Friday, November 22, 2013

Ocean Freight Under Scrutiny as Container Shipping Groups Watched by EU and US Antitrust Bodies

It Seems Now That Notifications of Box Rate Increases Could Count as Collusion while P3 Awaits Decision on its Legality
Shipping News Feature

EUROPE – US – ASIA – WORLDWIDE – In two hugely significant moves this week on opposite sides of the Atlantic we are seeing international regulators once again seeking signs of antitrust activity within the container shipping market. In a subject we have covered seemingly endlessly (type cartel into the News Search box) once again we witness antitrust bodies in the EU and America studying what the freight carriers view as perfectly normal commercial behaviour.

Today (22 November) the European Commission has opened formal antitrust proceedings against a range of container lines in order to form an opinion as to whether the fact that it is common practice to announce box rate increases in advance constitutes unfairly competitive behaviour. Many in the industry will scoff at the timing citing ample evidence that current rates have fallen to unsustainable levels in the past year or so. The fact that so many companies have all decided to announce similar increases at roughly the same time however is what has alerted the authorities to the situation.

The Commission says that since 2009, companies have been making regular public announcements of price increase intentions through press releases on their websites and in the specialised trade press. These announcements are made several times a year and contain the amount of increase and the date of implementation, which is generally similar for all announcing companies. The announcements are usually made by the companies successively a few weeks before the announced implementation date.

The Commission has concerns that this practice may allow the companies to signal future price intentions to each other and may harm competition and customers by raising prices on the market for container liner shipping transport services on routes to and from Europe. The Commission will now investigate whether this behaviour amounts to a concerted practice in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU) and of Article 53 of the European Economic Area (EEA) Agreement.

Investigations of this type are ongoing in the sense that there is no legal deadline for bringing an antitrust investigation to an end. Whilst the Commission has not named the companies under investigation the matter is surely linked to the infamous dawn raids which saw several high profile firms have their offices invaded by EU staff in May 2011.

One of the companies involved in that episode were Maersk Line, also part of the current US investigation into the ‘P3’, the alliance between the Danish group, Swiss based Mediterranean Shipping Company (MSC) and CMA CGM, a grouping of the three largest box carriers in the world. The Federal Maritime Commission (FMC) has announced it will accept further public comment on the P3 Network Vessel Sharing Agreement until midnight Friday, November 29, 2013. The group formally lodged their agreement with the FMC in October, having been prompted to join forces in a bid to cut costs, with continuing over capacity impinging on freight rates and thus affecting company finances.

The deal, which would see the three share vessels under a common management office whilst retaining individual commercial status and control of consignments, as detailed here in June, would authorise the applicants to share vessels and engage in related cooperative operating activities in the trades between Asia, North Europe, and the Mediterranean on the one hand and the US on the other.

The FMC has given itself until Sunday, December 8, 2013 to request additional information from the three or to seek an injunction to prevent the agreement taking effect. Should it decide to take no action the agreement will come into effect immediately. Federal Maritime Commissioner William P. Doyle, commented:

"It’s important to allow the shipping public and stakeholders the opportunity to comment on an alliance such as this that comprises the world’s three largest container ship carriers. I would like to hear from stakeholders who are comfortable with the proposed alliance and those that may not be comfortable with the proposed alliance; and if stakeholders believe the P3 filing needs more clarity and/or other assurances, then I would like to hear their ideas in this regard. I am looking forward to reviewing the FMC’s staff analysis on the proposed alliance and following up with additional questions to the P3 principals."