Timothy Cocks has practised most exclusively in all aspects of maritime law, admiralty law and marine insurance. He has practical experience in all aspects of the International Group of Protection & Indemnity Clubs, having worked for Thomas R Miller & Son, the managers of the United Kingdom P&I for two years in London. He acts for most of the International Group Clubs in addition to many hull underwriters and major local ship builders, and has extensive experience in maritime-related litigation, maritime commercial transactions and maritime crisis management.
Ashwin Nair practises mainly in shipping, admiralty and marine insurance, with clients including P&I Clubs, ship owners and charterers, and underwriters in the shipping, offshore, live export and commercial fishing industries. He previously worked as a claims executive at an International Group P&I Club in Singapore, handling the entire range of P&I claims and advising extensively on defence matters. A considerable part of his practice is marine casualty management. He has been involved in numerous shipping accidents and casualties especially for P&I Clubs and owners in the Asia-Pacific region.
1 What is the current state of the shipping industry in your country?
The key sectors of the industry are towage and port operations, offshore oil and gas, coastal shipping, ferries and tourism (including the now temporarily moribund international cruise sector), and commercial fishing. There is a relatively small ship building/repair capability and a handful of Australian-flagged internationally trading vessels – primarily gas tankers trading from the North West Shelf.
The shipping industry is critical to Australia. More than 98 per cent of Australia’s trade is by sea, and it is estimated that around 10 per cent of the world’s sea trade passes through Australian ports. Our main exports by sea are minerals (such as iron ore, coal, metals), oil and chemicals, and agricultural commodities (such as grain, meat, wool, livestock). The country relies on shipping for these exports, with the primary markets being China and other Asian destinations. The state of the market is therefore particularly sensitive to developments in these areas.
Most foreign-going vessels comprise chartered tonnage calling at Australian ports to load or discharge cargo before setting off. Much of the maritime services available at Australian ports are therefore focused on facilitating a relatively quick port call (pilotage, ship agency, hold and draft surveys, cargo quality surveys, etc).
There are limited dry-docking, lay-up or repair services readily available for international tonnage. Australia is also a small bunker market, with international vessels typically choosing to bunker here only if necessary.
While state governments generally exercise ultimate regulatory control, over the past decade there has been an increasing number of large ports passing into the hands of the private sector, especially on the east coast of Australia. This trend generally allows state governments to redirect capital to other forms of infrastructure investment. Some examples include the Port of Brisbane to Q Port Holdings, Port Botany and Port Kembla to NSW Ports, and, perhaps more controversially, Darwin Port to the Chinese-owned Landbridge Group. In Western Australia, there has been talk for a number of years about the privatisation of Fremantle port, but this has never gathered sufficient political support to bring the idea across the line.
Despite buffeting winds, the oil and gas sector remains an important part of the industry, particularly in the form of offshore support vessels, construction and special purpose vessels, and when in navigation mode, drilling and production platforms, floating production storage and offloading (FPSO) units, floating liquefied natural gas units (including Shell’s Prelude platform), etc. There are a number of ports that are geared to cater for the offshore industry – for example, Dampier in Western Australia and Barry Beach in Victoria.
Apart from the oil and gas sector, domestic shipping largely revolves around coastal shipping (accounting for less than 20 per cent of domestic freight), domestic tourism (particularly in Queensland and Western Australia), ferry services (especially in Brisbane and Sydney) and commercial fishing.
Domestic shipping (or coastal shipping) operates on a form of cabotage, with only licensed vessels meeting Australian safety and crew employment standards being permitted to carry domestic freight. However, contrary to rather ambitious expectations in the early part of the decade to grow the domestic merchant fleet, domestic sea freight is increasingly carried by ships operating in Australia under limited exception rather than long-term coastal shipping licences.
The crewing and safety aspects of domestic commercial vessels are regulated at a federal level by the Australian Maritime Safety Authority (AMSA). AMSA is also the port state control authority in respect of international vessels, and has a reputation for being particularly strict.
One cannot talk about the shipping industry without mentioning the unions. The main maritime union, the Maritime Union of Australia (now part of the super-union Construction Forestry Maritime Mining Energy Union), is a particularly vocal player in the industry. The union is particularly active in the stevedoring, harbour tugs and offshore vessel sectors, and when its expectations are not met, it can often be disruptive.
An often under-appreciated aspect of Australia’s role in the shipping industry is that as the largest island in the world and with nearly 60,000 kilometres of coastline, Australia has the largest search and rescue region in the world. It covers the Australian continent and large areas of the Indian, Pacific and Southern oceans, and the Australian Antarctic territories.
