International Transport Federation says industry “does not have unique characteristics that justify exemptions from competition law.”
The International Transport Forum (ITF), which is part of the Organization of for Economic Cooperation and Development (OECD), says the “European Commission should carefully consider allowing the EU Consortia Block Exemption Regulation to expire in April 2020, as currently scheduled, rather than extending it.”
In a 127-page report issued Friday, ITF says, “Liner shipping does not have unique characteristics that justify exemptions from competition law, either for conferences or for alliances. In line with the global long-term trend to dismantle sector-specific exemptions from competition law and in line with OECD regulatory principles, generic antitrust rules should apply to all agreements between liner shipping companies, as for any other industry, with regard to the cooperation that is allowed. Countries where ‘conferences’ are still allowed should reconsider their position.”
The 2M, Ocean and THE alliances that the eight largest container carriers have grouped themselves into “have become a dominant feature of container shipping” and “represent around 80 percent of overall container trade and operate around 95 percent of the total ship capacity on east-west trade lanes, where the major containerized flows occur,” ITF says.
In September, the European Commission invited comments on the future regulation of liner shipping consortia.
EU law generally bans agreements between companies that restrict competition. However, the maritime Consortia Block Exemption Regulation allows, under certain conditions, shipping lines with a combined market share of below 30 percent to enter into cooperation agreements to provide joint cargo transport services.
“Where such consortia face sufficient competition, where they are not used to fix prices nor share the market, their users may benefit from improvements in productivity and service quality. They are therefore exempted from the prohibition of anticompetitive agreements in Article 101(1) of the Treaty on the Functioning of the European Union,” the EC said in September when it asked for comments on the future regime for liner shipping consortia.
Consortia agreements are renewed every five years and the current block exemption for liner shipping will expire on April 25, 2020.
The EC said it wanted input to help it assess “the impact and relevance of the Consortia Block Exemption Regulation and to provide evidence for determining whether it should be left to expire or prolonged, and if so, under which conditions.”
The ITF report issued Friday noted the alliances allow carriers to acquire mega-ships, reduce unit shipping costs and offer wider service coverage. But it said the alliances also have fueled overcapacity, made maritime transport more uniform and “limited the possibilities of carriers to differentiate themselves.
“Alliances have contributed to lower service frequencies, fewer direct port-to-port connections, declining schedule reliability and longer waiting times,” said ITF. “This has increased total transport times and delivery uncertainty for various shippers, leading to higher inventory and buffer costs. Moreover, alliances have proved to be inherently unstable: Considering that all major carriers are in alliances, changes in one alliance can have an impact on the whole sector.”
Responding to the report, the World Shipping Council, the primary trade organization for the liner shipping industry, said that the ITF’s “focus on major alliances with a recommendation regarding the EU consortia block exemption regulation demonstrates a fundamental misunderstanding of how the consortia block exemption works. Specifically, because of various aspects of the major alliances, they are subject to self-assessment by their members to ensure competition law compliance; the EU block exemption simply does not apply to these arrangements in most cases.”
It said ITF “essentially ignores” numerous vessel-sharing agreements that are not part of alliances, “which the EU block exemption regulation provides increased legal certainty, reduced compliance costs and greater ability to respond to market demands. The fact that the ITF paper calls for repeal of the EU consortia regulation based on a discussion of alliances that do not fall within that regulation, while the paper ignores the vessel-sharing arrangements that do fall within the regulation, makes the work ill-suited to the task for which it was apparently designed.”
However, the ITF said that “repeal of block exemptions is unlikely to result in the termination of current and future alliances, as these could still be authorized under competition law on a case-by-case basis. However, it would ensure greater scrutiny of individual alliances and thus more effectively deter any anticompetitive conduct in the sector. In order to maintain legal certainty, the European Commission could provide temporary guidelines on how to treat liner shipping in EU antitrust law. If the block exemption is extended, its scope should be limited, in particular by introducing a provision to consult maritime transport stakeholders and by excluding joint purchasing by alliances.”
The report discusses the effect of mega-ships on ports, noting, “Much of the investment required to upgrade ports to handle mega-ships is publicly funded, either directly or indirectly.”
“Demands from carriers for new facilities should be supported by enforceable commitments from their side to actually use these, to minimize the risk that publicly financed ports will be underused. In the European Union, this could be achieved by imposing stricter conditions on funding for port projects using EU funds and those of the European Investment Bank. This could form part of the conditions governing EU member states’ state aid for port infrastructure.”
The ITF said “adoption of common principles for port pricing — ideally at a global level but at least at regional level” could help to offset what it called the monopsony or buyer’s monopoly power of alliances and “support sound project analysis in cases where new facilities are proposed to accommodate mega-ships.”
ITF said, “Governments should define clearly which ports are expected to service mega-ships and which ports have different roles.
“Cooperation between ports also provides a potentially significant source of countervailing power in a context of the rapidly increasing concentration of the shipping industry resulting from the growth of liner shipping alliances. Various governments, such as those of the U.S., Japan and China, have facilitated such cooperation by stimulating mergers of public port authorities and allowing port alliances. Within ports, collaboration between terminals could improve the efficiency of the maritime supply chain, subject to the constraints of competition policy.”
ITF: Look at ending shipping competition protection
