Opaque shipping arrangements prompt government regulation, Cabinet papers show
By Paul McBeth
April 22 (BusinessDesk) - A lack of insight into the arrangements international shipping lines use to operate in New Zealand has inflamed fears the companies could be artificially pushing up freight costs and is central to the thinking behind a new regulatory regime, Cabinet papers show.
Commerce Minister Craig Foss said the current regime doesn't offer effective oversight, and without that, "there is a risk that the prices paid by consumers of the services are higher than they would be in a competitive market," according to a March 25 Cabinet paper published on the Ministry of Business, Innovation and Employment’s website.
MoBIE anticipates the new regime should "minimise the risk of detriment from anticompetitive behaviour," even though the benefits "are not able to be quantified," according to the ministry's regulatory impact statement. The lack of oversight has created an "inadequate regulatory regime" which leaves international shipping "essentially unregulated."
"Given the lack of oversight of international shipping in New Zealand, it has been difficult to assess whether this weak regulatory arrangement has resulted in poorly performing markets," Foss said in the Cabinet paper. "This lack of direct evidence has been the experience with similar reviews by overseas agencies."
Earlier this month Foss unveiled plans to bring shipping lines' arrangements under the Commerce Act, whereas previously they were exempt.
"Improving the efficiency of international transport services through more appropriate regulatory regimes is one concrete step that government can take to address the challenges, objectives and goals set out in the Business Growth Agenda," Foss said.
The government's so-called business growth agenda, driven by Economic Development Minister Steven Joyce, is a raft of plans aimed at building a more productive and competitive economy. Among those goals, is a target of lifting the ratio of exports to 40 percent of gross domestic product by 2025 from its current 30 percent.
Still, the Cabinet paper says "submissions on the state of competition in the markets were inconclusive" with local shippers concerned the "high level of information exchange" suggested "some arrangements are leading to higher shipping rates than would be expected."
At the same time submitters acknowledged "the advantages other collaborative service arrangements offer New Zealand in creating shipping networks with sufficient frequency and geographic coverage."
MoBIE dismissed concerns from the International Container Lines Committee, the shipping lines lobby group, that repealing the exemption might deter lines from servicing local routes, saying the changes will make it easier for them to collaborate without breaching the Act, because New Zealand shipping routes are "typically more profitable" than others, and because carriers operate in jurisdictions where competition law applies.
The Commerce Commission's new oversight role of shipping lines is expected to cost the regulator between $50,000 and $200,000 for each of up to 10 agreements needing clearance, and between $150,000 and $500,000 for each of up to five agreements needing authorisation.
A portion of those costs would be met by application fees from the shipping lines, which are still being determined, the paper said.
"The level of the fee could range from a nominal contribution to something that is closer to cost recovery," it said.
Foss announced the plan to remove the exemptions on April 8, a month before Parliament's commerce select committee was due to report on the matter by May 14.
He asked the committee, chaired by National backbencher Jonathan Young, to look at the issue last year after a Productivity Commission report recommended ditching rate-setting agreements, while retaining the exemption on other operational agreements.
MoBIE will advise the committee of the decision for its consideration as part of the report back on the bill, the paper said.
The government foreshadowed the move in its official response to the Productivity Commission report, saying the "Shipping Act provides a parallel, but outdated and unused regime for regulating competition compared with that provided by the Commerce Act."