2 What are the prevailing shipping market trends affecting your country? What has been the impact of the covid-19 pandemic?
Perhaps the most dramatic consequence of the pandemic has been the shutdown of international cruises. Before the pandemic, cruises were the fastest-growing sector of the travel industry, with the industry having contributed more than A$5.2 billion to the Australian economy in 2018–2019. However, since March 2020, the continuing ban on international travel has resulted in the effective shutdown of the Australian cruise industry. With the travel ban having recently been extended to September 2021, and likely to go further, the cruise industry has been pressing the federal government for a suitable plan for resumption. The impact here is directly on international cruise operators. Domestic operators, on the other hand, are doing well. Despite sporadic lockdowns to manage outbreaks of covid-19, almost all of the considerable Australian tourism demand has, by necessity, been redirected to local tourism.
High commodities prices have seen the earnings from resources and energy exports drive the Australian economy through the pandemic, with these estimated to reach about A$310 billion in the 2020–2021 financial year. The Pilbara Ports Authority, responsible for the world’s largest bulk export port, Port Hedland, recently announced a record 724.7 million tonnes of annual throughput in the 2020–2021 financial year. Australia also had a bumper grain harvest in the past year, resulting in an increase in grain cargoes.
These developments have kept dry bulk and tanker freight rates consistently high and on an upward trend.
High freight rates have also had an impact on the container sector. These have been compounded by production slowdowns in China and other places, delays in other ports (eg, the recent massive delays at Yantian), industrial action at a number of container terminals across the country especially in the past year, and congestion at Australian ports. As a consequence, container/liner services have had to adjust capacity and review service routes, resulting in an increase in service withdrawals and blank sailings. These, in turn, have caused significant disruption to local goods supply chains, including, for example, the import of consumer goods and vehicles, the import of heavy machinery to service the mining and agricultural sectors, and the export of fresh or frozen goods.
On the offshore side, there has been little exploration activity, but a number of upstream projects are likely to come online within the next five years, including Woodside’s Scarborough project west-north-west of Karratha in Western Australia, Santos’ Barossa project off Darwin in northern Australia (for which BW Offshore was recently awarded a A$4.6 billion contract to construct, supply and operate the FPSO), and its Dorado project north of Port Hedland in Western Australia. The sector is also likely to see an increase in decommissioning work for ageing offshore assets.
The pandemic response for port calls in Australia is a mixture of state and federal regulations. Generally, the federal authorities deal with vessel safety, immigration and biosecurity, while the state authorities deal with port access and crew health matters. This has meant that the state authorities practically control the management of ships and crew once they arrive at port.
Although regulations vary from state to state and are liable to change, crew changes have been generally restricted across the country. They are technically possible, but can be practically very difficult and costly to arrange. For example, in Western Australia, an on-signer must undergo 14-day quarantine (at the operator’s expense) before then joining the ship. Because most of the shipping traffic passes through the bulk ports well north or south of the Perth metropolitan area where the international airport is located, owners and operators have to arrange at their own cost for a charter flight to transport the crew member from those remote ports to Perth or vice versa. For off-signers, the crew member must, on arrival in Perth, go directly to the departure terminal of the airport for boarding of the outgoing flight, which must depart within eight hours of the seafarer disembarking the ship. While not impossible, it is often a very complex exercise to align the vessel and charter flight schedules with the outgoing international flight schedule.
If a vessel presents at a Western Australian port with covid-affected crew on board (or suspected to be on board), the state authorities’ usual first response is to deny entry and encourage the vessel to turn around. However, if the potentially affected crew members are in need of medical treatment, then the usual response is to disembark the affected crew member, test the remaining crew and then decide whether or not the vessel will need to be brought in for deep cleaning, with affected or exposed crew members brought ashore for treatment or placed in quarantine. In those cases, cargo operations are not allowed until the vessel has been deep cleaned and quarantined for 14 days thereafter, and the crew members re-tested and cleared. In some cases, the delays have resulted in the cancellation of cargoes.
It is likely that these measures will continue at least until early 2022.
3 Are there any recent domestic or international political or legislative developments that may have an impact on your country’s shipping market?
Australia’s ongoing trade tensions with China present cause for concern. The Department of Foreign Affairs and Trade recently announced at Senate estimates hearings that trade with China has dropped by about 40 per cent since the tensions. The Chinese market is Australia’s largest export market, and recent restrictions on thermal and metallurgical coal, followed by very high tariffs on wine and barley and then effective bans on lobsters and cotton, have had a significant impact.
The effect of the restrictions on shipping is vividly illustrated by the long line of coal ships – more than 40 in around March 2021 – stranded off China waiting for permission to discharge. Some have reportedly been waiting for a number of months.
