Cosco Americas Inc.; Cosco Container Lines Americas Inc.

2009 will be a year of many changes, but I think everyone in the ocean transportation industry will be watching the repeal of antitrust immunity in Europe very carefully. I’m sure many shippers feel that this change will usher in a new era of competition between liner carriers that, in the end, will result in lower freight rates. The current collapse of freight rates in the once-buoyant Asia-Europe trade seems to prove the freight-reduction theory correct, but how long can this situation go on?

The Asia-Europe trade was the crown jewel of trades for liner carriers in 2007 and early 2008. Rates in Asia-Europe were the highest of any major trade, and bunker charges were collected. Despite this strong market, freight rates in this trade still could be considered a bargain compared to other modes of transportation. With the quick decline of the rates in this trade, it is only a matter of time before lines cannot continue to operate and either start offering compensatory rates or start looking for a buyout or merger.

Many U.S. shippers are watching this situation carefully, as some are pushing U.S. regulatory groups to consider adopting the European model. What we all should realize is, under the Ocean Shipping Reform Act, the antiquated conference system that Europe maintained is long gone. Yes, there are discussion agreements in the U.S., but conferences are a thing of the past. Discussion agreements still discuss rate trends and surcharges but on a voluntary, non-binding basis, and discussions of individual shippers is forbidden.

Competition among discussion group members can be intense and, in some instances, may be worse than competition from non-members. Both the Transpacific Stabilization Agreement and Westbound Transpacific Stabilization Agreement have tried to branch out by holding shipper meetings to jointly discuss important issues in the global supply chain. Everybody wants competitive rates, but if rates fall too far, you eventually have less competition. Maintaining antitrust immunity in the U.S. just may be in everyone’s best interest, to keep a healthy, informed and competitive supply chain.

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