Port Report: Europe’s container shipping anti-trust exemption draws mixed views on industry

European Commission headquarters in Brussels

Industry lobbyists and economics group present opposing views on whether the alliance structure of ocean carriers has worked.

In addition to fuel changes next year, another big uncertainty facing container shipping is its anti-trust status in Europe.  

The industry’s three major container alliances – 2M, Ocean Alliance and THE Alliance – have about 75 percent of the global market in terms of capacity. The alliances are made possible by the European Union’s block exemption regulations, which allow the ocean carriers to cooperate on issues regarding capacity and rates without facing competition regulations.

But that anti-trust exemption is set to expire at the end of April 2020 should the European Commission choose not to renew it. That’s setting up a clash of lobbying efforts on whether container shipping’s alliance structure on the whole has been good or bad for customers.

The container industry’s main lobbying group, the World Shipping Council (WSC), argues that customers benefit from the current alliance structure through lower rates, a higher number of available services and better reliability.

Using data from Drewry, the WSC noted that rates, inclusive of fuel surcharges, for ocean shipping have fallen about 23 percent per twenty-foot equivalent unit (TEU) since 2013, almost in-line with the 25 percent drop in operating costs over the same period of time. The correlation “between rates and costs demonstrates that shippers benefit from reductions in operating costs in the form of lower freight rates including surcharges. This demonstrates a high degree of pass-on of cost efficiencies to consumers,” WSC said.

Although fuel surcharges are viewed by some ocean shippers as a backdoor way to gouge customers, the drop in rates demonstrate that surcharges have not been used as an instrument to inflate freight rates,” it added.

The WSC likewise sees both choice and reliability metrics having improved under the current business structure of the ocean liners.

The United Nations’ trade agency’s scores for trade connectivity, which includes the number of vessel calls and ship sizes, have improved in 19 of 21 European nations over the last five years. “Hence, the formation of larger consortia and mergers and acquisitions in the industry have not reduced, connectivity: on the contrary, it has increased overall,” the WSC notes.

Regarding service reliability, the ocean carriers still have a somewhat poor reputation according to some industry experts. But the WSC notes what the scenario would be in the case of no alliance structure. It uses an example of Maersk and Mediterranean Shipping Company (MSC) offering their services individually rather than collectively under the 2M alliance. On Asia-to-Europe services, MSC would only be able to offer a sailing once every three weeks and Maersk every two weeks in order to fill up their ships. But under the 2M banner, they can fill up their ships on a weekly basis, the WSC notes.

Yet the International Transport Forum, an agency within the Organization for Economic Co-operation and Development, has said these consumer benefits are illusory.

In its own paper on the industry, the ITF said that while rates have decreased, the number of one-time fees facing shippers has increased. Those include surcharges for guaranteed delivery at certain ports along with detention and demurrage charges.

“There is growing evidence that many of the surcharges are not transparent and that it is difficult to link those to actual costs incurred by carriers,” the ITF said. “While these additional costs are not systematically and coherently indexed, they have likely increased over the last years, based on reporting from shippers.”

The ITF notes that reliability has not increased under the current alliance structure. Instead, it has “converged,” as in the example cited of MSC’s reputation for less service reliability being mitigated by Maersk’s higher reliability. “Alliances have contributed to lower service frequencies, fewer direct port-to-port connections, declining schedule reliability and longer waiting times,” the ITF said.

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Michael Angell, Bulk and Intermodal Editor

Michael Angell covers maritime, intermodal and related topics for FreightWaves. His interest in transportation stretches back several generations. One great-grandfather was a dray horseman along the New York waterfront and another was a railway engineer in Texas. More recently, Michael has written about the shipping industry for TradeWinds, energy markets for Oil Price Information Service, and general business topics for FactSet Mergerstat and Investor's Business Daily. When he is not stuck in the office, he enjoys tours of ports, terminals, and railyards.

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