The affected commodities have largely been able to be redirected to other markets and the financial impact has so far been small – just 2 per cent in value of overall trade with China – because of continuing strong demand for iron ore. However, there is increasing pressure especially because of alternative markets (eg, Chinese iron ore imports from India rose nearly 90 per cent in 2020), and the resumption of iron ore production in Brazil.
Three years after announcing its intention to impose a biosecurity levy on container and bulk cargoes to fund screening for pests and diseases, and in the face of strong resistance and lobbying by the shipping industry and export groups, the federal government recently announced that it would not proceed with its plans. It announced that biosecurity measures would be adequately funded through appropriate budget appropriations.
Coastal shipping is now almost a fixture in the legislative reform landscape. Although the regime was introduced to revitalise domestic shipping, the extent of coastal shipping has regressed with domestic sea freight performing a decreasing part in the domestic freight task, and increasingly being carried by ships operating in Australia under a limited exception rather than long-term coastal shipping licences. A discussion paper was released late last year to invite submissions as to how the efficiency of the licensing regime and process may be improved. The extent of any real movement on this front remains to be seen.
4 What are the key regulatory and compliance issues for your country’s shipping market? What’s coming up in the near future?
Throughout the pandemic, AMSA, as the port state control authority, has firmly sought to enforce the provisions of the Maritime Labour Convention 2006, especially in relation to duration of service on board. For a short time, it was willing to allow seafarers to remain on board for up to three months more than the maximum continuous 11-month period mandated by the Convention, provided this was approved by the flag state, because it recognised global difficulties in effecting crew changes. However, it has now taken the view that owners and operators have had sufficient time to plan. In February 2021, it announced that it will be taking a strict enforcement approach with this requirement.
The position of AMSA is not assisted by the continuing difficulty in some ports, including Australia, to conveniently and safely effect crew changes and protect crew from covid-19 exposure. However, this is a policy to which AMSA is unlikely to easily grant exemptions.
There is otherwise generally an increased and visible focus on risk management and planning for both foreign and domestic vessels.
For a two-month period between 1 August and 30 September 2021, AMSA will embark upon a focused inspection campaign to check the level of compliance with the navigation safety requirements of the International Convention for the Safety of Life at Sea. This will include a check on the familiarity of the master and officers with the vessel’s safe navigation procedures, and the adequacy of passage planning from berth to berth.
With the introduction into the International Safety Management Code of cybersecurity planning from 1 January 2021, operators can also expect port state control inspections to cover the adequacy of cyber-risk plans in the vessel’s safety management system and procedures.
As mentioned earlier, AMSA is also the safety regulator of the domestic commercial vessel fleet. We have seen an increasing involvement by AMSA in reviewing and assessing safety management systems and risk management plans for domestic vessels.
5 What are the shipping industry’s current sources of finance? How do you predict they will develop, and what are the advantages and challenges to financing a vessel in your country?
Australia benefits from a stable and robust safety regulatory environment. However, most ship financing in Australia is limited to the smaller vessel market. There is a limited and perhaps diminishing availability of credit by Australian banks. For example, after entering the market in around 2011, the Commonwealth Bank of Australia began withdrawing from ship financing in around March this year.
That said, there is readily available capital, including private equity, outside Australia and the ship leasing model appears to be increasingly popular for bigger and specialist vessels.
An arguably unique feature of the regulatory environment is that, unlike a number of other jurisdictions, encumbrances on a vessel are not registered on the ship register, but instead on a central securities register known as the Personal Property Securities Register (PPSR) pursuant to the Personal Property Securities Act 2009 (Cth). Prospective purchasers doing their due diligence, and lenders and mortgagees will need to be especially alive to this.
The Act also requires registration of an owner’s interest in a vessel that is under bareboat charter for more than two years, failing which there is a risk that in the event of the charterer’s insolvency, the vessel may be available to the charterer’s creditors.
6 Have there been any recent significant domestic or foreign court decisions or arbitration awards that impact on your country’s shipping market?
We will outline three interesting recent decisions of the Federal Court.
In Guardian Offshore v Saab Seaeye ROV, the Federal Court held that a subsea remotely operated vehicle (ROV) designed for use on subsea inspection, maintenance and repair (IMR) work does not fall within the admiralty jurisdiction of the court because it is not a ‘vessel’ as commonly understood. The effect of the decision is that although the use of ROVs is commonplace, especially in the offshore sector, it would be difficult to arrest them for security in the admiralty jurisdiction. The case turned on the particular features of the ROV in question, and there may well be a further opportunity for this general proposition to be tested in other cases.
