Freight cost an economic straitjacket – unedited version

Unedited version from the opinion piece appearing in The Mercury on Dec 11, 2014.

Tasmania’s freight task is diverse. It ranges from high value, perishable consumables to processed minerals such as aluminium and zinc. We export to destinations all around the world, approximately half to ports throughout Asia, with the remainder going to other destinations around the globe.

With the cessation of the AAA Consortium direct international shipping service in 2011, Tasmania has been without direct access to international markets. The AAA service failed due to a number of reasons including lack of support from exporters, a schedule that didn’t suit supply chains and vessel size complications. Needless to say, this weekly direct service to Asia wasn’t commercially viable.

Support for the resumption of a direct service to Asia has been underwhelming at best. Instead, six key industry associations are calling for an expansion of the existing Tasmanian Freight Equalisation Scheme (‘TFES’) to include goods destined for export, backing up the Productivity Commission’s most recent report into the scheme. With the Tasmanian Logistics Committee, Tasmanian Minerals and Energy Council, Tasmanian Industry Group, Tasmanian Farmers and Graziers Association, Forest Industries Association of Tasmania and the Tasmanian Chamber of Commerce and Industry all in joint agreement, it would be difficult to find an exporter not represented by at least one of these groups.

It appears the State Government has been backed into a corner with no support from their Federal counterparts. They have therefore proceeded to sign a Memorandum of Understanding with Swire Shipping to ‘market-test’ the level of interest for a direct service into Singapore and China. The details are still scarce, but it is understood that this service will be fortnightly at best, but realistically with current export volumes, monthly. There has been no talk of the likely cost to exporters and whether there will be any savings. Nor has there been any consideration of how and where product awaiting export will be warehoused. In addition any freight transferred to a new operation would be at the expense of existing shippers which will have a detrimental effect on their businesses, most likely leading to higher charges.

A number of the State’s key exporters have already indicated in their submissions to the Productivity Commission’s review into Tasmanian Shipping and Freight that they would be unable to utilise a periodic direct service. Delays in getting goods to market, existing contractual arrangements, access to only two Asian ports, concerns over access to empty shipping containers, limited warehousing in Tasmania and lack of market competition were some of the causes for concern that a single ship solution presents. Without support from key exporters, doubt remains over the viability of such a service.

The ball is firmly in the Federal Government’s court since receiving the Productivity Commission’s report in March. It is widely agreed that the best solution for Tasmania’s exporters is an extension to the existing TFES. Tasmanian exporters are urging the Prime Minister to act in the best long term interests of Tasmania and allocate the additional funds necessary to include exports under the existing scheme. The long term benefits and new opportunities from this approach greatly exceed the additional cost.

For $25 million per annum, the Federal Government could immediately include Tasmanian exports under the existing freight scheme and give the State and its struggling exporters a real boost. Instead they appear happy to see the State Government burdened with what is squarely a Federal Government responsibility and with no real potential to deliver a long term sustainable solution that is so desperately needed.

The State’s role should be to implement a state-wide freight strategy, optimising existing state-owned infrastructure and addressing barriers to efficient transport such as freight consolidation and container-type imbalances. There are multiple reports that focus on these issues, and although efficiencies will reduce our reliance on Federal funding, we will never be able to address the cost disadvantage of Bass Strait on optimisation alone.

The benefits to Tasmania through the encouraged growth and investment in the State by competitive, efficient and expedient access to overseas markets, as well the reduction in social assistance throughout the Tasmanian community, could see this as a cost positive solution in the long term.

The extension of the TFES should not be seen as a handout, nor even a ‘hand-up’. This is critical infrastructure connecting Tasmania with access to crucial international markets.

Calls from independent members for unlimited funding to all freight across Bass Strait are unrealistic, unnecessary and merely dilutes the serious dialogue being promoted by Tasmanian exporters.

Addressing restrictions and increased costs in Australia’s coastal shipping regulations will have benefits to bulk exporters, particularly the mineral processors, and are welcomed by industry generally. However to  take advantage of recent initiatives such as TasInvest 2014 and opportunities arising from the free trade agreement with China, direct investment by the Federal Government through extending the TFES is fundamental.

The timing is critical. Without this investment, opportunities will be missed, current businesses will close and more jobs will be lost in Tasmania.

Steve Henty

Chairman, Tasmanian Logistics Committee.

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