FEBRUARY NEWSLETTER 2019
Welcome to the February 2019 Orbit Newsletter
Dear Valued Customers,
RE: Hong Kong / Taiwan / China – looking forward.
Glenn and I have just completed 2 weeks of meetings and travel in North Asia.
The Pricing Head Office of many Carriers is in N.E.Asia, and our HKG and China Management Team joined us in visits and meetings.
Many of you will be preparing or adjusting budgets and forecasts, and your supply chain costs at times can make a significant difference.
We are delighted to share our view.
- 2018 finished as expected, with minimal disruption toward the end of the peak season.
- The Carriers (Shipping Line) expectation in Oct 2018, was that as Lunar New Year was falling earlier, the Christmas / LNY cycle might see some downward liftings.
- In an attempt to artificially keep rates $ even, the Carriers had many void sailings – with the expectation liftings (Containers) would be waiting the next vessels after the void sailings.
- When normal schedules resumed in FEB 2019 – there was no overt cargo rush. Shipping rates have subsequently fallen.
- Orbit continually adjust rates in accordance with market fluctuations.
- The expectation is the market (rates) will remain at the lower end until Carriers either void sailings in March, or there is a spike in demand.
- Stability should be the key word till June 30 – (the end of Q2)
WHAT’S REALLY NEXT?
- The IMO – International Maritime Organisation – a UN Body, have introduced a cap of 0.5% Sulphur in Ship’s fuel from Jan 1st 2020.
- Currently the cap is 3.5% – and has been steadily decreasing, with the last decrease from 4.5% in 2012.
- Its akin to our vehicles going from leaded fuel to unleaded. Refining costs increase – thus so do fuel prices.
- Carriers will this year offer a yearly rate$$ for freight, with a **ryder** subject to a floating BAF / IMO Low Sulphur.
- Its understood the cost of this new fuel will be about USD100/tonne extra, which might equate to USD150 – 200 per 20’ container.
OTHER PRESSURES ON PRICING (UP & DOWN)
- The Australian Drought has impacted severely on Export volume of Grain(s) / Beef / Dairy / Pulses / Hay etc… – therefore the Carriers have not enjoyed any significant Northbound Revenue…putting more upward pressure on the Southbound pricing.
- The AU economy is stalling – and the likelihood of a change of Government in May, is impacting some buying and investment patterns.
Your Orbit team – irrespective of your import / export activity, want to keep giving you the best possible market advantage, by providing the “good oil”!
Glenn and the whole Team @ ORBIT are only too willing to help your supply chain be as greased as necessary!!
As always, please contact our office with any inquiries on the Newsletter topics.
General Manager – Sales and Marketing
Parliamentary Inquiry into Australian Shipping Practices & Costs
One of the many activities which the CBFCA undertakes on behalf of members is engaging with State and Federal Parliamentary Inquiries which have an impact on our industry and its regulation in the hope of improving the position of its members and the conduct of industry. This work includes consulting with members, drafting submissions, appearing before Hearings of the Inquiries to give evidence and otherwise working with members of Government and its agencies to secure positive outcomes.
On 5 December 2018, the Senate moved the referral of a new Inquiry to the Rural and Regional Affairs and Transport References Committee for report by 13 August 2019 which will affect members and industry
The topic of the Inquiry is “The policy, regulatory, taxation, administrative and funding priorities for Australian shipping” and the terms of reference include
a. new investment in Australian ships and building a maritime cluster in Australia;
b. the establishment of an efficient and commercially-oriented coastal ship licensing system and foreign crew visa system;
c. the interaction with other modes of freight transport, non-freight shipping and government shipping;
d. maritime security, including fuel security and foreign ship and crew standards;
e. environmental sustainability;
f. workforce development and the seafarer training system;
g. port infrastructure, port services and port fees and charges; and
h. any related matters.
You can read the details of the Inquiry HERE
There are clearly a number of matters which could be considered by the Inquiry as being of interest to members and industry including the movement of sea freight through the supply chain and the regulation of stevedores and their infrastructure charges.
The CBFCA will be working with Andrew Hudson of Rigby Cooke Lawyers to prepare a submission to the Inquiry and to otherwise engage in the progress of the Inquiry.
2018 – Big Year for Trade Means Big Surplus
THE Australian Bureau of Statistics calculated a record-breaking Australian trade surplus last calendar year, reaching $22.2bn.
