Liners wait anxiously on Washington’s reaction as EU drops antitrust exemption

Liner companies are now watching carefully to see if the Federal Maritime Commission (FMC) in Washington DC will follow the lead taken by the European Commission when it comes to container shipping and antitrust rules. 

Yesterday’s announcement from Brussels not to extend the European Union’s legal framework which exempts liner shipping consortia from EU antitrust rules has sent shockwaves throughout global supply chains.

The commission said on Tuesday that the Consortia Block Exemption Regulation (CBER) no longer promotes competition in the shipping sector and therefore it will let it expire on April 25, 2024.

“Given the small number and profile of consortia falling within the scope of the CBER, the CBER brings limited compliance cost savings to carriers and plays a secondary role in carriers’ decision to cooperate. Furthermore, over the evaluation period, the CBER was no longer enabling smaller carriers to cooperate with each other and offer alternative services in competition with larger carriers,” the European Commission explained.

According to the commission’s statement, the expiry of the CBER does not mean that cooperation between shipping lines becomes unlawful under EU antitrust rules, instead, carriers operating to or from the EU will assess the compatibility of their cooperation agreements with EU antitrust rules based on the guidance provided by the Horizontal Block Exemption Regulation and Specialisation Block Exemption Regulation.

The World Shipping Council, a liner lobbying group, said that it disagreed with the logic behind the decision to discontinue the CBER but that it appreciated the recognition of the many benefits of vessel sharing to European industry and consumers.

“The shift to general EU antitrust rules will create a period of uncertainty as carriers adjust to the new legal structure. Nevertheless, vessel sharing agreements will remain a fully legal and supported way for carriers to ensure efficient and sustainable transport for Europe,” said John Butler, president and CEO of the World Shipping Council.

“Despite the attention given to the exemption, its abolition is expected to have little impact on the industry given the modest number of consortia still in operation,” analysts at Alphaliner stated in a weekly report. The Southern Africa Europe Container Service (SAECS) was one of a handful of groups that benefited from CBER.

“CBER’s abolition might have been politically necessary, however, given its opposition by many forwarders and port operators, who are increasingly competing with the large, integrated carriers,” Alphaliner suggested.

Nicolette van der Jagt, director general of the European Association for Forwarding, Transport, Logistics and Customs Services (CLECAT), welcomed the decision, saying: “We are pleased that the commission has listened to the voice of the customers, freight forwarders and their shipper clients. For many years, we have told the European Commission that the regulation is no longer fit for purpose.”

Meanwhile, CLECAT’s UK peer, the British International Freight Association (BIFA), has urged the UK government to follow suit. 

Steve Parker BIFA’s director general, said his organisation hoped the UK would follow the EC’s lead and not retain the equivalent of a block exemption regime for the liner shipping industry in the UK, when the current one expires in April 2024.

“The EC has taken a sensible decision and the UK government should follow suit to ensure that shipping lines in future will be subject to competition law,” Parker said.

However, analysis by UK shipping consultancy Drewry argues that the EC’s decision could ultimately backfire on shippers. 

Drewry maintains there was no compelling case that carriers abused market power during the pandemic. Such was the extraordinary impact of covid on supply chains that freight rates would have soared with or without the CBER, it suggests.

Secondly, the hoped-for increase in competition will be stymied by legal uncertainty and extra bureaucracy, Drewry reckons. 

“By effectively coercing lines to operate independently, the logical conclusion is that each carrier will have to downsize their service portfolios in terms of frequency and connectivity. That would reduce, not increase, competition on a port-pair basis and push up freight rates,” wrote Simon Heaney, a senior liner analyst with Drewry, in an update on LinkedIn. 

Jonathan Roach, a container analyst at Braemar, concurred in a note to clients, noting that the EC decision may not have a massive impact on very large carriers that can go it alone without too much disruption.

“If carriers are forced in the future to operate standalone services, each carrier will have to choose and operate individual services (port-pairs) on their east-west trade offerings. Most carriers will offer less flexibility in their port pairs compared to today,” Roach stated.