A rising tide of global protectionism is creating more complexity for shipping, and bigger costs for its customers, it is damaging national imports and export market competitiveness, the international shipping industry has warned.
The International Chamber of Shipping and the Chamber of Marine Commerce of Canada, met in Montreal, Canada, earlier this month to discuss the challenges and risks to global trade at the “Shaping the Future of Shipping Summit”. Over 120 industry leaders from 90 organisations and nearly 30 different countries attended.
A warning to delegates – and to the world
Emanuele Grimaldi, ICS Chairman, a former president of both Confitarma and European Community Shipowners Association (ECSA) and the Managing Director of Grimaldi Group gave a warning to delegates:
“We are at a critical time in shipping. We are experiencing an unprecedented threat to free trade. The number of unilateral barriers to trade being imposed by countries is increasing exponentially. Now, I understand that the intentions of such barriers may be well-meaning, but the reality is that trade is increasingly being weaponised as nations seek to obtain greater economic advantage or achieve political aims. Shipping is responsible for transporting over fourteen trillion dollars’ worth of goods each year. And each trade barrier that is placed on shipping has a magnifying effect that will negatively impact global trade and ultimately reduce growth for all. The failure of global institutions like the World Trade Organization further exacerbates this issue as we need strong institutions to facilitate efficient and cost-effective trade between nations.”
Mr Grimaldi told delegates that cutting restrictive trade policies could boost the global economy by over three percentage points and that high-income countries could see an average increase of 4.5% in their goods exports if they were to loosen tariff and non-tariff restrictions on trade. Developing economies would experience an even greater increase of seven percent. Over two trillion dollars of world imports are being affected by constraints like these, he added, which is equivalent to the annual Gross Domestic Product of Canada.
He added that, since the 2021 report – compiled by the Harvard Kennedy School of Government – was published there has been an introduction of new unilateral regulations and taxes that negatively impact trade. The EU ETS and the CBAM proposals have created systems that impact free trade. The EU and the US are also proposing to place massive tariffs on electric vehicles made in China at a time when the world is moving on to electric cars.
“From our perspective, unilateral, protectionist actions of one country, such as tariffs, not only fail to disincentivise the acts, policies and practices of other countries, but also damage national import and export market competitiveness, and increase costs for consumers,” noted Bruce Burrows, President and CEO of the Chamber of Marine Commerce. “At a time when the world already faces significant challenges including the race to net zero and labour availability, protectionism just results in self-inflicted wounds.”
Protectionism on the rise in Australia too
Shipping Australia notes that, unfortunately, here in Australia we are facing numerous protectionist policies too.
Back in 2012, the Coastal Trading (Revitalising Australian Shipping) Act 2012 was passed and it replaced largely permit-driven but free trade oriented system with a segregated protectionist system that has failed in each and every one of its six objectives in that it drove ships out of Australia and caused seafarers to lose their jobs; caused the Australian shipping industry (what little there was) to shrink further; to reduce the efficiency and reliability of Australian shipping (because it shrank the size of the industry and made it more expensive); did not attract internationally trading shipping vessels to the Australian register; and Australian cargo volumes have been, at best, flat since the passage of the Act and have probably marginally declined.
Australia’s economy – and Australian cargo owners – have paid a very heavy price for this poor public policy.
In a December 2013 analysis, the Institute of Public Affairs estimated that the net present value of the coastal shipping industry’s net economic benefit to the Australian economy was between AUD$76 million and AUD$150 million less than it would have been if the Coastal Trading Act did not exist.
Protectionism drives up costs for shippers
In the Productivity Commission review into Tasmanian Shipping and Freight there were numerous comments criticising the Coastal Trading Regime of 2012 and its costs:
- Cuthbertson Bros reported that their freight costs had doubled because of the new cabotage regime
- Bell Bay Aluminium reported a 63 per cent increase in costs
- Coastal volumes reduce and some domestically supplied cargo became externally supplied, the Tasmanian Exporters Group reported
- Costs associated with using coastal shipping services across Australia rose, one company needed an additional 1,000 hours of labour needed to administer the scheme, the Business Council of Australia reported
Meanwhile, the Coastal Trading Act also caused onshore problems too. Penrice Soda Ash, a formerly ASX-listed South Australian supplier of soda ash (a high volume, low value cargo used to make glass) failed for a variety of reasons, one of which was the coastal shipping policy. Chairman David Trebeck wrote in the company’s 2012 annual report: “the effect [of the Coastal Trading Act] will inevitably be to reduce the distance from Adelaide that Penrice can competitively ship its product around the coast… compared to imports. How this assists Australia’s coastal shipping objectives escapes me”.
A law firm later reported in 2015 that it had become cheaper for Australian manufacturers to import commodities such as bauxite, gypsum, cement, clinker, fertiliser, and soda ash; that Caltex had stopped refining in New South Wales, had withdrawn their tankers from the Australian coastal trade and instead imported product from Asia; sugar was being imported from South East Asia and South Africa.
Then, in 2016, Brickworks CEO, Lindsay Partridge, said that it was cheaper to directly import bricks from Spain compared to making them in Perth and shipping them around the Australian coast.
Experts’ verdicts: the Coastal Trading Act is bad news … get rid of it
Many expert reviews – around eight or nine so far – have all concluded either that the current cabotage regime is too costly, is detrimental to Australia, or should be scrapped, or some combination of all of these options.
So has the Federal Government – which has the numbers in the lower house and could probably get a policy through the upper house with the assistance of the Opposition – jumped on this overwhelming evidence base announcing a scrapping of the policy?
Er… no.
It announced it will undertake a review of the Coastal Trading (Revitalising Australian Shipping) Act 2021 as part of a broader review and will consider whether the coastal trading regulatory framework is fit-for-purpose, minimising opportunities for foreign flagged vessels to undermine “strategic fleet” cargo volumes and trade routes.
Alas, that’s not all
Then there’s the plan to create the so-called “Strategic Fleet” – it’s a bit of a PR spin on what will be essentially some kind of nationalist, protectionist, shipping fleet. That’s a plan that has been repeatedly and heavily criticised by Shipping Australia, mostly on the grounds that there have been four or five such strategic fleets in the past and they have all failed with greater or lesser amounts of wasted taxpayer cash. No national Australia fleet can ever be competitive, as even policy proponents in favour of the Strategic Fleet concede that Australian conditions mean that operating costs for ships in Australia will be AUD$5 to AUD$7m higher than the international fleet. That’s a fleet that is going to require gargantuan amounts of taxpayer cash to stay afloat if it ever grows in size beyond the four or so vessels that are currently planned.
There’s also the newly announced Made in Australia plan. It’s a plan hatched by the Prime Minister, the Hon Anthony Albanese MP (who, incidentally, was one of the promoters of the coastal trading policy) who is trying to use government protectionism to create and prop up new manufacturing industries. It’s a plan that has been quite heavily criticised by economists.
