Question

Tasmanian exporters pay less than $500 a container to ship goods from Melbourne to China. At the same time, the cost to ship the same goods from Tasmania to Melbourne is at least two times higher. Explain the significant difference between these two rates. Accordingly, provide solutions to reduce the cost of Bass Strait shipping.

Answer 1

Let’s understand the shipping industry.

It has various players and costs included in it.

• The major shipping lines pass through Melbourne and china thus the fixed cost of infrastructure is distributed in number of transactions.
• Australia being in the center of world trade networks a large number of shipping lines go through Australia while moving from one end to other. Australia being a water locked nation has little resources thus majority of goods is imported, thus in return journey from Melbourne to Australia, shipping lines would rather take under cost material instead of going with empty container, thus the 500 $ cost is there, which is under cost or cost to cost basis.

• Whereas transportation from Tasmania to Australia is through ferry, a boat with less capacity thus here the factor of economies of scale and volume comes in factor, thus although a short distance the infrastructure is also less developed and the fixed cost is more.

• For reducing the cost of Bass Strait shipping I would suggest them to rent a warehouse in Melbourne for their business and move majority products through warehousing and logistics contractors or arrangements, instead of moving it to Tasmania. Thus bringing only the required or consumable commodity to Tasmania.

• Another option would be to explore and get in contact with shipping line which could route via Tasmania and provide business projections to them of the opportunity.