The Hindu Business Line : Curtains down on liner conferences

Come October, the shipping lines active in Europe will stop fixing freight rates together or managing capacity, thanks to the European Union’s decision to repeal the block exemption to liner conferences on trade routes to and from Europe.

The Trans-Atlantic Conference Agreement held its final meeting a couple of months ago and Far Eastern Freight Conference will close in October on the eve of the Brussels deadline. Many others have already quietly closed. Thus, more than 130 years after the Calcutta Steam Traffic Conference (the world’s oldest shipping conference subsequently renamed India/Pakistan/Bangladesh/Ceylon Conference, IPBC) was set up by the ship-owners in an effort to achieve stability in freight rates on the London-Calcutta trade route, then the world’s most prosperous trade route, these price-fixing associations are about to disappear, at least in Europe.

The European shippers can take credit for it. Since 1994, the EU has been voicing concern over collective rate-setting practices by conferences in Europe, the aim being to dismantle price fixing cartels and increase competition, a mission that has long been cheered on by the European Shippers Council and other shipper bodies around the world.

ESC waged a long campaign against abuse of anti-trust immunity privileges enjoyed by the conferences and finally won a decisive victory after having succeeded in consolidating its political power in Brussels.

Interestingly, in the US also, the shipping conference system has often been frequently challenged by US Congress. The Alexander Committee, whose findings formed the basis of the Shipping Act of 1916, concluded that the conference system, though beneficial for the shipping industry in general, should be heavily regulated.

Subsequently, several committees, such as the Banner Committee and Seller Committee, investigated alleged monopolistic practices in ocean shipping.

They recognised the need for conferences but did not endorse the way the conferences were conducting their business.

The Conferences, concerned about losing their anti-trust immunity, began arguing for a new legislation. Congress reacted by passing the Shipping Act 1984 which increased the anti-trust immunity of carders operating in conferences but gave more counteracting powers to the US shippers.

New anti-trust law in China

The Asian shippers too now threaten a lawsuit over price fixing. A recent report in Lloyd’s List suggests that the Asian shippers say they are ready to bring shipping lines to court should operators collectively fix prices in China, where a new anti-trust law came into force on August 1.

The Chairman of Asia Shippers’ Council, Mr John Lu, was quoted at the end of the council’s meeting in Macau recently that they felt that the newly enacted law in China should take precedence over existing maritime regulations which allowed shipping lines to set rules collectively.

However, there was at the moment no authoritative answer as to which law prevailed and the council hoped the Chinese government would clarify the law and rule that the cartel operations among shipping lines was illegal. The members of China Shippers Association have already sounded out the government, said Mr Lu, pointing out that the ASC supported their action.

China, it might be noted, is a huge exporter with insufficient number of ships. It has to rely on international shipping lines and also protect its shippers. China, unlike Singapore and Australia, has made no block exemption for shipping conferences. The report said that the ASC was prepared to resolve the matter in court should the shipping lines ignore the new law and fixed charges in collective actions. It also suggested that the jurisdiction in the greater China region would be preferred if the matter was taken to court.

Unsuitable system in today’s context

Is the conference system then an anachronistic affront to free market principle? Most accept that the system made sense when the individual ship-owners were too small to operate long-hauled scheduled services on their own. The global carriers of today are large enough to operate independently, or can share space through consortia without any price collaboration. More important, the shipping industry is entering a new phase of corporate consolidation. There have been a few mega mergers in recent times and a few more are in the offing. The merged entities are too big to be subjected to any conference diktat.

The abolition of the conference system thus is to enhance economic efficiency. The expected outcome will be an environment where shipping services and freight rates will be negotiated by the buyer and the seller and will not be settled unilaterally among competitors. That is precisely the way the free market operates and to argue for special case exemptions ultimately smacks of special pleading or an oligopolistic move inevitably working against consumer interest.

But then it is also true that after decades of working together, the transition may not be smooth for the lines as mistakes might occur and weaker players might be pushed to the wall, throwing up myriad problems. Neither will shippers find it as straightforward as they seem to think it will be.

A side effect of the dismantling of the conference system could see Asia-based shippers coughing up a slew of additional charges, a fear expressed by the Hong Kong Shippers’ Council. Much, therefore, remains to be seen as the shippers and shipping lines sail into uncharted waters in a world without conferences.

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