Lobbying from both sides of the liner shipping consortia block exemption regulation (BER) argument is picking up as the European Commission (EC) prepares to issue a summary report on the progress of its review on whether to renew the exemption for another five years.
The block exemption expires in 2020, and the EC’s directorate-general for competition (DG-Comp) is mulling over whether to renew or withdraw the exemption from European competition law. The commission is expected to release a summary report soon and make its final ruling during the first half of the year.
As the EC moves into the final stages of its deliberations, representatives from carrier and shipper groups have been reinforcing their positions with new submissions to the commission. The Organisation for Economic Co-operation and Development’s International Transport Forum (ITF) today released a report calling for more clarity in the BER rules, just days after the World Shipping Council (WSC) engaged RBB Economics to evaluate the evolution of European liner services from 2013 to 2018, submitting the information to the commission in support of the BER extension.
In its report, the ITF questioned whether some of the alliances even qualified for block exemption under the EC rules. Those rules state that, in order to qualify, “the combined market share of the consortium members in the relevant market ... shall not exceed 30 percent calculated by reference to the total volume of goods carried in freight tonnes or 20-foot equivalent units.”
The ITF found there was currently no way in which regulators or stakeholders “can determine with certainty if — and which — alliances are still below the threshold.”
The ITF called on the EC to consider using other indicators than cargo volumes to determine the market share threshold. “Market data on capacity of carriers and consortia on trade lanes are more easily available than actual volumes per carrier-consortia per trade lane. Volume data per trade lane per alliance do not actually exist: we do not know the size of the alliance capacity allocated to each carrier, nor the share allotted to slot charterers,” the ITF report stated.
Last week, the WSC report found if alliances and carriers were forced to operate independently, it would have negative consequences for shippers, resulting in a dramatic cut in available capacity as carriers reduce service frequencies to improve vessel utilization.
The RBB study for the WSC found, for example, that given the structure of the 2M Alliance between Maersk Line and Mediterranean Shipping Co., if MSC were to operate individually, its vessels would need to call at ports roughly every three weeks instead of on a weekly basis in order to be filled up. Maersk has a 65 percent TEU and vessel share in 2M so it would need to reduce frequency to about every two weeks if it were to offer the service on its own while facing unchanged demand, the WSC noted, adding that the situation would be similar for the Ocean Alliance and THE Alliance.
“Rather than reducing frequencies, carriers operating independently may decide to lower the amount of services offered to avoid having to run highly inefficient sailings. This would therefore be detrimental to consumers as it limits the choices available to them,” the WSC maintained.
The WSC argument that services will suffer if carriers were unable to operate under the block exemption will be a difficult one for shippers to swallow. “It is clear that individual members of the consortia may be able to offer services independently if they would not be allowed to cooperate. However, if the asset mix [vessel fleet] remains the same, it is difficult to understand how this could result in an increase in the service quality. In fact, the service quality is likely to decrease,” the WSC said.
For shippers on the Asia-Europe trades, service quality is already decreasing. Shippers have told JOC.com they are puzzled as to why shipping lines would even want to be grouped together with their peers, pointing out that the alliances have neither improved carrier profitability nor schedule reliability, with some of the worst on-time performance in years being reported in 2018. Global schedule reliability in 2018 averaged 70.8 percent, the lowest since 2012, and down 3.7 percentage points compared with the previous year, according to data from SeaIntelligence Consulting.
A call for submissions on the BER by the EC revealed widespread shipper frustration at poor service levels, with complaints form shipper groups that exemption from European Union competition law has failed to provide benefits to shippers as intended, accompanied instead by falling service levels, declining efficiency, fewer port choices, and longer transits.
In one submission, nine shipper and service provider organizations insisted the block exemption regulation had been rendered “obsolete” by the formation of alliances and increasing market concentration. The organizations, including the European Shippers’ Council, the Global Shippers’ Forum, the European Barge Union, and the International Union for Road-Rail Combined Transport, called for either a repeal of the block exemption or an in-depth review of the regulation.
“An important condition for the exemption, which is to provide benefits to the customers, is no longer met, as neither service quality nor productivity have improved over the years,” the organizations said in a joint statement. “Instead, users of liner shipping services and their service providers have suffered from an increasingly unbalanced market situation since carriers entered into major cooperation agreements.”
Open to interpretation?
In its submission this week, the ITF pointed to a lack of clarity over how to interpret a specific provision within the regulation stating that the BER could continue to apply if the market share threshold was exceeded “during any period of two consecutive calendar years by not more than one-tenth.”
“Depending on the interpretation, Ocean Alliance, an alliance that started in April 2017, may or may not still be covered by the BER, as it cannot yet have exceeded 33 percent for two consecutive calendar years,” the ITF said.
Using a dataset from SeaIntelligence, the ITF made its own assessment of the market share of individual carriers and the market share of consortia members. Contrary to what stakeholders and regulators believe, the ITF found that the vast majority of the consortia — 22 out of 27 — on trades to and from Europe likely exceeded the combined market share threshold.
“This means that these consortia are likely no longer covered by the EU Consortia Block Exemption Regulation,” the group said. “This raises the question of how to justify a regulation that no longer applies to the large majority of consortia.”