10 July 2020

The Committee Secretary House of Representatives Standing Committee on Indigenous Affairs PO Box 6021 Parliament House Canberra ACT 2600 Via email: [email protected]

Submission - Parliamentary Inquiry into Food pricing and Food security in remote Indigenous Communities

Table of Contents

1. Introduction ...... 3 2. Sea Swift Background & Ownership ...... 4 3. Our Vision, Values and People ...... 4 4. The Sea Swift Transport Network ...... 6 4.1 Overview ...... 6 4.2 Description of the Sea Swift Transport Network ...... 7 4.3 Marine Transport is a Carbon Friendly Mode of Transport...... 10 5. Transport System Issues, Constraints and Cost Drivers ...... 10 6. Challenges and Customer Expectations ...... 11 7. Community Support & Engagement ...... 12 8. Regulatory Regime ...... 13 9. Freight Rates ...... 15 9.1 Network Pricing ...... 15 9.2 Australian Competition and Consumer Commission (ACCC) Undertakings ...... 15 9.3 Fuel Surcharge...... 16 9.4 Perceived Freight Cost Anomalies ...... 16 9.5 Shopping Basket Comparison ...... 17 9.6 Freight Subsidy ...... 18 Annexure A ...... 20

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1. INTRODUCTION

I would like to thank the Enquiry for the opportunity to respond on behalf of Sea Swift – the major sea freight provider to the remote coastal and island regions of Queensland and Northern Territory. I also acknowledge the traditional owners of the regions in which we operate.

In this submission, Sea Swift will respond to the Committee Terms of Reference as follows:

Terms of Reference Sea Swift Submission 1. The environment in which Remote This submission describes the physical and Community retailers operate. commercial challenges of operating a freight service to remote coastal communities. 2. The licensing and regulation requirements This submission describes the regulatory and and administration of Remote Community governance framework that governs the stores. movement of vessels and freight in the regions we operate within. 3. The governance arrangements for Remote This submission describes the regulatory and Community stores. governance framework that governs the movement of vessels and freight in the regions we operate within. 4. Comparative pricing in other non-Indigenous This submission includes a comparative remote communities and regional centres shopping basket of product, detailing the direct freight cost that applies to each item in the basket. We also include a limited comparison of retail prices in Cape York and islands 5. Barriers facing residents in Remote This submission describes the physical and Communities from having reliable access to commercial challenges of operating a freight affordable fresh and healthy food, groceries service to remote coastal communities. and other essential supplies.

6. The availability and demand for locally Sea Swift are not in a position to respond on produced food in Remote Communities. this topic.

7. The role of Australia's food and grocery manufacturers and suppliers in ensuring adequate supply to Remote Communities, including: a. identifying pathways towards greater cooperation in the sector to improve supply.

b. the volume of production needed for

Remote Communities.

c. challenges represented by the wet season in This submission describes the challenges Northern Australia as well as locational faced within our part of the supply chain to disadvantages and transport infrastructure remote communities. issues that might be relevant. d. geographic distance from major centres.

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8. The effectiveness of federal, state and territory consumer protection laws and regulators in: a. supporting affordable food prices in Remote This submission describes the current Communities particularly for essential fresh voluntary undertaking with ACCC to ensure and healthy foods. pricing for freight remains competitive. b. addressing instances of price gouging in Remote Communities; and c. providing oversight and avenues for redress.

9. Any other relevant factors. This submission includes a detailed description of the business model for service delivery, including the level of resources, capital and risk involved in operating a 365 day per year service to the most remote communities in Australia.

2. SEA SWIFT BACKGROUND & OWNERSHIP

Sea Swift is a privately owned company with headquarters in and has provided shipping services to the Torres Strait and Northern Peninsula region for over 30 years, and in the Northern Territory via our acquired predecessors for the same period. Sea Swift operates a fleet of cargo vessels and landing barges in order to provide for the sea freight needs of Cape York, , and Northern Territory coastal communities.

Sea Swift is owned by the QIC Global Infrastructure Fund (QGIF). QIC is one of Australia’s largest institutional investment managers with over $80 billion in assets under management comprising of domestic and global superannuation, pension, insurance and sovereign wealth investor funds.

There is a broad misconception that Sea Swift is a QLD Government owned and managed business. For clarity, our shareholder QGIF is not controlled by the Queensland Government, and we have no shareholding Minister.

3. OUR VISION, VALUES AND PEOPLE

“Our vision is to be the leading full-service logistics solution for Northern Australia, supporting industry and economic development of its coastal and island communities and people”

Sea Swift has a very clear understanding and appreciation of the role we play in the development of the communities we service from both a micro and macro level. Our footprint (Northern Australia) is largely untapped and we will do all we can to provide opportunity for the communities, the region and the nation to turn this opportunity into quality results.

