End of the line

End of the line

Three months from now, carrier conferences in European liner trades will fade into history. It will be a big symbolic victory for shippers, who have fought for years against the rate-fixing agreements.

Beginning Oct. 18, carriers have to operate without their block exemption from European Union competition law. Alliances and vessel-sharing agreements will be unaffected, but carriers no longer will be able to meet to jointly set rates and surcharges. It will be every carrier for itself, with stiff penalties for collusion.

But if the industry doesn't seem very worked up about the change, there's a good reason. There's no element of surprise - everyone has had plenty of time to prepare. Besides, conferences aren't what they used to be. As late as two decades ago, they still dominated most trade lanes, but even then they were starting to run out of steam.

In the U.S., the 1984 Shipping Act dealt a blow to conferences by allowing carriers to depart from conference tariffs by declaring independent action on rates. Conference discipline was undermined even more by the Ocean Shipping Reform Act of 1998, which allowed confidential shipper-carrier service contracts.

The Trans-Atlantic Conference Agreement survived in weakened form - Europe had no provision for discussion agreements, which supplanted conferences on most other U.S. trade lanes. Now, with Europe set to outlaw conferences, TACA has shut down and the Far Eastern Freight Conference, representing Europe-Asia lines, also is going out of business. Asia will be conferences' last real bastion.

Conferences served a purpose when the carrier industry was more fragmented, barriers to entry in shipping were low and ship lines needed to cooperate to maintain service. Now global operators are big enough to operate independently or form operating alliances with competitors.

As Peter Leach reports in this week's cover story, the demise of conferences in European trades is expected to produce increased volatility for rates and more variation in surcharges. The most immediate impact is likely to be on bunker surcharges, which now represent more than half the cost of many shipments.

Shippers say uniform bunker surcharges have never made sense, and they have a good point. Carriers operate different ships, on different routes, and some hedge at least part of their fuel costs. Several lines already have begun posting their own surcharge formulas, which are a subject for negotiation in contracts.

The big change in post-conference pricing is that carriers that can't control their costs - or don't understand their costs, which still seems to be a problem for some lines - will be at a disadvantage. In other words, they'll have to operate like other businesses. It won't be as tidy as the old system was, but that's how markets work.