38 Report by Department of Transport

Canberra, [October 1979]1

CONFIDENTIAL

Transport

Shipping

Trans-Tasman sea transport has a number of characteristics which influence the nature and extent of the shipping services provided and their cost (freight rates), frequency and efficiency.

The main characteristics of the shipping service are:

  • It is a short sea route which means that a greater proportion of round voyage time is spent in port rather than on longer sea routes, hence the cost per tonne mile across the Tasman in greater.
  • There can be no competition from third flag vessels because of the long-standing policy of the Australian and New Zealand seamen's unions which requires that shipping across the Tasman shall be operated only by either New Zealand or Australian manned vessels.
  • The liner trade has been serviced almost exclusively by one operator, the Union Steam Ship Company of New Zealand Limited, which, although domiciled in New Zealand, has since 1971172 been owned 50% by Tasman Union Limited (a New Zealand consortium) and 50% owned by Bulkships Ltd (an Australian consortium). The largest single shareholder in Australia is Thomas Nationwide Transport.
  • A limited service is provided by [Australian National Line] (ANL) cross-over vessels en route to Europe and North America at similar freight rates to USS Co[mpany].
  • In addition the Waitiki Line of New Zealand has recently commenced a service with one small container vessel, offering competitive freight rates to shippers.
  • A single vessel service carries alumina between Gladstone and the Bluff. The vessel used is chartered by Comalco and managed by the Shipping Corporation of New Zealand, carrying a composite crew of Australian and New Zealand seamen.
  • BHP and Tasman Pulp and Paper operate their own vessels but BHP recently reached agreement with the USS Company to service its markets in the South Island.

There has been much dissatisfaction with the trans-Tasman shipping service over the years. Main shipper complaints have been:

  • It has been claimed that the Union Company has, in the past, exploited its strong position in the trade, e.g. with freight forwarders' clients getting preference in cargo space.
  • When the company phased out its conventional vessels in 1974 in favour of roll-on/roll-off vessels which, at the time, could not handle steel products, the company was not prepared to offer suitable arrangements for BHP steel exports from Port Kembla and Whyalla. BHP then started its own service with its iron class vessels. However, as indicated above, agreement has recently been reached with the USS Company to service its markets in the South Island.
  • The Tasman Pulp and Paper Company purchased two purpose-built vessels for the route because of dissatisfaction with past and proposed levels and type of service provided by the USS Company. These vessels carry only the company's own products.
  • Also at the time of the USS Company changeover from conventional vessels to roll-on/roll-off vessels problems were experienced by citrus exporters with inadequate refrigerated capacity.

'Plans existed in 1974 for the Australian National Line and the Shipping Corporation of New Zealand to enter the trade with dedicated vessels but these were deferred because of a significant downturn in trade in 1975.'

The Australian and New Zealand Governments have for some time been concerned with the cost and adequacy of the service and have carried out a considerable amount of work in investigating trans-Tasman shipping services.

Following a joint report by Australian and New Zealand transport officials in 1976, a survey on shipping in the trans-Tasman trade was undertaken by transport and trade officials in late 1977 to establish the views of selected exporters in both countries on trans-Tasman shipping services. The results of this survey were announced by Australian and New Zealand Transport Ministers in August 1978. In March 1979 the results of the 1977 survey were updated by a further approach to the firms included in the initial survey to establish what subsequent changes, if any, had occurred in the transport arrangements and costs in this trade.

The surveys reached the following main conclusions:

  • The level of freight rates and frequent freight rate increases have been major factors which have inhibited two-way trade across the Tasman. Infrequent sailings, lack of a direct service to some ports and occasional short shipping were disadvantaging some shippers.
  • It is frequently cheaper for Australian and New Zealand export firms to ship to more distant third countries than to ship across the Tasman between Australia and New Zealand.
  • The lack of commodity rates in the trans-Tasman trade tends to disadvantage low value/high volume commodities as compared with other trades.
  • The recent introduction of competition into the trade (Waitiki Line) and an increased willingness by the USS Company to consider the problems of individual exporters, have benefited trade in some commodities, but the general level of the USS Company freight rates, together with frequent freight rate increases, has continued to make trading difficult for many exporters.

The reports covering both of these surveys were referred to the NAFTA Ministers for consideration. The NAFTA Ministerial meeting on 10/11 April 1979 agreed with the recommendations of the joint reports that the survey results should be brought to the attention of the shipping lines in the trade, and that developments should be reviewed annually. Discussions have now been held with the shipping lines.

