THE AUSTRALIAN INSTITUTEOF MARINE AND POWER

ENGINEERS jwmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmJt

INQUIRY filGgQAUSTRALIAN COASTAL 9WPIING

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House of EepresentatiYes Standing Committee - Coastal Shipping ReviewAIMPE Submission

The Australian Institute of Marineand Power FnginecrN

The Australian Institute of Marine & Power Engineers [AIMPE] was formedin 1881 by Marine Engineers in Australia and New Zealand. The nationalorganization brought together local Districts which had formed in the 1870s

in the major ports of the colonies.

AIMPE has continuously represented the professional and industrial interests ofmarine engineers since its formation.

AIMPE has been a Federally registered, trade union since 1906.

Today AIMPE has around 2,500 members who are employed on merchant ships[both coastal and international], offshore industry vessels, tugboats, dredges, ferries,floating production facilities and many other specialized vessels.

Marine Engineers operate and maintain the main propulsion systems on thesevessels and the ancillary power generation and other machinery which enables thefunctions of the vessel to be carried out.

Marine Engineers hold operational licences known as Certificates of Competencyissued by the Australian Maritime Safety Authority [AMSA] pursuant to aConvention of the International Maritime Organisation [IMO] known as theStandards of Training Certification and Watchkeeping [STCW]. These Certificatesrequire successful completion of Diploma, Advanced Diploma or Degree levelstudies together with seagoing experience and oral examinations. Australian MarineEngineers are highly respected in the international maritime industry.

In addition State and Territory maritime authorities issue licences for MarineEngineers to operate and maintain smaller powered vessels.

Prepared by

Martin ByrneAssistant Federal SecretaryAustralian Institute of Marine & Power Engineers52 Buckingham Street,Surry HillsNSW 2010

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fweuit*vt y

he AuMralicin Instituit ot Maune and Fowci Engineers [AIMPE] commends theFederal Government for taking the prompt decision to conduct a ParliamentaryInquiry into the Australian Coastal Shipping Industry.

Coastal shipping is a key sector of the Australian maritime industry and plays a vitalrole in supporting many strategic industries ashore. Yet coastal shipping has languishedin comparison with the road and rail freight industries. Government policies andexpenditures have overwhelmingly been concentrated on the land-based, freightmodes.

Currently coastal shipping operates under laws which date back, to the early days ofAustralia's Federation. In the first decade of the new millennium, this ParliamentaryInquiry gives Australia an opportunity to overhaul the steam-ship era, colonial styleCoasting Trade provisions of the Navigation Act. The Committee has an. historicopportunity to identify an appropriate legislative, regulatory, fiscal and administrativeframework to replace those inadequate and outdated provisions.

AIMPE's submission proposes the introduction of a positive shipping policy forAustralia. A key part of a positive shipping policy is the substantial amendment of theNavigation. Act to ensure that coastal shipping is required to comply with Australianlaws in. a similar manner to all other sectors of Australia's domestic freight transportindustry.

AIMPE also proposes that it is necessary to introduce some economic support policies forAustralian shipping in order to enable the industry to undergo renewal and. expansion.In comparison to the existing support policies for the other domestic freight transportsectors these proposals are extremely modest in nature.

AIMPE further proposes that there is significant scope for and need to increase theco-operation between the Australian coastal shipping and the Australian DefenceForces. Such an approach can have substantial benefits for both our coastal shippingand our defence preparedness. Without such an approach Australia will not optimizeour maritime security regime.

AIMPE additionally proposes that there is a need, for the Federal Parliament to ensurethe application of all Australian laws to commercial operators who seek: to deployvessels within Australia's Exclusive Economic Zone.

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Coastal Shipping in Australia TodayHie forces of globalization,have wrought majorchanges on the economic

patterns and relationships aroundthe world in the last 20 years.International trade has grownvery rapidly over the last decadeand is predicted to continue torise in the decade ahead.

Shipping in Australia - coastaltrades and international, trades- responded in the 1980s and theearly 1990s with a sequence ofmajor reform, measures which sawradical restructuring includingmassive reductions in the size ofcrews on ships. Average crew sizeon Australian vessels went from36 to 17 in little over a decade.This reduction was accompaniedby introduction of new technologyin almost all aspects of ships'operations. The changes wereachieved by a process that was attimes painful but did not involveany industrial disputation. Thereform process was tripartitein nature [shipping companies,government and unions] and.generally had bipartisan politicalsupport.

However the last 11 years haveseen a dramatic departure fromthat tripartite reform period.All Federal Governmentsupport for Australian shippingwas withdrawn in 1996 andsubsequently policies wereintroduced which have hada severe, negative impact onAustralian shipping. That impactis on-going.The Australian coastal shipping

industry is in the worst positionit has been in. for many decades.Australia's coastal shipping fleethas diminished significantly ashas the Australian internationalshipping fleet. In making thissubmission AIMPE is referring tothe number of coastal ships that areregistered in Australia [i.e. shipsthat fly the Australian maritimeflag - the Australian Red Ensiei.il.There has been some confusionabout the number of ships andthe size of the decline - this isbecause different definitions havebeen applied at different time bydifferent parties.

Under the Navigation Act, 191.2,ships that participate in theAustralian coasting trade arerequired to be licensed for thatpurpose. This is a requirement ofPart VI of the Navigation Act. PartVI does not require that licensedvessels should be registered underthe Shipping Registration Act. InAIMPE's submission this is afundamental flaw of the currentprovisions.

The Navigation Act also providesthat permits may be issued tovessels that are not licensed forthe coasting trade. The issuing ofpermits was originally intended tofill a temporary lack of capacityin the Australian flag fleet, tofacilitate development of newtrades or to meet a specializedneed which Australian shippingcould not fulfil. It was intendedthat the permits would fosterthe growth and expansion ofthe Australian flag fleet. Instead

permits have been abused suchthat they are now being used as atool to undermine the Australianflag fleet.

