The Hindu Business Line : Winds of change blowing for liner shipping?

The office of the Director-General of Shipping is to shortly hold a meeting with the Competition Commission of India (CCI) to discuss the issue of anti-trust immunity currently being enjoyed by the liner shipping. The other stakeholders, such as ship-owners and the shippers too, will be present at the meeting.

In April this year, the CCI had written to the Shipping Ministry, urging it to initiate steps to prevent shipping lines from indulging in non-competitive practices. One suggestion was that shipping lines should be free to decide on the freight rates, preferably in discussion with the shippers, instead of going through the conference systems.

Last month, the Western India Shippers Association (WISA) too, in a communication, urged the Shipping Ministry to take such action as would be deemed fit to withdraw the immunity enjoyed, overtly and covertly, by the liner shipping sector, to ensure a fair and competitive environment. WISA also drew the attention of the ministry to the latest developments leading to the curbs already announced in Europe.

The European Commission, acting on the recommendation of the OECD and also on its own findings, issued, in October 2006, an order stipulating that the liner conferences operating to and from Europe would stop enjoying the anti-trust immunity from October 26, 2008. The move has been supported by the Australian Productivity Commission and others. This has come about because of the efforts of various shipper organisations, such as Global Shippers Forum, European Shippers Council and Asian Shippers Council. Indian shippers’ associations come under the ASCOBIPS (Association of Shipping Councils of Bangladesh, India, Pakistan and Sri Lanka), an affiliate of the Asian Shippers Council, a founder member of the Global Shippers’ Forum.

How they operate

A liner conference is essentially a cartel of shipping lines joining hands to operate scheduled cargo services on designated routes, control membership through agreed criteria, charge uniform freight rates, distribute sailings and share cargo and revenue.

The liner shipping conference relates to general cargo (these days containers) and not to bulk cargoes. The conference systems have been in force in various routes, the oldest one being more than 100 years old. A conference exerts control over its members through restraints specified in the system and over shippers by offering guaranteed services at freight rates decided unilaterally by the conference members in exchange for exclusive custom-tied loyalty arrangement, which the shippers can break at their own peril. The anti-trust immunity is block exemption from anti-competitive regulations. Such an exemption, in most other industries, would have amounted to violation of the laws intended to ensure competitive behaviour in those industries.

In India, there is no statute either specifically providing for anti-trust immunity or requiring any preconditions for liner shipping to claim such exemptions. Yet members of the liner conference ostensibly enjoy such immunity as a matter of right, presumably based on the fact that India is signatory to the UN Code of Conduct for Liner Conferences.

The UN Code, enforced in April 1974, provides freedom to conferences for rate-fixing and capacity adjustments.

Changing scenario

There is another point. The advent of containerisation and the consequent emergence of non-conference lines that care little for conference diktat has substantially changed the shipping scenario. Today, the conferences are not able to enforce tariff, or any form of discipline enshrined in the original conference system, even among their own members.

However, the conference recommended rates continue to act as a benchmark, in most cases as upper bound for rates actually charged. Worse, the rise of containerisation has offered an opportunity for liner shipping, covering both conference and non-conference operators, to introduce a series of surcharges and ancillaries as reimbursement of actual costs incurred by the lines.

All these have become possible because neither the MRTP Act nor the Competition Act has any specific provision relating to the competitive aspects of the liner shipping industry. Nor is there any specific maritime transportation practices Act covering these aspects. It might be noted that the Draft Shipping Trade Practices Bill, formulated by the Shipping Ministry and currently before the Cabinet Committee for consideration, too does not specifically dwell on the competitive aspects.

Against this backdrop, the forthcoming meeting between the office of the Director-General of Shipping and the CCI and other stakeholders assumes significance, more so because these developments have already caught the attention of the European Shippers Council and, through it, the European Parliament and the EC.

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