Clock ticking for Europe to find a new regulatory framework for container shipping

The European Commission should set out a broader set of criteria for measuring the performance of box lines, say industry experts

EUROPE has four years to draft a coherent maritime policy for container shipping that can replace the current consortia rules when they expire, say industry experts.

With the Consortia Block Exemption Regulation renewed until April 2024, European regulators should take advantage of the intervening period to devise a framework that is not focused solely on competition policy, Mike Garratt, chairman of MDS Transmodal, said in a webinar.

That is the approach taken by Brussels when considering other transport modes, Mr Garratt added, as he set out several measurements that could be applied when assessing public interest in the container line sector. These include connectivity, reliability, and capacity deployment.

He has co-authored a paper with MDS Transmodal senior analyst Antonella Teodoro urging the EU to develop new ways of measuring public interest when regulating the container shipping industry.

EU rules covering shipping consortia have been in place since 1995 and the current regulation sets a market share ceiling of 30%.

Alliances that fall within that threshold are automatically exempted from the bloc’s competition regulation as long as they do not collude on prices, restrict capacity except to match demand, or allocate markets and customers between each other.

About 60 consortia serving the EU trades are covered by the exemption. The exceptions are two of the big three global vessel-sharing agreements, 2M and Ocean Alliance, that fall outside the CEBR because of their scale.

However, Mr Garratt questioned whether others also breach the market share limits.

“The 30% share principle on which these rules rely is breached on a massive scale, not a satisfactory way to maintain a policy towards the EU’s freight relationship with the rest of the world,” he said in the webinar organised by Lloyd’s List affiliate InformaConnect.

“While the current model is ‘working’ and cargo is being very efficiently carried, can regulation be maintained, given the market share principle is not respected?”

During the evaluation of the consortia rules that was conducted before Brussels decided to renew the regulation for another four years, opinion was clearly split between two camps, said Stephan Simon, a senior expert and case manager for mergers at the European Commission’s competition directorate.

Speaking in a personal capacity, Dr Simon said five criteria were used in the CBER assessment: effectiveness, efficiency, relevance, coherence, and EU added-value.

Although Brussels is broadly against sector-specific competition rules, Dr Simon said that in the case of liner shipping, many smaller operators and consortia might struggle with compliance costs without the safe harbour and legal certainty of the regulation. Nevertheless, there was opposition from cargo interests and ports to an extension.

“We knew stakeholders were pretty much divided,” Dr Simon acknowledged.

However, despite increased concentration in the container trades after several rounds of consolidation, and only three large alliances on the east-west routes, Brussels nevertheless found that in recent years, both costs for carriers and prices for customers per teu have decreased by approximately 30%, while the quality of services has remained stable. The commission therefore concluded its evaluation by proposing a prolongation of the CBER.

Dr Simon said the decision to renew the regulation for four years rather than five, as in the past, reflected the fact that in 2025, elections to the European Parliament will be held and new EU commissioners will take office. The 2024 expiry date will avoid any clash with the political process the following year.

Alliance benefits

Introducing and moderating the webinar, HFW partner Anthony Woolich said the current version of the CBER dates back to 2009. At that time, the commission said it recognised the benefits of consortia in the liner shipping industry because they generally bring rationalisation and economies of scale that help to improve both productivity and the quality of available container line shipping services.

They also promote technical and economic progress, while users may benefit from the improvements in productivity that consortia can bring about.

When reviewing the block exemption in 2014, the commission concluded that that justification was still valid. Brussels came to the same view in the latest evaluation.

However, Mr Garratt argued that much of the evidence has been based on economic theory and not actual measurements, even though there is plenty of relevant data available ranging from supply, demand, costs, and revenue, to reliability, connectivity, and emissions, on which to judge performance.

One proposal, from the Global Shippers’ Forum, would be to establish independent and more frequent measures of market performance.

This, he said, could provide the basis for Brussels to create a clearer policy framework for the industry.

The webinar, Analysing the EU’s New Consortia Rules, is one of a series that is being planned in the run-up to the postponed Global Liner Shipping conference, which is now scheduled to be held in Hamburg in November.