zealand, Europe to Africa and, Europe/North America to South America.
Several shipping lines have been signalling their intention to upsize the ships calling into Australian ports – and we are not talking about vessels of 6,000 TEU, which is what the port planners for years have been factoring in; that generation of container vessel was largely skipped in the rush towards gigantism post GFC. What we are talking about are vessels of 8,000 TEU plus. These are longer and wider than our ports had planned for and they will be filtering down into our trades much, much sooner than our governments and ports had anticipated.
Most ports have been working on the comfortable assumption that they have at least until the end of the decade to address the issue. They would be well advised to urgently rethink their planning models; for as more and more of those giant containerships come out of the shipyards to enter the east-west trades, the pressure grows on the big shipping lines to deploy the 8,000 TEU vessels in the north-south trades. We could see them in Australia within two years.
What has happened in recent times in the other great North-South trade, the South American trade, is worth noting. Drewry recently reported that in 2010 the average container ship size was about 4250 teu. Today, four years later, that number has changed to 6,700 teu, indicative of the flow-in of the larger box ships into that trade. And it is going to happen here too… and soon. Sooner than many people think.
This will bring enormous challenges to the Australian ports – not least Melbourne, where Swanson Dock cannot accommodate such vessels because of their length and the first berth at the new ICTSI/Anglo Ports Terminal at Webb Dock East will not be on stream until December 2016 at the earliest. One berth will hardly be enough.
Currently, Sydney’s Port Botany is the only port geared up to accommodate these larger ships. The Port of Brisbane is in the process of getting a dredging program underway to meet the shipping market’s new requirements.
Meanwhile, Melbourne is left behind. The slow decision making that has been a feature in Victoria for many years with respect to container port development is going to come back to bite and while obviously we will still see high volumes of boxes moving through the port – for population drives trade – Melbourne will inevitably lose its Number One container port status to either Brisbane or Sydney, whichever port the shipping lines chose as their national hub.
The entry of larger container ships into the Australian market can be expected to lead to pressure from the major shipping lines on some Australian port authorities to dredge their channels to accommodate the new requirements and expectations. However, it would be unreasonable to expect all the five major container ports in Australia to dredge their channels and improve facilities to meet this potential demand in a timely and cost effective manner.
More likely, and infinitely more preferable from the shipping lines’ perspective, would be the establishment of a hub-and-spoke configuration for containers in Australia. The concept is well established in Europe and the US. In northern Europe, key ports such as Rotterdam and Hamburg serve as distribution centres to several countries. Containers are either transshipped to smaller container vessels or barges, or distributed to their destinations by the road and rail networks.
On the US west coast, for example, the ports of Los Angeles and Long Beach serve as major container hubs for many Mid-West states. In South East Asia, Singapore plays a similar role, where more than 90 percent of containers arriving in the port are trans-shipped to other destinations.
Hubbing would allow major container shipping lines in our key trades to focus their international services on a single Australian port call with the other ports being serviced by regular coastal shipping operations. This would result in major cost savings for them as well as major reductions in sailing times.
This could see one or potentially two hubs emerge in Australia. An east coast hub could service the North Asia/Trans-Pacific trades, whilst a west coast hub could service the SE Asia/Europe/Middle East trades.
Currently, the primary candidates on the east coast are the port of Brisbane (shortest steaming distance from Asia) or Port Botany. Hastings, if it ever gets built is another possibility, but time and painfully slow decision making is likely to work against it.
On the west coast, lack of critical mass puts the viability of a container hub in question, although the port of Fremantle – the major west coast port – or possibly Darwin (which has the shortest steaming distance from Asia) could potentially fulfill the function. The minimum berth depth required to accommodate 8,000 TEU to 10,000 TEU container ships is in the range of 15 to 16 metres. Dredging would be required at Fremantle and Darwin to accommodate the larger ships.
Of course, the other west coast hub alternative could be offshore – say Singapore or another SE Asian port; which would present an interesting challenge in that it could potentially circumvent cabotage policy.
That tantalising question aside, hubbing would create an opportunity for Australia to have a substantial coastal container shipping service. Potentially, if a west coast or SE Asian hub comes to pass, for the first time in our history, there could be a container trade balance between the west and the east coasts of Australia.
It may well be that the parent companies that would run the Australian coastal container operations will be the major overseas-based container shipping lines. But as has already been indicated by Maersk in its revival of the Sea-Land brand in the US for its Intra-Americas trade (which will operate under Jones Act conditions) as well as in Brazil, there is a preparedness among the large lines to adapt to local cabotage policy conditions.
Therefore, there is the very real possibility that Australia could have local branding (with substantial domestic crewing) on a large number of coastal container vessels. These ships, which would less than 8,000 TEU capacity, could be operating container services on our coast within the next few years.
Both hub ports would be transshipment centres feeding the coast with goods from trades no longer serviced directly by international shipping.
