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Wednesday, 2 November 1983
Page: 2181


Mr LUSHER(11.45) —Shipping services are of fundamental importance to Australia. As a major exporter of agricultural and mineral products, it is essential that Australia have access to efficient shipping. Australia exported products with a gross weight of 180 million tonnes and a value of $18 billion in 1981. Freight costs are a part of the total cost that must be deducted from the price purchasers can afford to pay for Australian products. For the most part, our producers are price takers and efficient shipping is a fundamental requirement for viable export industries. After the Second World War the Commonwealth found itself in possession of a flotilla of merchant ships. In the early post-war period these ships continued to be operated by the Australian Shipping Board under the National Security (Shipping Co-ordination) Regulations. At the same time the parlous financial state of the private shipping companies made it very dificult for them either to purchase government-owned ships or to have new ships built.

In order to maintain Australian shipping services, the Menzies Government decided in 1956 to establish the Australian Coastal Shipping Commission, the Australian National Line, to operate its ships as profitably as possible. Although the 1956 legislation imposed Public Service obligations on the new Commission to provide developmental and other services at ministerial direction, this would not appear to have been the major rationale for establishing the Commission. The circumstances under which the Commonwealth acquired a shipping line were, therefore, extremely pragmatic. Nevertheless, from that pragmatic start the ANL has been allowed to exist and expand without any meaningful review of its role as a government enterprise. One is reminded of the comments made by the Senate Standing Committee on Finance and Government Operations in its first report in 1979 on statutory authorities of the Commonwealth:

There has been no systematic approach in the past to the creation of non- departmental authorities. Over a long period, they have been established on an ad hoc basis to meet perceived needs at the time of their creation. It may well be that some authorities have continued when the need for their creation has passed, or at least where there is no longer a need for them to exist as a separate entity.

From its humble beginnings the ANL has developed into a coastal and overseas operator with a total shipped tonnage of almost 1.2 million tonnes. In his extensive analysis of the Australian maritime industry, Peter Stubbs says that the financial record of the ANL is unenviable. He say that no commercial enterprise could have survived such an experience but, like many other state instrumentalities, the ANL has not been subject to market criteria. The paucity of available information is an indication of the unsatisfactory nature of the position. Australian users, customers of the ANL, the taxpayers and the Parliament do not have the information necessary to determine whether the provision of ANL services is warranted. It is difficult to be definitive on the profitability of coastal services because of subsidies paid in respect of the Darwin and Tasmanian services. All we can say is that in a totally protected Australian coastal trade the ANL ought to be able to operate profitably. In the overseas bulk trade the ANL made losses in each of the years since 1978. The overseas liner trade has made profits in four years and losses in four years since 1975.

Stubbs says that the plain fact is that across the 1970s the ANL's surplus of revenue has been inadequate in commercial terms to meet either its loans interest or any acceptable return on equity. He generously concedes that the ANL has the potential to be a profitable operator. It cannot match the performance of the more commercial and internationally-oriented shipping companies, and the most realistic hope is for a continual, gradual improvement in efficiency, reasonable freedom from strike losses, and a revival in world trade. That is Stubbs, view, tenuous though his caveats may be, as he expressed it in 1982. I wonder whether he would have the same view in light of the $20m loss for 1982-83 that ANL will announce shortly. Two-thirds of the Government's new capital injection of $30m was devoured by the losses before it reached the ANL's bank account. It is my belief that ANL can make profits only behind the protective walls of the coastal trade and international conferences, and then only sometimes. Losses far outweigh profits. In the 10 years to 1982 the ANL made profits totalling $23.5m and losses totalling $32m for an overall loss of $6.5m. This is overshadowed, of course, by the 1982-83 loss of $20m that we will shortly hear about.

The Government has given no justification as to why it should continue to shovel taxpayers' dollars into ANL furnaces. However, in response to the ANL's unsatisfactory performance the Minister for Transport (Mr Peter Morris) has developed a five-point plan for the ANL. Firstly, there is the injection of $30m of new capital and the conversion of $60m in debt to equity. This should have a significant effect on ANL's balance sheet and gearing ratio, albeit at the taxpayers' expense. Secondly, management has been streamlined by the change to a part-time chairman and the creation of a position of managing director, who will be the chief executive as well as a member of the Commission. Thirdly, there is the establishment of the ANL Shipboard Practices Committee under Charlie Fitzgibbon, who is also an ANL Commissioner, and other initiatives designed to improve labour relations. Fourthly, there is to be greater freedom from ministerial and bureaucratic restraints which the Australian Shipping Commission Amendment Bill we are now debating is designed to achieve. Fifthly, legislation will be introduced later this year to implement the recommendations of the report of the Crawford Committee on Revitalisation of Australian Shipping to provide a climate conducive to stability and growth which will enable an equitable share of Australia's trade to be carried in Australian ships. This is also achieved at taxpayers' expense by the provision of more generous depreciation allowances for ships.

