Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Shipping volume discussing topics including sources of finance, compliance initiatives and foreign court decisions within key jurisdictions worldwide.
1 What is the current state of the shipping industry in your country?
Australia is a nation of shippers not shipowners. As an island continent, our livelihood is dependent on the shipping industry and maritime trade to stimulate our economy. With over 10 per cent of the world’s maritime trade, by volume, passing through Australia, the shipping industry is integral to the success of our national economy.
Australia has an export-oriented economy. Critical to its profitability is iron ore, coal, liquefied natural gas (LNG) and agricultural trade. Australia exports over 700 million tonnes of iron ore per year, which accounts for approximately one-third of global production. The iron ore market value is, therefore, an essential consideration for the Australian shipping industry.
Maritime trade would not be effective if it were not for the continued growth and success of Australia’s ports and infrastructure system. With over A$1.2 billion worth of trade passing through Australian ports daily, Australian ports are vital to the development of Australian trade and national prosperity. Investment and development into Australian ports over the past decade has continually grown. The recent privatisation of Port Botany and Port Kembla in NSW and the Port of Melbourne in Victoria, the development of automated ports by Patricks in Port Botany and the development of an inland terminal by DP World in Victoria to be connected to the Port of Melbourne by rail are examples of this. Some privatisations are not without controversy. For instance, in December 2018, the Australian Competition and Consumer Commission (ACCC) launched legal action against NSW Ports for striking alleged anticompetitive deals with the state.
The efficiency and functioning of the Australian shipping industry, however, can be affected by the strong arm of the Maritime Union of Australia (MUA), which represents seafarers and waterfront workers. In 2018, the MUA merged with the Construction, Forestry Mining and Energy Union, making a combined union of 144,000 members with revenue of A$146 million a year.
By way of example, in late 2015/early 2016, the MUA engaged in action on behalf of Australian crew members against Alcoa and the federal government over the loss of their jobs aboard the bulk carrier MV Portland. In January 2019, BHP announced that it was abandoning the last two Australian-crewed ships that carry iron ore from Port Hedland in Western Australia to BlueScope Steel’s steelworks south of Sydney. MUA condemned the move, saying more than 70 Australian officers and seafarers would lose their jobs. No industrial action has yet ensued.
Shipping trade in Australia is strictly monitored and regulated by the Australian Maritime Safety Authority (AMSA). Established under the Australian Maritime Safety Authority Act 1990 (Cth), AMSA is invested with responsibility and governance of ensuring the safety of Australian flagged and foreign-flagged vessels in Australian ports. The AMSA inspectors are considered alongside US PSC as some of the most thorough in the world.
2 What are the prevailing shipping market trends affecting your country?
The shipping industry worldwide continues to face reduced revenues driven by overcapacity. That is not a bad thing for the Australian economy because it enhances international trade for the benefit of Australian importers and exporters alike.
The response by container lines and tug operators in Australia has been to drive costs down, and where that does not work, seek a merger or acquisition. With Australian National Line (ANL) already part of the group, in June 2016 CMA CGM assumed control of NOL/APL. On 30 November 2017, the purchase of Hamburg Sud by Maersk was approved by the relevant regulators worldwide including Australia.
The tug industry in Australia is dominated by Svitzer. In 2015, Boskalis subsidiary Smit Lamnalco purchased Svitzer’s main competitor PB Towage Australia. Later that year, Smit bareboat chartered Smit’s harbour tugs at Newcastle, bringing increased efficiencies at one of Australia’s busiest bulk ports and reducing competition.
The Australian cruise market continued its long run of positive growth in 2018. A total of 1.35 million Australians took a cruise in 2018, an increase of 0.9 per cent over 2017. Australia once again led the established cruise markets in penetration rates, with 5.8 per cent of the population taking an ocean cruise in 2018, or the equivalent of almost one in every 17 Australians. The construction of a new International Cruise Terminal in Brisbane and other cruise-related projects announced in Cairns, Eden and Broome is expected to reignite growth in the homeport market.
