In a stunning twist, the Government has proposed that it should scrap its expensive cabotage policy – the government of Chile that is.
Chile’s Merchant Navy Law (Decree 3059/79) currently implies that only Chilean vessels can lawfully provide maritime transport services within Chile’s national territory or Exclusive Economic Zone (although there are some exceptions that allow for the participation of foreign vessels).
There has been an economic review in Chile and, at the end of January 2023, the relevant economic and transport ministers indicated that that there was a view toward increasing competition in the cabotage sector so as to boost the mobilisation of cargo.
Details are a bit scant, but, specifically, it is proposed that foreign trade vessels (i.e. ships from the international fleet) be allowed to journey to Chile, unload cargo in a national port, and then carry out cabotage on their exit route, according to a schedule that the company would supply in advance to the appropriate authorities. Also proposed, is a one-year waiver (presumably from the prohibition on coastal trading) when there are no regular cabotage line services and this would “provide certainty for those who supply cargo“ (i.e. for shippers).
It is also proposed that the definition of cabotage be chanced so that it refers both to national and international cargo, “in this way, the repositioning of foreign trade cargo by foreign ships would be allowed in case of port closures when the cargo cannot be unloaded in the port of destination,” lawyers Ricardo Rozas and Stefano Perretta of law firm JJR Abogados, Chile, write.
All good and sensible stuff, and it is a policy that is (unsurprisingly) supported by the local maritime trade association, CAMPORT. The English language translation of their statement reads:
“The current rules that regulate cabotage in Chile imply significant extra costs for national foreign trade, which all citizens end up paying. The modifications that the Government has proposed to the bill that is being processed in the Chamber of Deputies, allow these cost overruns to be largely eliminated, by enabling foreign flag vessels to move foreign trade cargoes between national ports, under certain circumstances. This facility will make it possible to greatly modify the current inefficient situation, which means that, when there is a problem in the national port of destination, foreign trade ships must temporarily deposit the cargo in Peruvian ports, with the costs that this implies. , to later, in another itinerary ship, take it to its final destination within Chile. The modifications proposed by the Government will allow this cargo to remain temporarily in a national port to later be taken to its final destination by the same shipping company. We believe it is important to move forward quickly in its processing and approval, since this will make the logistics operation of the ports more efficient, benefiting the entire country”.
(You can read the original Spanish-language version here).
Swap out the word “Chile” with the word “Australia” and “Peruvian” with “regional” and CAMPORT’s statement would almost perfectly match the situation in Australia. Except, unfortunately and alas, no-one (except Shipping Australia), is seriously arguing that Australia should scrap its cabotage rules. But Australia should scrap its coastal trading regime, because our cabotage rules result in really bad outcomes for Australia, which we have detailed at length elsewhere. Unfortunately number 2: not only is Australia not seeking to get rid of its bad cabotage policy but recent government announcements are indicating that there will be a review to try to make them work… because, clearly, 11 years of operation is not enough time to judge if a policy that has forced the shutdown of landside manufacturers, driven up freight rates, caused hundreds of seafarer job losses, failed to attract any international shipping to Australia, and which has driven away international shipping, has actually revitalised Australian shipping or not.
Meanwhile, international maritime transport economic experts are applauding Chile’s move. Dr Jan Hoffmann, Head of Trade Logistics at UNCTAD, wrote: “Liberalizing maritime cabotage – under specific conditions, especially concerning cargoes that are ultimately destined or origin from abroad – makes a lot of sense”.
Dr Hoffman points to the study “Rethinking maritime cabotage for improved connectivity” by UNCTAD business and policy expert, Luisa Antonia Rodriguez Ortega, which notes in a comparative case study that: “although opening up the domestic shipping industry to international competition entailed challenges in terms of domestic tradeoffs with different constituencies, it did lead to improved efficiency and reduced freight rates”.
The study also goes on to note that maritime transport connectivity is an important factor that determines trade costs and that liner shipping connectivity reduces trade costs and has a positive, direct bearing, on trade volumes. Consequently, restrictive cabotage leads to restrained competition which leads to increased costs and less efficient transport.
In a statement directed at less developing countries – but which could be applied to Australia, the UNCTAD study concludes:
“The nexus between the liner shipping connectivity and the maritime cabotage restrictions affecting liner trades cannot be overemphasized. Maritime cabotage restrictions can undermine the liner shipping connectivity by reducing competition, which in turn, increases costs and reduces efficient transport operations. At the same, relaxing maritime cabotage restrictions can help improve liner shipping connectivity, reduce trade costs, stimulate trade flows and economies of scale and overall, generate revenues, employment and profits”.
There’s a clear policy prescription that could be – and many times has been – written to cure Australia’s ailing commercial coastal sector and it’s this: it is time – long past time in fact – to scrap Australia’s current coastal trading regime and to take advantage of the latent capacity of the international fleet to carry cargo around the coast.
It’s time to follow Chile’s lead. It’s time to scrap Australia’s cabotage regime.
That will benefit every Australian family, no matter how far they live from the sea.
