Australia: Coastal shipping reforms – Senate to consider the blue highway

In our Coastal Shipping Reform infographic we provided a summary of the proposed changes to Australia's coastal shipping regime as they were announced.

The Shipping Legislation Amendment Bill 2015 (Bill) was introduced to Parliament accompanied by explanatory material that provides some insight into the details and consequences of the Federal Government's coastal shipping reforms.

Four alternative policy options for a regulatory framework were canvassed. The Regulatory Impact Statement identified as the preferred option legislation that would reduce regulatory burdens while providing protection for seafarers when foreign vessels are engaged predominantly in coastal shipping. This option did not return the projected highest net economic benefit when compared with other policy options, but was chosen in order to

  • reduce industry costs and burdens; and
  • balance interests by ensuring Australian workplace conditions apply to crew working on foreign ships engaged in more than 183 days of coastal trading.

Whether the simpler coastal shipping regime in the Bill is able to arrest decline in the Australian shipping industry, or meet the disparate needs of stakeholders continues to be the subject of debate.

What's next? – The Senate Committee

The Bill has been referred by the Senate to the Senate Rural and Regional Affairs and Transport Legislation Committee. The Committee's report is due 12 October 2015. Submissions by Industry should be received by 7 August 2015. The same Committee has also been tasked with a review of the increasing use of so-called Flag of Convenience shipping in Australia by the same date, and it remains to be seen whether that reference will have any impact on the Bill.

Implications if the Bill is passed in current form

A wide range of stakeholders with differing and conflicting expectations will be affected by the Bill

Foreign vessel operators will no longer need to schedule ships around a minimum of 5 voyages, or obtain government approval when a change is required to the voyages to be undertaken. The greater flexibility when offering ships in this market will make for more competitive and efficient coastal shipping, considering that a foreign vessel can spend up to 182 days a year on the Australian coast before incurring increased costs of pay parity.

Ship repair industry Limited coastal trips for maintenance will be unrestricted. Time spent undergoing maintenance including repairs, cleaning or painting and not engaged on a voyage will count as time engaged in coastal shipping; and when a permit is in place, will be covered by that permit.

Vessels engaging in the domestic economy of Australia The previous legislation left it unclear when a vessel would be exempt from importation into Australia. Under the Bill, Vessel owners with a permit will clearly not be at risk of vessel importation as an unintended consequence of carrying out coastal shipping. The position when no permit is in force is not dealt with in the Bill. Continuing uncertainty about import status may limit foreign owners' appetite for coastal shipping voyages, even when coastal trips are added on to, or occur in between, international voyages.

Australian flagged vessels still have unrestricted access to coastal shipping, but lack a process to contest with foreign vessels for cargo to be carried on the coast. The "notice in response" to a temporary licence application will no longer exist. Australian flagged vessels therefore lose the right to be notified, to object and to negotiate terms to undertake coastal movements in competition with foreign flagged vessels. Australian flagged vessels will continue to have full flexibility to engage in the domestic freight task including running schedules that include international voyages. Owners of Australian flagged vessels may need to reconsider alternatives and their mix of crew to remain competitive. Where an Australian flagged vessel already holds a permit, the Bill contains provisions to allow the transfer of that permit if the ownership or management of the vessel changes during the permit period. A permit attaches to a vessel, albeit that the applicant is a person.

Licensed coastal trading for 183 days or more on the Australian coast will be subject to a requirement for a declaration in advance. A crew pay parity condition will be compulsory, so that Australian wages must be paid for the entire permit period. Foreign ship owners would need to make up the difference between each seafarer's ordinary wage and the minimum wages in Part B of the Seagoing Industry Award 2010. For the whole of the period for which a permit is in force, either the master or the chief mate and either the chief engineer or the first engineer must be an Australian citizen, Australian resident or hold a visa allowing them to work in one of those roles. Simplified reporting requirements will reduce the administrative burden of notifications before and after a coastal voyage under a permit.

