This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
The past years have seen a wave of consolidation among container carriers, reducing their numbers operating on multiple trade lanes. Yet, the container industry remains only marginally profitable, and forwarders and shippers keep demanding better service. There are few that recognize that shipping is in fact a service industry, with quality of service being neglected for many years. Carriers have not put effort into this, and the only game in town was to increase scale as fast as possible.
In view of this, it is surprising that the European Commission has proposed to renew the exemption from normal EU competition rules to vessel-sharing arrangements between shipping lines, also called liner shipping consortia. This ignores the views of shippers and forwarders to and from the EU, who are concerned with continuing poor service levels in some trades served by consortia due to overinvestment in capacity and the seeming lack of competitive pressures. What is it about the global shipping lines that warrants this form of exceptional treatment under competition law?
At the same time, we have seen vertical integration in the industry, the effect of which is that the freight forwarders are increasingly competing with carriers offering carrier haulage. Carriers may gain unfair competitive advantage through the exchanges of information between members of consortia on customers and cargo. As also noted in a recent study by the ITF, carriers — some of which receive state aid in the form of shipping funds, exemptions from taxes, and social contributions — are increasingly moving toward integrated models and offering more services, which brings them into direct competition with freight forwarders and service providers. Ultimately, the impact on the customer could be a reduction in competition, resulting in less choice.
Freight forwarders are serving their customers with a very different skill set, seeking solutions and offering exempt management, which is not something in the traditional DNA of shipping lines. Many in the industry believe that forwarders should make better use of supply chain data or risk losing out to shipping lines and IT-driven logistics startups. Given the efforts of the shipping lines to offer more and more door-to-door solutions and attempts to control data, the opportunity for the fragmented freight forwarding sector is to equally use the data, generate and organize it, and make it available for further analysis, which offers value-added services. At the same time, competition authorities should rethink the impact that data has on the industry and consider alternative instruments to the 25-year sector-specific exemptions from normal competition rules.