The Eternal Question: How to Manage Australia’s Coastal Shipping?

A small article in The Australian, Australia’s national newspaper, has signalled that the merry-go-round on Australia’s coastal shipping policy will continue. The new government, voted in three weeks ago, confirmed it will be reviewing the Shipping Reform package that was officially launched July 1st, 2012 after a multi-year industry consultation process.

The aim of the Shipping Reform package is to “revitalise Australian Shipping”, as Anthony Albanese, the then Minister for Transport, put it. With the introduction of accelerated depreciation, tax breaks and an international shipping register, the model was set up to try and win back those companies that had moved overseas over the last 40 years in search of just those incentives.

The package also included a new system for licensing ships carrying cargo on the Australian coast. The movement of bulk products such as iron ore, coal and Bauxite, containers, as well as oil products from refineries are shipped the length of the Australian coast. The aim was that over time, the majority of ships carrying Australia’s interstate cargo would be Australian-flagged.
So what is the Australian shipping industry and what are we trying to achieve by revitalising it?

When I started at sea in 1992 as a green deck cadet, Australia had a mere 60-large merchant vessel fleet. A surprising figure, given the size of the country, which is about the same size as the U.S.; Australia has about 25,760km or 16,000 miles or so of coastline. Now just 20 ships service coastal waters, so foreign ships are utilised to fill the void.

And why not? In terms of wages alone, a Filipino rating will earn in the order of $US1,100 per month for a nine-month stint, whereas an Australian rating will earn around $US 600 per day, with each turn aboard being between four and ten weeks. It’s obvious then that using an Australian-manned ship is unsustainable when competing in the global economy.

Of course I don’t deny these seafarers their wages. They are living in completely different economies with different living needs. However, the effect that these wages have on the cost of shipping items around Australia is significant.

As it is, merchant shipping in Australia employs just 27% of the workforce. In the heyday of the 1980s and 1990s, that percentage was significantly higher when more companies registered their ships in Australia and ran them with Australian crews. Now about 48% of Australian seafarers are employed in the offshore oil and gas industry, with the remaining 25% employed in harbour towage. 
Having had the task of manning a ship in Australia, I know what we’re up against. Finding the right people with the right experience who are willing to work on these ships for the lower wages is a tough sell. Seafarers want the higher wages offered by the offshore industry. And so employees on the lower paid bulk carriers are typically transient in nature. Not an ideal situation for the long-term management of a vessel.

The position we now see in Australia could be described as ‘No mans land’; halfway between what the Jones Act delivers in the United States, and a fully open coast. The Jones Act, which has been in force since the 1920s, requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The Act delivers a vertically-integrated shipping economy, from ship design and building through to crewing and management of the vessel operating.  

Shipbuilding in Australia was lost over two decades ago because using Australian yards was far too expensive and still is, much to the dismay of the unions. No changes are visible on the horizon, therefore, a move to Jones Act provisions here would be unsustainable.
A fully open coast also raises issues. Any ship carrying any Australian cargo would have no restrictions at all in respect of who can crew the vessel.  Do we (the Australian public) want to see foreigners taking the jobs of Australians, albeit only a small number of jobs? Would the general public actually know any different? Not likely! But there is also the troubling fact that without a significant indigenous fleet now, we are already seeing qualified personnel being recruited from overseas to take local pilot and ship manager positions.

The Bass Strait trade, which services my home of Tasmania, has been described as the most expensive stretch of water in the world. Opening the coast to allow foreign ships on this route would certainly deliver savings. But it would be difficult, as changes would be required to the immigration act and a number of other pieces of legislation.

So where does that leave the Australian shipping industry and what will happen if this new government review goes ahead? It’s anyone’s guess.

So far, the Shipping Reform package has had very limited success. One ship has moved onto the International register and to date, no newbuilds have been ordered to take of the accelerated depreciation. As a result, the same continuous mix of indigenous and foreign ships carry our cargo between states.

Will any changes made by the new government resolve the problem? Probably not. No one will want to go to the extreme of a Jones Act scenario, it would not work under current circumstances.  Or alternatively, fully open up the coast to foreign ships in a union-dominated industry. Any changes could only be very small when compared to these extremes. Frustrating as it is, I predict that for the next few years, even decades, we’ll still be asking the same old question ad nauseam: How do we manage -- and prosper from -- Australia’s coastal shipping?

