RED SEA INTERNATIONAL SHIPPING DELAYS

The current hostile situation in the Red Sea has inadvertently created a financial windfall for many shipping companies. The requirement to reroute around the Cape of Good Hope, though operationally challenging, has led to a surge in ocean freight rates, revitalising an industry that had been in recession. This sudden increase in demand has alleviated the excess vessel capacity issue, thus providing a lifeline to companies like Maersk and Evergreen. Despite this unexpected boon, it is crucial for these companies to navigate cautiously. This boom, linked as it is to geopolitical tensions, is unpredictable and could be short-lived. Moreover, the elongation of shipping routes may lead to increased fuel consumption and logistical challenges, which could erode some of these profit margins. Therefore, while the current situation brings immediate financial prosperity, the long-term sustainability of this boom is uncertain.

It may be prudent for companies to invest some of these profits in exploring alternative shipping routes or investing in advanced security measures, which could mitigate the risks involved and ensure continuity of trade. In this way, the current situation can be seen as a wake-up call for the shipping industry to reassess its vulnerabilities and plan for contingencies that could safeguard against similar disruptions in the future

. The Red Sea attacks have highlighted the susceptibility of shipping in this region, and it is imperative that the industry takes proactive measures to address these issues. While it may seem like smooth sailing now for shipping companies, they must remain vigilant and prepare for any future challenges that may arise in this volatile region. Only by being prepared can they ensure the uninterrupted flow of goods through one of the world’s busiest international shipping lanes. As tensions continue to simmer in the Red Sea, it is crucial that shipping companies keep a close eye on developments and adapt their operations accordingly. By doing so, they can mitigate potential disruptions and ensure the safe and timely delivery of goods to their destinations. In the face of uncertainty, proactive measures are key for maintaining stability and success in the shipping industry. So, while the current situation has brought about a lucrative opportunity for shipping companies, it is essential that they use this time wisely to strengthen their operations and minimize potential risks in the future. The Red Sea may be turbulent now, but through strategic planning and proactive measures, the industry can navigate these challenges and continue to thrive in one of the world’s most crucial shipping regions. So, while the current situation may seem like a blessing in disguise for shipping companies, it is also a reminder of the unpredictable nature of global trade and the need to be prepared for any eventuality. Let us hope that through resilience and adaptability, the shipping industry can overcome these challenges and emerge stronger than ever before.

                                                                 CONTAINER SHIPPING RATES TO INCREASE IN 2024

Container shipping faces challenges due to the influx of new capacity into the fleet. However, spot rates are currently being boosted by events in the Red Sea. In our discussion with Daniel Richards, an analyst from Maritime Strategies International (MSI), he highlights that INTERNATIONAL container shipping will struggle with overcapacity in 2024. Last year, there was a slight contraction in demand, while supply grew by 8%. Although demand is expected to rebound in 2024 with a projected 4% growth, supply growth is anticipated to be over 7% year-over-year. This will result in major issues regarding capacity in 2024. In terms of newbuilding orders, 1.9 million teu of new capacity was ordered in the last year, with some carriers also placing orders for alternatively fueled vessels. Additionally, there has been disruption in the Red Sea, leading to carriers diverting their transit routes. However, the long-term impact of this disruption is yet to be determined. While there have been no significant impacts from Panama Canal restrictions on the container sector, international shipping container lines have made some service diversions.

Overall, the container shipping industry is facing a complex and challenging time due to various factors such as overcapacity and security concerns. It is important for all stakeholders, including carriers, shippers, and ports, to closely monitor and adapt to these changes in order to mitigate potential disruptions. The use of alternative fuels and technology advancements may also play a crucial role in sustainability and efficiency. As always, staying informed and being proactive is key to navigating through these challenges successfully. So, it is important for all players in the industry to continuously seek out additional resources and stay updated on the latest developments in order to thrive in this ever-changing landscape.

INTERNATIONAL FREIGHT AND GST

Below you will find information from The Australian Taxation Office in relation to GST and when it is applicable and when it is not applicable

This section covers GST and international freight of goods for:

• company suppliers of internationalfreight and associated services
• subcontractors providing transport and associated services within Australia
• importers
• exporters.

