Prime minister Albanese’s strategic fleet folly
a gold-plated Australian ship

Written by

Neil Baird and Anthony Bergin

It’s long been Labor policy to stand up our own flagged and Australian-crewed merchant navy for the nation and its defence. Less than one per cent of Australian seaborne trade is carried by Australian ships. The Australian fleet currently stands at 15 vessels over 2,000 dwt, 11 on the coast, mostly Bass Strait, and four trading internationally. 

Before the last election Anthony Albanese pledged to establish a “strategic fleet” of up to 12 Australian flagged merchant ships to help move vital goods to affected regions during a national crisis, to make us less reliant on international shipping, and provide a boost to our maritime workforce capabilities.

Supporters of the strategic fleet also argued we needed to strengthen our coastal trade highway: it was argued that shipping was more environmentally sustainable and economically more efficient in terms of fuel costs.

The practice of paying foreign crews Australian wages while on our coast has been standard practice for a long time. But that hasn’t helped the Maritime Union of Australia and those pushing for a stronger merchant fleet on national security grounds. 

The requirement for an Australian merchant navy has a long history, with a debate running right back to federation. There’s been many government inquiries addressing the issue. They’ve invariably come back to one simple fact: Australian-flag­ged ships with Australian crews cost more and have proved to be unreliable, especially in wartime.

Now it appears that the Albanese government intends to make good on its election promise of delivering a strategic fleet of up to 12 vessels. Transport minister Catherine King recently released a taskforce report recommending financial arrangements to procure and operate Australian crewed merchant ships to ensure access to fuel and key imports during times of crisis. The ships would be privately owned and operated on a commercial basis when not requisitioned by the government. 

The task force found that the gap in operating costs between Australian flagged and crew vessels and lower cost foreign vessels was a significant factor in the decline in the number of Australian flagged vessels.

The cost gap was found to be about $5m to $8m annually depending on vessel type and crew numbers.

The government has agreed for the cost gap between Australian and foreign vessels to be addressed through shipping taxation incentives, a new levy on ship arrivals and government ­financial assistance to ship owners and operators.  But it’s said that any action would depend on a detailed Treasury assessment. 

The government has agreed in principle with 12 recommendations of the taskforce out of the total 16 and promised to review the other four points. The recommendations address issues such as the costs, composition of the fleet, the need to improve the Australian shipping registries, and other legislative priorities.

The taskforce recommended the strategic fleet include container vessels with geared ship cranes; multipurpose vessels capable of carrying project cargo and containers, roll-on roll-of vessels, and liquid bulk vessels. 

But the government has said it will only target the most appropriate vessel types to make up the composition of the strategic fleet. A pilot of the program would begin next year with four Australian-flagged vessels, with the government aiming to build up to 12 over time. 

Without paying over the odds, the government will find it very hard to recruit owners to the scheme. The average price of the kinds of ships it’s talking about will be at least $100 million each and the operating costs are usually at least 10 to 20 percent of their capital costs. The cost gap will be far more than the suggested $5 to 8 million per annum.

 On current MUA wages for 24 weeks’ work a year and assuming a 20 (ie 44) person crew, crew costs alone will be at least $8 million more per annum than foreign ships. Other costs such as fuel, insurance, repairs, and maintenance will rise similarly. The real differential is more likely to be $15 to 20 million per ship per annum.

Once government involvement is known, the “Canberra Margin” will come into play. That will increase costs by at least 100 percent above normal commercial rates. That’s assuming that private operators can be found who are interested in dealing with the government. 

The government and MUA seem to have large, international vessels in mind. But smaller, shallower draft ships will be required for many roles. In any case, foreign ship owners will always have vessels available for charter. Even in the current Ukrainian war, cargoes are still moving.  Road and rail shipment of domestic freight works very well in practice. Trucks and trains make “smaller targets” than ships and ensure very valuable logistic flexibility. 

The Productivity Commission earlier this year found there was no need for a government supported commercial strategic fleet, arguing that there were more cost-effective ways to address issues of maritime capacity and potential shortages of skilled seafarers. 

Any decision surrounding a strategic fleet is very unlikely to be reversible except at very high cost.

Anthony Bergin is a senior fellow at Strategic Analysis Australia. Neil Baird has a long history in global maritime publishing.