Sea Swift supplies the crucial ‘last-mile access’ to communities and people that are hundreds of kilometres from main supply hubs, with transport limitations for part/most/all of the year. The essential service nature of our business is core to our existence and by extension we strive to be good corporate citizens through the reliable and consistent provision of that service.

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Our Values Our shared values are: • Teamwork • Customer Focus • Commitment • Accountability

The Sea Swift team are passionate about growing Northern Australia and improving the standard of living in the region. We connect remote communities and foster economic development by delivering a safe, reliable service, with pride. We live and work in a unique part of the world and our aim is to promote this and make living in Northern Australia easier by connecting our diverse cultures.

Our People Sea Swift is committed to building, developing, and growing a workforce of high-quality employees but more importantly people from the local area wherever possible. Sea Swift employs 442 staff in our 10 locations and on our 50+ vessels strategically located throughout Northern Australia. We support local communities wherever possible by hiring our workforce locally.

Sea Swift has four main streams of employment – Marine (on the vessels), Operations (in the depots), Engineering (tradespeople) and Administration. There are very few other employers (not including Government) that have the breadth of employment across remote and regional Northern Australia that we do.

Sea Swift is proactive in employing Aboriginal or Torres Strait Islanders when and wherever possible throughout our organisation and developing each employees’ skills and abilities. We do this by deliberately targeting indigenous persons for employment, which is reflected in Indigenous employees comprising up to 15% of our entire Northern Australia workforce. In the Torres Strait region 67% of our depot staff, 11% of our vessel crews and all our agents identify themselves as being of Aboriginal or Torres Strait Islander descent.

Indigenous employees comprise 29% of our total workforce employees with more than 10 years’ service, which underlines our commitment to training and sustainable work opportunities for Indigenous Australians. With a long history in employing, training and developing talent from the local communities where we operate, Sea Swift is recognised as an employer of choice in the industry.

Sea Swift has vast and demonstrated experience in vessel operations, harbour services and remote logistics that provide a complete end to end integrated solution across all components of the supply chain namely:

• Receipting • Ambient and temperature-controlled freight handling and distribution • Dangerous goods handling and distribution – all types • Consolidation and containerisation • Vessel loading, lashing and stability • Shipping operations • Ship maintenance including all refits • Technical management and support • Onsite road distribution • Bulk fuel handling and distribution

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4. THE SEA SWIFT TRANSPORT NETWORK

4.1 Overview

By any definition northern Australia is remote. Access is often restricted, especially when the monsoonal trough sets in from December to April. Sea Swift’s scheduled services up and down the east coast of Australia, through the Torres Strait and into Weipa and throughout the Northern

Territory are essential to maintaining community services in these regions. Sea Swift’s diverse fleet of specialised vessels allows the company to carry and deliver freight services to a large number of remote coastal and island communities where there is no other source or supply of food, essential goods and fuel. Freight also includes a range of general and refrigerated cargo as well as trucks, earth moving vehicles, boats and building and construction materials.

Sea Swift operate a “last mile” service at the end of a complex and lengthy supply chain that serves the remote coastal and island communities of Northern Australia. The Sea Swift service begins at consolidation depots of Cairns and Darwin and concludes with weekly door to door delivery to remote retail stores, community members and other businesses, in 54 different remote coastal communities across Northern Australia. The supply chain prior to receival by Sea Swift is under the control and management of our customers and their suppliers, and in most cases food and groceries have travelled for multiple days prior to receival by Sea Swift.

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For some food and fresh produce this supply chain may commence overseas or in southern states of Australia, with many handling and transhipment points between the farm or factory, and the retail shelves in remote communities. Sea Swift, our customers and their suppliers operate to HACCP approved cold chain logistics standards to ensure produce is delivered as fresh as possible, on a weekly basis.

Sea Swift monitors our compliance with customer and community expectations, achieving or exceeding our target of greater than 99.5% delivery quality. We ship over 190,000 consignments / 790,000 items to 54 communities every year and this quality measure includes cargo damage, misdirects, and late deliveries.

Sea Swift has worked closely with the various coastal and Island communities not only to meet their freight requirements, but to also support local communities through various sponsorships and employment opportunities. In the Northern Territory, Sea Swift has worked with Land Councils to negotiate and pay a royalty to access barge ramps at remote communities.

