European shippers say ocean carriers broke contracts, call on regulators to step in

Date: Thursday, January 7, 2021
Source: Supply Chain Dive

  • The Competition Directorate of the European Commission, the European Freight Forwarders Association and the European Shippers' Council sent a letter to the European Commission, accusing ocean carriers of breaking contracts, and are asking the regulatory authority to take steps to investigate the situation, according to a press release and emails from individuals involved in the discussions.
  • Along with contract violations, the concerns highlighted in the letter include carrier conditions for accepting bookings and the ability of ocean carriers to unilaterally set rates, according to the release.
  • The ocean alliances' "respective capacity management efforts have led to the recent hikes in container freight rates," the organizations said in their letter to the Commission, an excerpt of which was shared with Supply Chain Dive. The letter also notes that the carriers' abilities to cut capacity while raising rates earlier in 2020 helped to create the current issues.

The letter to the European Commission comes as ocean rates from China to Northern Europe have jumped 72% between the first week in December 2020 and Jan. 1, according to figures from Freightos.

"All sorts of industries are impacted but some [of] it may depend on the margins companies have; the lower the margins and the lower the costs of the products the higher the shipping costs," European Freight Forwarders Association Director General Nicolette van der Jagt said in an email. "For example, we were contacted by the European associations representing importers of dried fruits, nuts etc. Several of their members have advised that their customers intend to cancel contracts next year as this destroys the margin they may have been able to earn."

Godfried Smit, the secretary general of the shippers' council, said shippers with just-in-time supply chains are impacted the most when it comes to the shortage of containers and limited space on ocean vessels.

A turbulent year in ocean shipping has resulted in multiple regulatory authorities around the world taking a closer look at the industry, as shippers bring them complaints about the practices of carriers.

"We were getting repeated meetings where people were talking about the frustrations with container access," U.S. Federal Maritime Commission Commissioner Carl Bentzel said last month. The FMC has expanded an investigation originally focused on the impacts of the pandemic on the ocean shipping industry to include carrier alliances.

The European freight forwarders' and shippers' associations noted these other investigations in its letter to the European Commission, adding that authorities in China and South Korea were similarly looking into ocean carrier practices.

"The European Commission could on its own initiative start an investigation," van der Jagt said.

Carriers have acknowledged the difficulties in the current shipping environment, but they have said there's not much they can do with their assets booked.

"Vessel capacity is fully utilized, and little excess is available," the World Shipping Council wrote in a letter early last month. Two FMC commissioners last month sent a letter to the council, which is an industry group made up of ocean carriers, warning that refusing export cargo could violate U.S. law.

Carriers say the current environment will eventually return to equilibrium.

"Now is not the time to introduce dramatic change to the systems or processes," the World Shipping Council said in its letter.

Lars Jensen, the CEO of SeaIntelligence Consulting, noted in a recent LinkedIn post that shippers similarly failed to live up to contracts in early 2020 when failing to deliver volume, which resulted in blank sailings.

"What 2020 has done is to clearly exemplify that the whole contractual framework underpinning container shipping needs a reformation – it is neither suitable for shippers nor for carriers when it comes to managing sudden changes in the supply chain," Jensen wrote.


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