LIBERAL CABOTAGE
7.1 AUSTRALIA
The Commonwealth of Australia, as it is formally known, is an island continent comprising mainland Australia, the island of Tasmania and smaller islands,116 with a coastline length of about 36 000 km.117 The country is completely surrounded by water.
Trade with its neighbours, near or far, depends solely on seaborne carriage.
The Australian coastal shipping framework, like South Africa, has its foundations in the country’s colonial history. During the 19th and the early 20th centuries it was
116 Australia (nd), available at https://en.wikipedia.org/wiki/Australia. (Accessed 19 July 2018).
117 Australia’s Coastline (nd), available at https://www.australiaforeveryone.com.au/coastline.html.
(Accessed 19 July 2018).
expected of colonies such as Australia to emulate the fiscal and constitutional policies of their British masters. As such, Australia, although not legally bound to adopt a similar approach, followed an open coastal policy analogous to that of Britain. All six Australian colonies (as it was then composed) had an open coastal policy as provided for under the Merchant Shipping (Colonial) Act of 1869 (UK).118
After the colonies were federated, an urgent need arose to change coastal policy to prioritise trade, defence and labour imperatives.119 Dominance of foreign shipping interests, reliance on foreign-controlled tonnage and the need to curb “the employment of non-whites crews on ships” operating on Australian routes120 also heightened the urgency for policy changes.121
Interestingly, the principal factors debated at the beginning of the 20th century pertaining to national security, seafarer employment and low freight rates remain the basis for many coastal policy commissions seen in Australia to date. Generally, the perception over the years has been that possession of a sizeable and efficient domestic fleet provides an effective safeguard for national security, industrial and trade prosperity.122
7.1.1 The Navigation Act 1912
The Navigation Act 1912 formulated the legislative basis for Australian cabotage. It defined ‘coastal trade’ as the loading of passengers and cargo at any Australian port for carriage to any port in Australia.123 It demarcated parameters within which foreign participation was prohibited. 124 The Navigation Act provided exceptions and exemptions under which foreign participation was permissible. Foreign operators could obtain licences to operate on the coast provided they met Australian crew wage
118 M.L. McConnell, ‘Cabotage and the Colonial Corset: The Great Australian Bind’ (1988) 4 ANZ Mar. L.J. 1–16 3.
119 McConnell (note 3) argued that the newly Federated Australian Commonwealth perceived the Japanese as a security threat.
120 McConnell (note 3). 6 citing J. Bach A Maritime History of Australia (1976).
121 Ibid.
122 Ibid.
123 The definition applied to discharge operations as well.
124 For practical reasons, British mail ships were exonerated from the licence provision until the railway system connecting Western and Southern Australia was completed. See McConnell (note 3) 14.
conditions and manning levels and were not receiving financial assistance from their governments or any form of subsidy from elsewhere.125
Therefore, the Navigation Act set the Australian coast aside as a local operation for local interests. However, it is important to note that from the very beginning, Australia did not create a barrier against foreign participation or against foreign direct investment.
The three basic conditions for licensing were designed to level the playing field between Australian operators and prospective international participants operating on the Australian coast.
The first two requirements, relating to crewing conditions and levels of manning, meant that international operators involved in shipping on the Australian coast adopted Australian labour-related practices that were mandatory for Australian operators.
Likewise, the third requirement, which prevented subsidisation of foreign participants, was appropriate in the circumstances. In its absence, foreign operators would otherwise have had a competitive advantage over Australian operators because of financial assistance received to cover capital and/or operational costs. Foreign government subsidies would have led to a pricing differential in favour of the foreign operator, for instance. The importance of placing these conditions in the first place seems to have been lost on Australia over time, as will be seen later in the discussion.
Although security and preservation of local skills were important to the formation of the policy governing the Australian coast, the real basis for the commencement of cabotage was largely economic.126 Cabotage was founded on the desire to build an Australian merchant fleet and on the protection of Australian seafarers from low-paid crews. The approach, although regarded as dated compared to international shipping norms of the time, was warranted, given the stage of institutional development of the country in the mid-1920s.127 In particular, Australia could ill afford to exclude international participation on the coast, especially in the early 20th century, because Australia had no merchant fleet. Its merchant marine was essentially British vessels
125 Ibid. 13.
126 Ibid. 16, citing the Report of the Royal Commission on the Navigation Act 1923/24 (1924) Parliament of the Commonwealth of Australia in Shipwreck Databases Western Australian Museum Government of Western Australia, available at http://www.museum.wa.gov.au/maritime-archaeology- db/bibliography/report-royal-commission-navigation-act-1923-24-parliament-commonwealth-australia.
