Dutch lawyer August J. Braakman writes for Splash on how the liner trades are changing.
During the past decade the global market of containerised liner shipping services has been subject to fundamental transformations. This is due to the ever-increasing use of business intelligence and analytics (BI&A) systems, which store and process Big Data. The technology has resulted in core container service and logistics no longer being incompatible businesses. This development has induced lines to revisit their strategic and commercial policies.
Big Data and the ensuing BI&A systems have convinced Maersk and CMA CGM to all but bet their undertakings on the shift to global end-to-end services. Therefore, they will continue to invest in the creation and improvement of BI&A systems that govern the entire logistics chain of these services and, where possible, will protect these systems and their improvements by IP rights. Maersk has entered into a joint venture with IBM for this purpose. The new company, TradeLens, owned 51% by Maersk and 49% by IBM, provides a platform connecting all actors that implement a stage of the global end-to-end services.
More than 100 players have joined, 53 of who are terminals, while another 30 are currently in the process of joining. Most importantly, 6 of the world’s largest lines now support TradeLens, including MSC, CMA CGM and Japan’s ONE. Together, these lines have a capacity equivalent to more than a third of the world-capacity. Only COSCO has not joined. TradeLens will help companies move and track goods digitally across borders. To that end, the platform will allow participants to share information and ease collaboration across the shipping industry’s supply chain.
TradeLens is a profit-orientated business. Its goal is to “become a new source of income”, Maersk’s CEO Søren Skou said during a press meeting in connection with the presentation of the company’s half-year interim report on 15 August 2019.
Parallel to its support of TradeLens, on 16 April 2019 CMA CGM acquired 97.89% of the outstanding shares and voting rights of CEVA Logistics. Further-more, CMA CGM entered into a joint venture with COSCO Shipping Lines, COSCO Shipping Ports, Hapag-Lloyd, Hutchison Ports, OOCL, Port of Qingdao, PSA International and Shanghai International Port Group. The joint venture bearing the name of Global Shipping Business Network (GSBN) is a non-profit organisa-tion that aims at accelerating the digital transformation of the shipping industry.
BI&A systems lie at the heart of this transformation. They provoke a move from supply chain models to commodity-driven logistics solutions. They enable a line to provide end-to-end services by linking ports and terminals, customs authorities, shipping lines, third-party logistics, inland transportation, shippers and other actors, all together.
BI&A systems require an absolutely rigorous coordination of the organi-sational decision processes in the entire logistics chain of the services. It is imperative that the BI&A system which a line uses for governing these processes and the computer programs used by the actors it engages are semantically interoperable in order for all exchanged data to be automatically interpreted in a meaningful and accurate way. The ensuing need for close cooperation between all actors will increase the already cutthroat competition between lines.
However, the buck does not stop there. It is the line that determines the port-of-call; not policymakers or regulators. The same goes for determination of a container marine terminal operator. Therefore, ports-of-call and terminal operators will be drawn into the dynamics and limitations of current and anticipated events. As global end-to-end services oblige a line to transport the containerised cargo to the inland destination, the same goes for providers of inland services like trucking companies, railroads, warehouses and so on.
The prerequisite for lines to offer containerised liner shipping global end-to-end services is a common foundation for technical interfaces and data. To that end, common information technology standards should be developed. MSC has taken the initiative by establishing a standard-setting organisation (SSO): the Digital Container Shipping Association (DCSA).
DCSA is a neutral non-profit organisation for ocean carriers. Its purpose is to pave the way for digitalisation and standardisation in the industry. Having been notified to the U.S. Federal Maritime Commission (FMC) and having been given approval by the FMC in March 2019, DSCA was officially established in Amsterdam, the Netherlands on 19 April 2019.
The current DCSA standards have been and will be further developed and managed by lines exclusively. Other actors had and will have no say in the development of the underlying technology. This will increase their dependence, particularly if new standards are developed in which valuable data and processes have been encoded that were used in standards that governed previous services. If the latter standards had defects and quirks and/or technical limitations, all actors will be obliged to replicate them in order to maintain interoperability.
As this pattern may reassert itself, the market will not be inclined to switch to alternative standards that are developed by new forms of industry actors.
Antitrust concerns may emerge from the need for these new actors to have access to the technical data underlying the DCSA standards in order to be able to research and develop new standards that – by virtue of their characte-ristics, prices and intended use – are interchangeable and substitutable. Particularly if the DCSA standards are protected by IP-rights, lines may prevent access by demanding unreasonable royalties or exorbitant licensing terms. Such conduct is often called “patent holdup”.
In case it can be established that a patent holdup has the object or effect of preventing new forms of industry actors from entering the market, this may have severe antitrust implications. These implications will be fostered in a situation where DCSA standards cover topics outside the legitimate standard-setting activity. This may well be the case. Containerised liner shipping global end-to-end services have far-reaching impacts on the whole maritime industry and its stakeholders.
Therefore, an exclusion of new forms of industry actors could easily extend to the entire industry.
