The Federal Maritime Commission, in perhaps the most extensive study in its 50-year history, concluded the European Union’s 2008 repeal of antitrust immunity on liner conferences had minimal impact on rates and rate volatility in U.S. ocean trades.
But in another reminder of the troubled times that came after the EU’s landmark move, the FMC said further review is necessary, largely because of the volatility spawned by the global financial and economic crisis and subsequent recovery.
The three-year study by the FMC’s Bureau of Trade Analysis, culminating in a 365-page opus of a report, was conducted between 2006 and 2010, two years before and after the EU’s repeal of carriers’ antitrust immunity.
“Our main question was how the EU repeal affected U.S. trades. In 2006 and 2008, shippers and analysts raised concerns that carriers could increase trans-Pacific rates to subsidize rates in the EU trades,” said Austin L. Schmitt, director of strategic planning and regulatory review, and one of the study’s authors. “The study found that the repeal did not harm U.S. shippers relative to EU shippers. We found no significant differences between averages in U.S. and EU rate levels following the repeal.”
The report summary uses terms such as “insignificant” and “trivial” to describe the effects. Average revenue in the Asia-U.S. trade declined $150 per 20-foot equivalent container unit, compared with $141 per TEU in the Asia-Europe trade. The study found similar results on the return lanes in each trade.
Rate volatility in the EU trades increased, it said, suggesting discussion agreements in the U.S. trade may have had a dampening effect on volatility. There was also a small increase in market concentration and a decline in market share stability. The study suggests the effects came about because carriers no longer had a forum for discussion and information sharing.
Europe’s deregulation of the liner shipping industry was a regulatory leap over existing U.S. law. The Ocean Shipping Reform Act of 1998 came about because of a major compromise between carrier and shipper groups. Shippers got the ability to make confidential service contracts, while carriers kept their historic immunity from antitrust laws.
The compromise brought peace between adversaries, but the idea of repealing antitrust immunity has never gone away. In 2006, the National Industrial Transportation League told a federal antitrust modernization commission that while great strides had been made since OSRA, “it is prudent to evaluate whether even greater public benefits could be achieved if rates for transportation services were established solely by competition among service providers.”
Two years later, a report by the Congressional Research Service came to similar conclusions.
The question of antitrust immunity is one for policymakers to make, not economists, Schmitt said. The study sticks to the facts. “Our main thing as economists is to let the data and the information speak.”
His comment understates the magnitude of the work, arguably the most extensive study the FMC has undertaken. The idea, Schmitt said, originally was to study rates in the trans-Atlantic trade, but the story was expanded to include the Asia-EU and U.S. trans-Pacific trade lanes.
“We wanted to be as definitive as possible, basically uncovering every stone we could find in terms of information and data to give a complete picture of what happened,” Schmitt said. “When we first started, we were thinking of one. Then the global recession hit, so we expanded it to three trades.”
The challenge was separating the effects of repeal from the much larger effects of the recession, which caused the largest decline in trade volumes in liner history. “Any effects of the repeal of the block exemption on liner shipping were likely to be not only small but also masked by the deeply felt effects of the global recession,” the report said. “Only now are markets recovering enough to allow a proper assessment of the impact of the repeal in isolation from the recession.”
The changes in the marketplace in 2011 and later were beyond the scope of the study, but the bureau said they “merit further review.” For the period of the study, the repeal “appears not to have put U.S. shippers at a disadvantage to EU shippers in the Far East trades.”
“The study doesn’t make claims about 2011 or 2012,” Schmitt said. “That’s why we’re saying it merits further review.”