Changes to contracting in the Australian supply chain?

A version of this article was first published by The DCN in March 2023.

The international supply chain has experienced significant turmoil across the past few years from the combined effects of the Covid-19 pandemic, the conflict in Ukraine and the trade disputes between China and many developed nations.

Australia has experienced similar direct effects such as lack of capacity in sea and air cargo, delays in the delivery of items required to deal with the pandemic, increases in costs for services supplied in the supply chain, the imposition of sanctions by government and the closure of important export markets for Australian goods in China.

The federal and state governments have worked together with the private sector to introduce a new series of legal and administrative arrangements designed to make the supply chain more resilient and eliminate practices which lead to undue costs and delays. However, this has led to increases in prices for consumers, the absence of items for purchase at different times and increases in the costs of inputs to manufacture.

In Australia, two reports issued in December 2022 addressed these and other issues in the maritime supply chain and have outlined a framework of recommendations to rectify or reduce the impact of some of these market behaviours.

The reports

The first of these reports to be issued was the legislated annual Container stevedoring monitoring report (Monitoring Report) published by the Australian Competition and Consumer Commission (ACCC). This was shortly followed by the Productivity Commission’s final Inquiry report, Lifting productivity at Australia’s container ports: between water, wharf and warehouse (Commission Report).

Possible effects on contracts

Both the Monitoring Report and the Productivity Commission agreed on certain recommendations, all of which would influence contracting practices in the whole maritime supply chain, including an effect on those freight forwarders and transport companies requiring the payment of terminal access charges (TACs) to stevedores in the land side part of the supply chain.

The first such recommendation in the reports was that the Australian government should repeal Part X of the Competition and Consumer Act 2010 (CCA) which allows shipping lines to work together on certain aspects of their business. This should produce reduced shipping costs.

The second recommendation that would affect contracts was that the Department of Treasury develop a mandatory container terminal operator code that would be administered and enforced by the ACCC.

The code would include that:

• all landside (TAC) fees would only be changed once a year with container terminal operators required to simultaneously notify a regulator of planned changes;
• the ACCC should have the authority to reject increases if it considers them to be unjustified;
• if an increase is rejected, an operator cannot propose an alternative change in a charge;
• the ACCC’s decision of whether an increase is justified should use 1 December 2022 as the baseline;
• the ACCC should collect any metrics it needs to form a view on whether proposed increases are reasonable, for example on the level of revenue raised by an operator from incentive-based fees and on landside performance (only metrics that do not reflect an operator’s commercial position should be made public);
• there should be an annual report to transport ministers and the Treasurer, which includes analysis of any unintended consequences of the regulatory regime; and
• consideration be given to any penalties that might be required to support enforcement of the obligations under the code. The code should be evaluated after a period of five years by an independent body.

The third recommendation from the reports was that from later in 2023, shipping contracts should not be exempt from the ‘unfair terms’ provisions of the Australian Consumer Law.

In their standard form contracts, some shipping lines having levied detention fees in circumstances where cargo owners could not return containers on time due to delays which the shipping lines caused or contributed to. Such clauses would most likely fall foul of the unfair terms provisions of the ACL and be rendered void, thereby impacting on contracts between shippers and their agents (freight forwarders and licensed customs brokers).

Further recommendations for reform

While the three recommendations of the reports are plausible, reform should go further. In addition to the recommendations addressed above, they should also require the following:

• All demurrage and detention charges should be detailed and rationalised by the shippers, including increases in those charges, setting aside unwarranted charges and the introduction of an open complaint system.
• The code proposed in relation to TACs should be replaced by legislation to the same effect to be introduced as soon as practicable.
• A separate regulatory body should be established in Australia similar in effect to the Federal Maritime Commission in the USA with specific expertise and powers over the supply chain. As an alternative, such additional powers could be allocated to a new division to the ACCC. Both the ACCC and the Productivity Commission have recognised the need for regulatory reform in other parts of the supply chain.
• These further recommendations would also change contractual arrangements between freight companies, shipping lines and stevedores.

Conclusion

Ultimately, decisions to act rest with the Australian federal government.

While the wide scope of industrial relations reforms in the Commission Report may not be well received by the relevant trade unions, it can only be hoped that the recommendations of the report and the wider recommendations proposed by industry are adopted at the earliest opportunity.

Contact us

If you require assistance in addressing any current trade or transport issues your business is facing, including how to best manage your supply chain, please contact our Transport & Logistics team.