Resource Tax - Blinding Miners To Golden Shipping Opportunity

The Resource Super Profits Tax (RSPT) may have resolved but through the stand off with the Government the miners may have been blinding themselves to some golden opportunities in shipping. National Secretary Paddy Crumlin highlighted the opportunity in a recent opinion piece in Lloyd’s List DCN.

As the mining giants have waged their anti-Resource Super Profits Tax (RSPT) with vitriol against the Government, they may have been blinding themselves to the potential for some long term transport infrastructure gains.  Beyond the infrastructure surety in port road and rail the new tax has largely been focused on, there may be once-only opportunities for Australia’s resource industries and domestic freight markets. They could argue strongly in favour of the fiscal incentive policy package for international and domestic shipping industry that the Government is believed to be close to finalising.

A critical element of the package that promises to determine the future of shipping in Australia, is a Tonnage Tax - widely accepted in major international economies as an alternative to corporate tax, effectively lowering it. If introduced it would see a significant investment in new shipping in Australia.

The miners have good reason for backing a package that could provide an offset against the RSPT, in whatever form it eventually takes, and derive considerable benefit to their bottom lines.

Shipping represents a large and important set cost of business for resource companies. Yet they have increasingly lost control of their shipping business to international charterers who determine charter costs and therefore freight rates subjecting the miners in turn to big cyclical shifts in costs in an industry where stability in capital productivity is a key driver to commercial success.

After the extraordinary freight rate rises during the long boom period of the 90s and up to the GFC, resource companies are now attempting to take better control of their shipping services reversing a long trend of selling on an FOB basis. Brazilian giant Vale has committed more than $10 billion to control all of its shipping operations within 3 years. The  policy initiatives would significantly support miners and shippers like Rio Tinto, which has recently invested in their fleet as well. Rio has 11 bulk carriers on order and BHP has just announced that it will buy 6 vessels.

The shipping policy initiatives before government include the Tonnage Tax; accelerated depreciation; capital grants for ships; seafarer tax concessions along with an Australian international ship register being called for by shipping companies; and a stable regulatory and cabotage system that would see Australian ships and crew predominantly servicing Australian coastal trades. The last two measures are aimed at increasing the level of Australian participation in international shipping.

The combination of these initiatives would mean the resource exporters would have an alternative shipping option. It would dramatically impact on their freight rates, asset utilisation and improve their international competitiveness and see new investment in ships for the Australian coastal trades. 

Based on their submissions to the Rebuilding Australia’ Coastal Shipping Industry inquiry in 2008,   the resource giants would take to the fiscal changes like a crusher to ore.  Rio Tinto Marine strongly supported the Tonnage Tax so prevalent overseas and Andrew Forrest’s Fortescue Metal s Group was like minded. Fortescue talked about linking training KPIs to receipt of the benefit of the new tax and company programs to see employment of immigrants from Pacific islands, Philippines and Indonesia plus incentives for indigenous employment.

It may pay for the miners, in the heat of battle, to give good consideration and support to their alternatives in lowering their overall tax exposure through supporting the new shipping policy package and in doing that taking a fair bit of the sting out of the RSPT. They’ll find the Federal Government listening.