During the decade commencing1996 the numbers of permits thathave been issued by the FederalDepartment of Transport havegrown dramatically. In 1995permit ships carried less than.10% of Australia coastal freight -now well over 30% of Australiancoastal freight cargoes are carriedon 'permit' ships.

Figures on both single voyagepermits (SVPs) and continuousvoyage permits (CVPs) arecollated by the Bureau ofInfrastructure, Transport andRegional Economics (BITRE)and published periodically intheir Waterline publication. Thelargest numbers of permits areissued to container ship operatorswho typically are engaged inliner services between Asiaand Australia. Coastal cargoesare carried to supplement therevenues earned by the carriageof international cargoes. Howeverin terms of quantity the biggestvolumes of cargoes carried arebulk cargoes - both dry bulk and.liquid bulk.

The dry bulk ship operators whoare utilizing permits are movinglarge amounts of iron ore andother minerals around the coaston a routine basis. Some of theseare in triangular trades - wherecoal from Australia's east coast isexported, the ships return, to the

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west coast empty and. the pick upiron ore for the east coast. Thereare some vessels in this combinedinternational/coastal trade whichstill carry Australian crews onAustralian conditions.

The liquid bulk cargoes areprimarily crude oil and refinedpetroleum products which arecarried by foreign flag tankerswith foreign crews in patternswhich are organized by the oilmajors. Chemicals and otherliquids are also carried inspecialized tankers.

The Ministerial guidelines onthe issuing of SVPs and CVPshave been altered to reduce thetransparency of the process. Thislias had the effect of preventingAustralian flag operators andother interested parties frommaking any submissions to theDepartment about applications.Furthermore applicants arepermitted to artificially constructtheir applications so as to precludeexisting operators from, providingtheir vessels to carry the freight.More recently applicants havesimply been allowed to assert thatlower freight rates are availableby the utilization of foreign flag,foreign crewed vessels.

As a .result of the administrativepromotion of permits Australiancoastal ship operators areactually encouraged to removetheir vessels from the coast,terminate the ship's personneland thereby take the Australianship out of service. They thenchange the registration of thevessel to a foreign register andengage a foreign crew and make

an application, to the Departmentfor permits to operate the vessel.This could be described as the re-iagging rort. This has been doneon a number of occasions. AIMPEhas compiled Appendix A whichlists the Australian flagged vesselswhich have been through this re-flagging rort process and broughtback on the coast to operateoutside of our Australian legalframework.

Additionally some Australianflag vessels have been purchasedby foreign interests, removedfrom the Australian Coastingtrade and other similar types ofvessels registered tinder foreignflags have been utilized by the

• same foreign interests to movethe cargoes around the Australiancoast using permits.

In this way the existing theadministrative procedures haveallowed the provisions of Part VICoasting Trade of the NavigationAct 1912 to be bastardized.Provisions which were intendedto supplement the Australian flagcoastal fleet have been twisted tofacilitate the substitution of theAustralian flag by a variety offoreign flags. The Departmentresponsible for the administrationof the Australian maritimeindustry has been complicit inundermining the Australian RedEnsign.

The coastal shipping administratorin DOTARS is contactable byan email address svrj^dotars^govern. This minor detail is atragic reflection of the FederalGovernment attitude to Australiancoastal shipping.

If the abuse of permits is notremedied it is only a matter oftime before all Australian flagvessels in the coastal trade willre-flag to foreign flags.

Many of these foreign flag vesselsare registered in nations which arenot signatories to nor comply withthe various maritime conventionsof the International LabourOrganisation. Australia hasbeen an active participant in theILO since its inception in 1919.Australia has proudly asserted, itsrecord, in the ratification of ILOConventions. A new Consolidated.Maritime Labour Conventionlias been completed in 2005and Australian. Governments[State and Federal] are givingconsideration to the ratificationof the Consoidated Convention.It would be a massive hypocrisyfor Australia to ratify theConsolidated Maritime LabourConvention and then encourageour coastal shipping industry toactively take steps to avoid theresponsibilities of the Conventionby converting Australian flagships to foreign flags registrationof non-complying States.

Some of the operators of theseforeign flag vessels employAustralian crews under AustralianAgreements however others donot. If the Federal Governmentdoes not take action to ensurethat Australian laws apply in fullto coastal, trading vessels of alltypes [permit or licensed] thenthere will be economic pressurefor all operators to exploit foreignlabour under foreign conditions,

TheCoa.stingTradeprovisionssti.il

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louse of Eepresentati¥es Standing Committee •AIMPE Submission

g

give primacy to licensed vesselsover permit vessels and PanShipping attempted to exercisethe preferred status of licensedvessels when it introduced theBoomerang 1 in 2006. Thisvessel was operating for somemonths carrying containerizedcargoes from east to west/westto east. The operation collapsedhowever when its expansionplans led. to the chartering of asecond vessel which turned outto be unsatisfactory. An AM'SAinspection found many defectswhich would have cost millionsto repair.

The Pan Shipping experimentleft some foreign permitoperators unhappy because theyhad lost part of their operatingrevenues. Two of these foreignoperators, ANL Container! inePty Ltd and then subsequentlyMalaysian International ShippingCorporation Berhad (MI.SC),took action to protect theiroperations. Between them, theyhave sought and been grantedlicenses for 5 container ships tooperate on the coast. These areall foreign flag vessels operatedby foreign crews and not covered,by Australian industrial or relatedlaws. Ordinary seamen onthese vessels are working undercontracts which pay them as littleas US$5,000 per annum. Theimpact of the Navigation Act isthat when they sail the coastal legthey are paid a supplement to bringtheir daily pay up to minimumAustralian award rates. This iswell below the prevailing ratesin Australia. They do not enjoynormal Australian conditionslike leave, superannuation and.

similar Australian employmententitlements. And. they revert totheir low wages when they departthe coast. AIMPE has compiledAppendix B to identify thelicensed, vessels operating withforeign crews in the coastingtrade. This could be referred to asthe licensed vessel loophole.

