The document discusses commercial shipping operations in Australia and the declining involvement of Australian-registered ships. It notes that less than 1% of Australia's exports are carried by Australian-flagged vessels. Several reasons are provided for the decline of the Australian shipping register, including higher operating costs for Australian ships due to domestic regulations and the competitive advantage of foreign-flagged vessels operating under permits.

1. Commercial shipping operations in Australia and the diminishing involvement of Australian registered ships Shipping Industry Policy John Francis │ Director │ Maritime Transport Policy Centre (MTPC)

2. Dalrymple Bay Anchorage MTPC Source: Southern Cross Maritime

3. Declining involvement of Australian ships in the Australian dry bulk trades Australian international + coastal freight task Involvement of Australian flagged ships in these trades Ship types engaged in the dry bulk trades and their place of registry How are these ships contracted to carry Australian bulk cargoes? Reasons for the decline of the Australian register MTPC

4. Australia’s exports by commodity 2007-08 MTPC Source: BITRE 2009 Commodity Exports (tonnes) Commodity rank (tonnes) Iron ore & concentrates 314 738 744 1 Coke, coal & briquettes 252 920 470 2 Petroleum oil 12 162 333 3 Confid transactions NES 24 966 000 4 Aluminium ores & alumina 24 377 928 5 Petroleum oils & refined products 2 250 762 6 Cork & wood 13 154 304 7 Crude minerals 11 420 940 8 Cereals 11 791 978 9 Other metallic ores & scrap 10 040 760 10

5. Australia’s exports by commodity 2007-08 MTPC Source: BITRE 2009 Commodity Exports (tonnes) Commodity rank (tonnes) Iron & steel 1 663 538 12 Fertilisers, manufactured 672 494 15 Lead & zinc ores & concentrates 2 825 517 17 Animal feed 1 496 591 20 Copper ores & concentrates 1 787 134 25 Sugars and honey 548 011 36 Mineral sands 435 347 43 Liquefied natural gas (LNG) 5 854 240 ($,000) 14 (ranked by value)

6. Australia’s imports by commodity 2007-08 MTPC Source: BITRE 2009 Commodity Imports (tonnes) Commodity rank (tonnes) Chemicals 6 214 422 11 Fertilisers, manufactured 2 863 134 15 Fertilisers, crude 718 258 34

7. Australia’s exports by destination 2007-08 MTPC Source: BITRE 2009 Destination Export weight (tonnes) Japan & N Asia 317 903 221 E Asia 249 723 231 Europe 43 219 971 South Asia 28 935 905 South East Asia 24 402 366 Middle East 9 313 879 South America 8 588 326 Destination Export weight (tonnes) N & Central USA 8 294 819 Africa 6 030 812 New Zealand 5 149 194 Rest of the world 2 341 834 Pacific Is & PNG 1 940 763 Total 705 844 322

8. WSJ forecast growth in ore exports (March 2010) 300 million tonnes $38 billion Combined trade of Dampier and Port Hedland in 2009 Combined value of the commodities exported from the ports MTPC Source: Wall Street Journal

9. WSJ forecast growth in ore exports (March 2010) $25 billion $12 billion In Iron Ore, Volumes could triple within 5 years in LNG Smaller volumes of other bulk minerals, salt and general cargo MTPC Source: Wall Street Journal

10. Australian coastal freight Summary of Australian coastal freight, 10 years to 2007-08 MTPC Source: BITRE 2009

11. Coastal permits Freight Carried Under Permit (Tonnes) 1990/00 – 2008/09 MTPC Source: BITRE 2009

12. Coastal permits Impact of voyage permits on coastal trade 2007-08 MTPC Source: BITRE 2009

13. Coastal permits Permit voyages undertaken as per cent of coastal tonnes MTPC Source: BITRE 2009

14. Deadweight A vessel’s carrying capacity at a particular draft expressed in metric tons. Normally refers to capacity on summer salt water MTPC Source: BITRE 2009

