Business, Freight News, Logistics, Sea

FMC report – the ESC responds

[ February 23, 2012   //   Chris ]

The European Shippers’ Council has responded to a recent report by the US Federal Maritime Commission, which suggested that ending of the liner shipping industry’s block exemption from EU competition rules in 2006 has had little impact on shipping rates.

ESC said: “The FMC must be commended for a well-researched report which, however,is top-heavy in terms of data and graphs but rather prudent in terms of interpretation and recommendations. The overall impression gained is that maintaining the status quo in the US regulatory field would be the best option for all parties.”

However, the FMC had failed to recognize the greater transparency and potential negotiability which now exists for fuel surcharges (BAFs) and Terminal Handling Charges (THCs) following the regulatory repeal.

More seriously, said the chairman of the ESC’s Maritime Transport Council, Jean-Louis Cambon, “The FMC seems to have underestimated some of the market differences between the Asia-Europe trades and those of the Asia-Pacific. For example, the higher rate volatility on the former trades is heavily influenced by the increasingly larger ships plying the trades, which cannot be shifted to other routes, and which have added to the scramble for market share to fill the excess capacity which exists under the current economic climate. The higher prevalence and influence of the spot market in Europe-Asia trades is also in part responsible for some of the rate volatility.”

With the recent spate of shipping line announcements of proposed rate increases, Mr Cambon added:”Notwithstanding the self-inflicted dire situation in which the carriers find themselves, it is very remarkable that the date of 1 March be so often adopted by most of them with a largely similar quantum of increase. It is all the more peculiar that, very rarely in the past has a GRI been successful at such a date, so shortly after Chinese New Year, and taking now into account the background of a depressed European economy.”

He further questioned the lines logic in chasing market share, often pricing below shippers’ target levels, and then having to ask for unreasonable increases in one go.: “Going for market share always brings depressed revenue levels for largely unchanged market positions. It is called value destruction and is detrimental to both carriers and shippers.”

However, recent alliance developments do reflect a more mature response from the industry, showing a mindset more concerned with cost reduction, efficiencies and service quality.

However, “a close watch should be maintained on the larger alliances to ensure there is no infringement of normal business conduct. There are mechanisms for removing volatility, and one of the best is to enter into longer term contracts which removes the short term unpredictability from the rates.”

Cambon also warned of the FMC suggestion to re-open the debate on information exchanges. As he said when the idea was first introduced by the lines, he believes it is not as innocent as it may first appear: “The different components of information on capacity, volumes, price index, carrier meetings and so forth as originally proposed may seem innocuous, each taken on its own, but they can combine into an explosive mix, particularly if the historical aspect and aggregation level of data are not respected. We want to be sure that no ingredients will be validated that could tempt people into collusions and anti-competitive practices again.”

He concluded: “Rather than staying with the status quo as implied by the FMC’s report, we should be focusing on the encouragement of more liberalisation with the removal of anti-trust block exemptions around the world, following Europe’s lead”.