Monitoring by the U.S. Federal Maritime Commission, however, shows individual ocean carriers within each vessel sharing alliance continue to “independently and vigorously compete on pricing,” according to Acting FMC Chairman Michael Khouri.
The European Shippers’ Council (ESC) is advocating for “a change of the European legislation to enable the European Commission to take a more proactive stance for protecting the EU market against monopolist tendencies,” the group said in a statement.
“In the EU, Directorate General for Competition (DG COMP) normally has to wait to react until a negative impact on the market can be proved,” ESC said. “If the legislation allows the EC to be more proactive, a precondition to apply this role properly would be, according to the Global Shippers’ Forum (GSF) and ESC, sharing detailed information with stakeholders (for instance, shippers). This would open up the opportunity for shippers and other market partners to comment on possible implications of the concentration in the market.
“Last but not least, maritime collaboration should be judged against the same criteria as mergers in the other areas than maritime field. ESC and GSF do not see any important reason to distinguish between the maritime mergers and mergers in the other sectors,” the group added.
Late last year, ESC helped promoted a GSF paper “The Implications of Mega-Ships and Alliances for Competition and Total Supply Chain Efficiency: An Economic Perspective” that recommended regulators “mitigate the possible implications for competition in key liner trades arising from a reduced pool of competing carriers.”
“Shippers fear that the contraction of the shipping market into a very small number of tightly knit alliances, and the use of much larger vessels will reduce their choice of carrier and the quality of the services delivered as carriers operating within such arrangements cannot compete amongst themselves with regard to the agreed capacity, sailing frequency, transit times, ports of call and service level,” GSF and ESC said at the time.
To support its argument, ESC cited the announcement by the U.S. Federal Maritime Commission on May 2 that it had voted to reject a Joint Service Agreement by Japan’s three major container shipping carriers – NYK, MOL and “K” Line – on “jurisdictional grounds” because the three carriers “were ultimately establishing a merged, new business entity and that action is among the type of agreements excluded [by express provision of the Shipping Act] from FMC review.”
But Acting Chairman Michael Khouri has complained the FMC rejection was misreported, noting that the commission “made no determination of any kind regarding the agreement parties’ commercial activities regarding their compliance with the general antitrust laws that are administered by other federal agencies.”
In testimony to the the U.S. Senate Committee on Commerce, Science, Transportation Subcommittee on Surface Transportation and Merchant Marine Infrastucture, Safety and Security earlier this month, Khouri said FMC monitoring “shows us that the individual ocean carriers within each alliance continue to independently and vigorously compete on pricing. Further, individual ocean carriers within the alliances continue to add and withdraw vessels from trades both inside and outside the alliances in which they participate, demonstrating that competition remains in both vessel capacity decisions and pricing decisions within the alliances.
“Finally, these joint ventures provide ocean carriers with flexibility and may facilitate the survival of independent companies, preserving competition and averting further industry concentration. The interests of the American shipping public and the American consumer will not be well served if carrier consolidations ultimately result in only a handful of mega-carriers remaining to transporting the nation’s cargo,” he said.
“Clearly, the industry is entering a new era and it is not surprising that some question whether ocean carriers will move into a position to exert some level of market power on freight rates,” added Khouri. But “by all economic benchmarks used by the Department of Justice (DOJ), the Federal Trade Commission (FTC), and the FMC, the ocean liner marketplace is not concentrated.”
“Concentration is assessed using the Herfindahl-Herschman Index (HHI),” he explained. “The greater the degree of market concentration by virtue of fewer competitors, then the HHI rises. In DOJ’s merger guidelines, their Antitrust Division regards markets as not concentrated if the HHI is below 1,500. Following the last ocean common carrier merger, the HHI for the container shipping industry in the international U.S. trades today is 752, far down into the ‘safe harbor’ area.”
European shippers seek more ‘proactive’ carrier regulation