15. Classes of bulk carrier by deadweight Source: H Clarkson & Co. Ltd. MTPC Capesize 100,000 dwt+ (typically ~150,000 dwt for older vessels. Modern units 170,000 dwt +) Panamax Over 60,000 dwt (typically ~75,000 dwt) max 32 mtrs beam Handymax 40-60,000 dwt Note Supramax >50,000 dwt Handysize 10,000 dwt +

16. MTPC Source: Southern Cross Maritime

17. MTPC Source: Southern Cross Maritime

18. MTPC Source: Southern Cross Maritime

19. MTPC Source: Southern Cross Maritime

20. MTPC Source: Southern Cross Maritime

21. Source: Sanko Kisen MTPC

22. MTPC Source: Southern Cross Maritime

23. Discharging sodium sulphate (1) MTPC Source: Southern Cross Maritime

24. Discharging sodium sulphate (2) MTPC Source: Southern Cross Maritime

25. Imported hot rolled coils MTPC Source: Southern Cross Maritime

26. Australian dry bulk tonnage The Australian flag is not competitive for ships engaged in the Australian dry bulk export trades MTPC

27. Australian LNG tankers There are just 4 Australian flagged LNG tankers engaged in the North West Shelf LNG export trade MTPC Source: North West Shelf Shipping

28. The net result.... Less than 1% of Australia’s exports carried by Australian flagged vessels MTPC Source: ASA, MUA

29. Major foreign registries 6 flags of registration with the largest share of registered deadweight tonnage as of January 2009: MTPC Source: UNCTAD “Review of Maritime Transport 2009” Panama 8,065 vessels 22.98% (274 mill dwt) Liberia 2,306 10.57 Marshal Is. 1,265 5.74 Hong Kong 1,371 5.38 Greece 1,498 5.29 Bahamas 1,446 5.20

30. Nationality of controlling interests MTPC Source: UNCTAD “Review of Maritime Transport 2009” Panama Japanese ship owners who account for more than half of the registry’s tonnage (128.4 million dwt of ships > 1,000 GT) Owners from China (22.8 million dwt) Greece (19.4 million dwt) Rep of Korea (19.2 million dwt). 74.1% of Japanese tonnage is registered in Panama

31. Germany (39.5 million dwt) Greece (23.2 million dwt) Liberia Nationality of controlling interests MTPC Source: UNCTAD “Review of Maritime Transport 2009”

32. A small and declining fleet.... 95 the number of Australian ships over 300 gross tons in 1983 37 the number of Australian ships over 300 gross tons in 2008 MTPC Source: BP Shipping

33. Contracting vessels to carry Australian cargo to overseas markets Sale terms: FOB – free on board CFR – cost and freight or CIF – cost, insurance and freight Critical issue is whether seller or buyer is responsible for ocean freight See generally the international commercial terms (“INCOTERMS”) published by the International Chamber of Commerce MTPC Source: INCOTERMS 2000

34. Major terms under a voyage charter party (single voyage or COA) MTPC

35. Timecharter MTPC

36. The rationale for the Navigation Act 1912 ...that the main reason which actuated Parliament in placing the Act upon the statute-book, and which lifted the subject to the plane of great national importance above the ordinary considerations of party politics, was the desire to build up an Australian Mercantile Marine. The Report of the Royal Commission on the Navigation Act, 1923-24 Cth 103, Vol 2, 1019 at 1024 – cited in ML McConnell “Cabotage and the colonial corset: The great Australian bind” (1988) 5 MLAANZ Journal p3 . MTPC

37. The Australian mercantile marine Age of Australian trading fleet 2007 (percentage of total in terms of deadweight tonnage) MTPC Source: BITRE 2008

38. Crawford Committee recommendation depreciation of 20% p.a. commencing in the year prior to commissioning, provided manning levels were in accordance with levels determined by the manning committee Some industry milestones 1984-99 1984 1985 1987 Source: IRAS p.14, MUA Submission 45 p.26 MTPC

39. Maritime Industry Development Committee produced a report “Moving Ahead” envisaged crew reductions to 21/vessel (in 1994 improved to 18/vessel or less) 1984 1985 1987 Source: IRAS p.14 MUA Submission 45 p.27 MTPC Some industry milestones 1984-99

