Clamour for end to immunity grows

PUBLISHED : Friday, 30 June, 2006, 12:00am
UPDATED : Friday, 30 June, 2006, 12:00am

The impetus to end the shipping lines' immunity from antitrust laws is gathering pace in an industry where consolidation has left more and more countries without commercial fleets, lessening any national imperative to buffer them from the vagaries of a hugely cyclical market.

The powerful Tripartite Shipper's Group (TSG) this week renewed its call for an end to the protection which gives the global shipping community the power to transparently manipulate supply and demand, a right that no other industry (outside of iron ore production, perhaps) enjoys.

Unlike iron ore, where a few multinationals have virtually cornered the market to their benefit and to the anger of China's steel producers, the shipping lines' right to flout regulations prohibiting collusion is cast in law.

The genesis of the shipowners' right to skirt antitrust laws can be found in a bygone era when commercial fleets flew their countries' flags and were looked upon as strategic assets from both economic and defence perspectives.

The belief was the vast sums of capital the shipowners spent on vessels needed to be protected from the volatility of the market to stop potential investors from being scared away.

Their largesse, it was argued, was vital in the movement of global trade and the health of local economies.

It was also held that those vessels needed to be kept safe and close for moving troops and military equipment during times of war.

But industry consolidation for the past decade has weakened nationalist agendas in Europe - Denmark's Maersk Sealand alone has swallowed the carriers of the Netherlands, Italy and England in that period - which is why efforts to repeal the lines' antitrust immunity have gained traction there.

The European Commission for the past year has been looking to abolish what is known as Regulation 4056/86, the act that allows carriers to 'informally' discuss capacity allocation on the various trade lanes, giving them the power to collectively manipulate how much they charge to carry cargo.

The TSG, which includes the 100,000 members of the European Shippers' Council, this week moved to rebuff the carriers' bid to water down but retain their right to take collective actions. It has the support of the United States' National Industrial Transportation League and the Asia Shippers' Council, an amalgam of councils from 19 nations in Asia and Australasia.

That the carriers responded to the latest round of pressure at all shows they can sense the tide has turned on their inherent right to antitrust immunity.

In the past, shipping lines just ignored most complaints in the knowledge that they had government support, their customers being too disparate to organise effectively.

But public abuses of the system grew transparent enough in certain markets to unify their customers just as the regulators' need to protect empires dissipated.

Distrust of the shipping community grew and has been a great motivator, to which a letter to the European Commission from Britain's Freight Transport Association attested last month.

'The FTA believes that the liner shipping sector has demonstrated that it cannot be trusted with special privileges and should be subject to the full scrutiny of EU competition controls,' it told the commission.

In China, a similar move is afoot, albeit targeted at the collusive way carriers apply terminal handling charges, the basket of costs the lines say they incur while calling at ports to pick up cargo. The levy was applied in January 2003 'at the same time and at the same level' for all ports in China outside Guangdong, according to a finding by the Ministry of Communications earlier this year.

Notwithstanding that commonsense dictates costs at each port should vary, the ministry took exception.

'It was not good for the normal price competition among liner companies as it disturbed the order of the international shipping market,' it said after a three-year study.

For their part, the lines say they need the present system, without which 'it will be impossible to provide stable and reliable liner shipping services'.

If that is true, one has to marvel at the other multinational industries' ability throughout the ages to maintain effective service levels even though the price they charge their customers has been dictated in the time-honoured way, by the unfettered influence of supply and demand.