Keep Trust in the Trade Marketplace

Keep Trust in the Trade Marketplace

Antitrust immunity for container lines is such an easy target it’s ridiculous. The idea that competitors can discuss and influence price for services is not simply anathema to U.S. business values — it’s also a crime. Just a couple of years ago, the U.S. Justice Department sent former air cargo executives to jail for violating antitrust prohibitions.

To let a group of mostly foreign-owned companies engage in the practice in an industry critical to the U.S. economy seems beyond comprehension. It’s an especially easy target in today’s trans-Pacific cauldron of tight capacity and carrier desperation to restore profitability.

Opposing antitrust immunity has long been fashionable among shippers, and it’s bedrock policy for mainstream industry groups such as the Agriculture Transportation Coalition and the National Industrial Transportation League, whose president and CEO Bruce Carlton said, “Perhaps there was a time when international ocean shipping was ‘different’ or ‘special,’ but in 2010 with liner-container service being more or less a ‘commodity,’ it seems to me to be a very, very tough case to make any longer.”

Full interview with Ron Widdows, Group President & CEO - (PDF).

The battle was joined this month when Rep. James L. Oberstar, D- Minn., chairman of the Transportation and Infrastructure Committee and Capitol Hill’s most powerful figure in U.S. transportation policy, weighed in at the NITL’s Washington transportation policy forum: “I think we should end the antitrust immunity that allows the carriers to talk to each other about rates, and if we replace that with full competition, there will be a real marketplace that would see improvements in rates and service and delivery to consumers.”

The big question, of course, is whether changing the law would bring about the changes Oberstar envisions. Are issues such as tightness of capacity from Asia or lack of containers at inland points for U.S. exports in fact symptoms of a flawed law? Or do they result from cyclical realities of shipping that will invariably and perhaps severely affect someone negatively, although not always the shipper?

Ron Widdows, CEO of APL, the world’s fourth largest container line, forcefully argued the latter point in an interview in New York last week. “The things that have developed as challenges for shippers, importers and exporters largely have nothing whatsoever to do with the regulatory regime per se,” he said. “It is market dynamics, the imbalances of the flows within the trade. There are shippers in the Midwest of the U.S. who don’t have containers. The containers are where people are, on the inbound flow. There will never be a steady supply of equipment sitting in the Midwest because they have to get moved there from somewhere else, and that takes time and it’s expensive.”

No policy can require a carrier to deploy ships or position containers in an unprofitable way. “If I want to deploy every ship I got in the intra-Asia trade and not do business in the trans-Pacific, that is up to me,” Widdows said. “It’s not up to someone else. And if you eliminate antitrust immunity, that won’t affect those decisions a wit.”

One of the knee-jerk assumptions many people have about carrier antitrust immunity is that it leads to cartel-like behavior. “Cartel” was indeed a term often heard in the 1990s but rarely so today. That’s because carriers are not in the least bit coordinated. Rates and service quality differ widely among carriers, as do individual carrier approaches to slow-steaming, idling tonnage, serving the East versus West Coast, and inland service options.

To characterize carriers as an industry that behaves in coordinated fashion under the protection of antitrust immunity would be far from the truth. “On price, on service, on contracting, on slow-steaming, on idling, on how much surcharge people charge — some do, some don’t — how do you construct from that that you have an industry that is working in any way that would look coordinated? You don’t,” Widdows said.

He cited the woeful track record of Transpacific Stabilization Agreement rate guidelines to help explain why. “If you map all of those guidelines that have been articulated over the last decade against where the rates have moved over the last decade, it shows you that rates have been on kind of a decline at the same time that the announced guidelines have consistently called for increases in rates,” he said.

Widdows believes, however, that for a healthy trans-Pacific trade, shipper and carriers need to be able to talk in open forums rather than simply one-on-one. They now are doing so in forums such as TSA shipper-carrier groups and a new forum being created for exporters.

In Europe, such dialogue would no longer be allowed, even if organized by a third-party meeting organizer. The focus, therefore, should be on the existing regulatory regime. If carriers do wrong, the Federal Maritime Commission should pursue them. “The regulatory regime provides an opportunity for the regulator to act if he sees that something is improper,” Widdows said.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com