Minister for trade, tourism and investment Simon Birmingham said Australia’s continued economic growth is largely due to trade, as it has contributed to one quarter of the growth in a five-year period.
Last year was the first time in 46 years every month was in surplus, according to a media release from Mr Birmingham.
“Australia now routinely records monthly trade surpluses, and we want to make sure that we keep that trend going in 2019,” he said.
“That’s why we continue to pursue a trade agenda that opens new markets for Australian exporters across a wide range of industries, helping to build a stronger economy and create more Australian jobs.”
The value of Australia’s 2018 two-way goods and services trade also broke records, totaling $854bn.
Australian exports of metals, ores, minerals, coal, rural goods, meats, cereals and more are all large contributors to the big trade numbers. Natural gas exports increased 69.5% last year as well, making it the third-largest export for Australia by trade value.
“Australian farmers and businesses exporters should be congratulated for these strong results illustrating the unabated and competitive edge our exporters have on the world-stage,” Mr Birmingham said.
“Higher prices and export volumes produced a record $66bn in exports of coal, and made it Australia’s most valuable single export,” Mr Canavan said.
“This highlights the continuing role of coal in providing jobs and income for communities throughout Australia, and in underpinning our strong national economic performance.”
Mr Canavan said coal exports increased 16% from 2017’s $57bn and resource exports as a whole increased 20% from 2017’s $206bn.
“Resources contributed 72% of Australia’s export of goods in the year and more than half of the nation’s total exports of goods and services,” he said.
BMSB Independent Review
The 2018/19 season of BMSB (Brown Marmorated Stink Bug) intervention & Border protection by the Department of Agriculture has been one of the most significant, expensive, delaying processes for import cargo clearance and release in the last decade.
Industry advocates, such as FTA and CFFCA, have pushed this matter strongly at government Ministerial level.
We can advise that an Independent Review will be completed by one of Australia’s most senior officials being the Inspector-General of Biosecurity (IGB), Dr Helen Scott-Orr PSM.
Please refer to correspondence sent to industry representative bodies earlier today by the IGB:
“As the Inspector-General of Biosecurity, my mission is to enhance the integrity of Australia’s biosecurity systems through independently reviewing and reporting on the Department of Agriculture and Water Resources’ performance of biosecurity programs.
This week, I advised the Agriculture minister that I will add to my 2018–19 work plan a review of the effectiveness of the Department of Agriculture and Water Resources’ biosecurity measures to manage the risks of brown marmorated stink bug (BMSB) entering Australia, and what if any improvements should be made.
In the current BMSB season, the increased BMSB approach rate and consequent increased departmental application of biosecurity measures to more goods imported from more countries has resulted in substantial disruption to trade with industry concern. The department is actively working to optimise pre-border and border measures to minimise disruption to industry. However, BMSB’s continued spread means that intensified efforts on a wider front will be needed to keep it out of Australia.
The objectives of this review include examining:
- the effectiveness of measures used by the department to manage the risks of BMSB entering Australia,
- the department’s engagement and consultation with industry in managing the risks, and
- what if any improvements should be made to the current arrangements.
Hopefully this investigation is completed in time to provide a framework for the 2019/2020 BMSB season. With BMSB infestations increasing in terms of origins and numbers, the matter is not going away. Hopefully the Department of Agriculture’s resources are boosted significantly, to enable them to get to a safe border protection position aligned with a realistic trade facilitation outcome.
Following on from the recent actions of other stevedoring terminals, Patricks have announced their Port Infrastructure fees are also on the rise from March 4th 2019. Not that there is any collusion there…
Our industry advocates are pushing for government intervention and regulation of these burgeoning costs, but in the interim, the stevedores continue to increases these charges with few restrictions.
Patrick terminals infrastructure surcharge increase- effective from 4 March 2019
- Sydney- $77.50 per full container
- Fisherman Islands- $71.50 per full container
- East Swanson Dock- $82.50 per full container
There have been no increases in Fremantle, where Patrick are currently negotiating their lease.
Unlike the recent VICT notice which refers to a split waterside/landside tariff, Patrick have quoted “excess charges over CPI that relate to our property and related costs”.
The full notice is available HERE
FTA / APSA will provide further updates as we continue to push for the regulation of terminal access fees.
Biosecurity Import Levy – Another Cost Increase for the Trading Community
The Australian government announced the introduction of the Biosecurity Import Levy in the 2018-19 Budget with an expectation to raise $325M over 3 years from a proposed commencement date of 1 July 2019.
