FMC commissioners told during a meeting Wednesday there is “ample capacity” and freight rates have decreased.
Staff members from the Federal Maritime Commission’s Office of Economics and Competition Analysis say that despite the growing market share of some carrier alliances, they are not seeing evidence of diminished competition among liner carriers.
In a presentation to the four FMC commissioners on Wednesday (it was the first public meeting for commissioner Louis E. Sola and the first since Daniel B. Maffei returned to the FMC after being reappointed by President Trump), Anthony Homan, director of FMC’s Office of Economic Completion Analysis, said the world containership capacity has grown faster than cargo volumes and there is “ample capacity to serve industry.”
Freight rates, as measured by the Shanghai Containerized Freight Index and Chinese Containerized Freight Index (for spot and contract rates, respectively) are lower than in the past, especially when adjusted for inflation, he said.
“It’s been a good time for shippers the last few years,” he added, if not so good for the container carriers.
In the transpacific container trade, Homan said the Ocean Alliance of COSCO/OOCL, CMA CGM and Evergreen has a 42.2 percent share of the transpacific container trade; the 2M Alliance of Maersk and 2M along with partner Hyundai Merchant Marine a 25.4 percent share and THE Alliance of ONE, Hapag-Lloyd and Yang Ming a 25 percent share.
In the transatlantic container trade, 2M is dominant with a 39.8 percent share (Hyundai just 0.5 percent of that); THE Alliance has a 29 percent share; and the Ocean Alliance has a 20.7 percent share.
FMC Chairman Michael Khouri noted that the European Union is reviewing whether to extend or remove the block exemption regulation (BER) it grants to the liner shipping industry.
The BER allows for agreements between companies that would otherwise be prohibited under European competition law provided they “contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits without eliminating competition.”
The BER allows container liner companies to operate consortium if “the combined market share of the consortium members in the relevant market upon which the consortium operates shall not exceed 30 percent calculated by reference to the total volume of goods carried in freight tonnes or 20-foot equivalent units.”
If that threshold is exceeded that is not necessarily problematic but it does require companies to “self-assess” whether they are complying with the EU’s general antitrust rules.
That process is “invariably more complex and less certain than application of a BER,” noted a submission from the World World Shipping Council, European Community Shipowners’ Associations, International Chamber of Shipping and Asian Shipowners’ Association to E.U. regulators in December.
Khouri said during the meeting that “it’s elusive to me to find any court case or economic study or anything else that something magic happens at a 30 percent market share or 35 percent market share.”
He asked Homan if looking at the 2M share in the transatlantic and Ocean Alliance in the transpacific it was “safe for me to make a summary statement that we are not finding any competition problems on either of our major east-west trades.
Homan agreed, based on the testing the FMC staff has done.
He gave an explanation of how the FMC staff monitors the global alliances and noted there are special requirements for the global alliances as compared to other space-sharing agreements among carriers.
It meets with the alliances on a semi-annual basis and prepares standardized quarterly reports on them. It reviews the minutes of meetings by alliance members, canceled sailings and capacity projections by the alliances and trade press.
The FMC also performs two types of statistical tests of average revenue data, as a proxy for prices, to see if there are statistically significant differences from month to month and then tries to find out the reason for the trend.
For example, Homan noted that eastbound transpacific rates rose late last year as shippers advanced shipments in the face of increased and threatened increases in U.S. tariffs on Chinese goods, while westbound transpacific rates fell because of restrictions put in place by China on imports of scrap commodities from countries such as the U.S.
The FMC also does a variety of statistical tests to see if carriers are pricing independently or colluding within or across alliances or across the industry.
However, Homan noted that shipping is highly cyclical — and ship supply and demand are sometimes out of sync. That’s something he said regulators need to be mindful of when they monitor pricing.
“We try to keep an eye on the market and see when we are moving from one part of the shipping cycle to another. That is important in how we monitor prices,” he explained. “You can have a perfectly competitive environment and if you are in the peak part of your cycle, it’s not being an anti-competitive market, that’s supply and demand.”
Khouri said he found the statistical testing the FMC performs quite interesting and thought it might be of interest to members of Congress.
Homan was asked how the requirement promulgated by the International Maritime Organization that requires ships not equipped with scrubbers to use fuel with a maximum sulfur content of 0.5 percent starting next year compared with the current 3.5 percent cap in place today.
He said a similar reduction in the sulfur cap — from 4.5 percent to 3.5 percent in 2012 — resulted in an increase in bunker rates, but that they fell back after a couple of years.
“It’s hard to forecast, but if you look at history as a guide, one would expect there would be a bump, and for our monitoring we’ll need to try to factor in what is the bump from bunker prices.”
He noted that as a result of the change in fuel production, “there is going to be a lot of pressure on middle distillates such as diesel” that will affect the trucking industry and the movement of cargo to its ultimate destination. That, in turn, may result in changes in which ports shippers decide to route cargo through.
A YouTube video of the meeting is available here.