The current state of the Australian domestic gas market is driving an unprecedented number of regasification projects across Australia.
The lack of a west-to-east gas pipeline and the long-term export commitments of our domestic producers in both Western Australia and Queensland have left those residing in New South Wales, Victoria and South Australia exposed to the real risk of domestic gas shortage. Absent very significant pipeline investment, the solution for Australia is increased importation and regasification of LNG. This has driven floating storage regasification unit (FSRU) projects by AGL at Crib Point in Victoria, AIE at Port Kembla in New South Wales and most recently a proposal by EPIK for Newcastle. Each of these projects requires the importation of an FSRU on long-term time charter potentially crewed by a mix of foreign and Australian crews. This gives rise to a number of local regulatory issues that vessel owners and charterers need to bear in mind.
The Gorgon project off the west coast of Australia is one of the largest and costliest energy projects in the world, costing over A$69 billion. It employed around 10,000 people during the construction of the processing facility at Barrow Island, west of Karratha. In April 2018, Chevron announced that it would proceed with stage two of the project.
A number of domestic projects extracting LNG off Western Australia will bring opportunities for commercial vessel operators and marine services industries in Western Australia.
3 Are there any recent domestic or international political or legislative developments that may have an impact on your country’s shipping market?
The federal General Election in May 2019 unexpectedly returned the centre-right Coalition government that had been in power since 2013. A number of proposed legislative measures by the opposition party, Labor, notably the creation of a commercial national line and changes to the cabotage regime, are therefore not expected to be advanced.
There are a number of domestic legislative developments that have, or could have, an impact on the Australian shipping market.
The development by DP World of an inland terminal in South Australia may have implications on carrier liability and the applicability of the Hague-Visby Rules in Australia (which apply in Australia from port-to-port rather than ‘tackle-to-tackle’ as is usual elsewhere in the world).
The Biosecurity Amendment (Ballast Water and Other Measures) Act 2017 was introduced to strengthen Australia’s biosecurity system and implement the International Convention for the Control and Management of Ships Ballast Water and Sediments.
In the 2018–19 budget, the Australian government announced imposing a biosecurity levy on imports arriving by sea to invest in a ‘stronger, fit-for-purpose biosecurity system’. The levy (A$10.02 per 20ft container or A$1 per tonne for bulk cargo) will be imposed on port terminal operators who unload cargo from vessels at Australian ports. In the course of engaging with industry about implementation, industry stakeholders raised a number of concerns about the levy, in particular the design and scope of the levy and the limited consultation. As a result, in February 2019 the government announced the establishment of an industry steering committee to provide advice on the proposed levy. In its pre-election 2019 budget the government delayed the start date for the levy to September 2019. The industry argues that, inevitably, the levy will increase the costs of imports to Australia.
The Competition and Consumer Act 2010 (CCA) and the ACCC regulate anticompetitive conduct in Australia. In recent time the shipping industry and, more particularly, the car carrier sector has come under scrutiny.
The liner shipping trade in Australia benefits from Part X of the CCA, which provides broad immunities to facilitate coordination between shipping companies to provide liner shipping services in consortia. These include exemptions to cartel conduct prohibitions, including price fixing, rigging bids and constraining supply.
The CCA was amended in late 2017 following the Harper Review. Despite a recommendation to repeal Part X, Part X remained in place allowing consortia to provide services around the Australian coast and beyond. Shipping Australia Limited is in negotiations with the ACCC for a potential block exemption for liner shipping.
Despite the retention of Part X, in January 2018, shipping lines terminated two discussion agreements that had been in place pursuant to which the lines would negotiate their bunker base rates, indices and surcharges with the peak shipper body. The decision to terminate appears to arise out of the consolidation of the industry and caution over the ACCC’s interest in the shipping industry.
