FMC report could revive regulation debate

   The debate about how the container shipping industry should be regulated may be revived with the release of a major report by the U.S. Federal Maritime Commission on Thursday about the decision by the European Union to end the so-called “block exemption” for liner companies under EU competition law in 2008.
   In a telephone interview, FMC Chairman Richard A. Lidinsky Jr. said the central conclusion of the report was positive for U.S. shippers.
   “Most armchair economists or antitrust experts at the time said what the EU did is going to start this chain reaction where the U.S. shipper is going to pay more, where you were going to see rates increase in the Pacific to subsidize what was done in the E.U.-Asia trade,” Lidinsky said. “That was the central core question of the study: did this action by the EU hurt U.S. shippers?”

Lidinsky

   “The answer is N-O. There is no harm relative to what the EU did. There is no significant difference in rate levels, pre-, post-repeal.” Lidinsky said.
   Comparing changes in average revenue in the eastbound Far East/U.S. trade and the westbound Far East/Europe trade before and after the repeal, the report said differences “appear to have been trivial.”
   “Average revenue per TEU declined by $150 in the Far East/U.S. trade, and by $141 in the Far East/EU trade, suggesting that the repeal of the block exemption had little or no effect on average revenue or freight rate levels in the largest U.S. and EU import trades. A comparison between the westbound U.S./Far East trade and the eastbound Europe/Far East trade shows a similar minor difference in the U.S. and EU export trades. On a pre- and post-repeal comparative basis, average revenue per TEU increased by $149 in the U.S./Far East trade, and by $125 in the Europe/Far East trade.”
   Concerns about the EU’s block exemption repeal were raised during comments to the U.S. Antitrust Modernization Commission in 2006 and in a 2008 report from the Congressional Research.
   The major difference between the liner shipping regulations in Europe and the United States is that the United States allows carrier rate discussion agreements to operate in U.S. trades, while they are prohibited in EU trades.
   In late 2009 and early 2010, there was an outcry by some shippers about the lack of capacity in the transpacific trade, and one of the findings in the report zeros in on the effect of discussion agreements may have had on capacity.
   Repeal of the block exemption by European regulators “appears to have resulted in relatively less capacity being removed from the Far East/Europe trade – A result that suggests that, in the absence of a discussion agreement in the trade that is able to exchange more-or-less real time information on anticipated demand and available capacity, lines tend to maintain more capacity than they might when a trade-lane-based discussion forum exists.
   “The fact that the Far East/Europe trade experienced higher levels of capacity utilization might provide some explanation why less capacity was removed relative to the U.S./Far East trade.”
   But the report also noted the fact that the Europe-Asia trade uses “very large vessels that cannot be economically redeployed in other trades is also a likely factor.” That trend has continued in a dramatic way in the past year, with massive numbers of ships with capacities of 10,000 TEUs to 18,000 TEUs being ordered by liner companies.

Oberstar

   The last major piece of legislation that sought to change shipping regulation was a bill introduced in 2010 by former Rep. James L. Oberstar that would have removed antitrust immunity for the liner industry in the U.S. trades. It went nowhere after he failed to be reelected that year, and no one in Congress has picked up his mantle and pursued the shipping regulation issue since.
   The Oberstar bill was supported by the National Industrial Transportation League, the nation’s largest shipper group, which said it would have prevented liner companies “from discussing or agreeing upon rates and charges, including guidelines that form the basis of pricing services for their customers.”
   Release of the new report could have members of Congress asking questions about ocean shipping regulations next month or so when Lidinsky testifies about his agency’s 2013 budget or when he appears before the Senate to be confirmed for a second term at the FMC along with new Obama appointee William P. Doyle.
   Lidinsky said the decision about whether to reopen the debate about shipping regulation is up to others.
   “All we have done, we believe very well with our good staff who prepared this, was to provide the facts – sound data, sound charts where arguments can be made from facts.
   “The debate is not ours to make, the debate belongs to the parties who are taking positions,” he said. “We remain neutral on that question, but we certainly see there are strands of this report that can be taken by either side and taken to enhance their case.”
   But Lidinsky said the report is large enough that it will probably take some days or weeks for it to be digested – when the forward is included, the report is 365 pages long, “so one wag here said a page a day will keep the doctor away,” he said.
   Neither the World Shipping Industry, which represents the liner shipping industry, nor the National Industrial Transportation League, had an immediate comment.
   Lidinsky noted the period encompassed by the study ran through the end of 2010, and developments since then might be worthy of follow-up. — Chris Dupin