3 Cost recovery model

3.1 Outputs and business processes of the regulatory charging activities

3.1.1 Activity outputs

As described in Section 1.2.1, AMSA’s role is to deliver on seafarer and ship safety, and marine environmental protection through regulation, as well as provide search and rescue capability. The broad outputs and primary activities for all roles are itemised in Table 2, which also notes whether the output is subject to regulatory charging (cost recovery) or not.

Table 2: AMSA’s broad activity output listing

 

Operational targets of activity outputs are contained in the annual report and performance statements of AMSA’s, which describes the reportable measurements to achieve policy outcomes. A summary of regulatory charging activity non-financial performance measures is in Section 8.

3.1.2 Business processes

 

Levy-based activities

Levy-based charging activities relate to the provision of statutory regulatory services to a group of individuals or organisations, as opposed to transactional business processes. These regulatory-based business processes are carried out as overall activities that aim to minimise the risks of shipping and pollution incidents and maximise safety of people involved. 

Business processes include provision and maintenance of aids to navigation sites, standard and policy development specifically related to our regulatory functions, managing the National Plan for maritime environmental emergencies, compliance audits, investigations and enforcement, and development and promulgation of educational and advisory material.

Fee based activities

Driven largely by transactional business processes specifically performed for, or at the request of, or on the application of a particular individual or organisation. Fee-based regulatory charging activities support specific regulatory functions to which the fees relate. There is clear and distinct linkage of costs of the business processes to an individual or organisation.

Generic business processes for AMSA’s fee-based activities include:

• receipt, review, and decision on an application, including ongoing consultation with the applicant,
• undertaking technical assessment, with a decision made by a delegate, and
• processing and issuing a certificate, license, exemption, determination, or approval.

In practice, administrative business procedures for the receipt, review and issue are broadly similar across fee-based charging activities. However, time and effort (and associated costs) for technical assessments and decisions vary between the types of outputs and on the complexity or nature of the application.

3.2 Costs of regulatory charging activities

AMSA applies an activity-based costing methodology to determine costs for activity outputs and regulatory charging activities, as depicted in Appendix 2. This holistic methodology allocates all costs to activity outputs based on estimated time and effort, and associated cost drivers.

3.2.1 Changes in costing model techniques

In developing the 2021-22 budget, AMSA undertook an activity-based costing and zero-based budget exercise building on the framework developed in 2020-21 that is transparent, defensible, and repeatable. The approach in developing costing models is contained in Appendix 3, including cost drivers, assumptions, and sensitivities.

AMSA is currently engaged in the next stage of its continuous improvement program by mapping key processes, measuring effective service delivery, and analysing costs through benchmarking direct and overhead activities against industry standards to determine efficiency. This will support the upcoming government review of AMSA’s operations and reduce administrative burden and costs to regulated entities, without compromising safety.

3.2.2 Nature of costs

The nature and make-up of costs vary considerably across AMSA’s regulatory charging activity groups. For example, for provision and maintenance of aids to navigation there is an extensive capital cost component (depreciation), with consistently high operational maintenance costs, reflecting the hostile environmental conditions in which these assets operate.

In contrast, compliance and certification activity groups are labour intensive and as such have a high staff cost component. Generally, activities with a large staffing level require a higher proportion of property operating expenditure and ICT overheads compared to activities that have minimal labour inputs.

3.2.3 Cost categories

Direct

Direct costs are those costs directly and clearly attributed to an activity group based on estimations of resource requirements to deliver statutory and regulatory obligations, and include direct operational management support activities – direct costs include employee, suppliers, and depreciation expenditure.

AMSA business line managers provided direct input in assigning costs to activities, including staff utilisation to achieve operational outcomes validated by estimated time and effort requirements, and supplier costs based on an analysis and nature of expenditure.

Corporate overheads

Overheads include property operating expenditure, ICT networking, communication costs, and enabling tasks and processes to support service delivery of AMSA’s activity outputs through provision of corporate services and executive functions.

Enabling overheads comprise executive, human resources, finance, governance, and general ICT support – accompanying their respective share of property operating expenditure, ICT networking, and communication costs.

AMSA applies several cost drivers to allocate indirect, support, and corporate overhead costs to direct activity outputs, as detailed in Appendix 3.

Capital costs

Depreciation and amortisation is a representation of capital costs, used to determine capital expenditure requirements for replacement and enhancement of assets. Assessed on an asset-by-asset basis to identify the appropriate treatment, where there is a specific direct link depreciation is assigned to that activity group, whereas corporate support related depreciation is assigned to the appropriate overhead classification.