In April 2018, the Security of Critical Infrastructure Act 2018 (Cth) introduced new powers for the Australian federal government to protect national infrastructure assets, including ports. The Act establishes a Register of Critical Infrastructure Assets and provides the minister with a power to direct a reporting entity or operator of a critical infrastructure asset to do, or refrain from doing, an act or thing within a specified period of time. The risk of government intervention created by the Act may deter some foreign investors from investing in Australian ports and infrastructure.
4 What are the key regulatory and compliance issues for your country’s shipping market? What’s coming up in the near future?
Vessels that are not Australian flagged but wish to carry out Australian coastal trading (cabotage) must apply for a licence to carry cargo between Australian ports in different states. Generally, to carry cargoes between Australian states and territories, the operator of the ship has to obtain a licence under the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Cth). It is an offence for ships covered by the Act to trade without a licence. The Act has a three-tier licensing system for coastal trading: general licence (only available to Australian flagged ships), temporary licence and emergency licence. The legislation is under review but the expected changes are likely to be minimal.
For any foreign-flagged or Australian vessel looking to engage in Australia’s shipping market, it is important that they are aware that all vessels need to meet a number of strict requirements set by AMSA. AMSA has broad powers to ensure safety, including the power to detain a vessel pursuant to section 248 of the Navigation Act 2012 (Cth). Common grounds of detention relate to the operation of the safety management systems required by the International Safety Management Code.
All vessels also need to ensure they comply with the international standards set by the International Maritime Organization and other international conventions and obligations that are enforced in Australia through the issue of marine orders. AMSA has two series of orders – those that reflect international obligations and standards (Marine Orders 1–98) and those applying only to domestic commercial vessels (Marine Orders 500–507).
In addition to maritime safety, AMSA’s primary functions are to protect the marine environment through preventing and combatting pollution. There is a strict liability regime in place in Australia for oil spills on both state and federal levels; maximum maritime fines were increased in July 2018 to A$21 million.
From 1 January 2020, vessels in Australian waters will have to comply with the IMO 0.5 per cent sulphur cap on fuel (Protection of the Sea (Prevention of Pollution from Ships) Act 1983 (Cth)). Although Australia is generally not a bunkering hub for international trading vessels, local suppliers are gearing up to ensure supply of appropriate fuel to vessels conducting Australian coastal trade or operations. The cost of fuel will increase and no doubt this will be passed on to importers and exporters by increased freight rates. The move to LNG as a fuel source may assist Australia’s LNG industry but a drop in the price of high-sulphur grades of crude oil may have a knock-on effect on LNG prices. All vessel owners need to ensure that they are aware of and comply with the Maritime Labour Convention 2006 (in force in Australia since 2013) and any relevant work health and safety laws. Commonwealth Occupational Health and Safety (Maritime Industry) Act 1993 provides for a number of occupational health and safety obligations and standards for the shipping industry. It applies to Australian registered ships, ships with a general coastal trading licence and ships that have a majority of Australian residents on board.
Other regulatory and compliance issues that need to be considered include Australia’s biosecurity as well as regulations set by the Australian Border Force (an operational arm of the Department of Immigration and Border Protection). Non-compliance with cargo or container limits under the Customs Act may result in delays to gaining access to cargo as well as storage and related costs from the container terminal operators.
As mentioned above, many port corporations have been privatised. All ports in Australia have their own user terms, regulations and rules that apply to all vessels using that particular port.
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?
There are limited numbers of Australian flagged vessels and as such the ship finance sector in Australia is small. Australian ships must have Australian crews and with Australian crews comes Australian wages and the involvement of the MUA.
Nevertheless, Australian banks regularly finance ships that operate under the Australian flag, be they offshore vessels, fishing vessels or commercial pleasure boats. Australian law differs in a fundamental way from international shipping finance law and practice in that security facilities are not registered with the vessel in the shipping register but in a separate register called the Personal Property Securities Register under the Personal Property Securities Act 2009 (Cth).
6 Have there been any recent significant domestic or foreign court decisions or arbitration awards that impact on your country’s shipping market?