127 Ibid.
registered in Australia.128 However, dependence on British shipping interests continued to plague Australia even when the country had its own fleet, as will be seen.
7.1.2 Attempts to amend coastal policy
The Navigation Act went through various amendments over time that mostly represented adjustments to meet periodic imperatives either to bring the policy in line with other policies or a changed political climate. However, more significant changes were made to the statute from the 1950s.129 Unfortunately, those changes did not bring about a significant growth in the coastal fleet despite a noticeable growth in coastal shipping activity.
At its peak during the 1970s, coastal shipping carried 52% of coastal trade but thereafter started to decline.130 A commission appointed in 1976 produced the Report on Australian Maritime Legislation. The commission’s conclusions were that Australia had one of three choices to help stimulate its coastal trade. The first option was to look for the most efficient and most affordable seaborne method of transporting cargo. The second option was to insulate shipping from competition completely, leaving the economy to absorb the impact of doing so. The last option was to combine the first and second options and to come up with a compromise that would avoid protectionism while preventing unfair competition.131
The government decided to promote coastal competition and therefore chose the middle path with some variations, purely as a practical step. The decision to do so was forced on Australia by the fact that more than half a century had passed, and the merchant marine and coastal shipping operations remained under British control. The Navigation Act served only to promote that monopoly.132 The scarcity of indigenous tonnage meant more foreign vessels plied the coast and their continued presence worsened the conditions for the establishment of the Australian fleet. Vessels under licence could operate on the Australian coast whether flagged in Australia or flagged elsewhere.
128 Ibid. 17.
129 D. Kirkby The Sailor is a Human Being: Labour Market Regulation and the Australian Navigation Act (2007), available at http://press-files.anu.edu.au/downloads/press/p200721/pdf/ch10.pdf. (Accessed 26 July 2018).
130 S. Everett & C. Kittel Sustainability and Australian Coastal Shipping: Some Issues (2010) 2(3) Australian Journal of Maritime and Ocean Affairs 82–89.
131 Ibid.
132 Ibid.
These were subject to Australian rates of pay and other cabotage conditions. However, tonnage shortages led to a practice that allowed foreign vessels to trade on the coast under a permit system.133
Vessels issued with a permit did not have to comply with Australian labour practices or cabotage restrictions in the same way vessels that operated under licence did. The idea behind the imposition of three conditions (Australian crew wages, manning levels and no foreign subsidies) on which Australian cabotage was based had been forgotten.
Differential pricing became inevitable between operators. The effect was that vessels that operated under licence competed poorly against foreign vessels operating under the permit system. In turn, this hampered investment in the Australian licensed coastal fleet.134
The Australian government appointed the Crawford Committee in 1982 to evaluate the cause of the flagged fleet stagnation.135 The Committee made observations relating to the Australian fleet both domestically and internationally. Unsurprisingly, the Committee observed that the Australian coastal fleet was disadvantaged because it was competing with subsidised fleets with low-paid crews while its own environment required Australian fleets to pay higher wages and to grant longer leave days, which sometimes meant that owners had to employ double crews as a result of six months on- six months off leave agreements.136
The influence of the findings on domestic shipping led to renewed government involvement. Efficiencies derived from efforts directed at the Australian national fleet benefited the domestic coastal fleet as well. For instance, the Capital Grants Act of 1987 led to new investments in the Australian-flagged fleet making it possible to retire the old fleet.137 However, notwithstanding financial investment shortly thereafter, the modal share of shipping dropped to 35% of coastal trade and hopes of reviving the home fleet continued to suffer.
133 These permits were issued in the form of either a single voyage permit or a continuous voyage permit in terms of the Navigation Act.
134 Everett & Kittel (note 15).
135 Ibid.
136 Ibid.
137 Ibid.
In 1996 yet another body, the Shipping Reform Group, was formed to investigate options to revive Australian shipping. This body focused on reflagging and the establishment of a second register while retaining cabotage conditions. However, there was no resolution. Prominent coastal cargo interests such as the Sea Freight Council of Western Australia were adamant that cabotage thwarted the development of the petrochemical industry. They argued that cabotage removal would result in a savings of about $22.5 million a year. BHP (formerly BHP Billiton) agreed, adding that (at the time) it had cost 33% more to move iron ore from Port Hedland (Western Australia) to ports in New South Wales (Eastern Australia) on an Australian-flagged bulk carrier than to deliver iron ore to Korea on a similar-sized vessel.138
7.1.3 Recent developments
In the last decade, Australia has experienced serious depletion of its fleet, to such an extent that in 2010 there were no container vessels operating under its registered flag.
