Maritime's antitrust immunity is coming to an end

The European Union Commission has determined that the positive effects of anti-trust immunity granted to ocean carriers in allowing the formation of liner conferences no longer outweigh its negative effects. Competition rules require not only that restrictive agreements such as liner conferences have predominantly positive effects, but a "fair share of these benefits [must] be passed on to consumers."

The Belgian Association of Multimodal Shippers (OTM) (www.otmbe.org), representing over 300 shippers, notes major shipper members prefer to negotiate directly with several carriers to protect themselves on market price while not committing set amounts of cargo to specific carriers.

The Consumers' Association (www.which.net), which with over 600,000 members claims to be the largest private consumer organization in Europe, is more severe in its criticism of the antitrust exemption. "We have never seen a more unbalanced and iniquitous block exemption than the one currently under review in the shipping sector," its statement says in part. The association points to the importance ocean shipping has for consumers through its impact on the cost and availability of traded goods.

The OTM notes that larger shippers generally want to negotiate directly with carriers without committing on volumes. Smaller shippers will use forwarders or non-vessel-operating common carriers (NVOCCs) which will negotiate directly with carriers, often jointly with other transportation intermediaries. Those forwarders and NVOCCs may also use conferences, the Belgian group notes.

On the carrier side, conferences are often reluctant to make long-term agreements when market prices are increasing. A common timeframe for an ocean agreement is "current month plus two."

Touching on one of the major issues shippers have with conferences, the Belgian shipper group notes, "Surcharges are very difficult to avoid or negotiate because most of the lines assume that they can negotiate their shipping rates but not the surcharges imposed by the conferences they are a member of." Forwarders, NVOCCs and other agents compensated on a commission basis pointed out conferences tend to compensate on the rate and exclude surcharges from the commission. For that reason, conferences may negotiate on rates but will hold surcharges at their maximum.

Surcharges are plentiful and vary widely, the shippers say, including things like: war risk, congestion, special equipment, port charges, winter, overheight, fumigation, security, etc. The surcharges vary much more than rates, and the charges often cannot be passed through to customers, the OTM points out.

Conferences also have difficulty offering justification for surcharges, say the shippers. Often, one conference will be increasing surcharges in a trade while another is lowering its surcharges.

As one example, the Belgian shippers note that terminal handling charges in the North Atlantic are "not only higher than sea freight but, moreover, they are the same for all ports." This, says the group is, "economically a nonsense," because, for example, not all U.S. ports have the same labor rate or other costs.

Conference-set rate levels and surcharges are major sore spots for shippers. If conferences ceased to exist, would shippers see a need for some other form of cooperation between shipping lines?

"The only interest for shippers [in] discussions between lines is the service, organization of schedule and calls," say the Belgian shippers. If the conferences were to influence port authorities to improve their own service, it would be a value for shippers, but, says the OTM, if the conferences have had any success in this area, they haven't communicated that fact to shippers.

The European Shippers Council (ESC) (www.europeanshippers.com) adds that the price fixing and capacity management practices allowed under anti-trust immunity contribute to rate instability, mistrust between shippers and carriers, reduced incentives to improve efficiency, less differentiation between services (leading to less choice), and lack of transparency in costs. The ESC feels proposed "discussion agreements" are not substantially different from liner conferences and could encourage collaboration over rates and surcharges.

Legal challenges and "customer pressure for more tailored services" have helped to alter the conference structure, says the ESC. It points to the U.S. experience with the Ocean Shipping Reform Act (OSRA), which it says "has led to improvements on the U.S. trades by fostering a more competitive liner shipping industry through the use of confidential and individual service contracts."

Canada's wood, pulp and paper producers weighed in on the issue. A supporter of reform to Canada's Shipping Conferences Exemption Act, the Forest Products Association of Canada (FPAC) (www.fpac.ca) states, "At a time when countries are actively seeking more liberal trade arrangements with other countries... providers of transportation services such as liner conferences and their members should not be treated differently than those who purchase their services."

FPAC supports the position of the Organization of Economic Cooperation and Development (OECD) (www.oecd.org) in urging the elimination of immunity for price fixing and rate discussions but possibly allowing other operational arrangements to be discussed.

"We remain convinced that ocean carriers will seek out cargo if it can be carried at a profit," says David Church, director of transportation and recycling for the FPAC.

There appears to be little support for the European Liner Affairs Association's (www.elaa.net) proposed information exchange system that would facilitate data exchanges among liner companies.

As the EU Commission, U.S. Department of Justice and the South Korean competition authority launched a probe into airline price fixing in cargo surcharges, the message coming out of the EU seems to be a clear death knell for anti-trust immunity and less tolerance for behavior that smacks of collusion.

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