It does not include information on the international transport of postal goods.

INTERNATIONAL SHIPPING IMPORT GOODS

The international transport of goods (including the arranging of such services) is GST-free from a place outside Australia to the place of consignment in Australia for a supplier of that transport into Australia. ‘Place of consignment’ is defined in the GST law and is generally determined by the agreement between the entity responsible for delivering the goods to Australia and its contractual counterparty (overarching agreement). The overarching agreement would be:

• The sale of goods agreement if the seller is responsible for delivering the goods to Australia;
• The buyer‘s agreement with a transport supplier (or forwarder) if the buyer is responsible for transporting (or arranging for the transport) of the goods from the country of export to Australia; or
• In circumstances where there is no overarching agreement (for example, self-transport), the port or airport of final destination.

Loading, handling and facilitation services (associated services) provided during the course of the international transport are GST-free where those services are:

• Provided to a non-resident recipient who is not in Australia when the supply is made; or
• Supplied by the supplier of the international transport service.

In relation to an inbound move, the place of consignment determines the extent to which transport and associated services are:

• GST-free
• Included in the taxable value of the imported goods (i.e. the base upon which GST payable on importation is calculated).

International Transport suppliers

It is unusual for entities that physically transport goods internationally (such as international air and shipping lines) to hold, or have access to, the relevant overarching agreement described above. That being the case, the ATO accepts that international air and shipping companies should use their contracts for international carriage (i.e. Airway Bills and Bills of Lading, respectively) to determine the place of consignment under the GST law. In these circumstances, the ATO allows shipping and airlines to assume that the place of consignment is at the terminal gate of the port or airport of discharge as specified on the relevant Bill (Bill of Lading or Airway Bill).

In some circumstances the relevant Terminal Gate could be situated at an inland port or airport. For example, some sea freight movements involve a subsequent leg of transport either to an inland port or another seaport. As long as that port is the nominated port of discharge on the relevant Bill then that place will be the relevant Terminal Gate and therefore the place of consignment.

This means that the transport and handling of goods (including issuing and processing documentation) at or up to the terminal gate at the port or airport of discharge, made by the supplier under the contract for international carriage, will be GST-free as these services are made at, or prior to, the place of consignment.

Can the services of an international airline or shipping line after the terminal gate at the port of discharge be GST-free?

Yes, but in these circumstances the Australian Taxation Office expects that the international airline or shipping line to hold, or seek access to, the relevant overarching agreement that verifies that the place of consignment is beyond the terminal gate of the port of discharge.

Subcontractors and forwarders who do not bring the goods to Australia

Subcontractors and forwarders who provide (or arrange) transport and related services within Australia to another Australian entity, and do not provide (or arrange) the international transport of goods, will make a taxable supply of their respective services. Where those services form part of the international transport of goods they will be GST-free.

Subcontractors and forwarders who provide (or arrange) domestic transport and associated services to a non-resident who is not in Australia when the services are provided, make a GST-free supply where those services form part of the international transport of goods.

Services provided by an Australian supplier to an Australian customer after the place of consignment will generally be taxable.

Suppliers who arrange for goods to be brought to Australia

Forwarders, brokers, removalists and express couriers are often engaged by an Australian entity (such as the buyer or owner of the goods) to provide or arrange the transport of goods (and associated domestic services) from a location outside Australia to a location in Australia. The supply of these services by the entity providing or arranging the international transport should be GST-free as the place of consignment will generally be the place specified on the contract between the supplier (i.e. the forwarder, broker or courier) and the Australian counterparty (see example 1 and 2).

However, the ATO recognises that many forwarders and brokers cannot comply with these rules without incurring significant compliance costs. In particular, the ATO understands that:

• the systems and processes used by many forwarders and brokers do not have the capacity to distinguish domestic services provided to Australian importers when the forwarder or broker did not arrange to bring the goods to Australia (which would be taxable) from the same domestic services provided to the same customers when the forwarder or broker did arrange to bring the goods to Australia (which would be GST-free); and
• brokers cannot accurately determine the value of domestic services to include in the value of a taxable importation of goods at the time the goods are entered for home consumption.