The country’s logistical chain totally depended on unlicensed foreign operators trading in foreign-registered vessels to transport containers to land-based modes on the back of the permit system.139
The scenario is not entirely unexpected, given that modal patterns over the last 50 years have shifted in favour of road transportation, particularly because of its door-to-door offering.140 This generally leaves coastal shipping with a modal share consisting predominantly of low-freight bulk cargo that may not be suitable for road haulage.141 The continued decline of the coastal fleet has been attributed to exorbitant capital and operating costs of the Australian-flagged vessels. These costs are generally regarded as comparatively higher than those of foreign operators on the permit system and are higher than road haulage costs.142 Furthermore, costs of operating an Australian-crewed vessel (excluding fuel) constitute an estimated 38% of total operating costs, while costs on foreign-crewed vessels, calculated on the same basis, were about 13%.143 Under
138 Ibid. 86.
139 Ibid.
140 Ibid. 87.
141 The trend resembles patterns seen on the Cape/Durban route, where container operators have been left to compete with foreign operators for high-value high freight cargo under conditions where foreign vessels can provide similar services at marginal cost pricing.
142 Everett & Kittel (note 19).
143 Ibid.
these conditions, the Australian-flagged vessel is not well placed to compete with a foreign-owned vessel.
7.1.4 Latest cabotage position in Australia
Australia recently introduced a new coastal regime to deal with some of the challenges stated above. The Navigation Act 2012 repealed the Navigation Act 1912. The old statute has been rewritten to reflect contemporary seafaring trends, to modernise measures relating to environmental protection and to deal with conditions of employment of Australian seafarers.144 Provisions relating to coastal trade145 have been assigned to another piece of legislation, the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Coastal Trading Act), which has perhaps afforded Australia the opportunity to deal with issues relating to seafarer employment separately from issues connected with fleet revitalisation for the first time in a hundred years.146 The Coastal Trading Act provides that ‘coastal trade’ ordinarily refers only to the transportation of cargo between Australian States147 and not within States,148 and excludes transshipment trade cargo.149 The implication is that cabotage does not apply in respect of cargo movements between two ports located in the same State and that any cargo moved between States for consolidation for shipment elsewhere outside Australia does not form part of coastal trade for cabotage purposes.
Similarly, the Coastal Trading Act focused on tonnage utilised in coastal trade. It does not apply to vessels working offshore or to vessels that provide pilotage, towage and salvage services nor does it apply to vessels involved in recreational activities.150
144 Australian Legislation, available at http://www7.austlii.edu.au/cgi- bin/viewdoc/au/legis/cth/bill_em/nb2012133/memo_0.html. (Accessed 2 August 2018).
145 In particular, Part IV – Coasting Trade, sections 284 to 293 of the Navigation Act 1912.
146 However, the usual Australian labour statutes remain applicable to seafarers on the coast. These are for instance, the Fair Work Act 2009 (as amended August 2012), the Occupational Health and Safety (Maritime Industry) Act 1993 and the Seafarers Rehabilitation and Compensation Act 1992. These and other labour laws are ordinarily labour friendly and consequently drive operational costs upwards. It is therefore difficult to conceptualise a meaningful method of dealing with labour and national ship registry issues separately when both are governed by the same legislative framework.
147 The reference relates to the eight Australian States, namely New South Wales, Queensland, South Australia, Victoria, Northern Territory, Australian Capital Territory, Tasmania and Western Australia.
148 However, an owner may choose to be bound by the Coastal Trading Act in terms of section 12 although trading within the same State.
149 Coastal Trading Act 2012 section 7(1)(a) to (c) and section 2(b)(ii).
150 Ibid. section 10.
However, crucial provisions introduced by the Coastal Trading Act relate to the new system of granting licences. It abolished distinctions between licensed coastal operators and operators under the permit system (previously single voyage or continuous voyage permits). With effect from 1 July 2012, coastal operators could apply for one of three licence options.
The first option is a general licence. It is issued only in respect of the domestic fleet under the Australian General Shipping Register (AGSR). The general licence provides unrestricted access to coastal trade for a period of up to five years, renewable. Operators issued with this licence must show that each seafarer working on each vessel151 while on the coast is an Australian or a permanent resident, or is permitted to work on that vessel through some formal process.152 Continued validity of the general licence is conditional upon the assurance that each seafarer on the vessel is an Australian citizen.
The position highlights unequivocal preference for Australian seafarers to work on board Australian vessels, which has been attached as a condition of licence.