4.2 Description of the Sea Swift Transport Network

Sea Swift operates a “hub and spoke” freight network. This is driven by the geography, climate and navigational constraints of the operating area and leverages the economies of scale as efficiently as possible. Servicing such a large network with a relatively small customer base highlights the challenges associated with delivering regular and reliable services to remote communities. A critical mass of assets and infrastructure has been developed over 30 years and supports Sea Swift’s extensive investment in the network. Conversely, Sea Swift’s extensive network of services and vessels allows Sea Swift to deliver pricing benefits due to our economies of scale. Barge services to one remote location would equate to higher prices for that single remote location, as opposed to multiple locations within a service network. The diagram below sets out the end-to-end integrated logistics model employed by Sea Swift.

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To deliver the required level of service across this geographic area, Sea Swift operates an extensive fleet of Fifty Six (56) vessels from 5m to 100m across Northern Australia from Cairns to Darwin which includes container vessels, landing craft, tug and barge sets and mother shipping supply vessels, supported by the team of more than 442 employees and a range of mobile equipment as part of our shoreside and marine divisions.

Sea Swift’s assets and people rarely stop moving. Our vessels and freight operate 24 hours a day, seven days per week, 365-days per year. In the year ended 30 June 2020 our fleet travelled a total distance of approximately 915,000 kilometres (the same distance as a return journey to the Moon and back and halfway back to the Moon again) and consumed approximately 13.8 million litres of fuel to provide services to 54 remote communities comprising a population of 45,900 people.

Total Population Served 45,900

Communities Served 54

Mainland Coastal Footprint (Km) 5,100

Shipping Fleet - Annual Distance Travelled (Km) 915,000

Total Annual Fuel Consumption (Litres) 13.8 million

In QLD, 3 larger vessels operate a continuous weekly service to Horn Island. (the hub). Larger vessels are used here to achieve economies of scale, and a speed of service that could not be provided by smaller vessels.

The three (3) vessels, namely the Trinity Bay, Biquele Bay, and the Albatross Bay, depart from Cairns weekly to deliver cargo to Horn Island, , Seisia, and Weipa. The Outer Torres Strait Island (OTSI) cargo is trans-shipped at Horn Island to one of three smaller landing craft, Malu Titan,

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Malu Chief, or Fourcroy, for delivery to the respective communities. Capacity is such that freight movements are normally able to be completed ex-Cairns within seven days to even the most remote community, and within four days to Horn Island and Thursday Island.

In addition to the three (3) OTSI landing craft, a tug and barge combination operates cross harbour from Horn to Thursday Island on an hourly basis generally transporting vehicular freight. Additional Tug and Barge assets are available for project and construction work in the region and offer redundancy to the General Cargo operation when needed during times of extended vessel maintenance or high freight volumes.

Sea Swift has adopted a similar approach to our services in the Northern Territory. Based out of Darwin our service hub is Gove where goods are unloaded for the local community and transhipped to other remote areas throughout the East Arnhem and Gulf of Carpentaria region, including onto the community at Groote Eylandt.

Communities in East Arnhem and the Tiwi Islands receive regular scheduled services out of Darwin, in some cases up to three times per week, which exceeds minimum regulatory requirements (Refer Section 9 - ACCC Undertakings).

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4.3 Marine Transport is a Carbon Friendly Mode of Transport.

Marine Transport is a significantly (50-75%) more efficient mode of transport in terms of Carbon emissions. This comparison is made against clean bitumen highways, and when considering the rough and unpredictable nature of the PDR (Peninsular Development Road) , the saving is amplified. https://storage.googleapis.com/scsc/Green%20Freight/EDF-Green-Freight-Handbook.pdf

Sea Swift has made the switch to Ultra Low Sulphur Diesel.

5. TRANSPORT SYSTEM ISSUES, CONSTRAINTS AND COST DRIVERS

Unlike most other freight providers, Sea Swift offer essentially a flexible door-to-door service in order to meet most customer needs, however there are several issues which constrain the provision of freight services to remote communities on a regular basis. These include, but are not limited to:

• The climatic conditions, • High travel and rental costs (for labour and crewing), • A varying quality of infrastructure (in particular ramps and access channels), and • A lack of commercial enterprises capable of providing volumetric back freight options. • High level of capital employed and associated fixed costs of providing a reliable scheduled service regardless of fluctuating freight volumes. The need to tranship OTSI cargo into smaller vessels makes it difficult to achieve economies of scale that could reduce the level of capital employed.

