On the 17 October 2023, Cabinet approved the Domestic Shipping Roadmap effectively setting the scene for the establishment of a government run domestic fleet, and supporting the retention of domestic shipping responsibilities to the Ministry of Finance and Economic Management (MFEM) through the Major Projects and Procurement Service Division (MPPS) for a transition period of up to three (3) years. During this 3 year period. MPPS will be required to deliver:
A two (2) ship government fleet serving both north and south Pa Enua in full compliance with safe ship and manning compliance conventions.
A committed periodic maintenance schedule in place including required dry dockings and ship replacement.
A workforce plan to ensure crewing continuity.
Shore administration support in each Pa Enua landing site or port.
A program with a development partner confirmed to provide ongoing ‘green shipping’.
Three years of financial data to support achievements listed above upon which a decision can be made for the most appropriate level of subsidy and management structure.
The diseconomies of providing shipping services to small populations over large distances is at the core of the issues that afflict domestic shipping in the Cook Islands. Large distances mean the cost of providing services are high, while small populations result in low demand making it difficult for an operator to break even, let alone make a profit.
Government reinstituted a shipping program in 2018 subsidizing operational costs to existing private sector shipping companies to reduce freight and passenger costs. A similar program had been discontinued in 1987. While the subsidy program has had some success, it has not resulted in the level of service required to sustain and revitalise outer island communities.
This operating environment coupled with high capital costs makes providing private shipping services unattractive. This in-turn, limits the number of operators willing to provide shipping services. This is the case in the Cook Islands, where a small number of shipping operators, facing significant challenges to operate profitably, have sought to reduce costs and increase revenue through:
The use of older repurposed vessels that are cost effective but less suited to domestic shipping.
foregoing necessary maintenance leading to safety and compliance issues.
irregular services, with voyages being delayed until filled with a commercially viable cargo.
charging high prices to recoup the costs of unprofitable services
With high costs on all goods in the Pa Enua impacting on cost of living and a major hurdle to any economic development, a government fleet will be operated on a cost recovery and subsidy model forfeiting a profit margin to manage operational and freight costs.
Negotiations continue with both Japan and People’s Republic of China (PRC) for the provision of suitable ships for domestic service. First delivery is anticipated in September 2024.
If you want to view the Cook Islands Domestic Shipping Roadmap, please CLICK HERE.
For more information, please email our MFEM Communications Team on mfem.comms@cookislands.gov.ck our team will be happy to assist.
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31 January 2024
