End of the line?

End of the line?

By the end of this year, the European Commission will have completed its review of container lines' antitrust immunity and will decide whether to abolish the conference system that allows carriers to openly discuss and influence rate levels through collective action. If the commission decides to abolish the system, the result could be a competitive free-for-all - great for shippers, but rough on carriers' bottom lines.

Led by Mario Monti, the crusading director of the European Commission's Competition Directorate (known in EU-speak as DGComp), the review is the commission's first formal evaluation of 1986 regulations that grant blanket antitrust immunity to shipping conferences on the grounds that they provide a public benefit by stabilizing rates and, in turn, providing reliable service.

Monti has repeatedly invoked a controversial anti-conference staff report from the Organization for Economic Cooperation and Development. The report, developed over two years and released in April 2002, called for gradual abolition of the conference system in favor of a system of direct, confidential negotiations between shippers and carriers. Antitrust exemptions for conferences "no longer serve their stated purpose" and "are no longer relevant," the report concluded.

If the commission decides to eliminate carriers' antitrust immunity, it could spell the beginning of the end of the conference system worldwide. In Australia, for example, the Australian Competition and Consumer Commission has ruled that members of the Asia-Australia Dis-cussion Agreement should no longer be given the power to legally fix prices after some Australian importers complained of unreasonable increases in freight rates for cargo being shipped from northeast Asia to Australia last year.

In the U.S., the issue has been largely dormant, though it could easily come back to life. Though bills to end carrier immunity have been introduced in the House Judiciary Committee and enjoy the longstanding support of the Justice Department, they have gone nowhere. If, however, the Federal Maritime Com-mission denies the petitions by UPS, FedEx and other major non-vessel-operating common carriers that are seeking the right to sign confidential contracts with shippers, those companies would take their case to Congress and, in doing so, could effectively reopen the U.S. debate on carriers' antitrust immunity.

Naturally, shippers in Europe are pushing for abolition of the EU regulations granting antitrust immunity, while carriers are calling for continuation of the system on the grounds that it preserves stability and efficiency. Neither side has submitted proposals for alternatives to the existing system to DGComp, which had specifically asked participants at a hearing in Brussels last year to come up with suggestions or new proposals that could be debated among carriers, shippers, member states and regulators.

Lowri Evans, director of services at DGComp, publicly expressed her frustration with both sides' lack of input at Containerisation International's Liner Conference in London last month. "There are no concrete realistic proposals on the table," she told the conference. "Absent industry proposals, we will have to make our own assessment."

She said DGComp would go ahead with its own review of the EU's antitrust regulation 4056/86 without industry input, which "appears inconclusive at this stage." Assuming Monti agrees, DGComp hopes to present progress to the EU member states this month, after which a green or white paper containing proposals on future regulation of the container shipping industry could be ready by fall. Based on the analysis, the European Commission will decide whether to retain the exemption, revise it or repeal it. Evans said Brussels was "obsessed" with hearing the views of all sides in the debate and would not be rushed into "jumping to conclusions."

Abolition would create a fully deregulated international liner industry and lead to short-term instability in freight rates as carriers price their services mainly in the interests of maintaining market share, some believe. Addition-ally, in the initial period, shorter freight contracts will likely prevail before the industry settles down and genuine long-term and multi-trade shipper-carrier deals are established.

Knud Stubkjaer, chief executive of Maersk Sealand, had cautioned the same conference a day earlier that, "Our conference system works pretty well, so we should be very careful that all stakeholders evaluate the data before making any decisions."

Ken Soerensen, executive director of the European Liner Affairs Association, which represents the container shipping lines in Brussels, denied that the group had failed to answer questions during the European Commission consultation. He said the group was actively participating in the review, and that "so far shipper engagement has been minimal." The ELAA was formed by liner shipping companies last year specifically to tackle the antitrust issue. This was significant because so far the shippers councils have been better organized and more effective at conveying their concerns. ELAA members include A.P. Moller-Maersk, CP Ships, CMA CGM, Hapag-Lloyd, Hanjin Shipping, NYK Line, APL Ltd., Orient Overseas Container Line and Royal P&O Nedlloyd.

Soerensen said the practice of conferences differs from theory in that there is no price fixing. He said the lines already are negotiating prices individually with shippers and that the industry is "built on a regulatory foundation which includes the conference system and needs a regulatory mechanism to ensure continuing benefits to customers."

But shippers insist there is no evidence that the removal of lines' antitrust immunity would lead to destructive competition. Filip Becker, chairman of the ocean transport committee of the European Shippers' Council, told the conference, "Liner shipping services are one of the most volatile commodities or services that shippers buy." He said shippers would reject any proposal to replace conferences with discussion agreements. "Discussion agreements are like conferences," he said. "Shippers and their representatives will be opposed to the status quo or anything equivalent."

Shipping conferences have existed since the late 19th century, when sailing vessels faced intense competition from faster steamships that were entering service. The oversupply of vessels al-lowed shippers to play shipping companies off one another, driving down rates and forcing carriers to abandon unprofitable routes, thereby disrupting service.

The ELAA's Soerensen said liner companies would be open to any change or adjustment of the system "provided such change recognizes that it needs some form or regulation." He said the conference system is working, and, "If it's not broken, don't fix it."