CREEL QUESTIONS BENEFITS OF TOTAL DEREGULATION IN SHIPPING
Harold Creel, chairman of the U.S. Federal Maritime Commission, questioned the potential benefits of “total deregulation” in liner shipping and warned against the risks of conflicts of international laws.
If a “totally deregulated market” is defined as one without antitrust immunity for conferences or agreements among ocean common carriers, then a move to a deregulated market would create problems and may not benefit the industry and its customers, Creel said at the Containerisation International conference in London Tuesday.
Asked whether carriers or shippers would be the main beneficiaries of a totally deregulated market, Creel said there is “no easy answer.”
“The question presupposes that both carriers and shippers will benefit under a totally deregulated market, but that one sector may gain more than the other,” he said. “I would contend, however, that total deregulation may not necessarily benefit one sector over the other, and may in fact end up benefiting neither.”
Creel said large shippers will always have their ocean transportation needs met at prices with which they are generally satisfied. “I am very concerned, however, about how a totally deregulated transportation market will affect the small to medium-sized shipper.”
“Antitrust immunity for ocean carriers was considerably limited and circumscribed” by the Ocean Shipping Reform Act of 1998, he added. “Essentially, conference control over service contracts has been eliminated.”
Creel said that, when faced with overcapacity, carriers tend to compete aggressively in order to fill their ships, as empty slots produce no revenue. “Carriers are thus prone to bidding rates down to levels close to or below their costs,” he said. “A degree of antitrust immunity allows carriers to engage in limited ‘self-regulation’ — through conferences or discussion agreements — to keep rates from sinking below compensatory levels, or to attempt to stabilize rates when overcapacity ceases.”
Creel added, however, that “the purpose of antitrust immunity is primarily to ensure an adequate and efficient supply of ocean transportation services in a manner that best fosters the flow of ocean commerce.”
Edward Emmett, president of the U.S. National Industrial Transportation League, told the London conference that the climate between ocean carriers, shippers and regulators has changed in the last five years, including since OSRA introduced deregulation in the U.S. liner shipping trades.
Five years ago, Emmett said he was “widely pilloried” by ocean carrier executives and staff of the FMC for promoting deregulation. But OSRA has been successful and carriers now say that they can work well under the law, he added.
The NIT League has not called for the complete elimination of antitrust immunity in shipping. However, Emmett said the issue has become less important. “I think carriers will find that (common) price-setting is useless to them,” he said, referring to discussion agreements and conferences.
But Emmett criticized discussion agreements for continuing to announce rate increases the same way conferences did in the past, describing this behavior as out of step with OSRA and new one-to-one contracting practices. “What I don’t understand is why carriers continue to create such static (by announcing joint annual rate increases),” he said. “It creates ill will.”
“K” LINE EXECUTIVE WARNS AGAINST 9,000-TEU SHIPS
Before ordering giant containerships of 9,000 TEUs or more, shipping lines should carefully consider the impact on inland transportation operations and service levels, a senior executive of “K” Line warned.
“We need to seriously consider a number of consequences, as this is more than just a matter of ship size,” said Zenzaburo Wakabayashi, executive vice president of the Japanese shipping group, at the Containerisation International conference in London Tuesday.
“Container vessels of close to 9,000 TEU or even bigger have recently been tabled,” he said. “Will this make the best sense?”
“As someone who is reasonably concerned about the future of the industry, I would want to be reasonably careful about this important subject before endorsing any new mega-size scheme,” Wakabayashi said.
Infrastructure areas to be considered include terminal facilities, yard space, gantry crane capacity and productivity, chassis logistics, computer systems and inland transportation, he said.
Besides expected scale economies in the cost of slot on board mega-vessels, Wakabayashi cautioned that such vessels may adversely impact service quality, as three or four days would elapse from the time the first container is unloaded in port to the time the last container leaves the port after being discharged from a 9,000-TEU ship. About 10 double-stack trains would have to be arranged to move the inbound containers on board one such ship running in the transpacific trade, he estimated.
“Unless those problems can be solved through infrastructure improvement, I think it would be extremely difficult to simply accept and welcome such a trend towards jumbo-sized ships as an answer for improving service,” Wakabayashi said.
“K” Line has ordered a series of 12 post-Panamax vessels of 5,500-TEU, and has been conservative in the size of vessels it orders when compared to the likes of Maersk Sealand, P&O Nedlloyd and Hyundai Merchant Marine. China Shipping Container Lines is believed to be close to confirming an order for vessels of 9,000-TEU capacity.