‘Collusion’ drumbeat leads to multilateral probe of shipping lines

Date: Tuesday, September 29, 2020
Source: Supply Chain Brain

U.S. exporters and logistics companies aren’t the only ones banging on the government’s door to take action against global container lines for alleged service failures and unfair pricing during the pandemic.

The clamor from global forwarder and shipper organizations about anticompetitive behavior got so loud that five competition authorities, including the U.S. Department of Justice, on Friday established a working group that will meet regularly to share intelligence and coordinate investigations of suspected antitrust violations.

Many buyers of ocean transportation say the carriers have manipulated tight capacity during the pandemic through deferred and canceled sailings, and other measures, to drive rates up, resulting in record profits estimated to top $200 billion last year. A combination of antitrust immunity, a dozen years of consolidation that has left eight major carriers partnering in three alliances and an expansion into broader logistics services and control of data has enabled the largest carriers to dominate the market.

It’s the definition of an oligopoly, argue many users.

The collaboration among the Justice Department, Canadian Competition Bureau, the Australian Competition and Consumer Commission, the New Zealand Commerce Commission and the U.K. Competition and Markets Authority parallels a review underway by the U.S. Federal Trade Commission into whether anticompetitive conduct by large retailers and distributors contributed to supply chain disruptions.

It follows a joint campaign launched last summer by the Federal Maritime Commission and DOJ to ramp up oversight of foreign ocean carriers regarding unfair rates and fees. The FMC is also conducting an audit of whether carriers are using their concentrated market status to overcharge shippers container late fees at ports.

“While the Competition Bureau has offered businesses flexibility in contributing to legitimate pandemic response efforts that benefit Canadians, we want to be clear: We have zero tolerance for any attempts to use pandemic-related supply chain disruptions as a cover for criminal collusion that harms consumers and damages Canada’s economy,” Commissioner Matthew Boswell said in a statement.

Organizations representing cargo owners and freight agents said the collaboration among governments is positive because no single country can properly oversee the conduct of foreign-owned shipping lines and examine their activities within powerful alliances.

The European Union was notably absent from the liner shipping investigation. It is the largest container import market after the U.S., but regulators there appear to be taking a wait-and-see approach.

Last week, the European Association for Forwarding, Transport, Logistics and Customs Services (CLECAT) called the global container lines a cartel and requested the European Commission investigate the degree of concentration, consolidation and coordination within the industry. The request repeated one made by a consortium of shipper groups last April for an investigation into market conditions and the behavior of the carrier industry.

“The profiteering of ocean shipping carriers resulting from their capacity management strategy allowed them to acquire the market power and financial war chest that they are now using to vertically integrate, increase rates and drive out independent freight forwarders in the downstream market. New discriminatory conduct towards freight forwarders, the key organizer of service delivery across all modes of transport in door-to-door operations, will ultimately disadvantage shippers and end consumers because of restricted choice in services and higher rates,” it said in a statement.

Various freight interests have warned for years that industry consolidation, combined with carrier participation in vessel-sharing agreements, is tilting the playing field against customers and that container lines should no longer enjoy exemptions from competition law. The dislocation of shipping networks and regular circulation flows of containers resulting from the economic shock of COVID and subsequent record demand for consumer goods jammed up ports worldwide, exacerbating inefficiencies that predate the pandemic.

Carriers have been able to defer or cancel bookings, use their alliance structures to shift vessels to the busiest trade lanes while leaving other regions short of capacity, and be selective about how much export cargo to accept.

In Australia, backlogs were made worse by work stoppages, resulting in shipping lines omitting major ports, congestion surcharges, slow container returns, gridlock at empty container yards and fewer empty refrigerated containers being repositioned in the market.

Exporters once benefited from favorable rates as carriers sought backhaul business but now are getting left behind as vessel operators quickly collect containers so they can pick up more high-margin import loads. Now they are fighting over available equipment and complain it can take weeks or months to place a vessel booking to reach key markets, which is driving up spot and contract rates — the same concerns voiced by U.S. agriculture exporters.

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