The seriousness of the antitrust implications, which may emerge, can be measured and understood by looking at the identity and number of new forms of industry actors that over the past few years have been offering high-level technologies for optimising ship operations. Companies such as Eniram Oy and ABB are pioneers in this field. In addition, sophisticated software produced by companies such as Laros and GreenStream have paved the way for the growing ship data market. Also Ericsson has increased its focus on the shipping sector. It has collaborated with Cobham Satcom to enter the market and signed a strategic agreement with Inmarsat to promote data sharing in the maritime industry. Last but not least, Amazon and Alibaba demonstrate a huge interest in securing a piece of the cake. These companies are not just other pieces in the power game of lines and alliances; they are the most important and strongest voices within the high-tech world. Their interest comes at no surprise. According to a Drewry estimate, container shipping was a $185 billion (revenue) business in 2018 and generates roughly 100-120 million data points every day from different sources, like ports and vessel movements.
In July 2019, members of the DCSA were MSC, A.P. Møller-Maersk, Hapag-Lloyd, CMA CGM and ONE. Membership for Evergreen Line, Hyundai Merchant Marine, Yang Ming Marine Transport Corporation and ZIM Integrated Shipping Service was pending regulatory approval. Once regulatory approval has been acquired, apart from COSCO-OOCL all major container lines that are involved in one of the three global alliances – 2M, Ocean Alliance and THE Alliance – will have joined. Members will present 70% of the market. This indicates that the DSCA standards have, or soon will have become signatory for the industry.
DCSA members support TradeLens. At the above presentation of Maersk’s half-year interim report Mr Skou said: “It was very important to get the majority of the big carriers on board. We now have a capacity committed to TradeLens equivalent to more than a third of the world-capacity.”
DCSA standards being signatory for the industry implies that no actor that wants to do business with a DCSA member can afford not joining TradeLens. Mr Skou offered a telling indication for this theory when he stated that providers of services on the deep-sea and on the inland leg of global end-to-end services are not in a position to refuse joining TradeLens if they want to do business with one of the lines that support it. “So we can basically force them to join the platform. Because if they want to do business with us they have to supply data.”
TradeLens is a profit-orientated business. Therefore, joining it will come at a price. It stands to reason that, in some form or another, TradeLens will remunerate the lines for the introduction to the platform of the actors they engage for implementation of a stage of their services. This implies that lines that support TradeLens have a vested financial interest in preventing new forms of industry actors from creating standards that – by virtue of their characteristics, prices and intended use – are interchangeable with and substitutable for DCSA standards. This will further strengthen market position of TradeLens.
The central rationale for DCSA is to prevent the introduction of information technology standards that could endanger the required rigorous coordination of the organizational decision processes in the logistics chain. However, TradeLens is a profit-orientated business. Therefore, lines that support TradeLens have a vested financial interest in preventing new forms of industry actors from creating standards that – by virtue of their characteristics, prices and intended use – are interchangeable with and substitutable for DCSA standards. Furthermore, particularly once DCSA standards have become signatory for the industry, the dependence of the actors a member/line of DCSA engages to one and the same eco-system will increase progressively. The purchase of the required technology, retraining of IT-personnel and company-wide implementation of the eco-system will make it very difficult for these actors to switch to other standards and thereby to another platform. This holds particularly true since they may be forced to join TradeLens and have to pay a price for its services.
Considering the above, I take the view that the capacity, which is currently committed to TradeLens, is likely to rise from a third of world-capacity to a much higher percentage, sooner rather than later. This development may well conclude in a monopolisation of the trade by the combination DCSA/TradeLens.
Big Data and BI&A systems are here to stay. The ways in which lines deploy the Trinity they have created or are about to create by using these phenomena, may pose a serious threat to fair and undistorted competition and a level playing field to all stakeholders on the market of containerised liner shipping global end-to-end services. However, this threat will not remain solely limited to that market. Lines will try and recoup the investments that have been made and are still to be made by applying the acquired knowledge and experience to all areas of the services they offer.
Lines and the actors, which are being engaged for the implementation of a stage of their services, should be aware of this threat. Particularly the possible coercion of these actors to join TradeLens weighs heavily on the legitimacy of both TradeLens and DCSA. In case these associations or their performance, individually and/or conjointly, would not fully comply with EU antitrust law not only the lines but also the actors may find themselves being complicit to an infringement of that law with all bad financial consequences following.
The tools the commission possess for measuring, evaluating and neutralising the anticompetitive effects of Big Data and BI&A systems have been formulated in an era when these phenomena were still a vision for the future. Therefore, the current tools are unfit to do the job. However, the ensuing legal vacuum does not absolve undertakings from the obligation to self-assess whether the agreements/ arrangements to which they are party, directly or indirectly, in isolation or in combination with other factors under their control, have as their object or effect distortions of competition. The self-assessment should be made in light of a comparison with the competitive position that would have existed in the absence of the (anticipated) technology.
Big Data and the ensuing BI&A systems have created a complex legal border area. It seems doubtful whether the possible revision of the consortia block exemption (BER), which expires on 25 April 2020, will provide a solution. The consultations that are being conducted do not pertain to amendments that are sufficiently far-reaching to that effect. Brexit, and particularly a no-deal Brexit, is likely to exacerbate this unfortunate state of affairs even further.
Continuance of the present situation is unacceptable. The variety, volume and velocity of Big Data and BI&A systems is so swift and drastic that infringements of competition may well turn out to be not only irreversible but also not punishable. It is essential that the EU Commission take action soon by creating tools that are sufficiently adequate and effective for measuring, evaluating and neutralising the ensuing effects on freedom of competition. Competition authorities in other parts of the world should follow suit. Idleness might turn Big Data and BI&A systems into a curse rather than a blessing for the maritime industry.