Competition in European Liner Shipping Industry

The anti-trust exemption from European Commission Treaty competition rules for liner shipping conferences has been under fire. For over a decade, discussion ensued, until real action toward more open competition began in March 2003 with an official Consultation Paper being published. That was followed more than a year later by an official White Paper on the topic. After yet another year, on December 14, 2005, the EC adopted a legislative proposal calling for repeal of the law. The European Parliament then issued a report on the matter in July 2006. Shipping market de-regulation recognized that freight volumes would be expected to continue growth—inbound and outbound—for Europe, as well as for the world.

In the United States today, the Federal Maritime Commission and members of Congress are evaluating how the several laws covering aspects of shipping conferences respond to the increasing volumes of ocean container trade. They are asking how shipping will be regulated for U.S. trade lanes, considering that those to Europe at least are deregulated. The U.S. laws date back nearly a century. The economics of shipping could benefit from alignment across the globe for an industry that is increasing in importance with the ocean container share of world trade (in tons) doubling between 1995 and 2010, and more than doubling in value terms.

On November 10, 2005, the European Commission—having contracted Global Insight to carry out an economic assessment of the abolition of the block exemption from anti-trust for conferences, leading up to the European repeal—published the study on regulations of liner shipping conferences. The projected impact that repeal would be expected to have in the future was developed with Berlin University of Technology and the Institute of Shipping Economics and Logistics in Bremen. Findings from this work formed a basis for repeal. The end to liner carriers' exemptions eliminates their ability for European trade lanes to meet as conferences, fix prices, and regulate capacities effective October 18, 2008.

Who's Onboard

Shipping companies have been operating through conferences for over 120 years. Companies in conferences agree to common or uniform freight rates, in return for ensuring regular-scheduled maritime transport services for goods transport. The liner conference rules and regulations have allowed shipping companies to agree to fix the tariff prices and charges for transporting goods among themselves. They had for some years been prohibited from fixing actual contract prices jointly. That effectively negated the joint pricing of sea freight capability of the conferences, while surcharges and setting additional fees in concert were allowed. After deregulation, carriers will individually offer services either:

• directly providing service prices
• offering cost-plus structure;
• agreeing to discount approaches

Each will be a valid alternative to conference established rates.

Carriers operating in alliances and joint vessel sharing agreements are still allowed to co-operate extensively under what are called consortia block exemption regulations, generally applicable to operational relationships for improving efficiencies.

The European Shippers Council (ESC) represents over 100,000 exporting companies. These firms generate approximately 90% of EU's international maritime traffic. The group has been calling for reform and deregulation of the industry, and has taken the position that any replacement regime for liner conferences is unnecessary. They are on the doorstep of significant changes in their own administration and management of carrier negotiations, rates, and charges.

Promoting fair dissemination of useful industry information promotes efficiency in any industry. The European Liner Affairs Association (ELAA) proposed a replacement information exchange system for the Block Exemption Regulation 4056/86. The liner trade association, among its goals, seeks to further legitimate industry advocacy activities. Global Insight reviewed the association's approach and concluded The ELAA Proposal for a New Regulatory Framework for the Liner Shipping Industry on its face would have been sub-optimal. The set-up and procedural structuring for the described system appeared to constitute an “invitation to collude” between liner shipping carriers. That response to the European Commission's Directorate-General Competition was seen as potentially detrimental to ocean liner service users and final consumers. Now, as a trade association, the ELAA will continue to have an important information exchange role.

The Horizon Ahead

The main findings of the potential economic impacts from repealing the liner conference block exemption are:

• Moderate relative rate declines for liner shipping services
• Service reliability on deep sea and short sea trades is expected to improve
• Service quality will be unaffected, or prospectively could improve
• There will be a positive impact or at least no impact on the competitiveness of EU liner shipping firms
• Small liner shipping carriers will not experience particular problems
• No negative impacts and possibly positive impacts may result for employment, trade, developing countries and EU ports

These conclusions take into account several independent studies undertaken to establish the impact of the repeal of the block exemption.

Other existing co-operation structures and regulations continuing in force and effect are seen to result in the continuation of reliable liner services. Groups of shipping lines for the European market in distinctly defined operating consortia and alliances will continue to exist. The European business organization Union of Industrial and Employers’ Confederations of Europe (UNICE) representing 20 million businesses, the 19,000-member companies represented through the European freight forwarders’ association (CLECAT) and others have backed this position. The DG Competition is reviewing the block exemption for Consortia for when the current agreement comes up for review in 2010. They are pre-disposed to allow it for another five years, but with some changes that may be detrimental to the carriers as well as consumers.

A repeal of the block exemption will bring about substantial economic and commercial benefits to global industry and consumers, in the EU in particular. Transport prices, reliability of liner shipping services, competitiveness of the EU liner shipping industry, and small EU liner carriers are anticipated to see benefits. Regardless of these factors, trade will be driven by commodity trade prices, exchange rates, and transportation costs. The repeal of the block exemption is expected to contribute in economic development terms to the EU Lisbon objectives. The EU regulatory environment has been carefully considered. Implementation of deregulated shipping is for carriers, shippers, and the consumer. The efforts are intended to help Europe achieve its goal to "become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion."