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International Shipping

Papua New Guinea international ports of entry are currently served by nine liner services and directly contracted services for particular large industries, with direct shipping links to Australia, Europe and Southeast Asia and various transhipment arrangements in overseas ports to other destinations. Papua New Guinea is comparatively well-served by comparison with other Pacific ports, and there is no regulation of international shipping access to its ports of entry, other than that required for safety and border security. Oversight of the state of market competition in international shipping will be maintained by the Independent Consumer & Competition Commission.

In order to promote competition in the international freight rates offered by line and charter shipping, it is proposed that a Shippers Council to represent shippers’ interests be formed, probably as an adjunct to an existing interest group such as the PNG Chamber of Commerce, to act on behalf of the consumer to provide an exchange of market data and to assist in freight rate negotiation.

Cabotage

Cabotage is the market protection regulation against foreign entry to coastal shipping. The existing cabotage rules apply to vessels over 10m length and require PNG registration or licensing of shipping companies, ships and shipping operations and for seamen and port workers to be either Papua New Guinean or to have obtained a PNG work permit. The regulations are towards the lower end of market protection when compared against other countries and there are a number of exemptions available which further reduce their effect.

The existing permit system allows international operators to carry cargo on coastal routes. In the last few years the number of permitted services has increased, in part to on-carry specialised imported goods for the LNG and other resource projects and partly to allow international vessels wishing to directly compete in the domestic trade between ports that they visit to also transfer international cargo. There are signs that this second category is increasing and that excessive use of permits could hollow out the most profitable domestic routes causing damage to the domestic shipping industry and related maritime industries, constraining their growth with loss of employment and career opportunities for PNG citizens. As a maritime nation, reliant on shipping connections, it is in PNG’s interest that it foster market conditions for a healthy maritime industry to play the major role in carriage of at least domestic cargo.

The Government’s policy on cabotage is therefore to balance the possible short term price advantages to shippers of allowing cabotage by international vessels of purely domestic cargo with the longer term costs to industry and the nation. In the short term, the policy will be to more strictly limit the granting of permits for international operators, and in the longer term to consider the introduction of a fee-based system for permitting cabotage such as a flag state fee, a national seafarer’s manning levy, and/or freight tonnage levy to give an appropriate balance between lowering costs to shippers and supporting the local industry. The revenue from such cabotage fees would be applied in the maritime sector, such as contributing to CSO payments through the CWTP or support to maritime industry training.

Coastal Shipping Freight Rates

Although there is regulation of coastal freight rates in theory, in practice the industry has been free to set its prices since 1991. A recent Shipping Freight Rates study, carried out for the DOT, indicated that overall freight rates bear a reasonably close relationship to costs and that there was no evidence of over-pricing. The perception that freight rates are high can be attributed to thin services on some routes which makes them costly to service, and the backlog of maintenance and expansion of port infrastructure which adds costs in the form of ship and cargo delay. However, the structure of the freight rate composition is not transparent and individual elements may not bear a close relationship to actual costs.

Where markets are thin and there are no regular commercial services then the CWTP shipping franchise scheme is the preferred method of delivering financial support as a community service obligation.

Coasting Trade Licensing

While there is a good level of competition on international routes, there are relatively few operators in the coasting trade (domestic shipping services) and the first tier coastal services are shared geographically between a few operators, each dominant in their own area. For similar reasons as for cabotage, regulation of the coasting trade offers some market protection for operators, making them more likely to offer service on lower traffic routes which contain an element of internal cross-subsidy, and to provide a mix of passenger and freight services.

Entry to the domestic shipping market at present is through a system of coasting trade licences for regular services and permits for individual charters. Licence applications pass before the Coasting Trade Committee, a group with shipping industry representation, before being approved by the Minister on the advice of the Department of Transport.