Shipping – the Engine Room of Australian Commerce

An often quoted fact is that more than 90% of Australia’s imports and exports are carried in and out of Australia by sea and, according to recently published Western Australian government statistics for 2021, physical exports accounted for 63% ($226.9 billion) of Western Australia’s Gross State Product in 2020-21. Oil and gas, mining and agriculture are significant contributors to Western Australia’s GSP but exports are not just about LNG, ores, minerals and grains; everyday products like fresh chilled meat, milk, salt and wine as well are exported by sea. Of course, Australian industries and consumers also rely heavily on ships to service Australia’s own industrial needs, including specialised industrial machinery and equipment as well as cars, furniture, clothes, shoes and most other commodities for domestic consumption.  

There is sporadic debate about the merits and practical realities of expanding an Australian owned and operated commercial shipping fleet (and there are many and diverse and strongly held views on this subject), but the vast majority of West Australian exporters and importers, large and small, rely on international vessels crewed by international seafarers to carry their commodities in bulk or in containers to and from markets in China, Japan and across the globe. Ships and those who sail them are therefore much needed business allies and a key part of the export supply chain that supports the West Australian economy.

Underpinning these activities are State and Commonwealth regulatory regimes and an array of industry-specific commercial contracts. In shipping, the allocation of some risks specific to ocean transport are regulated by international conventions implemented by domestic legislation that may apply regardless of commercially negotiated terms.  As a result, a specialist insurance regime has evolved, which is factored into the allocation of risk and the cost of doing business between ship owners, charterers, cargo shippers and receivers.

Many other operational aspects and contractual risks and expenses are closely negotiated and reflected (or sometimes not) in bespoke contracts or shipping standard form contracts, which are themselves also frequently amended or expanded by a page (or ten) of additional clauses to meet the specific needs of the product being shipped and the commercial imperatives of the parties.

For a consumer delivery of a pair of shoes, a few days or even a month later than expected may not be such a big issue; but for the end user of a key component in a major project or a steel or flour mill waiting on feed-stock, every day of delay potentially impacts their supply chain and production, increases costs and challenges profitability.  

In a market where margins are routinely tight, vessel or equipment breakdowns, bad weather or unexpected events (think a large green vessel blocking the Suez Canal) can eat into or wipe out anticipated profit. As a result, overseas sales contracts and vessel chartering contracts routinely pre-allocate who bears certain risks and events and who pays for certain delays and other losses and expenses.  While the majority of cargo shipments will be performed without issue, there is a myriad of potential disputes on individual shipments. Some unwary market entrants have found to their cost that adapting, for example, a standard services or construction contract to charter a ship is not the ideal approach. A carefully focussed and properly drafted contract can address known requirements and risks and reduce the likelihood of disputes arising out of both foreseen and unforeseen events.

Despite the ever present potential for disputes, there is a symbiotic relationship between vessel owners and charterers and between exporters and end users that consistently drives change by responding to trade needs and patterns and, supported by financiers and insurers, has opened new trade routes and driven ship design and port infrastructure developments worldwide. LNG projects are prime examples of the efficacy of interdependent and project-specific long term contracts between shipyards, ship operators, financiers, shippers and end users.  

Some changes are rapid. In 2006 the largest container ship was capable of carrying 11,000 twenty foot containers, in 2021 the largest container ships can now carry 24,000 containers. In addition to increases in size and capacity, alternative low emission fuels have been and remain a worldwide driver for cooperation between vessel owners, charterers, exporters and end users.  Australian companies are more than in the mix, with LNG powered vessels already in use, a prototype brown hydrogen vessel on its first voyage this month and projects progressing for the development of biofuel-powered and green hydrogen-powered vessels for international export vessels and the off-shore oil and gas sector underway.

While change is constant, inevitable and usually for the good, change brings with it new technical and operational issues that have to be carefully assessed and regulated. And contractual risk and insurances need to be reviewed and adjusted to accommodate change.

Of course shipping is not all rainbows and unicorns. Some shipowners continue to try to operate sub-standard vessels and underpay and overwork crew.  Maritime industry contracts commonly include terms expressly requiring shipowners to comply with laws requiring minimum pay, accommodation standards and leave, and many companies have due diligence systems in place to weed out known offenders. Australia’s vessel regulator (AMSA) has taken a strong and public lead in checking compliance and detaining and effectively banning ships from returning to Australian ports when wage theft or substandard living conditions or other serious non-compliances in vessel maintenance and management standards are found on board: 4 vessels were denied access to Australian ports in 2021 for periods ranging from 6 to 36 months.  This vigilance is important not just for the seafarers and the marine environment but for all of us here who benefit from the seaborne imports and exports facilitated by the maritime industry and the many people who work in it and support it.