mua 2010 final

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Commercial shipping operations in Australia and the diminishing involvement of Australian

registered ships

Shipping Industry Policy

John Francis │ Director │ Maritime Transport Policy Centre (MTPC)

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Dalrymple Bay Anchorage

MTPCSource: Southern Cross Maritime

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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

Source:

Australia’s exports by commodity 2007-08

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

MTPCSource: BITRE 2009

Source:

Australia’s exports by commodity 2007-08

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)


Source:

Australia’s imports by commodity 2007-08

Commodity Imports (tonnes) Commodity rank (tonnes)

Chemicals 6 214 422 11

Fertilisers, manufactured

2 863 134 15

Fertilisers, crude 718 258 34


Source:

Australia’s exports by destination 2007-08

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


Source:

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

MTPCSource: Wall Street Journal

Source:

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

MTPCSource: Wall Street Journal

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Australian coastal freight

Summary of Australian coastal freight, 10 years to 2007-08


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Coastal permits

Date SVP Tonnes Carried

CVP Tonnes Carried Total Tonnes Carried Under Permit

Total Coastal Tonnes

1990/00 3,581,651 133,613 3,715,264 51,325,000

2000/01 6,738,345 258,625 6,996,609 52,003,000

2001/02 8,974,727 1,359,132 10,333,859 52,432,000

2002/03 10,573,004 1,729,244 12,302,249 52,825,000

2003/04 10,430,190 1,755,127 12,185,318 53,194,000

2004/05 11,030,905 2,015,719 13,046,624 53,672,000

2005/06 11,470,959 2,230,131 13,701,090 55,249,300

2006/07 14,836,938 1,836,476 16,673,414 56,384,800

2007/08 13,691,895 1,211,434 14,903,329 59,534,400

Freight Carried Under Permit (Tonnes) 1990/00 – 2008/09


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Coastal permits

Impact of voyage permits on coastal trade 2007-08


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Coastal permits

Permit voyages undertaken as per cent of coastal tonnes


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Deadweight

A vessel’s carrying capacity at a particular draft expressed in metric tons. Normally refers to

capacity on summer salt water


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Classes of bulk carrier by deadweight

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 +

Source: H Clarkson & Co. Ltd. MTPC

Source: MTPCSource: Southern Cross Maritime

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Source: Sanko Kisen MTPC

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Discharging sodium sulphate (1)MTPCSource: Southern Cross Maritime

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Discharging sodium sulphate (2)MTPCSource: Southern Cross Maritime

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Imported hot rolled coils


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Australian dry bulk tonnage

The Australian flag is not competitive for ships engaged in the Australian dry bulk export trades

MTPC

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Australian LNG tankers

There are just 4 Australian flagged LNG tankers engaged in the North West Shelf LNG export trade

MTPCSource: North West Shelf Shipping

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The net result....

Less than 1% of Australia’s exports carried by Australian flagged vessels

MTPCSource: ASA, MUA

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Major foreign registries

MTPC

6 flags of registration with the largest share of registered deadweight tonnage as of January 2009:

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

Source:

Nationality of controlling interests

MTPCSource: 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

Source:

Germany (39.5 million dwt) Greece (23.2 million dwt)

Liberia

MTPC

Nationality of controlling interests

Source: UNCTAD “Review of Maritime Transport 2009”

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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

MTPCSource: BP Shipping

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Contracting vessels to carry Australian cargo to overseas markets

Sale terms: FOB – free on boardCFR – cost and freight or CIF – cost, insurance and freightCritical 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

MTPCSource: INCOTERMS 2000

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

MTPC

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Timecharter

MTPC

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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

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The Australian mercantile marine

Age of Australian trading fleet 2007(percentage of total in terms of deadweight tonnage)


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Crawford Committee recommendationdepreciation of 20% p.a. commencing in the year prior to commissioning, provided manning levels were in accordance with levels determined by the manning committee

1984 1985 1987

Some industry milestones 1984-99

Source: IRAS p.14, MUA Submission 45 p.26 MTPC

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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


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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


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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


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Coalition elected to office – financial support repealed

1994 1996 1998

Source: IRAS p.14 and MUA Submission 45 p.28

1999

MTPC


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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


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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

1999MTPC


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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

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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

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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.

MTPCSource: ASA Submission 29

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Statutes that create cost disadvantage (1)

Customs Act 1901Vessels 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

MTPCSource: ASA Submission 29 pp.64-69

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Statutes that create cost disadvantage (2)

Migration Act 1958o When foreign ships visit Australia to carry coastal cargo,

their crew are required to hold a Maritime Crew Visa. o If a ship is imported under the Customs Act, MCV’s are

not available. A Long Stay Business Visa (“a 457”) is required.

o 457’s are the exception rather than the rule on Australian ships because Australian ships are generally manned by Australian crews.

MTPCSource: ASA Submission 29 pp.64-69

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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”

MTPCSource: BP Shipping – Submission 16 to HRSC

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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

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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

MTPCSource: IRAS, page 13

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Why is the coast ‘virtually de-regulated’ if Australia has a cabotage regime?

MTPCSource: Sanko Kisen

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Amending Ministerial Guidelines

1998 and 2004 amendments to Ministerial Guidelines steadily reduced the protection to Australian flag ship

operators.

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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 ....”

MTPCSource: See the DITRDLG website for Ministerial Guidelines

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[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

Source: Source: H Clarkson Ltd.

Large bulk carrier market

MTPC

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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.

MTPCSource: Ministerial Guidelines 2004, paragraph 36

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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

uncertaintyLack of appeal process

MTPCSource: ASA Submission 29, page 72

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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.)

MTPCSource: Anthony Albanese, NATSHIP Sydney, 2009

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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 “

MTPCSource: Thompson Clarke Shipping Pty Ltd, Submission 26

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1Its 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


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2Its carbon footprint is (according to EU) statistics - in grammes of

CO2 per tonne km) superior to rail and some 5 times better than road....


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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)


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Other impacts of a successful shipping policy

MTPCSource: MUA Submission 45 p.68

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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

Year Freight Service Credit ($mill)

Freight Service Debit ($mill)

1997 953 4625

2001 969 5856

2007 625 8163

Source: ABS 2009 – and see MUA Submission 45 p.23; BP, BMP, AIMPE, etc

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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

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Thank you for your attention

MTPCPhotograph: BP Shipping

mua 2010 final

Documents

ports mtpc source

australian register

mtpc capesize

general cargo mtpc source

deadweight source

summer salt water mtpc

ore exports

australias exports