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• Cost of double handling cargo required by the transhipment process. • Harbour and Tonnage dues charged by Port Authorities and Regional/Land Councils exceed $4.4m per annum. The majority of this impost ($3.1m) is passed on to customers as a surcharge on top of the freight charges. Further Investment and maintenance of port and ramp infrastructure by Port Authorities and councils is required to avoid delays to delivery, and damage to cargo, equipment and personnel. • Maintenance of weekly schedule during monsoon and cyclone season where weather conditions increase risks of asset damage. • Costs in leasing, maintaining and operating refrigeration equipment for freezer and chiller cargo, in climate of extreme heat and weather conditions.

The main issues at coastal and island delivery points are the maintenance of berthing dolphins, barge ramps, and access channels. Problems include:

• Insufficient swing basin size and channel depth and width due to an increase in barge size over time in order to improve efficiencies. • Reduced channel and swing basin depths due to siltation • Poor protection from seas afforded by groynes or breakwaters • Growth of coral causing narrowing of channels and increasing risk of damage when entering/exiting island ramps. • Deteriorating barge ramps and poor road surfaces directly off the ramps

Coral reefs are prolific in the area making navigation more difficult and travel more dangerous for larger vessels. Some of the larger communities (i.e. Thursday Island and Badu Island) have more protected offshore passages, but most communities have seasonally exposed approaches and mooring facilities. Weather extremes are a concern hampering safe access by barge to communities and threatening smaller vessels. Tides and strong currents also effect safe navigation and may restrict services at specific times of the day or month to some communities.

Climatic issues aside, the inability to use larger vessels to offset rising commercial overheads, and the relatively high cost of shipping from southern ports over 1000km away also have an impact. Port charges and council fees add further to the cost base with levies being applied in Port Kennedy (Horn Island and Thursday Island) considerably higher than those applied in Cairns, this consequently has a further negative impact on the cost of goods for all Torres Strait residents.

Our entire network throughout Northern Australia is totally dependent on marine transport to deliver almost all the requirements of daily life, and as such improving our service delivery and efficiency is Sea Swift’s primary goal.

6. CHALLENGES AND CUSTOMER EXPECTATIONS

While Sea Swift operates in remote areas of Australia, like any business operating in a competitive environment Sea Swift needs to align our services with our customers' expectations and in many cases contractual service obligations. Many of our customer run remote businesses that serve remote communities and (as Sea Swift appreciates) have demands around business operating time, quality of products, timing for delivery, cost and price etc.

As Sea Swift are the last link in the supply chain to our customers, time is always a factor, particularly where fresh produce may have left a warehouse in (say) Adelaide days earlier and is destined for a

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remote location in Northern Australia. Given the distances involved in our supply chain, in some cases vessels can take up to 5-7 days before they deliver their cargo at its final destination.

However, unlike logistics providers in southern states whose freight timetables are supported by an extensive road and rail infrastructure networks, Sea Swift’s ability to meet our schedules are influenced by additional constraints such as tide, sea conditions, weather, barge ramp conditions, channel siltation etc. In remote locations, access channels and barge ramps receive little if any regular maintenance. In two locations, Numbulwar (NT) and Seisia (Qld) prevailing weather conditions sometimes mean that the tide does not reach its forecast maximum and coupled with levels of siltation in the approach channel, vessels are unable to deliver freight on time due to prevailing conditions and are forced to wait to reattempt to land or abandon a delivery of essential freight to remote communities. The usual result involves waiting for conditions to improve to deliver the freight, but this results in the delivery schedule for subsequent communities being adversely affected.

During cyclonic conditions in northern Australia, Sea Swift’s vessels are often required to make significant changes to our usual passage plans to avoid weather systems and safely deliver freight to our customers, who in many cases remain largely unaware of the efforts of our people and additional time and cost. Sea Swift freight tariff remains constant all year round, regardless of seasonal impacts.

Despite the above challenges, Sea Swift continues to provide regular scheduled services to ALL the communities in our network, not just the profitable ones. We do this every day and every week achieving a Delivered in Full and On Time (DIFOT) service level of 99.5%, which is a remarkable achievement given the challenges outlined above, including the remote locations that we regularly service.

In providing essential service to remote communities, unlike other modes of transport, Sea Swift does not receive any government funding or assistance such as road funding and air service subsidies (Refer Section 9.6). The nature of the business involves high fixed costs – vessels and other assets, fuel and wages, which is a business model that does not support sustained low freight volumes (revenue) through our network. The high cost of operations is compounded by the capital- intensive nature of our business, highlighted by the number and value of assets required to maintain high standards and service levels.

7. COMMUNITY SUPPORT & ENGAGEMENT

Sea Swift has a long history in supporting and facilitating local community events. Since inception, Sea Swift has worked closely with various Coastal and Island communities, not only to meet their freight requirements, but also support them through various sponsorships, supporting microenterprises and employment opportunities.

