The Senate has sunk government plans to open up Australia's port-to-port shipping industry to more foreign-flagged vessels – many of which are crewed by sailors paid as little as $2 an hour.

The relatively obscure Shipping Legislation Amendment Bill made headlines in September when cruise operator Bill Milby revealed he had been advised by public officials to sack his entire Australian crew and replace them with lower-cost foreign workers ahead of the government's proposed reforms.

Fairfax Media revealed research in September that forecast that just 88 of the 1177 people employed as domestic seafarers in Australian coastal waters would keep their jobs if the controversial bill was enacted.

The government had argued that changes made by the former Labor government, at the "behest" of the Maritime Union, had shrunk the coastal shipping industry further.