Liner shipping and container ports have repeatedly made headline news since 2020 as companies across the supply chains were hit with price hikes and shipment delays. Predictability became a thing of the past. Changes continue to occur and today we witness that the speed of the decline in exports from China has made the blanking strategies of carriers ineffective at stopping the erosion of spot and short-term rates, which are on course to fall below pre-pandemic levels before the end of the year. It has been reported that carriers have suspended a number of services on major east-west trade lanes — probably until mid-January — ahead of the Chinese New Year in an attempt to avoid a collapse in contract rates with more radical capacity reduction plans. Service levels have slightly improved, albeit that they are still genuinely low.
There is no doubt that today we are living not a new normal but a new reality, in which we need to seek to mitigate for risks and ongoing disruptions. Listening to the narratives of the central national banks and the national governments on the changes in their economies they are expecting to make, in particular in the European Union, uncertainty is going to stay with us for some time. This will have an impact on the demand for goods and the reluctance to commit to many fixed arrangements. With a closer attention to the wider economic factors in the way the market is changing and reacting in today’s new reality, and with rising interest rates and low consumer confidence, the question remains how this will impact the market situation in Q1 of next year. Whereas subject matter experts (SMEs) were already driven to the spot market with no access to long-term service contracts, it will be interesting to see how many of the larger forwarders and shippers want to commit to the contract rates, and whether there will be a flight back to the spot market because of uncertainty and the experiences they have had in 2022. Many will be seeking to come to grips with this situation at times when there is a need to rebuild trust between the parties in the chain. There is a looming frustration and anger with many customers about the carrier behavior over the last few years, and rebuilding cooperation will be essential as supply chains will need to continue to deliver as situations of crisis are to come.
In this situation of uncertainty, we should not forget the bigger, long-term picture as times of regulatory reviews. The dramatic changes that have occurred in the container shipping market since the renewal in 2020 have shown that the CBER has allowed carriers to benefit from important market developments, such as connected digital information services and vertical integration of supply chain functions, at the expense of the users of liner services, and ultimately consumers.
The ocean shipping market has become significantly concentrated into a field of very few large, global shipping lines following decades of mergers and acquisitions. Currently, the ocean shipping industry has become dominated by three mega-alliances comprised of companies that collectively control approximately 90% of the liner shipping market. Whereas CLECAT considers that there is value in cooperation between carriers ‘consortia’ agreements, to the extent those agreements facilitate efficiencies for the benefit of the customers and users of shipping services and bring service enhancement, removal of antitrust immunity — or what is called in Europe a ’block exemption’ — would not preclude vessel sharing agreements’ if considered pro-competitive and resulting in operating efficiencies. As customers of the container shipping sector CLECAT’s members have lost confidence that this block exemption generates benefits and that any benefits are being fairly shared. A renewal of this exemption is therefore unnecessary and, we believe, detrimental for EU trade.
In addition, the current CBER provides too much interpretative scope for carriers, which protracts urgently needed enforcement actions. Many of these practices are also found in other economies and reinforce the need for the sector’s reform and normalization. After the expiry of the CBER there will be a need for guidance on the application of the EU competition rules in the liner shipping sector, given the special features of this industry. We therefore encourage the development of specific guidelines for this sector to ensure that the competition law framework for vessel sharing agreements is transparent, enforceable, and open to scrutiny at times of market stress.
CLECAT recognizes that transitioning to this new regime, following a repeal of the CBER, would need to be managed so as to minimize legal uncertainty and compliance costs for shipping lines, but believes that with purpose and application there is ample time for this to be accomplished before the expiry of the CBER in April 2024.