There are several foreign flagvessels that are licensed toparticipate in the coastal tradeswhich employ Australian crewsunder Australian Agreements.If the policies of the Federalgovernment are not alteredsignificantly it is only a matterof time before these operatorsfollow the lead and adopt the low-cost model of employing foreigncrews on foreign conditions.

By way of separate observation,a number of licensed vesselsare registered under flags wherethe national government hasintroduced support mechanismslike a tonnage tax. Many if notmost significant shipping nationsuse a tonnage tax to encourageoperators to register their shipsunder their particular flag. Theseinclude nations like the UnitedKingdom. A U.K. flag shipoperating on the Australian coastwith a licence is able to takeadvantage of the UK tonnagetax. AIMPE will address theeconomic policy question later inthis submission.

If the permit and licensing laws,regulations and administrativepolicies are not fundamentallyaltered the "Australian coastalshipping industry" may well beoperated 100% by foreign, vessels

with guest labour in the not toodistant future.

AIMPE's submission, proceeds onthe basis that it is in Australia'snational interest that Australianlaws apply to all sectors of thedomestic freight transport industryincluding coastal shipping. Anyother approach is inconsistentwith our status as a sovereignnation.

A Positive CoastalShipping Policy

Australia's proximity to thetwo emerging economic power-houses of the new millennium- China and India- and ourwide range and large reserves ofvarious commodities lias meantthat Australia has seen a boom inour international trade.Projections indicate a similarboom in Australia's domesticfreight task too,

In the 21s( century Australia needsto look at all transport options tobestmanageournational economicand. social development. At themoment the Auslink policies [I &II] concentrate almost exclusivelyon road and rail policy and.expenditure. AIMPE believesthat there are sound reasonsthat there should be a positivepolicy towards Australian coastalshipping. This submission will putforward some of the arguments infavour of such a positive policystance. These include:

• Economic benefits- to reduce the deficit oninvisibles;

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• Environmental benefits- including CO2 reduction;

• Security enhancement- based on the MSIC andrelated processes;

• Competitive neutralitybetween freight modes;

• Self-sufficiency in coastalshipping capacity; and

• Support for the AustralianDefence Forces.

A clear signal of the intent of theGovernment to support the revivalof the Australian coastal shippingindustry would be to establisha small, focused AustralianGovernment body with the taskof promoting the expansion ofthe Australian Maritime Industry.Such a body could turn aroundthe negative outlook caused bythe policy uncertainty of recentyears and give shipping operatorsassistance in developing atransport mode which deliversmajor economic and socialbenefits to the nation

The Australian Government'snational transport policy shouldbe neutral between domestictransport sectors. But in recentyears AIMPE submits thatFederal transport policy hasbeen. negatively weightedagainst coastal shipping. Foreignshipping operators have beenencouraged to seek a varietyof ways to circumvent theapplication, of Australian laws intheir participation in the coastalshipping industry.

AIMPE submits that all domestictransport sectors should complywith the full range of Australiantaws unless there is an explicit

policy reason for temporarywaiver of specific aspects of thoselaws. Imported motor vehiclesmust comply with Australiandesign, and registration lawsand drivers in Australia mustcomply with Australian [State]licensing provisions. When motorvehicles are used for commercialpurposes they must comply withAustralian commercial laws andregulations. AIMPE submitsthat the Navigation Act requiresamendment to ensure that similarpolicy approach is applied to allshipping in Australia.

NavigationAct Requires

trade, commerce, andintercourse among theStates, whether by meansof internal carriage orocean navigation, shall beabsolutely free.

The Navigation Act 1912 was thefirst effective shipping legislationenacted by the AustralianParliament. There are a numberof provisions in the AustralianConstitution which relate tonavigation. The main sectionsof the Constitution that are ofrelevance are as follows:

51. The Parliament shall,subject to this Constitution,have power to make lawsfor the peace, order, andgood government of theCommonwealth with respectto:

(i.) Trade and commerce withother countries, and amongthe States:

(vii.) Lighthouses, lightships,beacons and buoys:

92. On the imposition ofuniform duties of customs,

power of theParliament to make lawswith respect to trade andcommerce extends tonavigation and shipping, andto railways the property ofany State.

Clearly there is a strong emphasison the trade and commercefunctions as the focus of theexercise of the new FederalParliament's powers. The cross-reference to "among the States" isalso significant. This subsequentlyled to litigation which effectivelyput intra-State trading beyond thereach of the Federal Parliament'slaw.

It should not be overlookedhowever that the external,affairs power of the AustralianConstitution has been exercisedextensively in maritimematters. Australia has ratifiedvery many Conventions of theUN's International MaritimeOrganisation. Australia hasalso ratified almost all of themaritime labour conventions ofthe UN's International LabourOrganisation. Together theserepresent a complex web ofobligations that regulate qualityshipping around the world-While the date of the legislationin its title is 1912, the actualimplementation date of the newlegislation was deferred, until1923 at the request of the British

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Government. This was not toosurprising a development as thelegislation only took firm shapeafter a conference in Londonprovided the approval of the'mother country' of the acceptableform of the new laws.

Australia while asserting its newfound independence and creatingits own shipping legislation didnot cut the apron strings. TheNavigation Act 191.2 adoptedmuch of the UK MerchantShipping Act of 1894. Whenit came to the coastal, shippingquestion the Navigation Act didnot set down a clear strong policyabout what the nation required.Instead it imposed some limitedobligations on those operating inthe trade at the time - that theypay Australian wages and that ifthere was a library for passengerson board it should be madeavailable to the crew. The term"Australian wages" is defined asincluding emoluments.

