Shipper organizations have begun to weigh in on a report released last week by the U.S. Federal Maritime Commission about the impacts from the European Commission’s 2008 repeal of an exemption for liner shipping companies from European Union competition law.
Peter Gatti, executive vice president of the National Industrial Transportation League, noted the study found no significant relative change in rate levels in the Asia-Europe and transpacific trades, and the repeal “didn’t result in the sky-is-falling scenario that that the carriers indicated when they were arguing against the repeal.”
Gatti thought the FMC staff that prepared the report did a good job, especially given the challenge they faced in having to sort out the effect, on one hand, of the change in regulation on shipping, and on the other, the global recession, during the period covered by the study, which ran through the end of 2010.
The report discussed shipping rate volatility, contrasting the Asia-Europe and transpacific trades. It said existence of a discussion agreement in a trade such as those that exist in the transpacific may have had some dampening effect on rate volatility. While discussion agreements are not allowed in the Europe-Asia trade because of the EC repeal, most major carriers belong to the Transpacific Stabilization Agreement in the eastbound trade between Asia and the United States and many also to belong to the Westbound Transpacific Stabilization Agreement.
But Gatti said shippers might call rate volatility by another name - “the ebbs and flows of a competitive marketplace.” He said greater volatility in the Asia-Europe trade might also reflect the large number of ships that were ordered before the recession, many of which can only be used in that trade because of their large size.
In 2009, hundreds of ships were laid up because of low demand and some analysts thought the industry lost $20 billion. After a highly profitable year for the industry in 2010, the worm turned again in late 2011, with Drewry estimating that losses for the industry to be at $5 billion.
The FMC’s finding that the repeal of the block antitrust exemption for container shipping on routes touching the European Union countries has “produced no commercial disadvantages to U.S. shippers," despite the global financial crisis, “accords with European shippers' experience,” said Chris Welsh, secretary general of the Global Shippers' Forum.
“The market has continued to work well, in particular in fostering a less adversarial climate with much healthier commercial relationships emerging as a result, particularly in developing longer term partnerships, and along with it more sophisticated logistics contracts,” he said.
Welsh added “that view has certainly been supported by some leading shipping lines such as Maersk, where Eivind Kolding has indicated their liking of the new EU regulatory environment. Overall, European shippers have reported enjoying a competitive and flexible market.”
The European Shippers Council headlined comments on the FMC report that it released on Wednesday: “Now is the time to remove anti-trust block exemptions for shipping lines around the world.” It said the overall impression gained by reading the FMC report was ”maintaining the status quo in the U.S. regulatory field would be the best option for all parties.”
The ESC has published on its Website an assessment of the key findings of the FMC report, and said it had some criticisms, particularly “its failure to recognize the greater transparency and potential negotiability which now exists of fuel surcharges (BAFs) and Terminal Handling Charges (THCs) following the regulatory repeal.”
It also focused attention on the discussion of rate volatility, echoing the concerns of the NIT League.
"The FMC seems to have underestimated some of the market differences between the Asia-Europe trades and those of the Asia-Pacific,” said Jean-Louis Cambon, chairman of the ESC's Maritime Transport Council.
“For example, the higher rate volatility on the former trades is heavily influenced by the increasingly larger ships plying the trades, which cannot be shifted to other routes, and which have added to the scramble for market share to fill the excess capacity which exists under the current economic climate. The higher prevalence and influence of the spot market in Europe-Asia trades is also in part responsible for some of the rate volatility," he said.
ESC said “recent alliance developments do reflect a more mature response from the industry, showing a mindset more concerned with cost reduction, efficiencies and service quality.”
But the European shippers group said it was “not complacent about these developments, and believes a close watch be maintained on the larger alliances to ensure there is no infringement of normal business conduct. There are mechanisms for removing volatility, and one of the best is to enter into longer term contracts which removes the short term unpredictability from the rates."
In late 2010 former U.S. Rep. James L. Oberstar introduced a bill to remove antitrust immunity for the liner industry in the U.S. trades.
According to congressional staffers, it's unlikely any such legislation would be introduced until after the release of the FMC report, Gatti said. But he said it was not clear if release of the report would spark interest by any member of Congress in sponsoring similar legislation this year, given other priorities including issues having to do with surface transportation. — Chris Dupin