The World Shipping Council and three other shipowner groups tell the European Commission consortia block exemption for liner shipping should be extended.
The World Shipping Council, the main trade association for the liner shipping industry, and three other major shipowner groups submitted comments to the European Commission supporting extension of the EU consortia block exemption regulation for an additional five years beyond its current expiration date in April 2020.
The World Shipping Council was joined by the European Community Shipowners’ Associations (ECSA), the International Chamber of Shipping (ICS) and the Asian Shipowners’ Association (ASA) in submitting comments to the EC’s Directorate-General for Competition (DG COMP).
John Butler, president and chief executive officer of the World Shipping Council, summarized the industry’s position this way: “The bottom line is that the BER (block exemption regulation) has worked very well for almost 25 years. It sets out clear rules that can be practically applied without the need for extensive legal analysis. This means that carriers can focus on seeking the most efficient transportation solutions without the cost and delay associated with legal self-assessment for these routine operational arrangements.”
When the European Commission last renewed the block exemption regulation in 2014, it explained it “allows shipping lines with a combined market share of below 30 percent to enter into cooperation agreements to provide joint cargo transport services (so-called consortia). Such agreements usually allow liner shipping carriers to rationalize their activities and achieve economies of scale. If consortia face sufficient competition and are not used to fix prices or share the market, users of services provided by consortia are usually able to benefit from improvements in productivity and service quality.”
In a conversation with American Shipper, Butler explained that 30 percent threshold can be viewed as providing a “safe harbor” for cooperation agreements below that level. It does not mean that agreements with a higher market share violate the law, but European regulation requires companies to do a self assessment to make sure that they are complying with European antitrust law.
The liner industry has undergone a wave of mergers between container shipping companies. At the same time, most of the major liner companies are members of one of three major vessel-sharing agreements or alliances that control most of the capacity on the three major east-west trade lanes — the transatlantic, Asia-Europe and transpacific. The three major alliances are: the 2M agreement between Maersk and MSC that also shares space with Hyundai Merchant Marine; the Ocean Alliance of CMA CGM, COSCO/OOCL and Evergreen; THE Alliance between Hapag-Lloyd and Yang Ming; and the joint venture between three Japanese carriers NYK, MOL and “K” Line called Ocean Network Express.
World Shipping Council and the other shipowner groups told the EC “the level of consolidation in the liner shipping industry should not be overstated.”
“Despite recent mergers in the liner industry, the industry remains unconcentrated and highly competitive, with freight rates at half of their levels twenty years ago,” they say.
A report from RBB Economics submitted by the shipping companies said, “Maersk, the largest carrier, has only 17.7 percent of global fleet capacity; MSC, CMA CGM and COSCO individually have less than 15 percent of total fleet capacity; and the fifth biggest carrier, Hapag-Lloyd, has less than 10 percent. Combined, this ‘top five’ have less than 65 percent of the world’s fleet capacity.”
The same report says that while the 2M Alliance, Ocean Alliance and THE Alliance have market shares of 35.8 percent, 36 percent and 25.5 percent, respectively, in the Far East-Asia trade lane, and 25.9 percent, 13.3 percent and 20.1 percent in the Europe-North America trade lane, “other trades are much less concentrated.”
The associations say vessel-sharing arrangements such as the three major global alliances and smaller VSAs on other trades “are a fundamental part of the structure of the global liner shipping transportation network.”
“In addition to supporting operational efficiency and broader service offerings, the BER helps carriers reduce air emissions and greenhouse gases through higher utilization of vessel space.
They argue the EC consortia block exemption regulation since 1995 has “provided transparent and practical legal guidance to vessel sharing arrangements for international liner shipping services operating from and to EU ports.”
Martin Dorsman, secretary general of ECSA, said, “A lot has changed in our industry in the past five years, but the fact is that there is still fierce competition among carriers. The purely operational agreements covered by the BER foster competition by lowering barriers to entry and enabling carriers to compete on more routes.”
Guy Platten, secretary general of ICS, says in order to meet greenhouse gas reduction targets established by the International Maritime Organization and supported by the European, “We will need to use every available tool to increase efficiency, and the BER supports vessel sharing that is a key tool for the liner sector to reduce its fuel burn and therefore reduce its emissions.”
Ang Chin Eng, secretary general of the Asian Shipowners’ Association, noted, “Many Asian economies/countries have legal regimes that treat liner shipping consortia in the same competitive manner as the EU. It is in the interest of international trade that policies and laws are aligned globally at both ends of the trade route which will provide clear guidance for international shipping.”
James Hookham, the secretary general of the Global Shippers Forum, a group that represents the customers of liner shipping companies and other transportation providers, said his organization believes the “block exemption regulation in its current form has run its course and should be revoked or not renewed.”
He said there have been dramatic changes “in market shape and structure, the size of vessels, the pattern of service, the quality of service” since the block exemption was last renewed. Instead of renewing current regulatory regime, the EC should look at “replacement with a new arrangement agreed and designed and one which is fit for the next five years, because it certainly cannot be served by what has been there for the previous five years.”
He said GSF recognizes there could be benefits to allowing continued space sharing agreement by carriers.
“The point we’re making is actually shippers aren’t happy mainly because of the deterioration of service quality. But then from what we see neither are the shipping lines. They keep saying they aren’t making any money; they keep telling us they’re needing to refinance because of the high cost of the very large vessels they are operating; they keep telling us they have some very challenging issues there arising from low sulfur fuel, arising from other changes in the industry. We just think there’s a bigger discussion to be had with regulators, with the shipping industry and their customers.
“We are not looking to push the industry off a cliff edge,” he said. “But we don’t believe the current block exemption regulation is working for shippers benefit.”
Industry urges Europe to extend antitrust protection
