Commentary: Shippers can form alliances too

Now that the European Shippers’ Council (ESC) has rejoined the Global Shippers’ Forum, ESC Chairman Denis Choumert is hopeful the Asian Shippers’ Association and other Asian shipper groups will work with the forum to address concerns.

   The increased use of mega-vessels and widespread consolidation seen in the container shipping industry last year has alarmed some shippers, as highlighted by a report issued by the Global Shippers’ Forum (GSF) in November. GSF members include the National Industrial Transportation League in the United States, and the Freight Management Association of Canada (FMA).
   Last year saw CMA CGM acquire APL, COSCO and China Shipping merge, Hapag-Lloyd announce plans to combine with UASC, Maersk agree to purchase Hamburg Süd, and the three largest Japanese carriers – NYK, MOL and “K” Line – join forces to form a container shipping joint venture that will begin operations in early 2018.
   “The growth of mega-ships has been a major driver for the growth, and consolidation, of the four global alliances,” said GSF. “Vessel size has reduced fixed costs for the carriers but accentuated the external costs (negative externalities) for other players such as shippers and ports.”
   And those four major global container carrier alliances in the east-west trades are scheduled to be reduced to just three this April: the 2M Alliance of Maersk and MSC (and slot taker Hyundai Merchant Marine); the OCEAN Alliance of CMA CGM, COSCO, Evergreen and OOCL; and THE Alliance of Hapag Lloyd, Yang Ming, and the three Japanese carriers.
   “It appears that the carriers have created a situation for themselves in which consolidation or participation in vessel sharing agreements (VSAs) may be an actual requirement in order to survive,” said Don Pisano, the president of American Coffee Corp. and chairman of the ocean transportation committee of the NIT League. “These developments underscore the continuing need for the Federal Maritime Commission (FMC) and other regulatory authorities around the world to play their vital roles in ensuring that any mergers or VSA participation continues to support a competitive market and adequate carrier choices for shippers.”
   “Strategic alliances should be the main area of focus for the European Commission and other competition and regulatory authorities worldwide,” contends GSF. “In particular, the competition authorities will wish to ensure that history is not repeating itself with strategic alliances replacing liner conferences as the vehicles for elimination of effective competition on the main global trade routes, as the alliance members seek to minimize competition from independent shipping lines outside the alliances by linking up with them through consortia agreements.”
   The European Union historically had sector-specific legislation and guidance for ocean shipping, including the block exemption for liner conferences, but that changed in October 2008. Today, general EU competition rules apply, with a block exemption for certain consortia agreements.
   GSF argues that although these agreements “may encourage efficiencies through operational cooperation, they also may take advantage of the excessive scope for competition restrictions in key areas of competition such as capacity, sailing schedules and ports of call permitted under the relevant regulation applicable worldwide.”
   Shippers believe the EU consortia regulation should be repealed or substantially modified, and that toleration of discussion agreements in the U.S. should be terminated, according to GSF. Former U.S. Rep. James L. Oberstar in 2010 introduced legislation that would have removed anti-trust immunity for the liner industry in the U.S. trades, but the bill failed to move forward.
   Interestingly, Japan’s “Big 3” carriers have all dropped out of the most powerful discussion agreement in the U.S., the Transpacific Stabilization Agreement (TSA). MOL left the TSA in 2008, citing the EU’s abolition of liner anti-trust immunity, and saying it had “become extremely difficult to align the business processes of our entire organization when its regional divisions must operate to differing standards.” NYK and “K” Line left the TSA in November and August of last year, but did not explain why.
   In addition to the NIT League and the FMA, the GSF report was endorsed by European Shippers’ Council (ESC) and shipper groups in the United Kingdom, Switzerland, Australia, New Zealand, South Korea, Sri Lanka and Africa. And in addition to endorsing the report, the ESC has rejoined the GSF, according to Denis Choumert, the council’s chairman.
   That’s a significant move. The NIT League, ESC and Japan Shippers’ Council had a long period of informal cooperation as the Tripartite Shippers Group dating back to 1994. Joined by the Canadians and the Asia Shippers’ Council (ASC), they formed the GSF in 2006, in large part to give shippers a voice at groups like the UN’s International Maritime Organization (IMO).
   While GSF has added members from around the world, disagreements between the U.K.’s Freight Transport Association and ESC about representation in Brussels led to the ESC’s departure, and ASC left over issues having to do with membership, the structure of the group, and financing.
   When the IMO debated the requirement that shippers provide a “verified gross mass” of containers before they were loaded on ships, GSF supported the rule, while the ESC and ASC opposed it.
   ESC and a group of Asian shippers, now calling themselves the Asian Shippers Association (ASA), linked up with the American Association of Exporters and Importers (AAEI) in 2015 to form a group called the Global Shippers Alliance.
   Choumert said those groups have been working on issues having to do with trade facilitation and surcharges in Asian ports, which have been a major concern of Asian shippers.
   Now that ESC has rejoined GSF, he is hopeful that the ASA and other Asian shipper groups will work with the forum to address the concerns they have raised about alliances and carrier consolidation as well.