Shipping Australia was pleased to read an editorial in the AFR yesterday, “Shipping shock glimpse of world without rules“.
In it, the AFR basically reviews the ongoing Red Sea crisis (caused by the ongoing conflict disaster in the Middle East) and reflects on the wonders of just-in-time logistics and world trade – which has largely been made possible by the international shipping industry. Our industry has reduced the cost of shipping to a tiny fraction of the retail cost of goods.
After ruminating on the ongoing crisis, the AFR rumbles:ย “Itโs also a reminder of how, since the 1960s, homogenising cargo into standard containers with huge economies of scale has slashed the real long-term price of shipping, and made globalisation possible in the first place”.
True that.
Foreigners, foreigners, foreigners
It makes a refreshing change from the line routinely regurgitated by some people who really should know better about “foreign shipping lines”. What’s with the obsession with being foreign anyway? Foreigners can be nice people too. And, if you take a stroll around the Australian maritime industry (or, indeed, around the maritime industries of many nations of the world), you will find many foreigners doing many important, worthwhile, necessary, and value-adding jobs.
So, let’s leave off from bashing foreigners for being foreign, eh?
But we digress. Back to the AFR. It goes on to say:
“But calls to manufacture more in Australia in response [to the crisis] are naive.ย Further encouragement of โFuture Made in Australiaโ by replacing imports with domestic production โ especially in a small and isolated market such as ours โ would push up the domestic cost base, fuel consumer price inflation and impose heavier imposts on the nationโs efficient exporters.ย Rather than retreat inwards, Australia would be better off remaining a champion of free trade rules and diversifying sourcing from around the world”.
We couldn’t agree more.
A return to nationalism
There is an attitude that Australian things are better simply because they are Australian. That’s nationalism and it’sย not always for the best.
For instance, we have recently had cause to remind a well known branch of the Australian machinery of government of the existence of a thing called the International Maritime Organisation, y’know, that little known maritime body that Australia helped set up, became a founder member of, signed up to its global Convention, vowed to remove unnecessary national restrictions on shipping, and then successfully attempted to be re-elected to its Council time-and-time-again.
This was all in the context of an element of part of the Australian government seeking to set up its own State / Territory / Federal domestic regime. Hopefully this bad policy idea will now be retired and Australia will instead work with its international partners through the IMO.
Domestic protectionism
Turning now to the latest unnecessary, and, frankly, adverse bit of domestic protectionism, there is a work programme underway to set up an Australian Strategic Fleet. The Prime Minister, the Hon Anthony Albanese MP has attempted to justify his domestic maritime programme on national TV. He was being interviewed only the other day in Brisbane.
“As well as part of a future made in Australia, is to support Australian shipping. Why is it that as an island continent, we don’t have the Australian flag on the back of Australian ships carrying Australian goods to the world? The truth is we don’t have that because the former Government abandoned Australian shipping and preferred to have these flags of convenience, with all of the risks that that entails to the environment, to national security at times, operating around our coasts. We are having a strategic fleet as part of our policy as well, and that’s an important part of building up our national resilience as well.”
Something something Coastal Trading Act something something horrible failure
Well, y’see Prime Minister… one of the reasons we don’t have ships with the Australian flag on the back of them generally because you, as Transport Minister during the Gillard Administration, brought the Coastal Trading (Revitalising Australian Shipping) Act 2012 into being, which promptly caused an exodus of ships from the Australian flag.
Secondly, Australia used to have a large fleet serving local manufacturing which was mostly located on the various Australian coasts. However, such manufacturing plants got old, got expensive, and needed to get big to meet demand, so manufacturing left Australia and went overseas. So there’s now less demand for Australian coastal shipping (i.e. Australian cargo shipped around the Australian coast on Australian-flagged ships), and much of what Australian flagged shipping there was, was greatly reduced by the Coastal Trading Act.
Another major factor is that Australian shipping got expensive as the wages of Australians generally increased. This is something that should be largely applauded as it occurred because ofย ongoing rise in the standard of living of all Australians. Australian shipping companies couldn’t compete with their overseas rivals and either shut down, sold-out, or left.
This had consequences for those immediately employed in Australian shipping as their local opportunities dwindled as the Australian shipping industry dwindled (although, to be fair, Australians had the opportunity to work elsewhere in the world). But there were marvellous consequences for Australians generally who were able to transport their goods and commodities to the world more cheaply than ever before, and who could get access to high-quality goods made overseas more cheaply than ever before.
The what-Fleet?
Let’s have a quick look now at the proposed Strategic Fleet Policy. We’ll just make a quick note here that putting the word “Strategic” in the title of a maritime programme doesn’t actually make it strategic, or a good fleet, or a good policy, or anything at all really.
But let’s move on from that.
The Strategic Fleet will cost somewhere in the order of $5m to $7m more per ship per year than the international comparison.
Oh yeah, sez who? Well, sez the policy proponents. You can read all about it in our submission to the Productivity Commission (paragraph 429, page 68). Then, if you let your eyes wander down a few paragraphs to Table 6 of our submission: “Comparison of Australian wages with international wages”, you’ll find most of the reason why. Australian wages per month are in the order of nearly AUD$5,000 while international seafarer wages are in the order of about AUD$700, according to official government department figures.
And that is why the Strategic Fleet will be very expensive.
Not learning lessons from history
If we turn to history, we can see that there have already been several strategic fleets. Commonwealth Line (1916-1927) was one such fleet. Born in the dark days of The Great War (as it was known back then), Commonwealth Line did not prosper because it was out-competed by rivals; it did not contribute to the public coffers but took from the public purse; it lost political support; it couldn’t cope with the vagaries of the ups and downs of the shipping markets; it was subject to labour market rigidities; and it was subject to politics. As K Tsokhas noted in “W.M. Hughes, the Commonwealth Line and the British Shipping Cartel, 1914-1927: “The rise and fall of the Commonwealth Line was not determined by economic rationality, but by a mixture of political, strategic and commercial causes”.
Jump forward a bit in time to 1956-1991 to another strategic shipping company, which we will call “X” (the company of old is gone but the brand is still extant and we do not wish to tar the current brand with issues from the past).
Shipping company X was a national, flag-flying, company that was initially profitable when it concentrated the coastal trades. But, eventually, it moved to international trade (coastal trade dried up as manufacturing in Australia changed); the company deteriorated, owing, among other things, to politically motivated decisions to keep coastal freight rates down during an inflationary era [hmmm… sounds familiar]; high levels of industrial disputation [also sounds familiar]; political interference in the company; competition in the shipping industry; and strategy-issues. Or, to put it another way, it bit the dust for many of the same reasons that Commonwealth Line did back in 1927. You can read all about Company X in “You Couldn’t Give it Away,” by Professor Keith Trace, Agenda, Volume 2, Number 4, 1995, p433-444.
Then there was the Western Australian version of the Strategic Fleet, “StateShips,” and its successor, a subsidised coastal service. In both cases what happened was… oh, look, we’ll save us the bother of writing it and you the bother of reading it. In a nutshell, they both basically failed because of cost, competition, demand, and politics.
There’s a bit of a pattern there, you see.
Why don’t we have Australian ships with Australian flags and Australian cargo?
So, Prime Minister, that is why as an island continent, we don’t have the Australian flag on the back of Australian ships carrying Australian goods to the world… it’s because it doesn’t work. And it doesn’t work because we don’t have the coastal markets anymore, the cost structure is not favourable, the competition will likely trounce such a fleet, and there are issues with industrial relations and political involvement.
And we know it doesn’t work because we’ve tried it, like, four or five times.
So we probably shouldn’t do it again.
Hope that clarifies.