Of course, shipping lines are always on the lookout for gaps in the market and you can bet your bottom dollar that one or two lines will continue to offer “niche” direct international services to the five Australian ports with smaller vessels, but history dictates that the bulk of the business will flow to the container giants who will enjoy the considerable economies of scale. Not to mention the sizeable economic and environmental advantages that will exist over competing road and rail services.
With established coastal services, the ports outside the hubs would enjoy the same cargo volume growths as are currently anticipated. However, they would have confidence in planning, knowing that any upscaling of vessels could be carefully planned on the basis of the coastal fleet being stable in dimensions for perhaps 15 to 20 years before any further upscaling would be required.
The coastal container lines similarly could plan their fleets on a long term basis knowing that their cost base, their cargoes and their position in the market were secure. With these key fundamentals, the employment of Australian seafarers would also be secure and healthy, giving the domestic industry a stability and viability not seen since the 1970s.
The key to making this happen is to have the policy footings in place to maximise what could and should be a huge opportunity for the growth of Australia’s domestic fleet.
The potential economic benefits that this development would bring to Australia warrant serious consideration by policymakers of the most appropriate regulatory framework to facilitate this outcome. It will also be incumbent upon the maritime unions to be proactive in facilitating and promoting this Australian ship expansion opportunity in order to enable its introduction as soon as practicable.
The Brazilian model is of particular interest here. A policy framework could be developed to enable foreign shipping lines to enter into arrangements with local companies to obtain a share of the market on the clear understanding that they must employ Australians on these vessels. The proportion of Australian crew would need to be determined.
What is all too often overlooked in the coastal cabotage debate is that cabotage was created for two industries: shipping and aviation. Look at our own domestic aviation industry – Virgin Australia is largely owned by foreign interests, but is headquartered in Australia, employs Australians and pays Australian tax.
Maersk Australia, CMA CGM Australia (or perhaps its subsidiary ANL), indeed any number of lines currently operating into Australia could similarly transform their Australian agency operations from basic ship husbandry and cargo space sales operations into fully-fledged ship management businesses bringing huge benefits to our domestic shipping scene. They would be headquartered in Australia, employ many more Australians and – you would hope – pay considerably more Australian tax.
Politicians so often fail to understand the significant role shipowners play in the ports, transport and logistics industries. All too often they assume that the shipowners are just bit-part players in the grand scheme of things and that the local transport and logistics businesses are the most important factor. The reality is precisely the reverse.
The fundamental truth with ports is that they are not designed for trucks and trains; they are designed for ships. And if the shipowners don’t want to go to a port, then quite simply, they won’t. Frankly, the landside infrastructure issues are a secondary consideration, but they get all the political attention. If there is a need for a port, the landside will quickly adapt to that need and build the roads and railways required; not the other way round.
It can be very costly to underestimate the power of the giant global shipping lines. Let me give you an example. Back in the late 1990s, you would have been hard pressed to find a more complacent, self-satisfied management team than that running the port of Singapore. After all, they were in charge of the primary container-shipping hub in Asia; the vast majority of the cargo coming into the port was being transshipped to other destinations so they had few landslide linkage issues to worry about and they were raking in money.
Not satisfied with this fortuitous position, they insisted on a series of arbitrary price increases, which enraged the shipowners. In 2000, the biggest of those owners, Maersk Line of Denmark, said enough was enough and promptly, in cooperation with the Malaysian Government, set about developing a rival port at Tanjung Pelapas. Two years later, another shipping giant, Evergreen Line of Taiwan, followed Maersk to the new port. Within a very short time, a significant chunk of Singapore’s container throughput disappeared across to Johor.
Today, almost eight million containers go through Tanjung Pelapas. Had it not existed, that cargo would most likely have gone through Singapore.
Singapore’s pre-eminence in the SE Asia region is being continually undermined by challenges from rival ports. The new government in Indonesia has signalled that one if its primary tasks will be to develop the port of Djakarta as a regional container hub. Similar noises are coming out of the Indian sub-continent.
So the message is clear: ports should never assume that things will remain just as they are; shipping is a dynamic industry, run by dynamic people who are more than capable of taking dynamic decisions that can deeply injure the profitability of ports and their associated industries.
There is a very clear and unambiguous message for our politicians here.
If the truth be known, we could be on the cusp of some very exciting developments in our shipping industry. The challenge for everyone is to recognise this and make it happen.
This really is the last chance for Australia to save its maritime industry.
It is absolutely vital that everyone in this auditorium takes this message with them to their MPs and their ministers in order to help them to understand that killing cabotage and opening the coast up without reservation would be catastrophic. Currently, all these politician hear are the screams from farmers and miners looking to save a few dollars in the short term. Little do those farmers and miners realise that, in their quest for “market liberalisation”, they ultimately are going to find themselves with limited and unreliable shipping options that inevitably will get more expensive as their dependence on outside shipping interests increases.
I ask you to use whatever influence you can to encourage those politicians who will be reviewing our coastal shipping legislation to think clever; to think outside the box and look at the cabotage models to be found overseas – and in the aviation industry.
If you do that – and you happen to make them listen – you could be contributing to the creation of a self-sustaining Australian maritime industry that will endure for generations to come.