Subsequently the coasting tradeprovisions have been amendedso that the legislation now saysfar more about how ships canbe exempted from these limitedrequirements than about therequirements themselves. Therequirements of licensed shipshave been "clarified" by narrowingthe meaning of the term Australianwages to minimum rates of payonly rather than prevailing wagesand conditions generally.

When the maritime unionssought to have minimum awardconditions apply to ships regularlyand exclusively trading on theAustralian coast, the High Court

judges by a decision in 2003,agreed 7-0 that the AustralianIndustrial Relations Commissionhad jurisdiction to handle thismatter. The company concerned,CSL Pacific Shipping Inc., usedevery procedural, tactic that itcould to frustrate the AIRC inthe exercise of this jurisdiction.Howevertlie Howard Governmentin the legislation known as"Workchoices" stripped the AIRCofthisjurisdiction. Regulation 1.1,Chapter 2 of the "Workchoices"legislation excluded permit shipsand. the seafarers in the clearerstexample of the exploitation ofguest labour in Australia today.

It is against this long-termlegislative background and themore recent developments of the21S1 century that AIMPE submits itis time that the Australian FederalParliament set down a clear andcoherent legislative frameworkfor the coastal shipping industry.That framework should becontained in the NavigationAct. The Parliament should setdown in the Navigation Actthat the legislation has as oneof its objectives the promotionof Australian coastal shippingas a part of the domestic freighttransport industry. Whether this isin Part VI or elsewhere is a mootpoint but the Act should set outthis fundamental objective beforedetailing the specifics required ofcoastal shipping.

This should include legislativeamendment to Part VI of theNavigation Act 1.91.2 to bringit into line with contemporarysocial policy requirements. TheNavigation Act should clearly

and. comprehensively set downminimum requirements relatingto ships that participate or seekto participate in the Australiancoastal shipping industry. To begranted a. coasting trade licencean applicant should meet thefollowing requirements:

• Ships licensed toparticipate in theAustralian coastalshipping industry shouldrequired to be registeredunder the ShippingRegistration Act 1981;and

• Ships registered underthe Shipping Registration.Act should continue to berequired to be Australian-owned however to ensurethe effectiveness of thisprovision, the exemptionfor chartered foreignvessels [s 12(2) ShippingRegistration Act] shouldbe removed. Charteredvessels should be requiredto register under theShipping registration Act;and

• Ships licensed toparticipate in theAustralian coastalshipping trade should bemanaged and operated byan Australian citizen, an.Australian resident or acorporate entity registered,in Australia; and

• All seafarers onboard shipslicensed to participatein the Australia coastalshipping trade shouldbe Australian citizens,Australian residentsor persons otherwise

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authorized to work inAustralia and all suchpersons should, possessappropriate maritimequalifications issuedby Australia; and

• Regarding shipslicensed to participatein the Australian coastalshipping industry, theowners, managers,operators, employersand the seafarersworking on these shipsshould be subject to allof the normal Australian,laws with respect toimmigration, industrialrelations, taxation,health and safety; and

• Ships licensed toparticipate in theAustralian coastalshipping trade shouldcontinue to havepriority over permitvessels; and

• Permit vessels shouldonly be exempt fromthe registration andcrewing obligations

they should berequired to guaranteecompliance with allother Australian lawsas part of the permitapplication process.

• Additionally, thereshould be limitationsplaced on the number oftimes a shipping owner,operator or managermay seek a permit|whether svp or cvp] fora cargo type. Repeatedpermit applicationsshould not be granted.The applicant should

be required to sourcetonnage for deploymentunder the Australiaflag.

• In the case of anapplicant who operates abona fide service whichcombines internationaland coastal cargoes,the operator should bepermitted to enter intoan agreement, with theDepartment to operatea proportion of its fleetas Australian registeredvessels meeting all ofthe coastal shippingrequirements. Thisproportion would notordinarily be less thanhalf of the fleet. Inthese circumstancesthe remained of thefleet could be issued apermit conditional onretaining the Australianregistered vessels.

AIMPE also submits thatabuses of s.457 visas areoccurring on Australian ships.Seafarers are being flown intoAustralia to work on shipsand then flown home to theirnative country. In no sense arethese people able to exercisethe rights that the AustralianParliament has determinedshould be applicable to s.457visa holders. They are in allpractical senses denied thoserights. This matter shouldbe dealt with in the recentlyannounced review of s.457visas. Appendix C outlines infurther detail an example ofthe abuse of s457 visas in themaritime industry.

Government

Since the mid-1990s, there hasbeen a significant reductionin the size of the Australiancoastal shipping fleet and aclear ageing of the remainingfleet. In the context of theinfrastructure support providedby the Federal Government toroad and rail via the Auslinkprograms, AIMPE submitsthat there is a need to facilitateexpanded private investmentin Australian coastal shipping.Under previous Governments ofdiffering persuasions the Federalgovernment has provided capitalgrants to Australian, companiescommitting to build new ships forthe coastal trades. This supportshould be re-established witha clear a definitive timetable toprovide the necessary certaintyfor commercial operators.

Further to the question of capitalgrants, the Federal Gove.nune.ntshouldre-introducetheaccelerateddepreciation, which applied inyears past. This, together with thecapital grants, would help rectifyproblem Australia faces with anageing coastal shipping fleet. Bycontrast without re-investmentAustralia's fleet will deterioratein the coming decade.

There is likely to be a reactionfrom some quarters against theproposal for clearer cabotageprovisions to be enacted by wayof amendment to the NavigationAct. The argument is likely to bepresented that it is cheaper to useforeign flag vessels with foreign

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crews under foreign conditionsto transport freight around theAustralian coast. One of the keyreasons for this cost differentialis the tax. burden on shipoperators in Australia.

