Australia: Free Trade Shouldn't Kill Cabotage

I admit I have been on both sides of cabotage. I have temporarily imported ships to carry cargoes (though only for short periods), imported ships that created new employment opportunities and conversely swore profusely when the government allowed charterers to use imported ships to take away opportunities from the national flag fleet that I managed.

Charterers must compete in an open market, where every other charterer will do everything they can to gain an advantage. How could they do otherwise? That unbridled competition is the thin edge of the wedge, and one thing is for sure, once you start letting cheaper ships in it means the slow decline of the national fleet.

Is national flag shipping more expensive than international ships? Absolutely. But as I used to tell owners of national flag ships that we managed: “your seafarers have to buy houses in the same cities you do, and buy their groceries at the same store and that would be difficult to do on a flag of convenience seafarers wage.”

With a complete lack of cabotage, everyone is back at a level playing field, everybody has cheaper freight and coincidentally the country loses a fleet. What also happens is that all that revenue that used to come into the country for the operation of the ship, the wages and payroll taxes for the crew now leaves the country.

The other thing that happens is that there's no one left that knows about shipping.

This has implications for the shipping industry locally of course but also for the government departments  responsible for the administering the shipping industry. It is a rare thing now in Canada to find an experienced Master or Chief Engineer administering the shipping system. There are many bright, well educated, hard working people, but very few of them have experience in what they're administering. 

It’s worth recalling what internationally respected management expert Henry Mintzberg said: "The idea that you can take smart but inexperienced 25-year-olds who never managed anything and turn them into effective managers via two years of classroom training is ludicrous." Some practical knowledge is key; a lot is preferred.

You can of course import expertise. It's a global economy and talent is moved all over the globe, all the time. Finding a qualified individual is a lot easier than finding a suitably experienced individual with the necessary local knowledge. So once you find someone with the right ticket and right non-Australian experience they must then start on a long learning curve.

To come back to the economics, I know the loss of revenue has been quantified, but I don’t believe anyone has quantified the economic cost of losing managerial expertise to administer a core part of any advanced economy. Or of what's lost while your new recruits are learning Australian law and practice? 

And when it comes right down to it, if all coastal movements are on Australian ships then isn't the cost the same for everyone? And what really is the incremental cost for Australian ships? 

Using an example of a feeder container ship that carries 1,000 containers and makes 26 weekly voyages a year on the coast, (not necessarily a trade that exists but suitable for the purpose) the extra cost of an Australian crew may be approximately $3 million. In a year that ship moves 26,000 containers (allowing for downtime and one way only) and the average extra cost is $115 per container. If the container held 5,000 pairs of shoes, that would be $0.02 per pair of Nikes. 

Oh and let's not forget that extra $3 million actually comes back to Australia for wages, payroll taxes etc.  This may be broad brush, but it would certainly indicate that you should do the maths before throwing the Australian industry down the gurgler.

Soooo, where am I going with this? The federal government in Australia has sought written submissions to its Coastal Shipping Reforms Discussion Paper. The minister responsible has said: “We need to address a range of administrative issues in the Coastal Trading (Revitalising Australian Shipping) Act 2012, which place unnecessary burdens on shipping companies and the Australian businesses that rely on coastal shipping." 

As Liam Neeson in Love, Actually said, "I think it's brilliant! I think it's stellar! Uh, apart from the one, obvious, tiny, little baby little hiccup..." That hiccup would be that relieving the “unnecessary burdens” would entail the sacrifice of the employment of Australian seafarers, on Australian ships, carrying Australian goods on the, you guessed it, Australian coast.

The Minister also said, “Currently, 15 percent of Australia’s domestic freight is moved by ship, but with Australia’s extensive coastline and broad network of ports, there is the potential for shipping to play a larger role in the national freight task.”

Yay! Sounds like boom days are coming for Australian shipping. The International Transport Workers’ Federation (ITF), no surprise, offers a different view: "The proposed changes would make it easier for the Minister’s Delegate to provide Temporary Licenses to foreign ships and make it more difficult for Australian ships with Australian crew to compete in the coastal trade".

Oops, more bust than boom then.

There has been support for the government’s view. Shipping Australia’s CEO Rod Nairn said “It’s now time for some sensible bi-partisan changes that will allow international shipping to carry coastal cargo efficiently and sustainably for the benefit of Australian manufacturers, primary producers, and consumers.” Stellar stuff, but unfortunately Mr Nairn represents foreign shipowners in Australia, so he may just be a tad biased, a fact that was left out of most newspaper articles.

I get it, I do. Shippers on the Aussie coast want cheaper freight which they can see some already have. The large international carriers want access to the coastal trade, so they can charge higher rates and possibly add an additional loaded leg to the voyage. Politicians may want freight transport moved off the roads.

The only people who don't think it's a brilliant idea are those in the diminished Australian shipping industry. Apparently, according to the government, in order to do this large freight task the ships and crews have to come from overseas.

To me the idea that there isn't sufficient capital, initiative and expertise already in Australia to undertake the coastal shipping task is ludicrous. What industry likes, always, is stability. Knowing what the rules are and that they’re going to be in place for longer than a dog watch. What coastal shipping in Australia has had for the last couple of decades is reassurance from the government, with winks to people who’d like that industry to disappear. Now the look is the same but the nonsense behind it is rather more blatant.

The government is engaging in doublespeak, pretending that the destruction of Australian jobs and industry is required to make the transportation infrastructure of the country better. The assertion is infuriating and embarrassing. Shame.

Dermot Loughnane is CEO of Tactical Marine Solutions