• The training, up-skilling and development of employees. There is a considerable range of courses and qualifications we provide our employees which they would not otherwise receive. Our direct and indirect training costs are self-funded with no external assistance. • Developing exclusive employment and training pathways for indigenous students through the creation of an innovative school to industry program for year 11/12 students and our unique Cadetship program. • Generous financial support, subsidies, sponsorships, and donations to sporting teams/ events/cultural activities/charities & non-profit organisations with donations and assistance in excess of $1M p.a

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The Sea Swift Market Connect Program provides micro-enterprises with support via logistics advice and discounted freight costs to assist them in reaching markets outside of their immediate area and to help underpin the sustainability of their business. The goal of Market Connect is to support new or emerging businesses in Northern Australia by helping to get products where they need to go.

Remote communities, like their city counterparts are willing to do their part to improve their local environment. In a number of cases our customers have implemented community recycling programs and have asked Sea Swift for our support.

The vast distance between remote communities and regional recycling centres makes this endeavour very challenging and Sea Swift has provided assistance by shipping recyclables as back freight on our scheduled services, in many cases at no cost.

In 2019, East Arnhem Regional Council and Sea Swift were jointly awarded NT Natural Resource Management Award for Best Collaboration in Natural Resource Management. This is an example of Sea Swift’s commitment to the remote communities in which we operate.

8. REGULATORY REGIME

Sea Swift’s business operations comply with the latest national and international shipping regulations and standards, with Health, Safety, Environment and Quality being key drivers for the organisation. This is especially important given the remote areas in which we operate, the distance of our supply chain, and the high volume of cargo that is transhipped and manually handled. Sea Swift hold the following accreditations:

OHSAS 18001 Occupational Health & Safety Standard - Through a dedicated HSEQ team and a readily accessible platform across marine and shoreside employees, contractors and visitors. AS/NZS 4801 Occupational Health & Safety Management Systems - Through best practice design, implementation and training both internal and external with continued statistical reporting to achieve excellence.

ISO 14001 Environmental Management - Vital when operating in and through the Great Barrier Reef, the Torres Strait, the Arafura Sea, remote Northern Territory, and across northern Australia. Our key environmental challenges are energy conservation, waste management, and hydrocarbon management.

ISO 9001 Quality Management System - Through a range of customer and operational interfaces to ensure our service aligns with all required legislation and best practice. Some key aspects for accreditation include food safety control, on-time performance, stowage averages, and customer planning and delivery.

HACCP Food Safety Management - Implementation of best practices and systems, by applying the Codex Alimentarius HACCP (Hazard Analysis and Critical Control Points) food safety principles. Continuous training of staff to hold high regard for food safety and quality preservation, and a strong

pg. 13 focus on customer service and satisfaction. This renowned risk management technique has built a robust quality assurance environment into our business.

Added to this are a range of increasing regulatory requirements that Sea Swift is required to maintain in order to operate vessels and land-based operations. For example, in the Northern Territory alone, Sea Swift is required to maintain the following licences (excluding personal licences and certificates):

• Coastal Trading – General Licence • AMSA – Australian Shipping Registration Certificate • AMSA – DCV - Certificate of Operation • AMSA – DCV - Certificate of Survey • ACMA – Apparatus Licence • IACS – Certificate of Class • IACS - International Oil Pollution Prevention Certificate • IACS – International Air Pollution Prevention Certificate • IACS – Approved Ballast Water Management Plan • IACS – Document of Compliance for Carriage of Dangerous Goods • AMSA – DCV - Document of Compliance for Loadline • Pilotage Exemptions • HACCP Certification • Dangerous Goods Certification • NTG Dept of Health – Radiation Licence (Transport Radioactive Material) • NTG Environmental Health Branch – Registration of a Food Business • NT EPA - Environmental Protection Licences

In Queensland there are considerable environmental compliance measures in place to protect the Great Barrier Reef Park, as regulated by GBRMPA (Great Barrier Reef Marine Park Authority). These compliance measures focus on the qualifications of crews to navigate these waters, and on the safety and risk management features of our vessels. Sea Swift must comply with this framework in order to carry both fresh food and supplies to northern communities, as well as the bulk fuel required for electricity generation and desalination plants.

The costs of maintaining and complying with the increasing regulatory regime being imposed on the marine industry increases our fixed cost base and are reflected in the price of our services.