The potential benefits of a customs union between Australia and New Zealand could be undermined by the cost of shipping between the two countries. The higher the rates, the less likely benefits would be realised. On the other hand, the rising cost of bunker fuel should provide a cost advantage on the short haul trans-Tasman run vis-a-vis more distant suppliers and as trade increases and frequency or tonnage is increased the capital charges of ships per tonne of cargo would also be reduced.

In the report by the New Zealand Institute of Economic Research Inc (Page XII) it is stated that 'it should be stressed that a certain level of protection will always prevail in the form of the cost of shipping freight between the two countries'. The protective element in a freight cost can be positive or negative depending upon the commodity involved. No study appears to have been carried out of the protective element in the trans-Tasman freight cost.

Once the Government has decided to move towards forming a Customs Union with New Zealand, it would seem essential that a detailed but broad based study be carried out into:

any inhibiting factors trans-Tasman shipping may impose on the full benefits of the union being realised

how the efficiency of such shipping services can be improved.

In this connection the following aspects may be worthy of examination:

  • The importance of the freight rate and adequacy of shipping services in terms of the proposed overall trading relationship. Such factors as the requirements of shippers regarding frequency and number of port calls required, the effect of directional trade imbalances, the suitability of the present ships to handle need to be examined.
  • Any factors that inhibit the possibility of improving the efficiency of shipping services. The extent to which New Zealand and Australian Seamen's Unions would accept lower manning scales and/or ships manned by other than New Zealand or Australian crews would be one factor to be taken into account.
  • Options to alleviate the freight rate burden on shippers while still retaining the standard of services required. Such possibilities as the introduction of specific commodity rates for a wide range of cargoes, the scope for the introduction of further competition into the trade, while avoiding the development of an overtonnaging situation and the merit of governmental incentives/subsidies (e.g. special investment allowances, accelerated depreciation for ships, grants, etc.) could be considered.

Aviation

Australia and New Zealand have concluded a bilateral air services agreement under which they may jointly regulate civil aviation services between the two countries. Both countries have granted certain traffic rights to third countries which permit airlines designated by the latter to carry both passengers and freight on trans-Tasman routes. However, the bulk of both passenger and freight traffic is carried on the services of Qantas and Air New Zealand.

The two countries can jointly regulate tariffs for the carriage of passengers and freight by air between their respective territories.

The bulk of air cargo carried on trans-Tasman routes is accommodated on scheduled services. These are primarily designed to meet the requirements of passenger traffic, and characteristics of the air cargo market have secondary influence on the frequencies, etc. of services operated on the various trans-Tasman routes. However, the cargo capacity available on passenger flights is supplemented by ad hoc non-scheduled cargo flights and by a regular freighter service operated by Pan Am as part of its US-Australia operations.

Unlimited entry by non-scheduled cargo carriers is not permitted, since this could result in uneconomic utilisation of cargo capacity on scheduled services with adverse impact on passenger fares.

With regard to the relative competitiveness of air cargo, it is noteworthy that a number of respondents to the trans-Tasman shipping survey mentioned in paragraph 9.5 indicated that for certain products air freight was already competitive in price with sea freight. Respondents noted the speed and reliability of air freight, and in the view of some this more than offset and cost disadvantage compared to sea freight.

The economics of both air and sea transport can be expected to change markedly and rapidly under the impact of frequent and substantial increases in fuel prices.

It is difficult to predict the likely effect of fuel price rises on both sea and air transport across the Tasman and the relative competitiveness of the two modes.

Although Australia and New Zealand operate their own international airlines and have their own policy objectives in international aviation, there is a high degree of co-operation between Qantas and Air New Zealand. There are, however, some strains in the relationship, due in large measure to Qantas carrying New Zealand traffic that is bound for points north and west of Australia and Air New Zealand carrying Australian traffic that is bound for the USA. Recent amalgamation by New Zealand of its international and major domestic airlines would limit the scope for closer integration of the operations of Qantas and Air New Zealand, because of the risk that the latter would seek to cross-subsidise its domestic from its international operations.

It is possible that closer co-operation could be developed between the two countries in the field of international aviation. It would be possible, for example, for one country to provide certain technical services or to mount certain air services on behalf of the other under some agreed arrangements. Clearly, however, such a suggestion would need to come from New Zealand for it to have any prospect of being accepted in practice.

[NAA: A1838, 37011119/18, ANNEX 6]