ESC asks European Commissioner for Competition to abolish ocean carrier price arrangements

The European shipper group says a proposal by the European Commission to reform the way liner carriers announce general rate increases does not go far enough and the competition watchdog should “abolish…the practice of announcing GRI’s completely.”    The European Shippers’ Council (ESC), a trade organization that represents shippers councils in and outside European Union, says a proposal by the European Commission to reform the manner in which liner carriers announce general rate increases (GRIs) does not go far enough.
   In a letter to Margrethe Vestager, the European commissioner for competition, the ESC says the European Commission should “abolish and not only mitigate the practice of announcing GRI’s completely.”
   Because of concerns about the way carriers announce information about pricing and possible “price signalling,” the European Commission opened formal antitrust proceedings to investigate the practice of publishing GRI announcements and whether carriers engaged in concerted practices in breach of European Union antitrust rules in November 2013. That came after the EC made a series of unannounced inspections, so-called “dawn raids” on the offices of carriers in May 2011.
   The EC said at the time it was concerned that GRI announcements “may enable the parties to ‘test,’ without incurring the risk of losing customers, whether they can reasonably implement a price increase and thereby may reduce strategic uncertainty for the parties and diminish the incentives to compete.”
   In February, the EC’s competition directorate noted 15 container liner shipping companies announced they would stop publishing and communicating GRIs that are expressed solely as an amount or percentage of change. Prices had to include at least five elements – base rate, bunker charges, security charges, terminal handling charges and peak season charges if applicable – and were not be made more than 31 days in advance.
   The announcement in February was seen by some carrier executives as a face saving compromise by a competition directorate that found little evidence of collusion. They note that freight rates are currently at historic lows.
   The World Container Index, for example, said earlier this month that its composite index is now 60 percent lower than the average of the past 5 years and has decreased by 62 percent in the past year.
   Indeed, in its February announcement, the EC noted the carriers did not agreed to the practice it described or its legal analysis, but agreed to commitments about modifying how they handle GRIs “to meet the commission’s competition concerns.”
   In its letter, the ESC made four arguments for abolishing the practice of announcing GRIs.
   First, while the changes the competition directorate was requiring in GRI announcements seeks to increase the value of the commitments the carriers make to customers, the ESC said the change “does not take away our serious concern that this practice may allow the parties to explore each other’s pricing intentions and to coordinate their behavior.”
   “For that reason, ESC remains concerned that the practice may enable the parties to test their new price policy without incurring the risk of losing customers,” the group argued. “They can also monitor whether or not they can reasonably implement this price increase. At the same time, they are able to reduce strategic uncertainty and reduce the risk for losing competitiveness in the market.”
   Second, the current block antitrust exemption that shipping companies enjoy under European law still allows for technical coordination between companies, which the ESC says “is an enabler for the existing trend towards further concentration in the market, for instance by the constitution of mega-alliances. Further on, it is still providing a lot of opportunities for liner shipping companies to adjust their capacity and service level. The public announcement of commercial cap prices is even within the restriction of the present commitment giving maritime carriers the opportunity to take advantage of the information collected.”
   ESC thirdly argued, “This practice does not exist in any other industry. ESC fears that it might give birth to similar developments in other transport modes, such as air cargo industry.”
   And finally, both average spot and contract rates “are normally far below these published rates,” the group said. “Given that, GRI’s can be seen as a tool for the parties to collectively pump up the prices.”
   ESC said small and medium size companies “could be the victim of this practice.”
   “Nowadays in fact, GRI’s give an indication and a future point of reference for bargaining between the contractual parties,” it argued. “However, as capacity in the future will be reduced, in the years to come, even for big shippers the GRI might turn into a much more directive instrument which could directly influence tariffs paid by big shippers.”
   The ESC contends “maritime shipping is already a mode without a real competitor; in continental transport there is a choice between barge, rail and road. This emphasizes the need for the maritime shipping sector to be really transparent and open to competition between the (few) competitors.”