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9. FREIGHT RATES

9.1 Network Pricing

Sea Swift freight rates are developed on the basis of providing a freight network that serves the entire area of Northern Australia. Sea Swift take a holistic view to pricing services to these regions, with flat pricing across the Outer Torres Strait Islands as an example. This approach results in some communities being subsidised by others. For example, we service Stephens island (Ugar) on a monthly basis, when the tides are high enough to provide safe clearance for the vessel over the surrounding reef, as is evidenced by this photo taken at low tide with the vessel discharging at the ramp. The population of Stephens island is only 85. If this service were priced on the cost of this route or the risks to capital employed, the cost to the community would be prohibitive.

Like many of our customers and commercial partners in the region, Sea Swift faces higher than normal cost structures in operating in remote areas. The costs of employment are exacerbated by the high costs of accommodation, travel, maintenance, and construction, and a limited pool of qualified personnel due to the size of working population. The depreciation on Vessels and machinery that occurs in the extreme, saline and dusty environments of northern Australia means that equipment has a shorter life and a higher maintenance requirement.

Refer to Annexure A for our standard tariff and voluntary ACCC undertaking. Sea Swift offer its larger customers including major grocery retailers, discounts against the scheduled rates based on the volume of freight carried and other contractual terms.

9.2 Australian Competition and Consumer Commission (ACCC) Undertakings

In late 2014 Sea Swift and Toll Marine Logistics business in the Northern Territory and sought approval from Australian Competition and Consumer Commission (ACCC) to merge. The application was declined, and Sea Swift subsequently approached the Australian Competition Tribunal.

To grant approval, the Australian Competition Tribunal needed to be satisfied that the merger provided sufficient public benefit. This involved assessing whether there are public benefits which outweigh any competitive or public detriment arising from the proposed transaction, based on a consideration of what would transpire 'with or without' the transaction.

The Australian Competition Tribunal when hearing views from the ACCC took note that “In both FNQ and NT there has typically been only one large operator (short sea coastal operator) in each region[1]”. This statement alludes to the freight market demand being only able to sustain a minimal

pg. 15 number of service providers. The merger with Toll Marine Services therefore combined the two dominant regional operators into a single business.

The Tribunal approved the merger in July 2016 subject to certain conditions offered by Sea Swift, which included commitments to: 1. Maintain scheduled prices, 2. Maintain service schedules to remote communities, and 3. Provide an enhanced access undertaking in relation to the landing facilities at the Gove Wharf.

These commitments and details are publicly available on Sea Swift’s web site and the price schedule is attached under Appendix 1. Due to the recent sale of Sea Swift shareholdings to QGIF, a further and identical undertaking has been made by QGIF to ACCC.

Sea Swift’s scheduled pricing has been thoroughly assessed by the Australian Competition Tribunal as part of its assessment of the public benefits of the merger with Toll Marine Logistics, which underlines that prices have been determined as fair and reasonable.

The price schedule is subject CPI adjustment at the start of each financial year and as in past years this CPI price adjustment has been applied from 1 July 2020. The index adjustment applied to the 2019/20 price schedule is 1.98% and these revised rates will remain fixed until 30 June 2021.

A copy of the ACCC Undertaking and price schedule is included at Annexure A.

9.3 Fuel Surcharge

Sea Swift is a high fixed cost operation, of which fuel is a material component of the cost base. Sea Swift apply a Fuel Surcharge as a mechanism to reflect fluctuations in domestic fuel prices. This is a standard in the Logistics industry and is calculated on a percentage of freight charge revenue to recover the extra cost of fuel from a base cost per litre in Feb 2016 net of diesel fuel excise. If A is the cost of fuel in 2016 and A+B is the cost of fuel today, then B is recovered via a fuel surcharge applied to freight charge revenue.

With the recent reduction in global fuel prices, Sea Swift’s fuel surcharge for July2020 is 2.55% and continues to be adjusted monthly based on the above formula. The resultant benefit is passed on to our customers due to reduced direct operating costs.

9.4 Perceived Freight Cost Anomalies

Shipping freight rates do not take into consideration the cost or value of the product or cargo being transported. A product that is low in cost and large in volume will be charged at the same rate as a product that is high in cost and low in volume. Some examples of this would be bread, rice and lettuce which are all low in cost to purchase but large in volume and therefore have a higher freight cost percentage. As such, freight charges evaluated as a percentage of the product cost can vary significantly.

Fresh Produce in particular has a significantly higher freight cost due to its density , the costs of leasing and operating temperature controlled equipment , and the additional labour costs to maintain HACCP cold chain standards in a high ambient temperature environment (Tropical Northern Australia) over long distances.