The real question is whether this five-point plan will overcome the long term structural problems which are part and parcel of the ANL operation. My view is that it will not. The plan is cosmetic and hungry for taxpayers' dollars. Without heavy taxpayer support it will not work, and there is no guarantee that, even with that heavy taxpayer support, it will succeed. The taxpayers will be disadvantaged and the users will be disadvantaged. Who, we may well ask, will be advantaged? Only the ANL itself and the unions concerned. Is this good enough? The fundamental question to be answered is whether Australia should have a national line. The case against the ANL is compelling. The case for it is not argued by the Minister in any deliberate way. He is accepting the ANL as a fact of life and trying to patch the leaks.

I challenge the Minister to justify this Government's retention of the ANL as a government-owned authority. The Minister should address at least four questions: One, is the ANL a commercial operation? He should demonstrate how the ANL is to restore profitability and operate commercially, free of taxpayer support and without disadvantage to users. Two, if the ANL is to be commercial, why does it have to be government-owned? The Minister should make it clear why the Government needs to be involved in the ownership of a normal commercial operation. Three, if the ANL is not to meet normal commercial criteria, what justification is there for asking the taxpayers to underwrite it? The Minister owes it to the taxpayers to explain why they should finance a non-commercial operation. Four, if the ANL is to fail the commercial test, is it fair to expect the consumer to pay the cost? The Minister needs to explain to exporters and importers why they should have higher conference freight rates imposed upon them because of the ANL's involvement with conferences.

Several arguments have been put forward to justify the establishment of a public enterprise. The more important arguments are as follows: One, to improve economic efficiency and resource allocation; two, to promote redistribution of income; three, to provide government revenue; four, to provide a service which the market would not provide. The economic efficiency argument applies where it is argued that society would benefit from one large enterprise, but that if it were a private enterprise it would engage in monopoly pricing to the disadvantage of the community, and so it should be a government enterprise which will provide the benefits of a natural monopoly without the disadvantages. This argument does not apply to the ANL. The redistribution of income argument would apply if a decision were made to run a service at a loss in order to provide a benefit to a particular group. However, if this is the intention it is not necessary to establish a public enterprise. It can be achieved through subsidisation of private operators or through government transfer payments rather than through pricing policies, cross-subsidisation and so forth. In any event, the ANL is expected to operate profitably. This argument does not apply to the ANL.

The source of revenue argument means that government may wish to involve itself in some activity simply to make money. However, the record of government in this area is not good, and it is a better argument that government should leave enterprise to the entrepreneurs and tax their profits. No one would argue that ANL was set up or continues because of its potential to contribute to revenue. This argument does not apply to ANL. It is often necessary for Government to provide a service that would not otherwise be provided by the market. National defence is a good example. However, shipping is a service for which the provider can charge, and from which the provider can earn profits. It can be, and is provided by the market, whether or not government is involved. This argument does not apply to ANL.

ANL's existence is not justified by any of the four traditional arguments that are put forward as reasons why government should involve itself in commercial enterprise. Why then should the Government own a shipping line? The Opposition, as part of its policy review process, has asked that question. It has not been able to decide in favour of the continued existence of ANL as a government-owned statutory authority. The Opposition can find no compelling reason why Australia should continue to support a national line which is a drain on taxpayers and results in Australia's exporters and importers paying more for their shipping services than they should. The Opposition has no objection to an Australian- owned line and would be pleased if a commercial line could operate under the Australian flag and offer benefits to users. It simply cannot find reasons why such a line should be owned by the Australian Government at a cost to taxpayers and users. On our return to office we would dispose of the ANL as a statutory authority of the Government.