The associated modelling announced in the budget referred to collection of $10.02 per twenty-foot equivalent (TEU) and $1 per tonne for non-containerised cargo with stevedores and port operators to be the collection agents.
Several industry representative groups, including FTA [Freight & Trade Alliance] have been involved in the consultations with Department of Agriculture and Water Resources (the department) since this announcement and offer the following feedback.
Below is extracted from the formal submission by FTA.
Utilisation of Funds Generated by the Levy
Industry is already paying significant cost recovery fees to the department on import transactions.
This is underpinned with a transparent process aligned to the Australian Government Cost Recovery Guidelines whereby industry has input into the design and use of funds. It remains unclear why the new levy did not follow this approach which would ensure that funds are directly used in building a stronger biosecurity system, including measures to streamline activities and reduce costs at the border.
Of additional concern, it remains unanswered whether the levy will directly contribute towards the support and management of BMSB and other emerging biosecurity threats. As we now understand it, the Biosecurity Import Levy is not a cost recovery initiative, it is a tax going direct into the federal government’s consolidated revenue.
Sharing the Load of the Financial Burden
The department has advised that the levy will be used to protect our environment, agricultural and tourism sectors from biosecurity risks. In response, a legitimate argument put forward from some members is that based on this need, the required additional revenue should be collected from Australian tax payers.
Assuming that industry is to pay the levy, it has been questioned why the financial burden is not being shared with air and sea passengers as well as air cargo and mail operators.
We understand that it would have been unattractive for government to impose a new tax on the public and tourists or revisit the controversial concept of a “parcel tax” against online internet purchases.
In summary, the common perception is that sea cargo was the obvious soft target for the new tax.
Changes to Date on the Proposed Levy
To the credit of the department, they have clearly heard our concerns about their original proposal of imposing the levy on stevedores. As we have witnessed in terms of the stevedore Infrastructure Surcharge, an already high and unregulated charge is inflated as it passes down the supply chain with road / rail transport operators and other intermediaries adding fees to recover associated cash flow and administrative costs.
Revised modelling now proposes that shipping lines are responsible for paying the levy. This is a significantly improved outcome by removing the imposition from stevedores and the transport sector. The revised model maintains a $10 per TEU tax but has added an extra level of complexity by charging shipping lines on the weight of import vessels and makes an adjustment to the proposed tax imposition on bulk and break-bulk cargo.
The financial imposition, particularly on bulk commodities, is enormous and seems far removed from the commensurate biosecurity risk with a significant financial impact on such goods as minerals, LPG and fuel imports.
Potential for Further Reform
We note that shipping lines and their representative body continue to strongly object to the revised model.
Having said that, the reality is that once shipping lines get their systems in place, they will in fact be a beneficiary of the revised arrangements.
The way that things are shaping up, shipping lines will most likely collect money up front from importers and freight forwarders and remit periodically to the department. This will generate positive cash flow plus the likelihood of an administrative fee to manage the complexity of the model that requires a calculation based on the weight of the import vessel, TEU fees, and bulk commodity weights.
Should shipping lines pass on this levy and any associated administrative mark-up in the form of a new fee, an additional increase in the form of GST and the cascading effect once this passes down the supply chain will add significant costs to importers.
The overwhelming response that FTA has received from a membership of major importers is that if a tax is to be paid, two changes are essential:
move away from a vessel weight charge to a flat per TEU / import weight charge to provide predictability in landed costs; and
payment of the levy direct to the government at a net rate through existing reporting mechanisms.
Since the levy was first announced, FTA and many other industry representatives have pointed to the Full Import Declaration (FID), used for customs payment and clearance purposes, as the preferred and only logical methodology. We also understand that the bulk fuel importers have suggested a simple increase in excise as a preferred model to send more revenue to government rather administering a new tax.
The department continues to resist our proposal saying that the FID does not meet the necessary legislative framework to collect the tax.
When you read the header of the FID receipt, it shows the words “Duty, Taxes & Charges”. Furthermore, the FID is currently used to collect an existing AQIS Processing Charge, Customs’ Declaration Processing Charge, Total Customs Duty, Total Excise Equivalent Goods Charge, Total Dumping Duty, Total Countervailing Duty, Goods & Services Tax, Luxury Car Tax and the Wine Equalisation Tax.
Orbit Logistics’ view is that however it is described/administered, if it walks and talks like an additional cost burden for the import trade, then that is exactly what it is. Once we get more info on the final model, we will share that information.