Seafarers may apply to the Federal Court or the Federal Circuit Court to recover wages mandated to them under a parity condition. Future applications for coastal shipping permits will not be granted if the Minister is satisfied that the foreign vessel applicant has not complied with the parity condition of a permit previously held. Part B of the Seagoing Industry Award 2010 remains relevant, but given that the trigger to application of Part B is trading for 183 days or more on the Australian coast, foreign seafarers may access Part B infrequently. Australia enforces minimum working and living conditions for seafarers under the Maritime Labour Convention 2006.

Vessel operators and managers remain exposed to civil penalties at $51,000 (300 penalty units) for an individual or $255,000 (1500 penalty units) for a body corporate as a person who has a legal or beneficial interest in a vessel (other than a mortgagee) or has day-to-day responsibility for the management of a vessel which engages in coastal shipping without a required permit.

Charterers have more flexibility as to cargo volume and schedules. This will not only allow charterers to minimise wasteful ballast voyages and idle time, but also to update their scheduled cargo movements freely and flexibly as required. This should provide more competitive pricing and stability for freight services and help reverse the decline in coastal ship movements. Charterers and their brokers appear not to be eligible to apply for a permit under the proposed system, although this remains to be clarified. (Currently only a party with "legal or beneficial interest in the vessel or day-to-day responsibility for a vessel" is eligible to apply for a permit). There is no clear guidance in the Bill whether applications would be accepted when made by a local representative on behalf of a foreign vessel operator or manager. Obtaining necessary local law approvals for a voyage to proceed is often the charterer's task, being the party with the relevant local knowledge. This is the kind of matter which could be provided for by legislative instrument, if necessary.

Longer term coastal shipping users Unrestricted access to coastal trading for all vessels with a permit means that Australian companies with a long term coastal freight requirement could own or bareboat charter vessels to undertake coastal shipping, or a mix of international with coastal shipping. However tax concessions made available to encourage Australian companies to register ships in Australia have so far failed to attract any take-up. Even with current historically low interest rates, it is optimistic to think that the second register will now gain ships.

Ship financing, ship management and crewing providers are also likely to be disappointed unless the tax incentives change. An active second register is needed to generate opportunities for these businesses.

Shippers will be able to utilise a larger pool of cost effective vessels operating under various flags to meet their business needs. "One off" coastal cargo movements will also be possible, thanks to the removal of the five voyage requirement. Regular shippers will be free to re-book vessels and operators whom they have found to be reliable and timely. Confidence in effective and reliable coastal shipping could in time promote more bulk movements and see the blue highway back in favour. An increase in coastal movements at lower cost and under more predictable service conditions might in turn promote coastal shipping as an alternative to road transport, for cargoes where both are an option. Carrying liquid fuel product to the mainland from an offshore facility will now fall within the definition of "coastal shipping".

Passenger cruise shipping by larger vessels (over 5,000 gross tonnes) was exempted from regulation of coastal trading in December 2012.

Transitional arrangements

The Bill provides for transitional arrangements during a 'transition period', which is designed to ensure a smooth transition between the current regime and the permit regime. During the 'transition period', Part 4 of the current Act continues in force subject to the modifications below:

  1. All licences issued under the old regime will continue until the end of the transition period, even if the licence was due to expire during the transition period.
  2. Applicants continue to be able to apply for a Temporary Licence during the transition period.
  3. To avoid delays in issuing licenses under the current licensing framework:
    • General Licence holders and third parties will not be consulted on Temporary Licence applications or an application to vary matters authorised by Temporary Licence during the transition period.
    • General Licence holders will not be able to submit a notice in response to Temporary Licence applications or new matter variations applications.
  1. All matters authorised by Temporary Licence may be varied.
  2. The reporting requirements imposed on all licence holders under the old regime continue for voyages undertaken before the end of the transition period.

Conclusion

Coastal shipping remains regulated and controlled, but the regime under the Bill in its current form will be simpler and will be triggered only by relatively prolonged coastal shipping activity.

The Bill will result in a regime that is simpler to administer and does not suffer from conflicting aims.

An Australian fleet of the future may comprise relatively few smaller, specialised vessels.

We will continue to provide updates on developments as they occur and to assist with any submissions to the Senate Rural and Regional Affairs and Transport Legislation Committee.

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Authors
Dimity Maybury
 
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