RE-EXAMINING ANTITRUST

RE-EXAMINING ANTITRUST

hese are troubling times for liner shipping conferences. The conference system is under sustained regulatory attack in Europe, which last week imposed $6.3 million in fines on carriers in the Asia-Europe trades for antitrust violations in the early 1990s.

And that's just the latest jolt. The industry has been convulsed by the U.S. Ocean Shipping Reform Act, which has in a short time replaced conference tariffs with private individual contracting.Now the Organization for Economic Cooperation and Development, the think tank for 29 industrialized countries, is meeting this week to start a process aimed at doing the same worldwide.

The OECD may take a very long time to do so, not least because the United States is basically laying low to see how OSRA works first, while the European Union is taking a decidedly neutral stance. With its biggest members standing on the sidelines, the OECD secretariat can't do much of substance to advance its agenda of removing the antitrust immunity that allows conferences to operate.

But the OECD effort is important because it casts a spotlight on what is, for most individuals and businesses, a shadowy world: the special exemption that allows shipping, virtually alone among major industries, to confront its customers with jointly set prices.

The mere fact of holding such a conference throws the shipping industry on the defensive. How, indeed, to explain the rationale for its century-old exemption? The usual reason given - the ability to offer price stability to shippers - begins to sound a bit weak when drowned out by shippers' protests that they wish no such protection.

Nonetheless, the industry has marshalled its forces to fight off the challenge mounted by the OECD. In some ways that worsens its problem, reinforcing the view that shipping is inextricably tied with price fixing and other forms of inter-company cooperation.

Perhaps now, with attacks against the cartels coming from all sides, it's time for carriers to reconsider whether conferences are worth all the bother. Although price fixing provides short-term relief for some carriers in some trade lanes, it also sets the wrong tone for relations with customers. More seriously, continued reliance on conferences slows down the consolidation that ultimately will strengthen the industry.

Consider the most recent case in the European Union of action against conferences. The EU found that the Far East Trade Tariff Charges and Surcharges Agreement, known as Fettcsa, was an illegal deal between the Far East Freight Conference and five independents. It did no good for the carriers to protest that the deal concerned only a technical point on surcharges. The overall message to the wider community of shippers was that carriers had again pushed the antitrust exemption beyond its limits, and had again been caught.

It's a frequent message from the EU. Its ruling against the now-defunct Trans Atlantic Agreement outlawed certain types of deals to limit capacity. The proposed North Atlantic Agreement, a discussion group intended to replace the Trans Atlantic Conference Agreement, was switched off on the launch pad by EU regulators, who said it was an illegal discussion agreement.

TACA itself was fined heavily in 1998 for restricting its members' rights to sign individual service contracts. And recently the EU has carried out ''dawn raids'' at the offices of conference members suspected of colluding with non-conference carriers.

All of this can be dismissed as a case of regulatory overkill; some in the industry even call it persecution. Whatever it is, the ongoing war over conferences is giving the industry a public-relations black eye, while the conferences themselves yield little in the way of higher financial returns.

To the extent that conferences prop up rates - and in some trade lanes, where demand exceeds supply, they succeed more than in others - they support the least efficient carriers, to the disadvantage of the stronger ones. Since consolidation is inevitable over time anyway, the system alarms shippers, who fear that the surviving handful of carriers will continue colluding, locking up the market once the demand-supply balance swings in their favor.

That hope may be why carriers are fighting so hard to defend the conference system at the OECD and elsewhere. If so, it is a short-sighted one, since the system they defend encourages ship lines to seek their profits from price fixing and joint action against shippers, rather than from improving efficiency and working harder to serve customers. In the long run, there is little to be gained from alienating customers.

It's worth remembering that antitrust immunity, which is granted to very few other industries, was originally given to ship owners during the heyday of Empire, when mercantilist governments wanted to ensure their merchant ships could dominate important trade lanes.

That was more than a century ago. Today we have a modern shipping industry operating in a global economy. It's worth asking whether the old legal architecture still fits the modern-day reality.