On Thursday it asked for comments on the current legal framework that exempts liner shipping consortia from EU antitrust rules that prohibit anticompetitive agreements between companies.
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 a press release that called for comments on the future regime for liner shipping consortia.
The EC explained consortia agreements renewed every five years and the current block exemption for liner shipping will expire on April 25, 2020.
The EC said it has “therefore launched a consultation seeking to collect views from stakeholders to assist the commission’s assessment of 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.”
In the past two years, the major liner carriers in the east-west trades have reorganized themselves into three space sharing alliances — the 2M Alliance of Maersk and MSC; the Ocean Alliance of CMA CGM, COSCO Shipping, OOCL (now 75 percent owned by COSCO) and Evergreen; and THE Alliance of Hapag-Lloyd, Ocean Network Express and Yang Ming.
Data from BlueWater Reporting shows that in the Asia-North Europe trade, the Ocean Alliance has a 40 percent share, the 2M Alliance a 32 percent share and THE Alliance a 26 percent share. In the North Europe-North America trade, Bluewater says the 2M Alliance has a 50 percent share, THE Alliance has a 30 percent share and the Ocean Alliance a 16 percent share.
While carriers share space on alliance ships they also compete vigorously with each other and the industry had an operating loss of more than $3 billion last year.
The European Commission said it is seeking the views of shipping companies, shippers, freight forwarders, port operators and their respective associations. Other interested parties include industry analysts, academics and law firms specializing in competition law and the maritime sector. It also said it will consult the competition authorities of the EU member states.
All stakeholders are invited to submit their views on the commission’s consultation website until Dec. 20.
In its most recent annual report, the Global Shippers Forum said, “The consequences of market concentration for shippers are fewer services to choose from and reduced competition.”
GSF said it “believes existing competition laws need to be reviewed in response to the changing nature of the container shipping market, and regulators may need to adapt or reform their competition and regulatory procedures to ensure that effective competition is maintained to the benefit of shippers and, ultimately, the consumers they serve.”
Carriers are subject to multiple and overlapping regulation regimes around the world. In the transatlantic trade, for example, they are subject to not only regulation by the EU competition authorities, but the Federal Maritime Commission in the U.S..
In testimony to the Subcommittee on Surface Transportation and Merchant Marine of the U.S. Senate Committee on Commerce, Science and Transportation this April, Acting Chairman of the Federal Maritime Commission Michael Khouri noted, “The ocean liner industry has been in a state of vessel oversupply for several years. The low freight rate structure in U.S. trade lanes is a direct reflection of that capacity supply/demand imbalance and American exporters and importers have been the beneficiary of those low freight rates.”
However, he cautioned, “Such supply imbalances will not last forever.”
Khouri said even after the consolidation in the liner shipping industry, neither the transatlantic nor transpacific trade lanes are concentrated when examined using a measure called the Herfindahl-Hirschman Index (HHI).
He noted in its merger guidelines, the Department of Justice’s antitrust division regards markets as not concentrated if the HHI is below 1,500. By that measure the HHI for the North Europe-U.S. trade is 1,179, for the Asia-U.S. West Coast 826, and for the Asia-U.S. East Coast 943. The HHI for the Mediterranean-U.S. trade is higher: 2,114.
Khouri said, “A reassuring data trend shows that even with the wave of mergers and acquisitions and new carrier alliance groupings, 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.”