The National Farmers Federation estimates the cost of shipping Australia's overall exports at $500m for liner exports and $250m for bulk exports per annum. NFF makes the point that these costs are part of the total costs which must be deducted from the price the overseas buyer can afford to pay for Australian products. The higher the freight costs the less the overseas buyer can afford to pay for the product itself. Exporters ultimately pay the freight bill and for this reason have a strong vested interest in shipping issues. As a major exporting group the views of the agricultural industry, expressed through the NFF are illuminating. The Chairman of the Shipping Committee, Mr R. J. Lane, in his annual report to the NFF was critical of ANL's manning scales and conditions of employment which are regarded as being quite unrealistic by other shipping nations. He said that ANL's managerial efficiency had been called into question in recent times. He was critical of the reported manning reductions from 70 to 65 on a two crew per ship basis when international standards can be as low as 18 with far less than two crews per vessel. Mr Lane instanced a European line that had estimated it would cost an additional $1m per year per ship if it had to meet Australian manning levels and conditions. He was critical of the scandalous situation in the Christmas Island rock phosphate trade. When the phosphate trade came under the coastal shipping regime in 1975, there was an increase of 60 per cent in the freight rate. Stubbs estimates the total cost at $6.4m and the number of jobs created at 220. This implies a cost per job created of $29,000. Mr Lane was also critical of the unsatisfactory Australian Enterprise episode, as well as the privileged position of the conference lines. The NFF at its recent conference, condemned the recommendations of the Crawford Report on Revitalisation of Australian Shipping. It has also expressed serious concern of the trans-Tasman shipping arrangements, and wants the Government to keep out of negotiations between conference and non-conference lines which is believes should be matters for commercial resolution.

The Australian Mining Industry Council, representing the other major exporting group, is also critical of the present situation. Like NFF, AMIC argues that Australian producers ultimately pay the shipping costs and believes that Australian shippers must have guaranteed access to competitive and economic shipping services. AMIC says Australian shipping costs greatly exceed internationally competitive levels and it is unlikely that they could be brought in line even with major reductions in crew size and significant government capital subsidies.

I offer two examples of the type of stupidity that applies in ANL's manning arrangements and the effect it has. One example is the situation in the galley where one man bakes a roast and another cuts it-the cost of that extra position being assessed at $70,000 a year, or $1 a tonne more in competitive freight rates for a ship moving 70,000 tonnes of coal. Another is the prohibition on stewards doing laundry work which results in a dockside laundry bill per ship per annum of $150,000 or an extra dollar a tonne for the ship proposing to shift 150,000 tonnes of coal. On Japanese vessels, a laundry, manned by the crew, is installed as standard equipment.

AMIC quotes the 1981 average annual operating cost of 100,000 to 130,000 tonne vessels as being $US1.8m for open registry flag vessels, $US2.4m for British flag vessels and $US3.8m for Australian flag vessels. This is more than double the cost of operating an open registry vessel. Dr Keith Trace from Monash University says that Australia's comparative advantage clearly lies in the efficiency of its agricultural and mineral production. Efficient, low cost shipping services are of paramount importance, both to the rural sector and to the mining industry, the more so because Australia is a price taker in many markets. How the expansion of a relatively high cost Australian flag fleet will aid shippers in their quest for an efficient and economical service is not apparent from the Crawford report. Australia is not today a maritime power, nor has it been so historically. There is no evidence which suggests that Australia possesses a comparative advantage in the provision of shipping services, according to Dr Trace.

The Australian Shippers Council is apprehensive that ANL's manning levels and crew conditions are still far in excess of international standards and that failure to achieve a competitive operation will continue to impose unwarranted freight costs on Australian trade. The ASC suggests that ANL's membership of the conference system will always obscure from the community the actual costs to users of the services it provides, thus denying the community the opportunity to judge whether the provision of ANL's services is warranted. The ASC argues that on the grounds of accountability and economic efficiency ANL should withdraw from the conference system. The Minister, in his five point plan, takes no account of these significant criticisms of ANL and Australia's shipping regime. Neither does the Minister deal with the arguments that are constantly raised about the conference system and ANL's membership of conferences.

A shipping conference is a group of ship owners who operate liner ships on a specific route and agree on a policy towards their customers. They are cartels, but they give certain assurances about their services to their customers. They fix rates for cargoes and they agree to provide scheduled services, calling at specific ports at regular times. In 1966, the Trade Practices Act was amended to exempt shipping and in 1972 an Australian Shippers Council was established under the Act as the body designated to negotiate on behalf of shippers. In order to obtain security of service through both good and bad times shippers, and for the most part governments, accept the cartel arrangement. The shipping industry is allowed to operate in a way which would be forbidden in other industries. Because of the reduction in competition that normally follows the formation of a conference, it is inevitable that conference rates will vary from market rates struck between shippers and non-conference operators. The experience in recent times when there has been a serious shipping recession in sympathy with general world economic difficulties and a wind back in world trade, has emphasised the extent of the difference between market rates and conference rates. The recent wool negotiations, which started with a previous conference rate of $2,109 per container and has seen the rate negotiated down to $1,465 per container compared with the non-conference rate of $1,355 per container, is a case in point.