40. Ships (Capital Grants) Act Taxable grant equivalent to 7% of the purchase price of the vessel, provided vessel crewed by Australian seafarers 1984 1985 1987 Source: IRAS p.14 and ASA Submission 29 p.99 MTPC Some industry milestones 1984-99

41. International Shipping (Australian-resident Seafarers) Grants Act provided a rebate of Group Tax remitted by employer on behalf of crew in vessels that traded overseas for >50%. 1994 1996 1998 Source: ASA Submission 29 p.99 1999 MTPC Some industry milestones 1984-99

42. Coalition elected to office – financial support repealed 1994 1996 1998 Source: IRAS p.14 and MUA Submission 45 p.28 1999 MTPC Some industry milestones 1984-99

43. Minister Anderson commissioned and received a report to advise on the development of a competitive shipping industry 1994 1996 1998 Source: ASA Submission 29 p.100 1999 MTPC Some industry milestones 1984-99

44. December industry dinner John Anderson: “Australia is a shipper nation, not a shipping nation” 1994 1996 1998 Source: IRAS and ASA Submission 29 p.100 1999 MTPC Some industry milestones 1984-99

45. The Australian coasting trade A vessel must be licensed to engage in the Australian coasting trade - s 288 Navigation Act 1912 (Cth) See generally Part VI of the Act (ss 284-293A) at: http://www.austlii.edu.au/au/legis/cth/consol_act/na1912123/ MTPC

46. Permits to engage in the coasting trade Section 286 Navigation Act 1912 (Cth) ...and the Minister is satisfied that it is desirable in the public interest that unlicensed ships be allowed to engage in that trade, the Minister may grant permits to unlicensed ships to do so, either unconditionally or subject to such conditions as he or she thinks fit to impose . S 286(1). MTPC

47. Owners of licensed vessels at a disadvantage The permit system has for many years disadvantaged Australian ship owners operating licensed ships. The differential between the cost-base of foreign flag ship operators and Australian flag ship operators derives from the fact that foreign vessels are exempted from the application of Australian law. MTPC Source: ASA Submission 29

48. Statutes that create cost disadvantage (1) Customs Act 1901 Vessels that are licensed under the Navigation Act 1912 are ‘imported’ under the terms of the Customs Act. Vessels imported under the Customs Act are covered by Part II of the Navigation Act and consequently covered by the Seafarers Rehabilitation and Compensation Act 1992 and the Occupational Health and Safety (Maritime Industry) Act 1993 MTPC Source: ASA Submission 29 pp.64-69

49. Statutes that create cost disadvantage (2) Migration Act 1958 When foreign ships visit Australia to carry coastal cargo, their crew are required to hold a Maritime Crew Visa. If a ship is imported under the Customs Act, MCV’s are not available. A Long Stay Business Visa (“a 457”) is required. 457’s are the exception rather than the rule on Australian ships because Australian ships are generally manned by Australian crews. MTPC Source: ASA Submission 29 pp.64-69

50. Cost differential of Australian crews BP operates 12 identical new product tankers (Virtue Class), 2 of which are manned by Australians, 5 manned by British officers and Filipino crew, while the remaining 5 vessels are manned by Indian officers and crew. The 2007 operating costs are – Australian officers and crew US$ 10,100 / day British officers / Filipino crew US$ 5,500 / day Indian officers and crew US$ 4,100 / day” MTPC Source: BP Shipping – Submission 16 to HRSC

51. Coastal permit policy Regulating a coastal cabotage regime inevitably produces a clash between the interests of domestic ship owners and their crews and the interests of shippers and receivers. Clear policy statement is important to guide the administration of cabotage (particularly given there is no appeal process) Investor confidence is easily undermined. MTPC

52. SVP/CVP Administrative Guidelines The Independent Review of Australian Shipping, 2003 (The Hon John Sharp and The Hon Peter Morris) observed: “ The Review heard overwhelming evidence that over the past few years the [Administrative Guidelines] criteria have been administered in such a way that the coastal trade could now be regarded as virtually de-regulated.” http://www.asa.com.au/upload/news/IRAS%20Blueprint%20Final.pdf MTPC Source: IRAS, page 13

53. Why is the coast ‘virtually de-regulated’ if Australia has a cabotage regime? MTPC Source: Sanko Kisen

54. Amending Ministerial Guidelines 1998 and 2004 amendments to Ministerial Guidelines steadily reduced the protection to Australian flag ship operators.