3.2.4 Cost estimates for 2021-22

Estimated costs for providing AMSA’s regulatory charging activities, broken down into direct average staffing levels (ASL), and direct, overheads, and capital costs is set out in Table 3.

Table 3: Breakdown of costs estimates for 2021-22

 

*     Direct ASL does not include line manager support, corporate support, nor non-regulatory charging activities (such as search and rescue or National System regulatory function output currently funded by government).

**   Consists of various activities considered immaterial for reporting purposes.

3.3 Design of regulatory charges

3.3.1 Charging structure

Regulating international shipping and domestic commercial vessels and seafarers is a complex undertaking, with a wide variety of vessel types, manning levels, competency prerequisites, handling requirements for various cargoes, operational conditions, and jurisdiction and international obligations.

AMSA applies a ‘user pays’ principle for regulatory charging activities. The design of AMSA’s regulatory charging activity outputs considers whether the provision of such regulatory activities is to an individual entity (reasonably attributed to that entity), or to a group of entities (provided to commercial shipping industry and broader community) – where the former, fees are charged, whereas the latter involves levies.

AMSA’s broad charging structure is summarised in Table 4.

Table 4: Charging structure of regulatory activity outputs

Levy-based activities

AMSA’s methodology for charging levies is derived from historical predecessors, as well as international standards where banding by tonnage is considered common practice for the commercial shipping industry. Levy rates within these bands, are adjusted periodically to address shortfalls or imbalances, with the last change occurring in 2014-15.

International commercial vessels are liable for levies on either (1) the date of arrival to an Australian port, or (2) where the vessel is in Australian waters with no corresponding paid levy applicable for the previous three months, the day after the end of that period. For Australian coastal trading vessels, unless the vessel is out-of-service, levies are payable at the start of each quarter.

The average number of port visits during each levy payment period (three months) varies depending on the vessel type and handling of cargoes, with bulk cargo vessels averaging around one to two visits per levy payment period and container ships around five to six.

The commercial shipping industry pays levies on non-exempted vessels that are twenty-four metres or more in tonnage length, with the rate based on a vessel’s net registered tonnage, with environmental marine protection activity output charged on vessels that also carry ten or more tonnes of oil on board, with a minimum amount payable of $10. AMSA’s levy ready reckoner is in Table 5.

Table 5: AMSA’s levy ready reckoner

The majority of vessel types visiting Australia continue to be bulk cargo carriers, with iron ore and coal vessels contributing ~67% of total net tonnage – which indicates a heavy reliance on iron ore and coal exports.

Despite the steady increase in the quantity and size of international ships visiting Australian ports, shipping usage for aids to navigation, demand for inspections, and other regulatory functions is largely influenced by externalities that may impact volumes year-on-year. These are largely outside the control of AMSA, including the COVID-19 pandemic, potential trade disputes, economic disruptions, and the changing climate.

In relation to environmental marine protection, given the nature and purpose of this activity, it is not possible to ascertain when a marine environmental emergency will occur. When an incident does occur, costs of clean-up operations and financial commitments can be enormous, with legal proceedings often taking years to conclude. While international compensation regimes are generally highly effective, the cost of responding to an incident can exceed the available liability and compensation limits. From evidence of significant incidents overseas, governments have had to bear the shortfall, which can be many hundreds of millions of dollars.

These factors mean that any projections of expected growth (or reductions) in demand for regulatory charging activities must consider complex relationships within the commercial shipping industry. AMSA is continuing to develop and rollout risk-based models to provide better insights into the linkage between the level of regulation effort to cost recovered revenue from industry.

Fee-based activities include, assessment of applications, exemptions and determinations, inspections and surveys, registration of vessels, conducting examinations, and accreditation of non-government service providers.

AMSA applies fixed fees to regulatory charging fee-based activities where the range of typical delivery times do not vary significantly from the standard average time. Where there are wide variations, indicated by significant divergences from the standard deviation, the basis of the relevant charge is an hourly rate, and any reasonable unavoidable travel costs. These travel costs may be flights and accommodation, where provision of services are at locations remote from AMSA’s regional offices, or motor vehicle travel rates where vehicles are used for the mode of transportation to and from offices.

Marine services and ship registration is tracked using multiple systems, including a Coastal Pilotage System, International Marine Qualifications System, NAVIS (ship registration), MARS (domestic commercial vessels), and Financial Management Information System. Volumes are estimated based on inputs provided by business line managers during the budget development process, using largely historical data obtained from these various systems, and adjusted for expected variances.

A schedule of fee-based regulatory charging activities, separated into fees under the Navigation Act 2012 and fees under National System, is included in Appendix 4. Charging rates are published on AMSA’s website.