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 and simultaneous 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 to manage the challenges. However, these issues have 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.
Supply chain scrutiny
Scrutiny of these issues has become a priority around the world to identify impediments to the creation of a resilient supply chain and eliminate practices which lead to undue costs and delays. For example, in the United States of America , the Federal Maritime Commission (FMC) was granted significant additional powers to review the practices of those in the private supply chain including powers to require shipping lines to respond to complaints on demurrage and detention costs.
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).
The Monitoring Report drew from the earlier interim report of the Productivity Commission. The Commission Report had a much wider scope than the Monitoring Report, including review of the use of technology at Australia’s major shipping ports (consistent with international practices), the need for a government-run port community system (not required), the likely outcome of the government’s overhaul of cargo clearance systems (likely to deliver ongoing consumer benefits), the effect of current coastal shipping regulation (impeding competition and requiring reform) and the need for a government-supported commercial strategic fleet (on balance, not required). The Commission Report also included recommendations for significant reform of the industrial relations framework governing the maritime supply chain.
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).
Both the ACCC and the Monitoring Report considered the current regime and made the following comments, as summarised in the Commission Report:
- No other industry has an exemption like Part X, even though there are industries with similar characteristics to the shipping industry.
- Shipping lines should show that their agreements provide a net public benefit.
- Either a class exemption or the existing provisions under Part VII of the CCA could deal with shipping line agreements under a net public benefit test once Part X is repealed.
This has been an ongoing recommendation of the ACCC and now by the Productivity Commission and would increase scrutiny on the agreements of shipping lines and reduce 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 should include that:
- all landside (TAC) fees should 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.
This recommendation recognises widespread concerns that revenues and profits for stevedores are increasing by significant amounts on a regular basis through TACs with little transparency on the rationale for the increase. The proposed code does have hallmarks of the mechanism imposed by the Victorian government requiring advanced notice of proposed increases in TACs. Increase in TAC charges are passed by transport operators to their customers, causing increased prices being charged to retailers and consumers.
The third recommendation from the reports was that shipping contracts should not be exempt from the ‘unfair terms’ provisions in Australian consumer law.
The proposal is that the Australian government should remove this exemption. The main issue here concerns some shipping lines having levied detention fees on cargo owners in circumstances where cargo owners could not return containers on time due to delays to which the shipping lines contributed. Research has suggested that cargo owners in Australia currently do not have adequate protection against such unreasonable practices, resulting in them paying significantly higher amounts of detention fees in 2021-22.
This proposal would have an impact on contracts between shippers, their agents (freight forwarders and licensed customs brokers) providing that detention fees are not payable in such circumstances.
Recommendations in the supply chain industry
The three recommendations above are in line with submissions by those in the supply chain industry for some time. They would seek to balance the relative positions of those in the supply chain and would require changes to existing contracts, going beyond those proposed in the reforms to the Unfair Contracts Act due to come into effect later in 2023.
While the views reflected in the abovementioned 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 FMC with specific expertise and powers over the supply chain. This would be consistent with overseas practices and would reflect the key importance of the maritime supply chain to all in that chain including consumers. 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.
Conclusion
Ultimately, decisions to act rest with the Australian federal government. Successive federal governments have largely steered clear of the issues (except for the review into a government-supported Australian strategic fleet) and it has been state governments (particularly in Victoria and New South Wales) who have undertaken some measure of reform.
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.
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