The Hindu Business Line : Will liner conferences really end?

The ending of liner shipping conferences (to and from the European Union), due in October, is less than six months away but the lines are still trying to protect and expand their immunity from the relevant provisions of the competition law through various means. One such effort centres on consortia and alliances, and the other is a bid to regroup in Asia, according to Global Shippers’ Forum.

Consortia are different from liner shipping conferences, in the sense that they are supposed to be operational groups, not price-fixing cartels. The competing lines combine resources to offer their customers a wider array of services, such as more port calls and higher frequencies. There are strict limits of market share that these consortia can represent on given trades.

A memorandum to the European Commission’s Competition Directorate by the European Liner Affairs Association (ELAA), the association of liner shipping lines, focuses primarily on a proposal to extend the block exemption to cover all slot swaps, exchanges or vessel-sharing activities and activities between consortia and non-consortia lines, to allow joint fixing and determination of sailing frequencies and calls and to cover the allocation of sailings or calls among consortia members.

It also seeks a nod for joint operation and use of port terminals and related services such as storage and lighterage among consortia members, and rules enabling consortia to make capacity adjustments in response to market conditions so that they are not simply restricted to temporary (e.g. seasonal) adjustments, and permission for members of a consortia to jointly fund and operate vessels.

Above all, the ELAA proposes the removal of any reference to market share thresholds and the freedom for liners to establish their own time limits on agreements among consortia members to tie the members in for at least eight years, against the present three years.

Rule changes

The European Commission reviews most legislation every five years and the current block exemption regulation for consortia is valid till April 25, 2010.

The shippers’ groups, as the Global Shippers’ Forum points out, have long supported consortia, recognising their value to shippers, as these alliances enable smaller carriers to offer a range of services comparable to larger carriers through slot charters, swaps and exchanges. But this support has been conditional on strict market share thresholds in order to avoid the risk of creating a dominant player, that might appear as anti-competitive.

The rule changes proposal for liner shipping consortia, as mooted by ELAA, therefore is likely to be scrutinised carefully by the shippers’ groups ahead to public consultation of proposals due to be published in September 2008.

Asian members

Meanwhile, Asia, it appears, is emerging as the new battleground for shippers against liner shipping conferences. At a conference organised by the Swiss Shippers’ Council early this year, the representatives of the European Shippers’ Council drew attention to signs of re-grouping by the liner shipping in Singapore.

The same view was recently expressed to the Shippers’ Voice by the leader of the Asian Shippers’ Council, John Y. Lu.

He points out that the ELAA will be revamping to transform itself into a trade association and further strengthen itself by adding two more offices in London and Singapore, in addition to the headquarters in Brussels.

Taiwan’s Wan Hai and Singapore’s PIL, both leaders in shipping in their respective countries, have joined ELAA as full members as ELAA is reinventing itself from European centric to now include Asian members which is a significant development.

It has been reported that to coincide with the repeal of the liner exemption in EC regulations 4056/86, Far Eastern Freight Conference will cease operations just a day before the EU repeal takes effect on October 18, 2008, and the FEFC chief executive will join ELAA, the organisation established solely to defend the conference system in Europe.

New cartel

ELAA will be coming together with cartel groups like Trans Pacific Stabilisation Agreement and Westbound Trans Pacific Stabilisation Agreement, headed by CEO of APL in Singapore.

The recently reinforced Asia Ship-owners’ Forum, with strong Japanese support, has set up its permanent secretariat in Singapore with a senior official of the Chinese shipping line, Cosco, heading it.

ELAA has been asked by its now 23-strong membership of liner shipping companies to launch a system of information exchange to produce forecasts or demand supply to help the ship-owners better determine the most effective deployment of and investment in vessels.

The move has been criticised by shippers’ groups all over the world as potentially anti-competitive.

Mr Lu, who is also the Chairman of Singapore Shippers Council, told The Shippers’ Voice: “The collective efforts and strength of these cartel groups all based in Asia together will be a formidable force in influencing the Asian Governments in various countries for their fight to keep the status quo intact. If the cartels’ new initiative in Asia becomes successful, this will upset the momentum of the hard-earned reforms sparked off in Europe”.

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