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Does Australia need a merchant shipping fleet?

Posted By on March 4, 2019 @ 14:30

If elected to government, the Labor Party says it will enhance Australia’s economic sovereignty and national security by creating a strategic merchant shipping fleet. As a first step, it will appoint a taskforce to guide the establishment of the ‘strategic fleet’, which is likely to comprise up to a dozen vessels including oil tankers, container ships and gas carriers. The Australian-flagged and -crewed vessels will be privately owned and operate on a commercial basis, but could be requisitioned by government in times of need.

In addition to creating the strategic fleet, Labor plans to address skills shortages in the Australian maritime sector by re-establishing the Maritime Workforce Development Forum, which was abolished by the Coalition after it took office in 2013.

The arguments that Australia needs a merchant fleet for reasons of national security and to provide a domestic source of skilled Australian seafarers have some validity. Shipping is also economically efficient in terms of fuel costs, carbon emissions and reduced congestion on the roads.

Domestic freight in Australia (other than some bulk cargoes) mainly goes by road and rail—except across Bass Strait, and in northern Australia, where most freight goes by sea because of a lack of land transport infrastructure. According to data from the Bureau of Infrastructure, Transport and Resource Economics (BITRE), rail transport accounts for approximately 49% of total domestic freight by volume (iron ore and coal moving from mines to a port constitutes about 80% of this), road freight makes up about 35% of total freight, and coastal sea freight 17%. Over the 13 years from 2000–2001 to 2011–12, coastal sea freight actually declined, while road freight increased by nearly 50%. Most coastal sea freight is carried by foreign-flagged ships operating with coastal trading licences issued by the Australian government.

Trying to get more interstate and intrastate cargo back to sea is sensible, but that hasn’t happened for several reasons: road transport provides better door-to-door movement; road transport doesn’t pay its true costs of using the roads; large integrated transport companies have a lot of government influence; and Australian industry has argued strongly against the risks of increased costs.

Europe has faced a similar dilemma but, with increased road congestion and high highway tolls that put more of the true costs onto road trucking, a trend has emerged of more trucks and containers being moved by sea (‘short sea shipping’) where sea transport is an alternative to land transport. Special types of dedicated truck ferries and container or ro-ro (roll-on/roll-off) ships have emerged for this trade.

There could be scope for a similar move back to sea transport in Australia, particularly if the true costs of road transport were factored in. Also, the type of container/ro-ro ship that’s used might be suitable for the defence force’s transport requirements in an emergency situation.

The debate over the need for Australian-flagged merchant ships has a long history running right back to federation. Over the years, there have been many government inquiries and much research into the issue, most notably the comprehensive Crawford report on the revitalisation of Australian shipping  in the early 1980s.

These inquiries have invariably come back to the simple fact that Australian-flagged ships with Australian crews cost more than foreign-crewed vessels. Even when reviews have recommended new financial incentives or regulation changes to help build an Australian merchant navy, successive governments haven’t followed through on those proposals.

The two large container/ro-ro ships, Tasmanian Achiever II and Victorian Reliance II, currently entering service with Toll Shipping for the Bass Strait trade are the largest cargo ships on the Australian ship registers. They are broadly similar to the container/ro-ro ships employed around Europe. Such vessels would also be suitable for moving freight by sea elsewhere around Australia, especially over longer routes such as Perth to Sydney or Melbourne to North Queensland.

The only other large vessels on the Australian ship registers are the four LNG carriers employed on the gas trade between northwest Australia and Asia, some floating protection and storage operations vessels employed in the offshore oil and gas industry, and a few other special-purpose vessels, such as the Aurora Australis, the Antarctic research and supply ship.

The Australian ship registers currently comprise the general register and the Australian international shipping register (AISR). The latter was established about six years ago to provide a competitive registration alternative for Australian ship owners and operators that engage primarily in international trade. Registration on the AISR provides access to income tax exemptions and other tax incentives and allows the use of mixed Australian and foreign crews.

Oil tankers and gas carriers are basic national security requirements for the assured movement of fuels around the coast in times of national emergency. There’s little ability to transfer fuel around Australia other than by ship. It would take over 1,000 truck movements to shift the same volume of fuel carried by one medium-sized tanker. In addition to several foreign-flagged oil tankers, two small foreign-flagged gas carriers are currently employed on the Australian coast.

Our military bases and airfields in northern Australia would be heavily dependent on fuel imports by sea in any conflict situation. All fuel for the country’s north is currently imported from Asia, and that itself is a major strategic vulnerability for Australia.

There are no oil tankers (except for small in-port bunkering tankers) currently on the Australian registers. In comparison, New Zealand has two large coastal tankers for moving oil around the country. A sound national security argument can be made for moving some tankers and coastal gas carriers onto the Australian register—something which could be encouraged through the use of government subsidies.

Bringing some oil tankers and gas carriers back onto the Australian register with Australian crews could be the first move in Labor’s plan to establish a strategic fleet. The proposed taskforce could then investigate the feasibility of using Australian-flagged and -crewed container/ro-ro ships to move more domestic freight back to sea. Using Australian-flagged and -crewed ships for general international trade, as opposed to those on the AISR, would likely remain economically unattractive.

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[1] will: http://anthonyalbanese.com.au/media-release-labor-will-revive-australias-shipping-industry-and-create-a-strategic-fleet-sunday-24-february-2019

[2] data: https://bitre.gov.au/publications/2014/files/Freightline_01.pdf

[3] Crawford report on the revitalisation of Australian shipping: https://www.tandfonline.com/doi/abs/10.1080/07266472.1982.11878535

[4] two large container/ro-ro ships: https://www.theadvocate.com.au/story/5678845/first-look-at-tolls-new-freight-ships/

[5] Australian international shipping register: https://www.amsa.gov.au/vessels-operators/ship-registration/australian-international-shipping-register