Bailing to Stay Afloat

Ocean container lines have certainly felt the effects of the global economic downturn. They have responded with various cost-cutting measures, including idling capacity and expanding vessel sharing to reduce capacity in over-served trades. Some of the large ocean carriers may now be turning to the governments in their home countries for financial support, and this has at least one group upset.

Germany's Hapag-Lloyd will receive €1.2 billion ($1.8 billion) in state guarantees and French CMA CGM is reportedly in talks to restructure its debt and could be in line to receive funding from the French Strategic Investment Fund. Bloomberg News pointed out that Israel's Zim and Chile's CSAV and CCNI have either received funds or are restructuring. But, industry sources agree that what makes the cases of Hapag-Lloyd and CMA CGM significant is their size. Hapag-Lloyd is the sixth largest liner company and CMA CGM is the world's third largest.

Subsidies or government support of the carriers will continue the supply imbalance which, says Transport Intelligence, will “amplify the structural problems of the container sector.”

A vocal opponent is the Danish Shipowners Association which is protesting support for the shipping lines. “The Danish Shipowners' Association advocates free international trade and unhindered access to the shipping markets,” says the group's annual report. “Generally, international shipping is characterized by free and fair competition,” it continues.

The Danish Shipowners Association had commented on a European Union strategy document which stated, the European Commission would “focus on ensuring the industry’s competitiveness” and would “work actively to ensure that the financial crisis does not lead to protectionism, which will affect world trade negatively.”

Transport Intelligence concluded, “It might be logical to ask if the effect of such behavior [which forestalls industry consolidation] would be the creation of 'zombie' shipping companies, operating far more capacity than they can operate economically.”

Speaking before a conference on state aid, Neelie Kroes, European Commissioner for Competition Policy, urged private enforcement of rules limiting aid. “If anything, the current crisis has highlighted even more how important an effective control of state aid actually is,” said Kroes.

“Courts are in charge of protecting competitors affected by illegal aid,” noted Kroes. “And because they are 'close to home,' they can sometimes do this better and faster than we [at the European Commission level] could. The Commission's powers to act against illegal aid on an interim basis are limited. In fact, they are so limited that we rarely get to use them.”

Kroes added, “I am especially concerned that some judges still do not acknowledge that national courts have a role in making state aid control more effective.”

As Kroes noted, many of the cases involving illegal aid are not about fighting to stop the aid but about receiving equal treatment. That is, companies harmed by a competitor receiving state aid more often seek to be included in similar aid packages, not to stop their competitor from receiving aid.

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