ESC REPORT: CONFERENCES DON’T STOP RATE VOLATILITY

ESC REPORT: CONFERENCES DON’T STOP RATE VOLATILITY    The European Shippers’ Council told the Organization for Economic Cooperation and Development that conferences fail to contribute to freight rate stability, and their antitrust immunity should therefore be withdrawn.
   The ESC has conducted a survey of rate developments since 1996 among European and Israeli shippers who belong to its national organizations, the first study of its kind by European shippers. The Brussels-based body sought to verify whether conferences have a stabilizing role in shipping, one of the reasons invoked by carriers and regulators to justify the antitrust exemption of conferences.
   Following last year’s OECD workshop on regulatory reform in shipping, the Paris-based body asked the European Shippers’ Council and other organizations to assess the activities of liner conferences and agreements and their impact on shippers and shipping lines.
   But the results of the ESC’s study of rates paid by European shippers “show just how volatile rate movements are under present liner conference price fixing arrangements,” a spokesman for the organization said.
   “The shipping lines claim that price fixing benefits their
customers.” said Chris Welsh, secretary general of the ESC. “On the basis of ESC’s survey, such arrangements merely add to rate volatility,” he added.
   The survey, a copy of which was obtained by American Shipper, shows that shippers experienced huge price volatility over time, with annual increases or decreases of 30 percent or more in some trades.
   In the westbound North Atlantic trade, shippers reported that, generally, rates decreased for services from Europe to North America for 1997, 1998 and 1999, with a large increase then being recorded for 2000. Between 1998 and 1999, rates dropped about 21 percent, but this was followed by rate rises of some 38 percent in 1999 and 2000. A major U.K.-based company reported a 50-percent decrease in its rates for 1998-1999, which was followed by a 200-percent increase the following year.
   “Shippers have faced considerable price volatility in the
eastbound trades into Europe from the U.S.,” the ESC report added. Two small decreases in rates in the first two years surveyed were followed by a slightly larger rate decrease (8 percent) in 1998-1999, followed by a major increase (29 percent) in rates the following year.
   In the Europe-to-Far East trade, rates decreased about 33 percent between 1998 and 1999 and rose 38 percent between 1999 and 2000.
   The report said the trade from the Far East to Europe has been the least volatile of all of those that were studied. A 7-percent decrease in rates in 1996-1997 has been followed by two rate increases of 4 percent for each of the following two years, and rates then remained stable for 1999-2000.
      The survey also highlighted wide differences between the rates that are being paid by different shippers.
   In the Europe/Israel trade, the report cited successive rate increases, each of more than 30 percent, in 1998-1999 and again in 1999-2000. In this trade, a new conference was established in 1999. The conference “enjoys a market share of greater than 90 percent” and “has been able to use the power that such a market share affords it to force through these large rate increases,” the ESC alleged. “This trade does not face the same competition from other services as the Mediterranean trades,” the report said.
   The ESC said the survey also showed that price volatility is reduced “in those trades where individual and confidential contracting arrangements were present, under normal market economy pricing where lines compete against each other for business.”
   “It is clear from this that the burden of proof must rest on the shipping lines to justify a unique competition law exemption which allows them to fix prices,” the shippers’ association said, Shipping lines have not provided any evidence that reliable services would disappear or decline in the absence of the exemption of price fixing or rate setting, the ESC said.