The 2003 report of theIndependent Review ofAustralian Shipping [IRAS] co-chaired by John Sharp and PeterMorris dealt with Australia'sdomestic and internationalshipping sectors. IRAShighlighted the tax disadvantagessuffered by Australianoperators in the internationaltrades in comparison to theirforeign competitors. With theexpansion, of permit ships, there-flagging rort and the licensedship loophole Australian flagoperators employing Australianseafarers in coastal trades aresuffering at a tax disadvantageto the foreign operators. Thistax disadvantage flows fromcorporate tax differences andfrom persona] tax differences.Most foreign flag operatorsstructure their operations toensure that they pay minimalcorporate income tax. Seafarersaround the world are exemptfrom the payment of income tax- generally as long as they areon board a ship or ships for morethen six months. By contrastAustralian ship operators withAustralian flag vessels in thecoastal trades get no taxationrelief. Likewise Australianseafarers pay income taxationin the same way as every otherAustralian, worker.

If the Australian Governmentis persuaded that the economic

attractiveness of cheaper freightis a compelling argument, thenAIMPE submits that the taxationarrangements will need to beaddressed. A tonnage tax shouldbe introduced on the earningsof coastal ship operators. Mostsignificant maritime countrieshave introduced a tonnage taxregime over the last decade ormore in order to ensure thattheir shipping fleet is able toremain under their nationalflag. However in most nationsthe tonnage tax is designed toapply to international trades.Tonnage tax is basically ahighly concessional tax rate forship operators who register theirships under the national flag.The UK introduced a tonnagetax which brought a largenumber of ships back underthe UK flag. AIMPE is criticalhowever of the fact that the UKtonnage tax does not require UKpersonnel to operate the vessel.The USA has a tonnage tax forinternational trades.

Further, to put Australian flagshipping on the same terms asforeign shipping with foreignseafarers it would requirespecial taxation arrangementsfor Australian seafarers whichwould deal with the personalincome taxburden that the permitand licenced ship operators canand do avoid.

AIMPE notes however that someof the major industry players whotake advantage of current permitarrangements are extremelyprofitable organizations whichare not genuinely able to pointto an incapacity to comply with

normal Australian conditionsincluding labour standards. BHPBilliton has reported profitsof over $1.4 billion. Iron, oreand coal are some of the largevolume commodities movedwith the benefit of permits. Theoil majors appear to be profitabletoo with most reporting morethen $1 billion annual profitseach. Oil is another of the majorcommodities moved around thecoast with permit vessels.

Economic Benefits

The economic role of shippingin the Australian economy isenormous. 99% of Australia'sexports and imports are carriedto and from Australia by ships.If not for shipping Australiawould not have developedits export industries of wooland wheat in. the 19th century.Without shipping the iron oreand coal, export industries couldnot have developed. The hardreality however is that almostallof this enormous international,shipping task is carried out byforeign flag shipping.

The majority of the far smallercoastal shipping task is stillcarried out by Australianflag shipping but foreign flagshipping is increasing its shareof the coastal shipping task.

As a consequence the financialbenefits attributable to thefreight task are moving outof Australia at a strong andincreasing rate. The AustralianBureau of Statistics reported.in its 2007 Trades Statistics thefollowing:

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tepresentati¥es Standing Committee - Coastal Shipping ReviewAIMPE Submission

FreightFreight

ServicesServices

creditsdebits

$m704

-7,500

"20053J5"$m608

-7,776

2006-07$m607

-8,044

Extracted from ABS International Tradein Goods and Services, 5368.0, October2007.

The ABS figures demonstrate thatAustralia is earning less and less byway of freight credits and payingmore and.more. Australia's FreightServices imbalance is a chronic,long term issue that needs to berecognized by the Committee andGovernment as such. There arefew other individual componentsof Australia's trade statistics whichare so clearly, consistently andstarkly trending against Australia'sfinancial best interests.

It also needs to be recognizedthat this chronic freight servicesdeficit is a product of Governmentpolicies. A change in domesticcoastal shipping policies will notcorrect the imbalance but it mayslightly reduce the magnitudeof the freight services deficit.AIMPE submits that a positive setof policies for domestic coastal,shipping is an essential first stepin a long term process.

Australia's international shippingpolicies would need fundamentalreview to produce any furtherreduction in the massive freightservices deficit. AIMPE submits tothe Committee that a subsequentprocess needs to be undertaken toexamine the very difficult issuessurrounding the internationalshipping policy settings. Thesewere addressed by the IRASReport however no action was

taken bythe Federal

Government at the time.

The Australian Maritime Group[AMG] commissioned researchby Meyrick and Associateswhich led to a 2007 report titled"International and DomesticShipping and Ports Study". Theprojections contained in theMeyrick Report include:

1. international containertraffic to increase from4.3 million TEU to 12million TEU by 2020;

2. iron ore exports toincrease from 272million tones to around510 million tones by2020;

3. coal exports to growfrom 243 million tonesto 390 million tonesby 2020;

4. alumina exports togrow from 16 milliontones to 29 milliontones in 2020.

During this same period, domesticfreight movement is also likely togrow significantly. This is likelyto apply both to bulk commoditiesand non-bulk freight.

The total shipping task is set todouble if not triple in slightlymore than a decade. The economicconsequences of retaining theexisting set of policy settings willbe a doubling or tripling of thefreight services deficit by 2020.That is Australia faces a freightservices deficit in the order of$20 billion per annum [in 2007

dollars] by 2020.

Shipping is a key strategicindustry which has been thebasis of the economic strengthof nations for decades, centuriesindeed millennia. Australia'seconomic survival thus far hasbeen attributable to an ability tosupply initially agricultural andsubsequentlymineral commoditiesto a series of keen buyers [e.g.UK, Japan and China]. Australiahas chosen a set of policies forAustralia's shipping needs whichsees these exports and hence theeconomic success of the nationbuilt on services supplied by theships of other countries. Theseservices are provided largely byFlag of Convenience ships whichare operated in. a low cost, lowtax environment. Yet the sheerquantity of the shipping servicesthat Australia generates thechronic freight services deficitrevealed in the ABS figures.AIMPE submits that Australiamust revise its policy approach,towards Australia's internationalshipping task or else risk anunsustainable freight servicesdeficit.

Training - vital forthe futi

In the last decade there hasbeen a serious lack of sufficientnumbers of Australians trainedwith maritime qualifications. Themain training institutions - theAustralian Mari.ti.ine Collegein Launceston [now part ofthe University of Tasmania],Hunter TAPE, Newcastle andChallenger TAPE, Fremantle

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- have been struggling to findsufficient Australian students tojustify continuation of maritimecourses.

The age profile of qualifiedAustralian Marine Engineersis currently extremely skewed.There are a disproportionatelyhigh number of Marine Engineerswho are over 50 including a verylarge number who are over 60.On the other side of the ledgerthere are a very small fraction ofAustralian marine engineers whoare under 30. This means thatwithout urgent remedial actionAustralia will face a crisis inthe supply of Australian, marineengineers within the next 5years.

There are also a high proportionof Australian, marine engineerswho hold Engineer Class 1 andEngineer Class 2 Certificates ofCompetency and a very smallproportion who hold the EngineerWatchkeeper Certificate ofCompetency. The Watchkeeperqualification is the entry levelqualification for marine engineerson coastal shipping vessels. Thisreflects the lack of new youngengineers being trained over thelast decade or more.

This current labour supplysituation for Australian marineengineers is detailed further inAppendix D.

Explanations for this maritimelabour supply problem include thedemise of the National MaritimeIndustry Training Committee andthe withdrawal of some majorplayers from the direct operation

of their shipping task - e.g BHP,Ampol, Caltex, Shell, BP andmore recently CSR. These majorcorporations previously rantheir businesses on a verticallyintegrated basis and manpowerplanning was something they tookresponsibility for and managedactively.

On top of this the sale of ANLsaw the disappearance of a publicsector operator which historicallytrained very significant numbersof Australian marine engineersand other seafarers. The earlierdemise of Western AustralianStateships saw the exit, of anotherplayer which formerly carrieda large training load for theimportant State of WA.

These changes did notautomatically impact on theindustry. They are changes whichtake a long time to percolatethrough the system. The youngAustralians trained by thesepublic and private sector shippingcompanies are now movingthrough middle age. Many areheading towards retirement. Theycannot, keep the industry goingforever.

To address the shortage of marineengineers, AIMPE submits that anindustry target for annual trainingintakes needs to be established.This would best be directed at longterm requirements for all of theAustralian maritime industry [notjust coastal shipping - offshoreoil and gas, port operations andshore-side positions], AIMPEsuggests that a figure of 200persons per annum would be astarting point for training new

marine engineers. Not all of thesewould successfully complete thecourses and not all would staywith industry for the long term.But this should be enough tomeet the looming retirements ofcurrent engineers aged over 60.There is a following cohort aged55-60 years who will also needreplacement. This is not a shortterm solution.

The supply-side problem for thecoastal shipping industry hasbeen exacerbated by the recentgrowth in maritime employmentin the off-shore oil and gas sector.As Australia and the world runshort of petroleum., explorationfor new sources of the preciousresource has pushed out intodeeper and deeper waters. Thenew technology of floatingfacilities has been favoured overthe old-style fixed rigs standingon legs which thrust down to theseabed-Australia's off-shore oil and gasindustry used to be restricted tothe Bass Strait in the 1970s. In the1980s development of the NorthWest Shelf gather pace and hascontinued to expand through the1990s and the 2000s. On top ofthat the Timor Sea developmentshave expanded in the last decade.As a result the off-shore oiland gas sector has become amajor source of employment forAustralian seafarers. Indeed it ispossibly now the largest sector ofthe Australian maritime industry.

The rising price of energy in thelast few years lias meant that theoff-shore oil and gas sector alsohas the capacity to pay higher

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wages and more favourableconditions than the coastalshipping industry.

The search for and extraction of oiland gas in Australia's deepwaterhydrocarbon fields has been asignificant factor in the increasingdemand for maritime labour inAustralia over the last decade.This has been most intense overthe last five years.

AIMPE anticipates that theAustralian off-shore oil and gassector will continue to be a majoremployer of maritime labour forthe next twenty or more years. Todate the offshore oil and gas sectorhas not made any industry-wideplans for future labour supply.AIMPE has negotiated trainingclauses in collective agreementsbut these have come nowherenear producing sufficient numbersof trained personnel to meet thesector's labour demands.

Whilst the offshore oil and gassector is not the specific focusof the current terms of reference,it is not possible to address thequestion of maritime trainingneeds without a comprehensiveconsideration of the demand formaritime qualified personnel inAustralia. This actually includesport and shore-based personnel inaddition to the shipping and off-shore oil and gas sectors.

AIMPE proposes that theCommittee recommend that a thenew Skills Australia should makean allocation of resources tothe training needs of the coastalshipping and related maritimesectors as a. matter of priority.

AIMPE also proposes that theCommittee should recommendto the Minister that all maritimeoperators should be required totrain a minimum number of newentrants on their vessels. Thatnumber should be at least twotrainees per large vessel and onetrainee per smaller vessel.

National Security

In addition to the social andeconomic policies addressed bythis submission, there is a needfor the Australian Governmentto recognize, as do so many ofour allies, the importance of aconstructive relationship betweenour merchant marine and ourdefence forces. In the USA thisrelationship is so strong that themerchant marine is referred to asthe fourth arm of defence. In theUK the relationship between themerchant marine and the defenceforces is far, far stronger than therelationship here in Australia.

The Federal Governmentshould commence operatingcertain Australian Navy shipswith civilian merchant marinepersonnel as the operational crewsupporting specialist, defencepersonnel in other functions. Thispolicy would be limited to supplyand support ships not engaged innaval battles.

Such naval support vessels shouldalso be available to be used fortraining of new merchant marinerecruits in order to address thecurrent shortages of maritimepersonnel and the difficultiesassociated with obtaining the

necessary sea-going experience.

