The ITF and WSC issue reports to support their competing views as European regulators weigh extending antitrust protection for vessel-sharing arrangements.
The debate over how Europe should regulate liner shipping has reignited this week:
• On Monday, the World Shipping Council (WSC), the primary trade organization for the container industry, released a report prepared for it by RBB Economics that WSC said demonstrated that vessel-sharing arrangements (VSAs) among container carriers are good for shippers, supporting its call for further extension of the European Union’s Consortia Block Exemption Regulation (BER) when it expires in April 2020. The BER allows shipping companies to share vessels with legal certainty that they are not running afoul of European antitrust law. The report said absent consortia, carriers would have to reduce service frequencies in order to maintain utilization of their ships or replace ships with smaller vessels, which would be both a costly and a lengthy process, the report says.
• On Tuesday, John Butler, the president and chief executive officer of the WSC, gave a keynote address before the American Association of Port Authorities in which he spoke about the benefits of VSAs, noting, “Liner shipping costs per TEU have been cut in half over the last 20 years.”
• Also on Tuesday, the International Transport Forum (ITF) of the Organization for Economic Co-operation and Development issued a paper that it said presented data that “container shipping has become more concentrated and vertically integrated and has slipped on various performance indicators related to trade lanes to and from Europe.” The paper is a followup to an ITF-OECD paper issued in November titled “The Impact of Alliances in Container Shipping.”
• At a meeting in Amsterdam on Tuesday, members of the Global Shippers’ Alliance at its annual meeting said they would “encourage their respective governments, in the face of growing concentration in various markets, to set up and/or modify policies which contribute to improvement of maritime transport services and at the same time avoid restriction of competition. They also said they would “continue a meaningful dialogue with the World Shipping Council, the International Chamber of Shipping and other ship owners’ association to avoid low-quality services and their negative impact on shippers and trade and to tackle long-term issues, such as emissions reduction in maritime transport.” GSA members signing the statement include the American Association of Exporters and Importers, European Shippers’ Council and shippers’ associations from Hong Kong, Indonesia, Bangladesh, Macau, Korea and Thailand.
ITF’s report says, “Global alliances have become increasingly dominant: Until 2015, all alliances taken together had market shares below 50 percent on the main east-west routes involving Europe. In 2018, this share was above 95 percent for Asia-Europe services and above 70 percent for North America-North Europe. On various routes, individual alliances now represent more than 30 percent of capacity share. For example, the 2M Alliance had a market share of 39 percent on Asia-Med and 35 percent on Asia-North Europe in the fourth quarter of 2018. Most liner consortia are likely no longer covered by the EU Consortia Block Exemption Regulation (BER): The BER contains a market share threshold of 30 percent. Consortia with market shares above this threshold are no longer covered by the BER.”
ITF said, “Of the 27 consortia ITF identified on trade lanes to and from Europe, only four fall with certainty below the 30 percent market share. Of the 27 consortia, 22 most likely exceed the threshold. This cannot be established with absolute certainty, as the market threshold is defined in volume shares — whereas only capacity shares are publicly available. One could wonder, then, to what extent the threshold in the BER contributes to legal certainty for carriers and transport stakeholders.”
The RBB report prepared for the WSC concluded that between 2013 and 2018, “the formation of larger consortia and mergers and acquisitions in the industry have not reduced connectivity. On the contrary, it has increased overall.” RBB used the “liner connectivity index” developed by the U.N.’s Conference on Trade and Development (UNCTAD), which shows how integrated individual countries are to liner shipping networks.
The ITF report had a very different conclusions, saying, “Over the last decade, all EU countries but three have faced a decline in direct liner connectivity (the share of countries that can be reached without transshipment)” and that “the number of direct port-to-port connections on European trade lanes has declined since 2012: from 211 in March 2012 to 189 in September 2018 on the Asia-North Europe trade lane and from 333 in March 2012 to 294 in September 2018 on the Asia-Med trade lane. More than half of the distinct port pairs on trade routes with Europe were offered only by one alliance in September 2018. This means that more than half of the direct port pairs will not meet any competition from carriers outside that one alliance.”
Just this week, the shipping consulting firm Drewry cautioned that depending on their success in recovering the higher cost of fuel expected because of the International Maritime Organization’s requirement that the sulfur content of bunker fuel used by ships without scrubbers be reduced from 3.5 percent to 0.5 percent, carriers could do more slow steaming and increase their use of transshipment. It explained that as the sailing speeds of ships are reduced and round voyages are extended, “carriers will drop ports from rotations to ensure that transit times to key points remain competitive.”
ITF also said market shares of independent operators of feeder ships, which are used widely in Europe, have declined. “In 2018, there was only one independent feeder operator in the top five for intra-North Europe shipping. In 2006, the first three feeder operators on this market were independent operators. The market share dedicated to feeder operators (exclusively working for and often part of one carrier) reaches around 50 percent in the Baltic Sea and West Med and 78 percent in the Adriatic and Aegean seas.”
ITF also said the market shares of European tonnage providers have decreased with Asian tonnage providers gaining market shares at the expense of European tonnage providers. The share of tonnage provided by EU tonnage providers in January 2012 was 88 percent. In January 2019, it was 61 percent.
Vertical integration between carriers and terminal operators in Europe has increased, said ITF, with the share of carrier-controlled terminal operations increasing from 20 percent in 2007 to 29 percent in 2017.
It said the “terminal operators with the strongest growth rates over the 2007 to 2016 period were carrier-controlled terminal operators, in particular MSC and COSCO, and non-European terminal operators, such as Yildirim, China Merchants and Dubai Ports World.”
In terms of schedule reliability, ITF said for global carriers on European trade lanes it ranged on average between 65 percent and 75 percent in the fourth quarter of 2018 and fluctuated between 46 percent and 92 percent between 2012 and 2018 on the four main European trade lanes. “There is no clear discernible trend with regards to schedule reliability over these years,” it said.
ITF also said that “weekly service frequency has been declining since 2012 on three of four main European trade lanes: Asia-North Europe, Asia-Med and North Europe-North America East Coast. The only exception to this trend is Med-North America East Coast. The largest decline took place on Asia-North Europe from 24 weekly services in July 2012 to 16 services in December 2018.”