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Refer to the table below where a shopping basket of goods has been price checked, and the Sea Swift freight component for the item has been calculated on the basis of item weight. Note that we have not attempted to calculate the total freight on these items, from their place of origin, to Sea Swift receival depots in Cairns or Darwin.

There have been many examples cited throughout the Parliamentary Enquiry of high-priced goods, the inference being that the high costs are as a direct result of freight charges. This misconception must be addressed as freight charges represent 10-20% of the retail price of goods in the region even though anecdotally the retail price is, in many cases, reportedly priced twice that experienced in Mainland centres.

9.5 Shopping Basket Comparison

Sea Swift has prepared a comparison of a basket of shopping items and calculated the Sea Swift freight (Ex Cairns) to Weipa, Thursday Island and Horn Island. The table shows the weight in grams for each item, and the calculation of Sea Swift (ACCC Approved) freight cost for each item, for the destinations of Weipa, Horn Island, Thursday Island and OTSI (Outer Torres Strait Islands).

1-Jul-20 CNS- CNS- CNS- CNS- Scheduled Rates per Tonne/m3- Ex Cairns WEIPA HORN THURS OTSI Dry $ 305.52 $ 305.52 $ 305.52 $ 458.29 Chiller/Freezer $ 534.68 $ 534.68 $ 534.68 $ 802.01

PRODUCT Sea Swift Freight Cost Grams WEIPA HORN IS. THURS IS. OTSI MULTI GRAIN BREAD 750 $ 0.40 $ 0.40 $ 0.40 $ 0.60 WESTERN STAR BUTTER 250 $ 0.13 $ 0.13 $ 0.13 $ 0.20 TOMATOES 1,000 $ 0.53 $ 0.53 $ 0.53 $ 0.80 APPLES 1,000 $ 0.53 $ 0.53 $ 0.53 $ 0.80 BUTTERNUT PUMPKIN 1,000 $ 0.53 $ 0.53 $ 0.53 $ 0.80 WHITE POTATOES 1,000 $ 0.53 $ 0.53 $ 0.53 $ 0.80 WHOLE CHICKEN 1,000 $ 0.53 $ 0.53 $ 0.53 $ 0.80 T-BONE STEAK 500 $ 0.27 $ 0.27 $ 0.27 $ 0.40 SAUSAGES 1,500 $ 0.80 $ 0.80 $ 0.80 $ 1.20 CONTINENTAL CREAMY CARBONARO 85 $ 0.03 $ 0.03 $ 0.03 $ 0.04 JOHN WEST TUNA 95 $ 0.03 $ 0.03 $ 0.03 $ 0.04 MOCCONA COFFEE 100 $ 0.03 $ 0.03 $ 0.03 $ 0.05 CHICKEN KIEV 350 $ 0.19 $ 0.19 $ 0.19 $ 0.28 STEAM FRESH VEGES-3 Pack 350 $ 0.19 $ 0.19 $ 0.19 $ 0.28 TWININGS TEA 10 $ 0.00 $ 0.00 $ 0.00 $ 0.00 ARNOTT'S MONTE CARLO 250 $ 0.08 $ 0.08 $ 0.08 $ 0.11 9,240 $ 4.82 $ 4.82 $ 4.82 $ 7.22

For this basket of items, weighing 9.24 KG, the Sea Swift freight cost component is $7.22 for the Outer Torres Strait Islands. Note that Sea Swift charge a flat rate to all destinations within the OTSI region. As per standard industry practice, Sea Swift normally charge on the basis of Volume or Weight, whichever is the higher. In the above example, freight has been charged on the basis of weight not volume. This has the inherent effect of subsidising bulky and low density goods such as bread, toilet paper, and snack foods.

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For the same shopping basket, Sea Swift also compiled a comparison between 4 locations in Far North Queensland as follows:

PRODUCT Retail Price Check Grams CAIRNS WEIPA HORN IS. THURS IS. MULTI GRAIN BREAD 750 $ 3.40 $ 5.00 $ 4.59 $ 4.59 WESTERN STAR BUTTER 250 $ 4.00 $ 5.00 $ 5.99 $ 5.32 TOMATOES 1,000 $ 5.90 $ 9.90 $ 6.99 $ 6.49 APPLES 1,000 $ 3.90 $ 5.90 $ 4.99 $ 4.99 BUTTERNUT PUMPKIN 1,000 $ 3.50 $ 3.50 $ 3.99 $ 3.49 WHITE POTATOES 1,000 $ 1.50 $ 3.50 $ 3.99 $ 3.99 WHOLE CHICKEN 1,000 $ 5.50 $ 7.20 $ 8.82 $ 9.99 T-BONE STEAK 500 $ 12.00 $ 11.02 $ 14.50 $ 16.59 SAUSAGES 1,500 $ 15.00 $ 7.50 $ 22.77 $ 12.99 CONTINENTAL CREAMY CARBONARO 85 $ 2.10 $ 2.60 $ 3.05 $ 4.05 JOHN WEST TUNA 95 $ 1.15 $ 2.50 $ 2.80 $ 3.22 MOCCONA COFFEE 100 $ 9.95 $ 11.00 $ 10.99 $ 10.99 CHICKEN KIEV 350 $ 5.50 $ 13.20 $ 12.69 $ 11.20 STEAM FRESH VEGES-3 Pack 350 $ 4.50 $ 4.75 $ 4.99 $ 4.99 TWININGS TEA 10 $ 2.00 $ 3.38 $ 3.86 $ 3.86 ARNOTT'S MONTE CARLO 250 $ 3.00 $ 3.00 $ 4.80 $ 4.80 9,240 $ 82.90 $ 98.95 $ 119.80 $ 111.55 Sea Swift Freight Cost $ 4.82 $ 4.82 $ 4.82 Sea Swift Freight Cost as % Retail 4.9% 4.0% 4.3%

In the example above, the Sea Swift freight cost represents 4.3% of the Thursday Island shopping basket total retail price, based on freight charged by weight to the selected destination. The additional uplift from Cairns prices would include other factors outside Sea Swift control.

9.6 Freight Subsidy

Sea Swift receive no subsidy from State or Federal Governments, unlike Road Transport (Roads Funded by State and Federal Govt.) or Air (Government Travel Subsidies). There have been many suggestions of introducing a freight subsidy into the region. If this were to be taken further, careful consideration would need to be given to the following: • How a subsidy would provide parity across the region, e.g. /Seisia (able to be supported by road-based transport for part of the year) compared to Horn Island and the Outer Torres Strait islands which rely solely on sea-based transport. • How a subsidy would be calculated, as some of the Island communities Sea Swift currently supply freight services to are heavily cross subsidised by other services within Sea Swift. If the true cost of providing services to these communities (i.e. More remote, with minimal infrastructure and population) was taken to account they would therefore be more heavily subsidised than Thursday Island for example. • How a subsidy would be applied. In Tasmania for example subsidies are predominately applied to those industries exporting to the Mainland in order to provide parity with similar Mainland industry groups. As there are little to no export industries in the Torres Strait, consideration would need to be given to where such a subsidy would land, i.e. with the freight provider, with the retailer, or with the customer. • How a subsidy would be paid, i.e. assuming a rebate is paid to the end user proof of charges rendered would need to apply. Further, allowance would need to be made for actual payment to be remitted either into bank accounts or as tax rebates for example.

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There are prior examples of where government subsidies have been placed with certain transport providers (i.e. Macair) yet due to the failure of the organisation have not been passed on to end users in one form or other. Additionally, placing subsidies with a provider of services could essentially place the provider in an anti-competitive position. Instead Sea Swift’s position would be to support a freight subsidy on the basis it sits with end use customers in the region. Additionally, should the introduction of a freight subsidy occur, heavy scrutinization of pricing and charges in the region would need to apply as unscrupulous operators could see this as an opportunity for profiteering.

As responsible operators of long standing in the region, Sea Swift would be happy to be involved in further discussions in order to resolve some of the issues raised in this paper, and to discuss other initiatives or issues under consideration by the Committee.

Fred White Chief Executive Officer – Sea Swift

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ANNEXURE A

Content for ACCC Undertakings

The Undertakings as provided by Sea Swift to the ACCC and accepted by the Australian Competition Tribunal as part of the successful transaction approval of Toll Marine’s Northern Freight Assets.

1. MAXIMUM BASE PRICING – AS AT JULY 1ST 2019

2. INDEPENDENT PRICING EXPERT

An Independent Pricing Expert has been appointed to adjudicate on escalated pricing disputes. BDO (NTH QLD) Tel: (07) 4046 0000 Email: [email protected]

3. GOVE ACCESS UNDERTAKING

Full detail in relation to the Gove Access Undertaking can be viewed by clicking here (link to pdf document to be loaded into website backend). Basic overview of this undertaking is Sea Swift will provide: I. Open access to the facility including ramp usage, laydown, loading/unloading at rates outlined. II. Gove wharf access application agreement including Terms & Conditions – click here; III. Gove wharf access and additional services rates for 2019 – click here;

4. TRANSFERRING CONTRACTS

Sea Swift will not enforce exclusivity or minimum freight volume clauses for transferring contracts.

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