The Federal Goven.im.eiit shouldestablish an on-going relationshipwith the merchant shippingoperators to ensure that in timesof operational need ships couldbe requisitioned by the defenceforces to meet short term defencerelated requirements. Such amilitary support program wouldinvolve an annual subsidy tocommercial operators contingentupon, meeting specific vesselstandards.

Futhermore the FederalGovernment should utilizemerchant marine personnel tomaintain reserve naval, vesselswhich would otherwise have tobe sold or scrapped.. This wouldensure additional naval capacityin future times of need. This typeof approach is common amongAustralia's allies - the UnitedKingdom and the United Statesof America.

These submissions are brief andpreliminary - they are not thecore focus of the current inquiry.However AIMPE submits thata separate process involving theAustralian Defence Forces andthe coastal shipping industryshould be initiated to dealwith these questions in a morecomprehensive manner.

Post 2001, maritime securityhas taken on a much higherpriority in policy formulation.The International Ship and PortFacility Security Code [ISPS]was developed and agreed at theIMO in 2002 for implementationfrom 2004. Australia has been

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relatively quick in putting theISPS Code into practice.

Commencing 2005 andenforceable from. 1 January2007, all Australian seafarersare required to obtain and wear aMaritime Security IdentificationCard [MSIC]. Each applicant foran MSIC is given a backgroundcheck by the Australian Securityand Intelligence Organisation[ASIO], the Federal Police[AFP] and the Department ofImmigration and. Citizenship[DImC].

The national securityimprovements achieved byrequiring seafarers on Australianregistered, ships to obtain MSICsare negated if these seafarers aremade redundant and replaced byforeign seafarers not checkedby ASIO, AFC) and DImC. Ifthere is national security valuein the MSIC screening process,then, the Australian Governmentshould ensure that the maximumproportion of the coastal shippingtask, should be carried out byvessels operated by seafarers withMSICs.'

There is a further national interestin Australia having a criticalmass of experienced Australianmaritime personnel to enableshore based maritime positionsto be filled domestically.Without a pool of qualified andexperienced seafarers from whichto recruit people for positionssuch as Harbourmasters, MarineSurveyors, Pilots and other shore-based maritime jobs, Australiawill be caught short. It is inthe national interest that thesekey positions should be filled

by people with experience andunderstanding of the Australiancoast and the Australian maritimeindustry.

Efficiency

AIM PE does not seek to advantagecoastal shipping relative to theother two major modes of freighttransport - long-distance rail androad. AIMPE seeks that the modesall be treated, as integral parts ofthe Australian freight transportsystem. However work that hasbeen done both in Australia andelsewhere around the worldindicates that shipping is themost energy efficient methodof transporting freight. Andthis is particularly so over longdistances. DoTaRS has collatedsome of this material.

In a period of widespreadconcern about global wanningAIMPE submits that the mostenergy efficient form of transportdeserves to be the form oftransport favoured by nationalenvironmental policies.

The Bureau of InfrastructureTransport, Regional Developmentand Local Government [BITRE}has recently released itspublication Australian TransportStatistics, Yearbook 2007. Thisshows at p.24 that in billion tonnekilometres the various transportmodes carried the followingamounts of freight in 2004-05[the most recent year available]:

Road 168.9Rail 183.0Shipping 11.4.0Total 465.9

This shows that coastal freightrepresents almost 25% of thefreight movement task whendistance is taken into account.These figures were similar to thepreceding year 2003-04.The same publication shows atpage 137 that in the precedingyear 2003-04, road freightvehicles [articulated tracks andrigid trucks but excluding lightcommercial] generated 15,212gigagrams of carbon dioxidecompared to the maritime outputof 2,054 gigagrams of carbondioxide. Light commercial trucksgenerated 10,793 gigagrams ofcarbon dioxide in 2003-04. Thepoint is however that even on thenarrower comparison, maritimetransport generates muchlesser carbon, dioxide per tonnekilometre than does tracking.

Rapidly rising fuel prices [andenergy prices generally] arebeing widely forecast and AIMPEpredicts that industry will selectthe most energy efficient mode ormodes of freight transport whenit simply becomes dear that it isuneconomic to do otherwise.

However when a nation, pours vastamounts of public resources intoparticular modes - road and rail- and virtually ignores the othermain mode - shipping - then theplaying field is heavily skewed.There is no level playing fieldbetween the three modes. Thereis no competitive neutrality in thepattern of public expenditure -far from it. This fiscal imbalanceexacerbates the regulatory

AIMPE submits that the FederalGovernment needs to recognizeand acknowledge that there

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Coastal Shipping ReYiew

has been a lack of competitiveneutrality in national policy todate. Auslink and Auslink 11provide large amounts of publicfunding over long periods oftime to the construction aridmaintenance of land basedinfrastructure necessary for road,and rail freight. B1TR.E reports[page 54, Australian TransportStatistics, Yearbook 2007] thatannual expenditure on roads inAustralia was approaching $10billion in 2003-04 [$9,347.9million in 2004-05 prices] forall levels of government inAustralia.

Meanwhile ports have beenrequired by and large to fund portinfrastructure by way of industryfees and charges. Public fundingof certain specific projects, whilstsignificant, pales by comparisonwith the billions directed toroad and rail. Navigation dues,regulatory dues and harbour andberth fees are imposed on shipping[both coastal and international]to raise the funds necessaryto operate and maintain theinfrastructure and the regulatorsand. port administrators.

Coastal shipping cannot operatewithout port infrastructure andaccess. In this regard coastalshipping may actually besqueezed out by internationalshipping which is a far largerand more influential customer formost Australian ports. There is aneed for the Federal Governmentto ensure that port authoritiesaround Australia plan for andallocate resources to facilitatecoastal shipping.