In Mount Isa Mines v Thor Commander, the Court considered a number of issues concerning the engine failure of a laden vessel while en route to Townsville. In particular, the Court upheld the charterer’s claim for damages, and refused the owner’s claim for contribution in general average for salvage expenses. In a decision of considerable depth, a particularly interesting aspect was the Court’s assessment of the reasonableness of the owner’s settlement with salvors by considering how a common law salvage award would be determined under article 13 of the Salvage Convention.
Most recently, in ACCC v NSW Ports, the Federal Court dismissed a challenge by Australia’s competition watchdog to compensation provisions in agreements between the state of New South Wales and NSW Ports. As part of the privatisation of Port Botany and Port Kembla in 2013, the state of New South Wales entered into a number of agreements with NSW Ports. These agreements contained terms to the effect that if container traffic at the Port of Newcastle exceeded a specified limit, the state would have to pay a specified amount of compensation to NSW Ports. The Australian Competition and Consumer Commission (ACCC) claimed that those terms had an anticompetitive purpose and effect. The Federal Court disagreed. Practically, with those compensation provisions preserved, the prospect of growth at Newcastle will be curtailed as the cost of moving containers there will be significantly increased because the state government entered into a separate agreement with the operators of the port to reimburse the state government for any compensation that it may have to pay to NSW Ports under the 2013 agreements. In July 2021, the ACCC lodged an appeal.
There is noteworthy ongoing litigation in Australia in the form of a class action by the passengers of the Ruby Princess cruise ship following the outbreak of covid-19 on board in 2020.
7 What is the outlook for your country’s shipping market? Which sectors are likely to grow, and which not?
Despite its challenges, the outlook is certainly positive.
As minerals exports continue to be the engine of the Australian economy, we have seen increasingly innovative approaches to transshipment where it is not feasible (in terms of cost, infrastructure and distance) to transport minerals from the mine to the established bulk ports.
Offshore decommissioning work will likely pick up pace in the next few years, and the federal government is working with industry to develop a suitable regulatory framework (which presently includes a highly controversial levy on output to finance the decommissioning of the effectively abandoned Northern Endeavour FPSO in the Timor Sea).
Port upgrades and deepwater port developments are also on the horizon as planning continues to accommodate larger vessels.
The renewables sector also offers promise with the development of offshore wind farms and the federal government is currently considering a suitable regulatory framework for the sector (given that the current offshore oil and gas legislation is specifically tailored to the oil and gas sectors, not other forms of energy).
LNG bunkering capabilities is another area of particular interest, especially given that Australia is one of the largest producers of LNG. In December 2020, the HL Green was the first LNG-fuelled ship to berth at Port Hedland in Western Australia, with a growing number of LNG-fuelled vessels on order around the world. There are limited LNG bunkering facilities already available at Fremantle and Port Hedland, with plans to build capacity at the Port of Newcastle.
The livestock trade is still beset by crushing regulation and increasing social resistance, and is likely to struggle to grow.
The Inside Track
What are the particular skills that clients are looking for in an effective shipping lawyer?
An effective shipping lawyer, in our view, must have thorough and current legal knowledge combined with the resolve to produce practical and cost-effective outcomes that allow clients to grow and continue their business with minimal disruption. To achieve this, it is also necessary to maintain constant curiosity about the industry and to understand client objectives. This is, of course, apart from the usual matters, such as high-quality work, regular and clear communication, and cost-effectiveness.
What are the key considerations for clients and their lawyers when arranging finance for a shipping transaction?
The key considerations are careful due diligence (bearing in mind, for example, the role of the PPSR, which is unique compared to other jurisdictions), adequate security, including assignment of earnings and insurances, and proper registration of security interests. With the rise of the ship leasing finance model, it is also important to consider how the purchaser’s ‘equity’ is protected in the event of a total loss.
What are the most interesting and challenging cases you have dealt with in the past year?
In one case – Guardian Offshore v Saab Seaeye ROV – the Federal Court held that ROVs engaged in subsea IMR work did not fall with the admiralty jurisdiction because they are not a ‘vessel’ as commonly understood. There may well be a further opportunity for this general proposition to be tested in other cases.
In a rapidly evolving regulatory environment, we acted for owners and their P&I Clubs in dealing with the management of passengers, crew and the ships themselves in respect of a number of vessels (cruise ships, bulk carriers, livestock carriers) presenting in Western Australian ports with covid-affected crew or passengers, or both. We were also involved in the successful and unique triple wreck removal following Tropical Cyclone Damien, which struck the Port of Dampier in 2020. The casualty was especially challenging because of the lack of availability of suitable salvage and wreck removal resources and disposal facilities, which in turn was compounded by pandemic-related restrictions.