In August 2018, the Federal Court of Australia handed down a judgment relating to carriage of copper anodes imported by Mount Isa Mines Ltd (Mount Isa Mines Ltd v The Ship ‘Thor Commander’  FCA 1326). The case involved Seaworthiness, General Average and the York-Antwerp Rules 1994. The Federal Court of Australia found that the owner of the ship Thor Commander had failed to exercise due diligence before and at the beginning of the voyage to make the ship seaworthy in breach of ariclet 3(1)(a) and (b) of the Hague–Visby Rules; and that, therefore, the owner of cargo carried on board Thor Commander had no obligation to contribute to General Average. The case is interesting because it dealt with a rare case of a cargo owner’s right to refuse to contribute to General Average when the losses or sacrifices were caused by the shipowner’s ‘actionable fault’. Apart from General Average and seaworthiness, the Court also dealt with the law of salvage, the effect of destruction of evidence in breach of court orders, and a number of other principles of maritime law.
The Federal Court has continued to recognise foreign bankruptcy proceedings under the UNCITRAL Model Law on Cross-Border Insolvency. In June 2018, liquidators for an Italian shipowner obtained recognition and stay orders (Alari (Trustee) in the matter of Rizzo-Bottiglieri-de Carlini Armatori SpA (Trustees in Bankruptcy appointed) v Rizzo-Bottiglieri-de Carlini Armatori SpA (No 2)  FCA 1067). Stays granted by Australian courts following recognition do not necessarily mirror the stay that applies in the main foreign proceeding. The stay that will apply depends on what is available under the Corporations Act 2001 (Cth). Also, Australian courts do not grant blanket stays that prevent outright the arrest of ships. A creditor who wishes to arrest a ship that is subject to a stay must apply to a judge who will evaluate whether there is sufficiently arguable foundation to arrest the ship despite the stay, perhaps because the claim has maritime lien status.
7 What is the outlook for your country’s shipping market? Which sectors are likely to grow, and which not?
The outlook is positive for Australian shippers and the service providers that support them as competition is relatively low for tug and terminal operators. Australia has an inherently strong export cargo, oil and gas industry, which will continue to grow and support the shipping market. Ongoing investment into Australian ports and infrastructure increases the shipping market capacity, with research indicating that port freight is forecast to double over the next 14 years.
This chapter is accurate as at September 2019.
The Inside Track
What are the particular skills that clients are looking for in an effective shipping lawyer?
First and foremost, in our experience clients are looking for lawyers with proven track records; experts in their fields, with a clear knowledge of the law and being able to apply their knowledge to produce cost-effective, good commercial outcomes, without always resorting to litigation. This is helped by the fact that, in Australia, legal fees in the maritime sector tend to be lower than other civil or common law countries.
What are the key considerations for clients and their lawyers when arranging finance for a shipping transaction?
As Australia is a country of shippers not shipowners and as there are few Australian ships on the shipping register, ship financing is not a common consideration for Australian clients and lawyers. The four major banks will, however, be prepared to offshore vessels, finance, fishing, pleasure craft or small coastal traders. They may also be prepared to finance any foreign-owned vessel capable of being registered in Australia. Traditionally, however, the cost of borrowing money in Australia has been higher than many other jurisdictions, although interest rates are currently low.
What are the most interesting and challenging cases you have dealt with in the past year?
Seaworthiness, General Average and the York-Antwerp Rules 1994 – the firm acted for Mount Isa Mines mentioned above in section 6, which was awarded damages from the owners of Thor Commander for the owners’ failure to provide a seaworthy ship.
Cross border insolvency – the firm acted in the proceeding mentioned in question 6 for the liquidators who obtained final recognition and stay orders in respect of a fleet of ships owned by the insolvent Italian shipowner for the purposes of an orderly sale of the ships.
LNG production, carriage and regasification – the firm has advised owners of FSRUs contracted to operate in Australian ports, as mentioned in question 2. The firm has advised various stakeholders on regulation and disputes arising out of LNG projects on the west and east coasts of Australia. The export and import of LNG gives rise to a large number of technical and legal challenges.