Exclusive EconomicZone

Australia is actively involvedin the exploitation of resourceson our continental shelf. Thisis taking Australian extractiveoperations into deeper and deeperwaters. There is little doubt thatin the long ran this trend willcontinue and the need to providea naval defence capability forthese commercial operationscannot be discounted. If we arenot active in the management ofour Exclusive Economic Zone[EEZ] Australia will not be ableto justify our claim to these vastoffshore regions.

All commercial vessels operatingin Australia's EEZ should beregulated in the same way ascoastal shipping vessels are -under the Navigation Act. This ofcourse does not apply to vesselsclaiming rights of passage underthe freedom of the high seas. Itdoes however include vesselsimported into Australia forcontract or project work. Thesevessels should not be permittedto operate in Australian waters ifthey are not prepared to operatewith Australian crews underAustralian standards enforced byAustralian regulators.

Australia's coastal shippingpolicies have traditionallyfocused on the trading of cargoesbetween mainland or island ports.However with the continuedoffshore developments referredto above there are increasingmaritime operations taking placeoutside conventional port settings.

AIMPE submits that there is a needto ensure clarity in the legislativeapproach to these operations.Vessels however describedshould continue to be recpiredto comply with all internationalmaritime conventions to whichAustralia is a signatory. Fixedstructures must be dealt with byspecific separate legislation. Thedesire of extractive industries forsingle unitary legislation cannotbe allowed to over-ride common-sense and international norms.Specifically, the vessels knownas Floating Storage and Offloadvessels, Floating Production,Storage and Offload vesselsand other like vessels should becovered by Australia's NavigationAct insofar as it regulates vesselstructure, maintenance andoperations.

The Navigation Act currently hasprovisions which apply to certainvessels operating within the EEZin the offshore oil and gas sector.These are contained within PartVB Off-shore industry vesselsand. off-shore industry mobileunits. However these provisionsare not clear and are based on thedeeming of certain vessels to becovered by the Act.

Further complicating matters,despite the existence of extensiveprovisions relating to all types ofvessels operating in the off-shoreoil and gas sector, these provisionsare effectively null and void as itrelates to FSOs and FPSOs andsimilar vessels. This is because ofan amendment to the Petroleum(Submerged Lands) Act whichdisapp.li.es the Navigation Act tovessels when they are connected

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to the sea-bed. AIMPE submitsthat this is bad law. The P(SL)Adisapplication provisions havebeen justified on the grounds ofeliminating competing healthand safety regulations. The effectof the disapplication provisionshowever is that internationalmaritime conventions applyingto all vessels [including tankervessels] do not apply to FSOs andFPSOs when they are attachedbut do apply when they detach— for instance to sail away froma cyclone.

The essential value of FSOsand FPSOs is that they are re-locatable. As floating vessels theyhave been treated by Australiaand other countries as partof the maritime industry andsubject to international maritimeconventions. Australia has createdan absurd position where thoseconventions only apply when thevessel disconnects. Conventioncompliance cannot be achieve bythe flick of a light switch.

Consolidated occupational healthand safety legislation did notrequire disapplication of theentire Navigation Act. The 2006disapplicationamendmentsshouldbe repealed. The NavigationAct should continue to apply toFSOs and FPSOs and all" otheroff-shore oil and gas vessels atall times. This would ensure thatthe relevant IMO conventions[SOLAS, MARPOL, ColRegs,STCW] all continue to applyfor the safety of all vessels andseafarers and for the protection ofthe environment.

The "Dampier Spirit" incident of

2007 demonstrated that there areserious, potentially disastrous,consequences attached to theabsurdity that is the PSLAdisappiication provisions. The"Dampier Spirit" went withina few kilometres of beingAustralia's latest environmentaldisaster when it was out of controland unable to make any headwayas a direct result of trying to treatit as something other than a vesselcovered by the same rules andstandards as all other such vesselsaround the planet.

Should the Committee feel thatthis matter is not within the scopeof its terms of reference, AIMPEsubmits that the Committeeshould recommend that there bea subsequent inquiry to deal withthis urgent issue.

Single MaritimeJurisdiction

Additionally there is a provisionwhereby off-shore vessels notprima facie within the jurisdictionof the Navigation Act can bebrought under the Act by theowner or operator seeking adeclaration under s.8A that thevessel comes under the Act. Thisis an opt-in provision. A similarprovision exists for intra-Statetrading vessels. That is found ins.8AA.

AIMPE submits that theNavigation Act should cover allsuch vessels at all times. It shouldnot be an optional matter. Thereshould be no uncertainty aboutthe scope of the legislation. Thereshould be one authority and one

authority only in Australia withthe power and responsibilityof regulating trading andcommercial vessels. It is notrealistic, nor efficient, for theStates and Territories to continueto exercise jurisdiction overtrading and commercial vessels -and to have to employ personnelwith the necessary qualificationsand experience to implement theregulations that Australia hasadopted by way of ratification ofIMO Conventions.

Achieving this change wouldrequire the agreement of theStates and Territories and maynot be strictly within the scopeof the current ParliamentaryInquiry. AIMPE submits that athis matter should be referred tothe Australian Transport Councilfor the early consideration of allgovernments.By way of example AIMPE citesthe 2008 instance of the requestby Inchcape Shipping Services tothe Queensland Government forthe issue of a Restricted User Flag[RUF] for the carriage of liquidammonia between Brisbane andGladstone. The tanker required totransport this cargo and the 9 othersuch cargoes it plans to transportin the next 12 months may wellhave other tasks on the Australiancoast. While Queensland is doingthe right thing in attempting todeal with this application, thepattern of trade may welt be partof a bigger jig-saw puzzle. A jig-saw puzzle which the relevantFederal body should regulate.

HOUSE OF REPRESENTATIVESSTANDING COMMITTEE ON

INFRASTRUCTURE, TRANSPORTREGIONAL DEVELOPMENTAND LOCAL GOVEFINMENT

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