Australian Cabotage Criticized in Agriculture Report

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By MarEx 2017-03-30 02:05:47

An Australian Productivity Commission report on the regulation of agriculture has called for deregulation of coastal shipping.

The report, released to the public this week, says that some regulations lack a sound policy justification and should be removed. These include a wide range of regulations including the mandatory labelling of genetically modified foods, restrictions on the use of land held under pastoral lease arrangements and the current barriers to entry for foreign shipping providers:

“Current coastal shipping regulations which give preference to Australian-flagged ships for transporting domestic cargo between Australian ports increase costs for farm businesses reliant on sea freight. To improve the efficiency of coastal shipping services, barriers to entry for foreign vessels should be removed to allow greater competition.”

Cabotage restrictions are a significant impost for Australian businesses, states the report. While the volume of domestic freight has grown steadily over the past 40 years, coastal shipping volumes have remained largely static. High shipping costs have seen some businesses move operations offshore or shift to land freight.

“In itself, protecting an industry to preserve jobs is not justified,” states the report. “The cabotage restrictions protect some jobs at the expense of growth in other industries. Protecting an industry from competition not only harms consumers (in this case farmers), but also reduces the incentives of the protected industry to improve its efficiency and competitiveness. Over time, the protected industry falls further behind foreign competitors, requiring ever more protection and increasing the cost to consumers and the community in general.”

The report proposes some solutions including allowing international operators to compete on coastal routes if they are part of a continuous international voyage (as is the case in New Zealand under its Maritime Transport Act 1994). 

The shipping policy of the U.K. could also be considered. There are no cabotage restrictions for foreign ships, no crew nationality requirements for U.K.-registered non-strategic vessels and nonresident seafarers’ wages are bound by international labor standards. 

Another option proposed is to relax the eligibility criteria for an Australian flag.

Union Dissent

Maritime Union of Australia (MUA) National Secretary Paddy Crumlin says: "The MUA rejects any suggestion that coastal shipping laws should be wound back. In fact, they should be strengthened to ensure better national security, fuel security and protection of our pristine coastline.”

The union says the removal of cabotage would weaken labor and safety standards. ITF Australia coordinator Dean Summers argued the case in an interview published by the charity Human Rights at Sea, saying: “We’ve got to defend our environment. We’ve got to defend our national security, and we’ve got to defend our jobs as well.”

On the value of using Australian seafarers in Australian waters, he says: “Yes, they are more expensive, but it’s worthwhile. The army costs money; the navy and the air force cost money, so maybe the merchant marine should cost money. Maybe the merchant marine should also be considered part of the national security framework. They are going to have to be, because as soon as we get one explosion in a port, one possible terrorist incident, then we’ll be screaming: How come these ships are flagged in Monrovia and using exploited Burmese crew?”

Port Capacity

The Productivity Commission report states that insufficient port capacity, or limitations on access to ports, pose a significant logistical risk to certain agricultural industries. For example, port capacity constraints are an issue for livestock exporters in the west and north of Australia, where there is strong competition from the resources sector for port capacity.

Despite being the two largest export ports for live cattle in Australia, capacity at the ports of Darwin and Fremantle has been crowded out by the resources sector, and live exporters report having access to only one berth at each port. Cattle producers in the Kimberley region face similar competition from the resources and tourism sectors at the ports at Broome and Wyndham.

Port services can account for a substantial share of costs for farm businesses. For example, port services account for about one third of grain producers’ supply chain costs. And the cost of port services is rising faster than other grain handling charges partly because, unlike other parts of the supply chain where there is excess capacity, port capacity is limited, and grain exporters face competition for limited port shipping slots from other sectors.

Concerns about port access and pricing have arisen because, in an attempt to maximize sale revenue, governments have not always put mechanisms in place to constrain ports operators’ monopoly power, states the report. Restrictions on competition during privatization of port assets may achieve a higher sale price, but this is not in the community’s interests if it comes at the expense of a less competitive market structure.

The report is available here.