The second option is a temporary licence. A vessel registered under the AGSR cannot be issued with a temporary licence. A temporary licence provides coastal trade access to vessels registered under Australia’s second register, the Australian International Ship Register (AISR), and to vessels registered elsewhere.153 A temporary licence allows coastal trade for one year only. An operator who applies for a temporary licence must state the type of cargo intended for carriage and the port of loading and port of discharge in respect of such cargo, among other conditions.154
The third option is the emergency licence. This licence, in a similar way to the other two, grants the operator access to coastal trade for the purposes of carrying cargo and passengers and not merely the provision of services ordinarily connected to emergencies. However, the applicant must specify details of the emergency, cargo to be carried, the number of voyages to be undertaken to complete the task and the loading and discharge ports for the cargo. Perhaps more importantly, the applicant must state where the vessel has been registered. Depending on vessel registration, the applicant
151 Ibid. section 21(b).
152 Ibid. section 13.
153 Ibid. section 40.
154 Ibid. section 35, read with section 40.
must give reasons why a vessel registered under the AGSR cannot perform the emergency service sought in the application.155
The new licensing system seems to have been designed to eliminate the unsatisfactory position which permitted foreign vessels access to coastal trade through single voyage and continuous licences. The reasons for discontent emanated from the fact that, among other things, foreign vessels were not obliged to employ Australian seafarers, were not compelled to comply with Australian tax laws and generally made no contribution towards the advancement of Australian coastal shipping. They were seen as a stumbling block in the development of the Australian merchant fleet in particular.
Therefore the Coastal Trading Act seems to have been directed at re-establishing the notion that Australian coastal trade should be preserved first and foremost for Australian interests, although foreign participation will not be precluded, provided that such participation occurs in a manner that caters to Australian coastal policy priorities.
7.1.5 Potential further amendments to Australian cabotage legislation
However, the debate regarding foreign participation and the adoption of cabotage as a means of developing the Australian merchant fleet seems far from being settled. Two years after the Coastal Trading Act, another proposal in the form of the Shipping Amendment Act, Bill 2015 (the Bill) was presented to parliament to challenge new legislation. In particular, the Bill proposed reintroduction of foreign participation.
Arguments that have been raised in support of the Bill mostly relate to comparatively higher freight costs in cabotage trades than freight available in trades where foreign vessels participate freely. For instance, the thrust of the submissions against cabotage was that it was cheaper to import sugar from Brazil to Melbourne (where most soft drink manufacturers are located) than it was to transport sugar from North Queensland to Melbourne.156 Cane growing was the sector of agriculture affected the most by higher freight rates that Australian-registered vessels charged for moving sugar along the coast.
155 Ibid. section 64(2)(b) and (c).
156 Matthew Canavan – Nationals Party Whip in the Senate, available at https://www.youtube.com/watch?v=xad4q_b3Zec. (Accessed 18 July 2018).
Another argument in favour of passing the Bill was based on the statistical observations of coastal volumes, freight rates and coastal share following a stricter policy against foreign participation. At the end of the financial year 2012/13, Brett Whiteley argued that a decline of about 22% in coastal freight volumes was directly related to the introduction of the Coastal Trading Act in 2012.157 Further, over the same period, average freight rates increased from about AS$18/ton in 2011 to about AS$29.70/ton in 2012, which translated to an increase of about 63% following the introduction of the Coastal Trading Act.
Against this background, the object of the Bill was to redirect focus from cabotage and consequently away from merchant fleet building to competitive coastal services and the best utilisation of available coastal tonnage regardless of whether it was foreign or not.158 The Bill proposed the repeal of provisions relating to general, temporary and emergency licences.159 The suggested alternative is to allow any person who has a legal or beneficial interest (other than banks and capital investors) in a vessel to apply for a coastal shipping permit, irrespective of the flag of the vessel.160 The permit would be valid for a period of 12 months.161 It would refer to one vessel,162 but could be transferred to a third party ‘transferee’ on application.163
Interestingly, the Bill required employment of only two Australian senior crew members164 on board foreign vessels engaged in coastal trading. Otherwise, the Bill made no provisions for the employment of Australian seafarers. It also made no distinction between vessels registered in the AGSR, the AISR and vessels registered
157 Brett Whiteley MP, available at https://www.youtube.com/watch?v=iN87nh3Tjz8. (Accessed 18 July 2018).
158 Section 3 of the Shipping Amendment Act, Bill 2015 (‘the Bill’) stated as its object provision of
“… a regulatory framework for coastal shipping in Australia that:
(a) fosters a competitive coastal shipping services industry that supports the Australian economy;
and
(b) maximises the use of available shipping capacity on the Australian coast”.
159 The Bill section 10 read with section 19.
160 Ibid. section 13.
161 Ibid. section 11(6).
162 Ibid. section 18.
163 Ibid. section 25.
164 Ibid. section 38(2) requires employment of at least two Australians “for the whole of the period for which the permit is in force:
(a) either the master or the chief mate; and (b) either the chief engineer or the first engineer”.