EU Competition Commissioner Margrethe Vestager is more or less prepared to extend the major container carriers' block exemption from the EU competition rules, which faces a European review ahead of an extension of the arrangement in 2020.
And Vestager adds that the EU Commission has now accounted for some of the widespread concerns among the carriers' customers, the Danish commissioner tells ShippingWatch.
The various alliances can exist alongside competition in the market"
Shippers have, through their organizations, such as Global Shippers Forum (GSF) and European Shippers' Council, warned that the strong concentration especially among the biggest carriers, which starting this year have gathered into the three dominant alliances, could have a notable negative impact and be detrimental to the service level.
Criticism from the shippers has gained strength this year as the three alliances have introduced and adjusted their new route networks around the world, with the alliances controlling upwards of 90 percent of the capacity on certain routes.
According to Vestager, this concentration in the container industry, which due to the block exemption from regular competition rules is able to form alliances and vessel sharing agreements (VSA), reflects the concentration that characterizes numerous other sectors being monitored by regulators.
"There's currently a strong competition in the container sector. And as long that's the case, we've seen that the various alliances can exist alongside competition in the market," Vestager tells ShippingWatch.
Stability for the carriers
The EU Commission has over the past two years cleared several mergers and acquisitions among the world's 20 largest container carriers, most recently Maersk Line's purchase of German Hamburg Süd, and she fundamentally believes that companies across sectors are ensured stability when political decisions are made.
"Our decisions should be taken at face value. When something is approved, the matter is completely straight. It's important to comply with the competition rules, but companies need time to get to know them," she says:
"My general view is that rules should be changed if one finds something truly wrong about them. Rules shouldn't be changed just to include some nice little detail or some great addition. It's better to say that we're generally on the right track, and that's better than tossing things up in the air. No decision has been made yet (regarding block exemptions, ed.), but that's my approach to changing rules. Continuity and knowledge about how rules work create a sought-after stability," says Vestager.
The EU Commission in Brussels has historically been among the most critical international competition regulators in its view on exemptions for the container carriers, which were in the past able to dictate general rate increases (GRI) through their so-called liner conferences without engaging in real negotiations with shippers.
In 2014, the EU Commission extended its Consortia Block Exemption Regulation to 2020, an arrangement that regulates what the container carriers can and cannot do in terms of EU competition laws, including the prohibition of all kinds of price fixing.
In 2016, the EU Commission in cooperation with the container carriers decided to implement a new practice for when individual carriers announce rate increases.
The Commission was not pleased with the past and longtime approach in which the individual carriers announced general rate increases on certain routes and from certain dates, but not what the rate would change from and to – a practice that, according to the commission, could lead to a form of indirect price coordination for customers.
Carriers now have to list a max price as well as which figures and surcharges the price consists of, and they must inform customers at least 31 days in advance.
"After carrying out a market test of the commitments, the Commission is satisfied that they address its concerns. They will increase price transparency for customers and reduce the likelihood of concerted price signaling by binding the carriers to the prices announced," said the EU Commission in a statement at the time.
However, it is more a fear of poor service with too little space on vessels as well as compliance with sailing schedules, where the new ultra-large container ships currently weigh heavily on the major trades from the Far East to North Europe, that gives rise to criticism from the shipper associations. A situation that, according to the shippers, can ultimately force freight rates up as a result of the three alliances' improved control of container ship capacity.
Vestager notes that the EU Commission has accounted for at least one of the concerns among customers.
"As such, it's also important that we ensure more transparency in terms of pricing. If we can get this while the sector is concentrated in three alliances, this would also give customers another way to relate to the market and how the market develops," says Vestager.
Few players control the market
When all the mergers and acquisitions from recent years have been settled and completed, there will, according to shipping analysts, only be seven carriers left with global reach and market shares of more than five percent.
Analyst firm Drewry says that this concentration will dramatically alter the future container market, resulting in few dominant players – an oligopoly – controlling the market.
For the carriers, this development will limit the major rate fluctuations, as it will be easier for them to manage the combined capacity on the key East-West trades between the Far East and Europe.
English Edit: Daniel Logan Berg-Munch