A study released by the U.S. Federal Maritime Commission on Thursday finds the repeal of antitrust protection for the liner shipping industry in Europe in 2008 has not disadvantaged U.S. shippers.
On Sept. 25, 2006, the European Union announced the repeal of the regulation that provided a "block exemption" from EU competition law for liner shipping conferences in trades to and from EU members. The change in the law took effect on Oct. 18, 2008.
In summary, the 354-page FMC report finds:
- "Repeal of the block exemption does not appear to have resulted in any negative impact on US liner trades. Average revenue per TEU (a proxy for all-in rates) declined to the same degree in both U.S. and EU import trades being compared. Average revenue per TEU increased to a similar degree in both US and EU export trades being compared.
- "While the activities of carrier rate discussion agreements in U.S. trades do not appear to have increased average rates relative to rates in EU trades (nor to have improved carriers’ revenues), they may have contributed to modestly reduced rate volatility.
- "The repeal of the block exemption may have resulted in a modest increase in market concentration. However, given the lack of concentration in the liner trades studied, such an increase is unlikely to present problems."
The FMC decided in 2010 to study the effect of the repeal. There had been concerns that European shippers might gain an advantage over U.S. competitors when competing in markets such as Asia or that shipping lines might raise rates in U.S. trades to offset rate reductions experienced in the Europe trade following repeal of the block exemption.
"Based on the analysis of available information, albeit over a relatively short period of time, the study found that no significant repeal-driven relative change in rate levels occurred," the FMC said.
The study, prepared by the FMC's Bureau of Trade Analysis and headed by Director Austin L. Schmitt, notes analysis was complicated by the severe global recession, which resulted in a sharp drop in freight rates in 2009 and a big rebound in 2010. (The period covered by the report ran through the end of 2010.)
Another complication for the FMC study was the likelihood that any impact from the repeal would be relatively modest since "market power of the carrier agreements being terminated had already been severely limited by earlier regulatory reforms and legal interventions.
"The repeal likely did not (independent of the global recession’s impact) produce changes in average rate levels in EU trades relative to US trades," the report said.
Conversely, it said "discussion agreements like TSA... have not typically been able to raise average rate levels in spite of the member lines’ ability to discuss and agree upon voluntary rate actions." TSA (Transpacific Stabilization Agreement) includes 15 container carriers operating between the United States and Asia. The agreement has rate authority, but no capacity management authority.
"The findings indicate that the repeal of the block exemption appears to have produced no commercial disadvantages to U.S. shippers. Changes in differences in average revenue per TEU (as a proxy for all-in freight rates) between the eastbound Far East/U.S. trade and the westbound Far East/North Europe trade during the pre- and post-repeal periods appear to have been minor," the report said. "Average revenue per TEU declined to the same degree in the two trades, suggesting that the repeal of the block exemption had little or no effect on average revenue (and freight rate) levels."
A secondary finding in the report is that "existence of a discussion agreement in a trade (or, at least, in the Far East trades) may have some dampening effect on rate volatility."
It notes that the rate volatility in both the Far East/Europe and Far East/U.S. trades increased after the block exemption repeal, "but noticeably more so in the Far East/Europe trade where average revenue fell more swiftly and to deeper depths than in the Far East/U.S. trade, but also recovered more quickly and to greater heights."
The report adds that "given the lack of impact of the repeal on average revenue per container (as a proxy for all-in rates), a discussion agreement’s
potential impact on rate volatility may have more to do with the member lines sharing information and discussing market conditions rather than with their joint pricing proposals, " such as general rate increases.
The FMC report also found there was "somewhat greater post-repeal increase in concentration in the Far East/Europe trade." However, it added there is an absence of concentration in the liner industry as measured by the Herfindahl-Hirschman Index, which is commonly used by economists, or the market share of the top four shipping lines.
The report said numbers suggest that following repeal of the block exemption carriers in the Far East/Europe trade "were better able to maintain relatively higher utilization levels" than were TSA lines, though it said this might be related to the three-month contracts that are common in the Asia-Europe trade versus the annual contracts that are prevalent in the transpacific.
The agency's report discusses existence of the TSA discussion agreement versus the absence of such a forum in the Asia/Europe trade.
"The impact of the repeal on average capacity deployed appears to have resulted in relatively less capacity being removed from the Far East/Europe trade," it said.
The FMC repot said this suggests "in the absence of a discussion agreement in the trade that is able to exchange more-or-less real time information on anticipated demand and available capacity, lines tend to maintain more capacity than they might when a trade-lane-based discussion forum exists.
"The fact that the Far East/Europe trade experienced higher levels of capacity utilization might provide some explanation why less capacity was removed relative to the U.S./Far East trade."
But the study also notes "the fact that the Asia-Europe trade uses very large vessels that cannot be economically redeployed in other trades is also a likely factor."
The FMC added in its study comments that "trends in rates, volatility, and concentration in the Far East/Europe and Far East/U.S. trades beyond the period studied, merit further review." — Chris Dupin