ANL is a member of seven shipping conferences in relation to Australian trade. In perspective, there are about 500 ships servicing Australia in the import- export trade and about 100 ships around the coast. ANL carries about 3 per cent of Australia's total trade, including bulk trade, although the percentage of the liner trade carried by ANL is close to 10 per cent. Peter Stubbs reports the common assertion that ANL is the most marginal high cost line in a number of the conferences. The implication of this is that conference rates are negotiated taking into account the high cost nature of ANL's operation. This leads to higher rates than might otherwise be the case and also results in the more efficient operators taking advantage of the higher rates and making excess profits at the expense of Australian exporters and importers. It is clear that ANL's membership of conferences disadvantages Australia because freight rates are higher than they would be if ANL were not a member. Another conference- related difficulty is that because ANL operates behind the screen of conferences and non-market freight rates the actual cost of its provision of services is not available for scrutiny. It is simply not accountable.

Events during the earlier months of this year provided yet another reason for serious concern about ANL's membership of conferences. The so-called Australian Enterprise affair showed clearly what can happen when a conference is able to collude with unions. The Australia Northbound Conference was suffering reduced volume and increased competition from non-conference operators and decided that one of the ships in the trade had to be laid off. By chance-or was it by design? -the ship selected was the Australian Enterprise. Predictably, the unions reacted against the laying up of the ship and put bans on the non-conference operators. There followed a series of negotiations chaired by ANL in which strong-arm tactics were applied to the non-conference lines-Zim, the Israeli line; Fesco, the Russian line; and the Hong Kong and Island line. In effect they were told to raise their rates and reduce their tonnage or the union bans would continue. Ultimately the non-conference lines capitulated to the threat of continued union action and the Australian Enterprise went back into service.

I think this episode is one of the most outrageous cameos of industrial relations reality played out in Australia in recent times. ANL played a vital role in the whole sorry episode, acting on behalf of the Conference. Indeed, the Minister himself sanctioned the whole disgraceful process. It has been estimated that the cost of the deal to users will be $20m a year. The final irony is that there are now suggestions that other non-conference operators may step in where Zim, Fesco and the Hong Kong and Island line left off, unconstrained by the effective extended conference arrangement negotiated by ANL using the threat of union muscle. The Australian Shippers Council says the episode demonstrated the ease with which normal commercial processes can be put to one side in favour of a solution completely favourable to the conference lines and, in important respects, disadvantageous to shippers. The Council believes that the extension of the Conference across all operators on the East Asia, Japan and Korea trades is further evidence that ANL's inadequacies must ultimately be at the expense of exporters and the wider community. These developments reinforce the Australian Shippers Council view that the threat to exporters' interests inherent in ANL's commercial inadequacy has been compounded by ANL's membership of conferences.

The Australian Enterprise affair demonstrated clearly that ANL's loyalty is more to the conference structure than to the Australian user. The reality is that ANL causes disadvantage rather than advantage to Australian shippers. I have referred to a number of serious difficulties regarding ANL's membership of conferences, none of which has been addressed by the Government. On any or all of these grounds the Government should not sanction the taxpayers' shipping line continuing in the conference system. The Minister puts great store on the report of the Crawford Committee on Revitalisation of Australian Shipping. It is part of his five point plan which he intends to introduce legislation to implement later in the session. For that reason I do not want at this stage to go into a debate about the Crawford report. There are other matters that I wish to deal with.

It is the Opposition's view that ANL should withdraw from conferences. This would advantage Australian users who would be free to choose between conference and non-conference operators without the complication of the necessity to protect an Australian government authority which was an integral part of the conference system. I do not expect the Government to share my opinion about ANL' s role in the conference structure. As the Australian Shippers Council puts it, there appears to be an entrenched reluctance in some quarters to subordinate the cartels to the wider interests of the Australian community. The Government would appear to be in one of those quarters. Whether ANL would survive outside the conference structure is another question. The Opposition shares the view of the Australian Shippers Council that where purposes other than commercial purposes are to be served by the existence and operation of ANL the additional costs should not be borne by those who are commercially dependent on ANL's services. The Government appears to support this stance also, if the words of the Minister in speaking to the Chartered Institute of Transport on 6 April are to be taken seriously. I quote him:

Where there is a requirement for services that cannot be provided on a commercial basis, then Government policy is that the losses incurred should be fully identified and separately funded. Only by having the actual cost of services can the community be in a position to judge whether the provision of such services is warranted.

The Government's actions fall far short of the mark in ensuring ANL's accountability and exposing its cost of services provided so that the provision of those services can be assessed by the community.