Aurora Australis op-ed

Speculation continues as to what new icebreaker will replace Australia’s long-serving Aurora Australis. After 24 years of service in the Antarctic she is headed for retirement. The challenge for the selected builder will be to provide a multi-tasking polar research and supply ship with an upgraded environmentally-sensitive modern design that is capable of handling the Southern Ocean in all weather conditions.

By all rights an Aussie ship should be built in Australia. Or should it? What level of risk is the Australian government willing to accept for a project so critical to the Australian Antarctic program?

Well, they could be hedging their bets based on past history. The Aurora Australis all but bankrupted the Carrington shipyard. Incredibly, she was one of the last ships built in the country. She was followed by the Searoad Tamar, built in 1991, which insurers had to step in and save to prevent her from being scrapped before she even floated.

Still, some members of the Australian Manufacturing Workers Union are calling for shipbuilding work to stay in Australia. Delegates who work for Forgacs shipyard (operator of the Carrington yard) in Newcastle urged Environment Minister Tony Burke back in May to support building the replacement vessel in Australia. But that would mean bearing higher costs, principally through wages, and taking on the big risk associated with using a yard with no recent commercial shipbuilding experience.

The bottom line is still a mighty persuasive deciding factor it seems. And who can argue it? Presently in Australia, a sheet metal worker earns $45,000 to $55,000 per year plus overtime and superannuation. Conversely, a Chinese yard worker earns approximately $US650-$800 a month. Sounds like a no-brainer.

Yet the government is financially supporting Australian shipyards with naval shipbuilding currently occurring in Williamstown, Victoria; Forgacs in Newcastle; and at the ASC facilities in Adelaide and Fremantle, Western Australia. Other than that, since the building of the Searoad Tamar more than two decades ago, Australia has been concentrating on high-speed aluminum craft like those built by Incat in Tasmania and Austal in Fremantle.

Even so, Australian shipyards aren’t even given the opportunity to deliver on all the naval projects currently underway. Spain has been building hulls for the Navy’s landing helicopter deck (LHD) projects, then transferring them to Australian yards for fitout and completion. You can’t blame them as the move was probably done as a risk-control measure used against Australia's lack of experience in constructing large hulls. A similar risk will be present with the Aurora Australis replacement.

And in another shining example of non-protectionism, despite Teekay Holdings Australia Pty Ltd. securing the contract to build RV Investigator, the recently-launched Marine National Facility Research vessel (for the CSIRO) was built by Sembawang Shipyard Pte Ltd in Singapore. 

What will be the outcome of the RFP that the Australian government sent out earlier this year for Aurora’s replacement? It's anticipated a shortlist of suppliers will get their chance to engage in a selective tender process, the timing of which will be dependent on Federal government funding. That may take up to 12 months, should Australia see a change of government at the upcoming election on the 7th of September. What the political parties think on this issue right now has not been clearly defined by either side.

The new ship will have to balance deep-sea voyages between Tasmania and Antarctica with ice-breaking capability. Not an easy feat. With just a handful of yards around the globe that have multi-purpose icebreaker experience, expect this to be a hotly contested tender process.

Naturally, European yards, particularly Finnish ones, are probably going to rank high on the list. In fact, last spring, STX Finland delivered a similar vessel, the SA Agulhas II for the South African National Antarctic Programme. The Netherlands' Damen Shipyards as well as Singapore's Keppel Singmarine, among others, had also bid on the project.

Interestingly, in 2008, Keppel Singmarine made a huge splash in the icebreaking market, becoming the first Asian yard to build ice-breaking vessels, and with a small portfolio in this sector, they could also be sizing up this opportunity.

Meantime, Germany's Nordic yards are busy with newbuild contracts for two rescue and salvage ice-breaking vessels to be built for the Russian Ministry of Transport that will operate in the Arctic's northern polar sea.

Canada can’t be left out of the game either. Seaspan, located on the country’s West Coast, has a successful history of building icebreakers and is set to build the New Canadian icebreaker CCGS John Diefenbaker. On the other hand, Mitsubishi, who are sailing back into the passenger sector after a nine-year absence, may also throw their hat into the ring, too.

While Aurora Australis is part of the $200 million Hobart Antarctic program, she is owned by P&O Maritime and chartered by the Antarctic Division. However, the Australian government is looking to change the model to one where the government will own the ship, while having a ship manager operate it on their behalf. An Australian ship manager? That remains to be seen.

It is hoped the new replacement icebreaker will be ready to ply the Antarctic waters by 2017, but first it will need a yard that’s up to the task. Unfortunately, I highly doubt it will be built in one from down under.

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McGuire Consulting
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