55. Ministerial Guidelines - 1998 The question of whether licensed ships are available and adequate is addressed on a case by case basis “ The delivery requirements of shippers are the primary determinants of whether licensed vessels are adequate ....” MTPC Source: See the DITRDLG website for Ministerial Guidelines

56. Ministerial Guidelines - 2004 [For a licensed ship] to be considered adequate, carriage must be available to the shipper on reasonable commercial terms What is ‘reasonable’? Is ‘reasonable’ a static concept, based for example on ROCE or is it a market driven concept? MTPC Source: MUA Submission 45 pp.28-30

57. Large bulk carrier market Source: H Clarkson Ltd. MTPC

58. Ministerial Guidelines - 2004 A licensed ship may be considered unavailable if the operator cannot guarantee that it will be presented to ship cargo according to a schedule that meets the reasonable needs of the shipper. As a general rule, the Department will consider a licensed ship available if it can carry the cargo within a window of 3 clear days either side of the sailing date stipulated in the application. MTPC Source: Ministerial Guidelines 2004, paragraph 36

59. Administration of permits - ASA observations Officers of the Department can be placed in an invidious position having to administer the permit system for contestable cargoes They have no commercial/shipping background Open ended discretion can create commercial uncertainty Lack of appeal process MTPC Source: ASA Submission 29, page 72

60. Anthony Albanese At NATSHIP 2009 the Minister strongly challenged the foundation of the coalition’s “shipper nation” policy. The minister recognised: The need to integrate shipping into national and international logistics chains; and That resource companies have an interest in controlling their supply chains; and The role played by the shipping industry in training and supplying personnel with maritime skills to shore-based positions (pilots, HM’s, surveyors etc.) MTPC Source: Anthony Albanese, NATSHIP Sydney, 2009

61. Coastal opportunities – national logistics chains “ Coastal shipping has two major reasons to be taken seriously as the third transport mode (in addition to road and rail) of any national domestic surface transport strategy “ MTPC Source: Thompson Clarke Shipping Pty Ltd, Submission 26

62. Coastal opportunities – national logistics chains 1 Its prime long distance infrastructure (open sea and port channels) requires little or no incremental capital investment over and above that already provided for international ship traffic - in stark contrast with the capital cost of overloaded and inadequate road and rail infrastructure MTPC Source: Thompson Clarke Shipping Pty Ltd, Submission 26

63. Coastal opportunities – national logistics chains 2 Its carbon footprint is (according to EU) statistics - in grammes of CO2 per tonne km) superior to rail and some 5 times better than road.... MTPC Source: Thompson Clarke Shipping Pty Ltd, Submission 26

64. Coastal opportunities – national logistics chains Noting... Competitiveness of freight movement by sea, from the customer's cost and service standpoint, is in many cases critically dependent on an efficient interface with land transport, which in turn is dependent on the development of effective land transport corridors particularly in metropolitan areas.....” And see the MUA Submission 45 page 61 (placing shipping on an equal footing with road/rail) MTPC Source: Thompson Clarke Shipping Pty Ltd, Submission 26

65. Other impacts of a successful shipping policy MTPC Source: MUA Submission 45 p.68

66. The future Shipping registries have to compete in the international market. Australia would reap substantial rewards from having a thriving first (and second) register. The current freight services imbalance would rapidly improve. MTPC Source: ABS 2009 – and see MUA Submission 45 p.23; BP, BMP, AIMPE, etc Year Freight Service Credit ($mill) Freight Service Debit ($mill) 1997 953 4625 2001 969 5856 2007 625 8163

67. Some may see the business of ship owning as romantic, but it is rarely sentimental! MTPC We need the Australian first (and second) register(s) to be competitive

68. Thank you for your attention MTPC Photograph: BP Shipping