I now turn to the Bill. The Opposition does not cavil at any of the provisions of the Bill. It is obviously desirable for a public commercial undertaking to be operated on a basis comparable to that of private enterprise. However, even though the legislation aims to give greater autonomy to ANL in its day to day operations, it would still be impossible to equate fully a new look ANL with private business. For example, ANL is still eligible to receive government guarantees for its borrowings, an advantage not available to private firms. On the other hand, it will still have less flexibility than private enterprise has in raising equity capital. Its capital requirements are more likely to be looked at within an overall budgetary context than in terms of its real financial needs .

Perhaps the major difference between public and private enterprise lies in the fact that it is unlikely that the Government would ever allow one of its statutory authorities to go broke. As such, the authority is relieved of many of the pressures of surviving in the market place. It must also be difficult for governments to avoid any conflict of interest when they are in a position to make the rules of the game while being one of the players. It remains highly likely that the Government will accept a lower than commercial rate of return or a loss rather than allow the enterprise to go into liquidation. Unless the Government is prepared to allow its authorities to stand on their own and compete in a completely independent fashion it cannot be argued that its enterprises are strictly commercial. The only other alternative is for the Government to dispose of the enterprise to the private sector. The Opposition takes the view that if ANL is to remain a statutory authority it should operate within its charter and be accountable to the Parliament. The minimum number of ministerial and bureaucratic restraints should apply to ANL. To the extent that the Bill enhances the operational freedom of ANL it is welcomed by the Opposition.

The Bill provides for the Commission to develop a corporate plan. There is bipartisan support for the proposition that ANL should operate commercially, that it should not be hamstrung by constant referral of matters to the Minister or the Department and that to the maximum extent possible it should get on with the task it has been given in its charter, that is, to operate a shipping service and to pursue a policy directed towards making profits. The difficulty that arises is that we must ensure that there is no loss of accountability on the part of ANL as it is freed from many of the ministerial and bureaucratic constraints that have shackled the Commission in the past. This is particularly so when taxpayers' funds are involved. The taxpayer currently has $126m invested in the capital of the ANL. There is also all or part of $147m in loans from the Government, on-lent to ANL. I imagine that the taxpayer has more than a passing interest in the affairs of ANL.

The need for accountability is emphasised by the fact that ANL lost of the order of $20m in the financial year ended last June. The Opposition argues two things in relation to this matter: First, that ANL should produce a corporate plan as provided for in the Bill; and, secondly, that ANL's accountability should be enhanced by discussing the corporate plan each year with the Senate Standing Committee on Finance and Government Operations. I should explain why the Opposition wants the corporate plan discussed with a Senate committee. To do that I need to draw on the experience of the Australian National Railways Commission. Australian National was told by the then Minister that it was a government directive that AN should break even by 1988 and it should produce a corporate plan demonstrating how this would be achieved. Australian National produced the plan as requested and it has been updated since then, but every year there have been further departures from the original. The problem with the AN corporate plan is that it is unrealistic. It simply produced figures designed to satisfy the Minister of the day that Australian National would break even by 1988. In my opinion Australian National has no hope of breaking even by 1988 and I expect that very soon we will cease hearing about that objective.

So much for the corporate plan. That is why the Opposition believes there should be increased accountability. There is a certain arrogance in an organisation that goes its merry way, doing what it needs to do to keep its political masters happy, and knowing that it has no hope of doing what is expected of it. Ministers come and go; we all know the story. No doubt the present Minister has been given minutes, submissions and papers outlining the reasons why the performance of Australian National has fallen short of what it predicted in the corporate plan. No doubt there are plausible reasons but the House of Representatives Committee on Expenditure, of which the present Minister was a member, outlined two years ago what was wrong with the corporate plan. The Committee made Australian National account to the Parliament. History has shown, and will continue to show, that in relation to the achievement of its objectives and targets Australian National is both incompetent and arrogant. A Committee inquiry showed how unrealistic Australian National was in its corporate planning but the House does not have the mechanism to conduct inquiries of this nature regularly. The Senate has the mechanism. Because the need for ANL to be accountable is compelling, the Opposition will move an amendment that ANL produce its corporate plan, keep it up to date and present it to the Parliament at least annually.

The Opposition is concerned that the Government is seeking to maintain a high cost shipping industry that is unlikely to operate profitably despite all the cosseting available. It is equally concerned that so little accountability is required of ANL. The Opposition believes that its amendment will ensure that reasonable consideration will be given to the industry on a regular basis and that the accountability of ANL will be dramatically improved.


Mr DEPUTY SPEAKER (Hon. Les Johnson) —Order! The honourable member's time has expired.