European politicians, port operators and dockworkers are lining up in support of a report issued at the start of this month from the International Transport Forum (ITF) warning on the risks of overly dominant alliances in container shipping.
The 127-page report entitled The Impact of Alliances in Container Shipping penned by a team from the ITF, a body administrated by the Organisation for Economic Co-operation and Development (OECD), called upon the European Commission to ensure the EU Consortia Block Exemption Regulation for liner shipping is not extended beyond its current timeframe extending to April 2020.
The report outlined the monopolistic tendencies among liner carriers and suggests the European Commission should take action.
“Alliances could raise competition concerns in what has become a concentrated market,” the report stated, observing that the top four carriers accounted for 60% of the global container shipping market in 2018. The market share of the biggest carrier (19%) is larger than the market share of any global liner alliance before 2012.
“[A]lliances give very considerable bargaining power – ‘monopsony power’ – to carriers in regard to ports and terminals,” the report continued. The result, according to ITF, can be declining rates for port services, carriers requesting additional public infrastructure, and vertical integration by carriers, in particular in terminal operations. Consequently, the market share of carrier-dominated terminal operators has increased from 18% in 2001 to 38% in 2017.
Taking heed of the report, French prime minister Édouard Philippe announced a new national ports policy last week, explicitly motivated by the challenges posed by liner alliances.
“To enable French ports to face the challenges of new maritime alliances, the government is preparing a new economic model and a new national port strategy,” Philippe said in introducing the changes which will see further consolidation among the country’s ports.
Niek Stam, national secretary of the dockers section at Dutch union FNV Bondgenoten, attended a presentation given by the ITF. In conversation with Splash afterwards, Stam compared the growing power of liner alliances to “hyenas of the sea”.
“They are like hyenas hunting in groups and circling around the ports and port operators to weaken them by offering them lower tariffs. They can do that because shipping lines are creating also overcapacity in ports because of the introduction of megaships,” Stam said, adding that with lines now buying into European terminals they will seek to slash their port costs even further.
“Shipping lines are like sharks eating all terminal operators,” Stam added, continuing his maritime natural history comparisons. “Only shipping lines benefit from them, the rest of the industry is paying the price.”
Lamia Kerdjoudj-Belkaid, secretary general of the Federation of European Private Port Companies and Terminals (FEPORT), commenting on the ITF report, told Splash today: “The data and figures that the report presents are particularly useful in the context of the review of consortia regulation as it allows a good debate.”
Kerdjoudj-Belkaid said the report highlighted the interdependence between the seaside and the landside.
“The report allows to better understand why it does make sense to look to the cumulated effects of the recent developments in the maritime sector such as the the increase in size of ships, the consolidation and the existence of a variety of technical agreements used by liner shipping,” she added.
The FEPORT executive concluded saying the report gave clear evidence that it is “a bit naïve” to think that sectoral regulations do not impact other industries and therefore highlights the need for regulators to conduct comprehensive and inclusive consultations. “The report is in many ways a good plea for the end of the silo thinking,” Kerdjoudj-Belkaid said
Patrick Verhoeven, secretary general of the International Associations of Ports and Harbours (IAPH), took issue with some aspects of the much-debated ITF report.
“I find the argument in the report to have common principles for port pricing at global or regional level very counter-intuitive,” Verhoeven said, adding: “On the one hand the report makes a plea for more competition in shipping, on the other hand it wants to bring more interventionism for ports.”
In the wake of the ITF publishing its alliance report, the World Shipping Council (WSC), the Washington DC-based liner lobbying group, said the authors had failed to grasp that the EU block exemption does not apply to the east-west alliances in most cases, but is more focused on vessel sharing arrangements (VSAs).
“The World Shipping Council and its industry partners will continue their dialogue with stakeholders and policymakers to seek regulatory solutions that both protect the competitive nature of the industry and also foster the greatest available efficiencies in an environment that requires the industry to simultaneously move an increasing volume of world trade and to reduce its air emissions,” the council stated earlier this month.
In response, Olaf Merk, the lead author for the ITF report, took issue with the WSC statement.
“Contrary to what they say, global alliances are covered by the EU consortia block exemption,” he told Splash, pointing out that one of the conditions for the exemption is that the combined market share of the alliance on the relevant market does not exceed a threshold of 33%.
“There are three alliances, so simple mathematics shows that there is always at least one alliance – but on most EU trade routes actually two alliances – below the 33% threshold,” Merk said.
When the European Commission sought public consultation on the evaluation of the consortia block exemption regulation, Professsor Hercules Haralambides from Erasmus University in Rotterdam submitted a paper, which noted: “At the time of writing, three alliances carry 80% of global trade. Such consolidation, in an industry that is already highly concentrated, is bound to finally attract the scrutiny of the regulator who, with the final consumer in mind, is likely to encourage more competition rather than further consolidation. If this happens, i.e., if container shipping becomes more open and competitive in the future, and if alliance agreements regarding vessel sharing, investment planning, etc. are scrutinized more closely for their compatibility with competition law, as I expect, the joint filling of the ship will become more difficult and ship sizes shall by necessity decrease, together with an increase in the number of ports of call. Low prices would then be achieved through more competition rather than big ship sizes. This is the more so when it is doubtful if the economies of scale in shipping are passed on to the final consumer, as required by the consortia block exception from the provisions of competition law in Europe.”