Thursday 22nd Nov, 2018

INDUSTRY OPINION: Is 2017 the year that Australia lost control of its supply chain costs?

Photo: Jim Wilson
Photo: Jim Wilson

A BILL currently before the Senate may change the way that shipping lines, freight rates, and conference agreements, are forever regulated in this country. The Competition and Consumer Amendment (Competition Policy Review) Bill 2017 is currently before the Senate with expectation that it will move untroubled into law. The amendments were designed to implement the recommendations of the Harper Review. The Harper Review included the recommendation that “Part X of the Competition and Consumer Act which deals with liner shipping be repealed (recommendation 4), and that a block exemption power be granted to the Australian Competition and Consumer Commission (ACCC) to better regulate the industry (recommendation 39)”. While the current Bill does not repeal Part X, it has been designed as the replacement legislation, in line with the Harper Review, giving power to the ACCC to grant “class exemptions”. So, what would a class exemption look like for the shipping industry? No one knows, and therein lies the problem.

Better the devil you know, than the devil you don’t

Importers, exporters and freight forwarders don’t know much about Part X of the Competition and Consumer Act because everything has run smoothly for so long- freight rates were low and we have enjoyed an endless summer of capacity. Shipping lines understand Part X because their ability to share vessels, share equipment, form conferences, etc., depends on it. For shippers and forwarders, I say this: get your head around it. It is the only protection enshrined in law that you have in a market where the number of shipping lines is shrinking. Part X benefits shippers and forwarders by giving them a role in the regulation of shipping lines in Australia. Shippers, via the designated bodies, have an ability to negotiate in the approval of these agreements and to demand certain Minimum Levels of Service (MLS) be included in the agreements. These Minimum Levels of Service can include the number of sailings per year, the TEU capacity per year, the reefer capacity per year. Theoretically these Minimum Levels of Service could prescribe that capacity at different times of the year (such as peak seasons) but at the moment they are provided annually. These protections even extend to shipping lines who do not belong to conference agreements. Under Section 10.52, if an individual shipping line is shown to have “substantial market power”, then they are required to take part in negotiations with the shipper body in relation to “negotiable shipping arrangements”. Negotiable shipping arrangements can include freight rates, surcharges and trade routes. Even more importantly, the individual line must advise the shipper body 30 days’ notice of any change in negotiable shipping arrangements.

The extent of these powers for shippers has not been tested because there has been no need. As mentioned above, things have run smoothly, apart from the well-publicised equipment issues in peak season. But shippers rejoice, if we need it, if things turn to caca, we know these powers are there.

Shipping Australia Limited (SAL) has represented their members well through the Conference Agreement negotiations and the Department of Infrastructure and Regional Development (DIRD), who are responsible for regulating Part X, have been accessible, helpful and incredibly efficient in managing the whole process.

So why, oh why, would the Government even consider the repealing the only service guarantee that Australian shippers and forwarders have in a market where the number of shipping lines is shrinking. It defies belief.

The Bill currently before the Senate would have this process managed by the ACCC as a class exemption for shipping. Apologies for being blunt, but based on recent experience, do we really want the ACCC handling this process? In the last 12 months, cargo owners have been belted by a brand new commercial model for the logistics sector, where the decider doesn’t have to pay and the payer doesn’t get to decide. The terminals have employed this model to great effect with their Terminal Access Fees, and now Qube have followed suit with their LCL depot fees. The ACCC have sat and watched, unmoved. So far their only response, taken as a quote by the chairman of the ACCC, has been that “stevedores are not monopolies”. Given that two stevedoring companies hold more than 70% of the market in our major cities, it’s the closest thing to a duopoly that you will find in this country. Freight & Trade Alliance, APSA, Roadfreight NSW, the CBFCA and the CTAA, all sat in a room with the ACCC pleading the case for industry and to date the only formal response from

the ACCC has been through the media. They have also sat and watched while stevedores have engaged in a process of major and rapid vertical integration, while maintaining their uncomfortable silence. Costs have increased, market power has concentrated, and our competition regulator has done absolutely nothing about it. The Australian Logistics Council (ALC) recommended in their Freight & Supply Chain Inquiry submission that the ACCC should establish a “specialist unit” for the logistics sector. FTA and APSA recommended in our submission that the law be strengthened to compel them to act.

Shipping lines should fear that any class exemption they achieve through the ACCC may not match the protections currently afforded to them under Part X. In Hong Kong, the competition regulator has prohibited the use of Voluntary Discussion Agreements. In NZ, under new competition law, international shipping lines will no longer be exempted from the general provisions of New Zealand’s antitrust laws. This effectively means that lines will be prohibited from fixing prices, unreasonable capacity limitation, market allocation, and the sharing of commercially sensitive information. In Australia, the Global Shippers Forum has recommended that APSA reject any future class exemption for a carrier agreement on pricing.

As a general rule, I don’t like change. But in this case I don’t think either sides of the fence – shippers or shipping lines – want change either. Australia’s entire export task depends on getting this right, so let’s hope the lawmakers listen and hope they understand.

* Travis Brooks-Garrett is secretariat at Australian Peak Shippers Association

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