Consequently, in relation to the international inbound movement of goods where a forwarder or broker is engaged to arrange for the transport of goods from a location outside Australia to a location in Australia, the ATO will allow the forwarder or broker to treat the place of consignment as the port or airport of discharge specified on the contract between the supplier (i.e. the forwarder or broker) and its Australian customer. The domestic services provided (or arranged) by the forwarder or broker in these circumstances may be treated as taxable supplies and as such, should not form part of the value of the taxable importation of the relevant goods (see example 3).

Will a GST registered customer be entitled to a GST credit if the supply is treated as a taxable supply but could be GST-free?

Where a GST registered customer of the forwarder or broker is charged GST in these circumstances, the customer will be entitled to a credit for the GST amount payable and shown on the tax invoice to the extent entitled.

An exception to this is where the GST registered customer of the forwarder or broker could have been reasonably expected to know that the freight forwarder did not pay the GST to the Commissioner.

Value of the taxable importation includes GST-free amount

The value of the taxable importation of goods should include the following:

• The customs value of the goods
• The amount paid or payable to:
  • transport and insure the goods to the place of consignment in Australia;
  • load, handle and facilitate the transport of goods up to the place of consignment, provided the amount is not reflected in the cost of transport or customs value; and
• Any customs duty and wine equalisation tax that may be payable.

If the domestic services provided (or arranged) by the forwarder or broker are treated as a taxable supply to the importer (or entity making the taxable importation if a different entity), these amounts do not need to be included in calculating the value of the taxable importation (see example 3).

See also:

• GST definitions

Outbound transport for exporting goods

The international transport of goods (including the arranging of such services) is GST-free from the place of export in Australia to a destination outside Australia.

The place of export is defined in the GST law. The place of export for goods (not being postal articles) to be packed in a freight container will generally be the last place from which the goods to be exported were collected or delivered, prior to being so packed; however if the goods were packed where they were produced the place of export is where they are packed.

The place of export determines the extent to which transport and services associated with the export of goods from Australia, will be GST-free.

Subcontractors who do not take the goods out of Australia

Subcontractors and forwarders who provide (or arrange) transport and associated services within Australia to another Australian entity, and do not provide (or arrange) the international transport of goods will make a taxable supply of their respective services.

Australian subcontractors who provide services to non-resident customers (who are not in Australia when the services are provided) and those services form part of the international transport of goods from Australia by the customer, will make a GST-free supply. Supplies of loading, handling and other services that facilitate the international transport of goods, are also GST-free when made to a non-resident who is not in Australia when the services are provided.

Forwarders, brokers and removalists who arrange for goods to be transported out of Australia

Forwarders, brokers, express couriers and removalists are often engaged by an Australian entity to provide or arrange the transport of household goods and personal effects/unaccompanied personal effects (HHGPE/UPE) (and associated domestic services) from a location in Australia to a location outside Australia. The supply of these services by the entity providing or arranging the international transport should be GST-free from the place of export to the location outside Australia.

However, services not associated with the transport of goods to a location outside of Australia are not GST-free. For example services by a removalist in cleaning a house or extended storage costs (generally greater than 90 days) are not services associated with GST-free transport and are therefore not GST-free.

Forwarders, brokers and removalists who handle goods transported into Australia

Australian resident international movers are engaged by foreign removalists to have HHGPE examined by Department of Agriculture and Water Resources (DAWR) in bonded storage for quarantine purposes.

DAWR charge the importer (via the local entity) for the time spent conducting the inspection and entering data into the DAWR computer system. DAWR’s supply is non-taxable. The local entity will provide assistance to the DAWR officer by way of moving, opening and resealing packages for inspection. This is a clearance and delivery service made by the local entity.

The cost to the importer is split 50% for DAWR inspection and 50% for the assistance by the local entity.

Where the local entity bills the quarantine inspection charges and the clearance and delivery charges back to the non-resident mover the services are GST-free.