ITF against cartels
The International Transport Forum has published a report in which it presents its arguments against extending the EU’s cartel law exemption for shipping alliances.
They are frequently considered a given these days, the major container shipping line alliances – be they 2M (Maersk and MSC), the Ocean Alliance (Cosco, CMA CGM, Evergreen and OOCL), or The Alliance (Hapag-Lloyd, Yang Ming and ONE). Together they provide transport capacities amounting to 17.8 million teu.
They are allowed to enter into cooperation agreements for the joint provision of maritime goods transport services on account of the European Commission’s block exemption regulation (BER) for maritime shipping consortia, which states, in line with article 101 of the Treaty on the functioning of the European Union (previously the Treaty of Rome), that shipping lines with a cumulative market share of less than 30% are exempt from the prohibition of cartel agreements. However, the BER is only set to remain in place through to April 2020. The sword of Damocles is thus hovering over the industry.
Global alliances dominate the market
The ITF has now taken the opportunity presented by the European Commission’s planned revision of the shipping industry’s BER to analyse the impact of alliances, publishing a report on the matter in November 2018. Authors Olaf Merck, Lucie Kirstein and Filip Salamitov have underlined the fact that between them, 2M, the Ocean Alliance and The Alliance represent about 80% of the global container trade and operate around 95% of the shipping capacity on important east–west trade lanes. Cooperation agreements enable these shipping lines to purchase and operate ULCVs. Without said cooperation deals, this would simply not have been possible for some lines.
Ordering large vessels, in turn, fans overcapacities. On top of this, maritime transport’s offerings were standardised, and carriers’ options of differentiating their services were restricted. Over and above this, the alliances’ structure is said to have reduced shippers’ options, with lower frequencies, less direct port-to-port links, declining adherence to schedules and longer waiting periods also contributing to worsening service levels. Overall, the authors state, this lead to longer transit times and delivery uncertainties for various shippers, which in turn resulted in higher inventory and reserve costs.
Furthermore, the authors state that alliances are naturally unstable. As every large shipping line is in such a coalition, change in one can have an effect on the entire industry. On top of this the alliances contribute to the shifting of large volumes of goods if a port is changed. Destructive competition between terminal operators and strong pressure on publicly-financed improvements to the infrastructure for ULCVs could be one result. These outlays often prove uneconomical, however.
Call to end the BER
The ITF’s analysis has lead it to three recommendations. Abrogate the ship-specific group exemption; improve project evaluation processes for port and hinterland infrastructure, with joint principles for port pricing; and establish coherent port guidelines, in order to reduce the risk of creating overcapacities. If the commission were not to extend the BER then, the ITF believes, this would probably not end existing or future alliances. In individual cases they could still be authorised under competition law. However, according to the report it would ensure the more intense examination of individual alliances and prevent anti-competitive behaviour in the industry.