A union is demanding the Federal Government and aluminium producer Alcoa revoke a decision to allow a foreign-crewed ship to move cargo from its refineries in Western Australia to its smelter in Victoria.

The maritime union is threatening federal court action over the Department of Infrastructure and Regional Development decision to grant Alcoa a temporary licence last month to allow a foreign crew to do the work.

Alcoa plans to sell the ageing ship MV Portland and use a foreign-manned vessel between Bunbury and Kwinana and Portland.

Australian Council of Trade Unions (ACTU) president Ged Kearney said the Federal Government had effectively rubber stamped the company's request to sack 40 Australian seafarers and replace them with foreign labour.

"Those workers will be left high and dry, they will have no job," she said.

"The Government has given Alcoa a licence to sack the entire workforce in that workplace and replace them with exploitable, vulnerable and ultimately cheaper overseas workers."

A leaked Alcoa communique said the ship needed significant investment to stay operational and the move to a foreign-crewed vessel would slash the company's shipping costs by millions.

"Transporting alumina from Western Australia to Victoria using a foreign flag vessel will reduce Portland Aluminium's shipping costs by approximately A$7 million per annum," the document said.

MV Portland's crew is employed by the shipping management company ASP, not Alcoa.

Company focused on reducing costs

An Alcoa spokesman said the global aluminium industry was facing challenging market conditions.

"In Australia, our focus is on reducing operating costs and improving productivity to help all our facilities remain internationally competitive," he said.

"Decommissioning the MV Portland is one of a number of cost saving measures being taken by Alcoa in an attempt to help protect approximately 700 direct jobs and many more indirect jobs associated with the Portland smelter."

A spokesman for Deputy Prime Minister Warren Truss, who heads the department, said Alcoa made a commercial decision to scrap the ship and no Australian licensed ships had sought to carry its cargo.

He said the move was not the result of a Senate committee examination of changes to the country's shipping laws - dubbed "WorkChoices on water" by the Federal Opposition.

Labor has warned the changes, which are designed to increase competition, would result in the disappearance of Australian flagged ships.