World Shipping Council President John Butler said existing regulations are adequate to manage economic competition and air pollution.
PHOTO COURTESY OF WORLD SHIPPING COUNCIL
In a speech before business leaders in Southern California last week, World Shipping Council (WSC) President John Butler urged global maritime regulators to exercise restraint when deciding how to address economic and environmental changes underway in the shipping industry.
The recent spate of carrier consolidation and restructuring of alliances in response to financial pressures has required operational adjustments by business partners at ports, Butler said in a May 25 speech to the Long Beach Area Chamber of Commerce. However, expanding regulatory authority into all aspects of commercial operations is unjustified because fixing the processes for handling larger, more dynamic cargo flows has nothing to do with competition, Butler explained.
“The existing regulations that govern mergers and carrier alliances are both comprehensive enough and flexible enough that they can flag any issues that require regulatory intervention, while at the same time allowing the fundamental business decisions about what works and what doesn’t work to be made where all such decisions must be made – in the marketplace,” he said, according to a copy of his prepared remarks.
In recent weeks, several carriers in the G6 Alliance and CKYHE Alliance have announced they will split to form the “Ocean Alliance” (CMA CGM, China COSCO Shipping, Evergreen and OOCL) and “THE Alliance” (Hapag-Lloyd, NYK, “K” Line, MOL, Hanjin and Yang Ming). If approved, the new groups will join the existing “2M” alliance between Maersk and MSC.
When carriers are in alliances, they share vessels for their cargo. Those vessels stop at different terminals based on pre-existing arrangements. Consequently, cargo flows to different locations than it once did, putting pressure on terminals, motor carriers and chassis leasing companies to have enough equipment and dockworkers in place where cargo is going in a particular week.
Butler said that congestion that arose at West Coast ports in recent years is not the fault of alliances and can be corrected without government intervention.
“The fact that certain operational issues arose within an alliance is not the same thing as saying that alliances by their nature cause congestion,” the container industry’s top lobbyist in Washington said.
Some have called on the U.S. Federal Maritime Commission to review all aspects of carrier operations within alliances and whether trucking, chassis and terminal capacity at ports is adequate, while in Europe certain parties have suggested ports should be protected from competition to minimize the need for taxpayer investments. The European Commission has ruled against Dutch port authorities that sought a corporate tax exemption from the state, saying other ports in Europe receive state subsidies and that they do not compete against private entities.
“These sorts of invitations to regulators are problematic for several reasons,” Butler said. “ First, they invite regulators to assert jurisdiction beyond the legal boundaries under which those regulators operate.”
“Second, inviting regulators into speculative inquiries about the activities of supply chain players that are not members of the alliances under review would encourage an aimless inquiry that would have no definable objective,” Butler added.
“Third, although governments in many countries regulate to protect competition and the public, those same governments also properly rely on companies in industries of all types to decide how best to deliver the products and services that they offer, and we rely on the innovations offered by those companies to best respond to the signals that the market sends.”
“Finally, these various calls for regulators to engage in broad and undefined experiments in industrial engineering are not backed by empirical evidence or a cohesive economic theory that has even acknowledged – much less evaluated – the many unintended consequences of such an experiment,” he said. “Those of us in industry, academia, and government who speak to these issues must have the humility to acknowledge that there are things we do not know. We learn best by doing, not by theorizing.”
Butler also noted that governments should be careful when it comes to regulating vessel carbon emissions because existing regulations on sulfur dioxide emissions will go a long way towards addressing the issue.
Suggestions to implement carbon taxes on ocean carriers should be weighed against the fact that vessel operators will have so much incentive to reduce fuel consumption because of the high cost of low-sulfur fuel that there will be huge reductions in greenhouse gas emissions, Butler said.
Under an International Maritime Organization (IMO) convention scheduled to go into effect in 2020 or 2025, depending on the availability of clean-burning fuel, vessels at sea must burn marine fuel with a sulfur content of no more than 0.5 percent. The switch is estimated to cost the struggling carrier industry between $30 billion and $60 billion per year, with the container sector paying about 30 percent of that total.
Butler said that experts price the “societal cost” for carbon in terms of health and other impacts at about $25 per ton emitted, but that the cost of burning low-sulfur fuel represents an increased cost to vessel operators that is more than three times the highest estimates for a hypothetical carbon price, or tax.
Plus, he added, the IMO now requires all vessels to implement a Ship Energy Efficiency Management Plan and new builds must meet high design standards for energy efficiency. The IMO is also expected later this year to adopt a global fuel consumption data system that will require all covered vessels to collect, report, and verify their fuel consumption and other information about the vessel. That database will allow the IMO and its member countries to better understand fuel consumption and efficiency in the global fleet, so that better decisions can be made about further means of reducing carbon emissions from shipping.
“The 0.5 percent global sulfur fuel cap, while designed to reduce sulfur emissions, will provide a substantial incentive to increase fuel efficiency in the shipping industry and to lower CO2 emissions– an incentive far greater than any carbon pricing or carbon tax that has been contemplated for any other sector of the economy,” Butler said.