In practice, the lines will be able to absorb
some surplus fleet capacity through further
speed reductions to re-optimise given the
impact of the EU ETS, increasing the proportion of the fleet deployed on ‘multi-regional’
services (e.g., Europe-Gulf-Far East), more
lines operating services independently, and
through adding ports to rotations to reduce
feeder costs (and potentially game-play the
EU ETS to minimise nautical miles between
ports in the European Economic Area).
Scrappage may also accelerate.
An important question is the overall
impact that the end of CEBR will have.
MDS Transmodal’s role in this debate
was to provide the European Commission
(COM) with statistical analyses on fleet
deployment and market shares.
Crackdown?
“See what’s happening
with ocean carriers moving goods in and out
of America. During the pandemic, about
half a dozen or less foreign-owned companies raised prices by as much as 1,000% and
made record profits. Tonight, I’m announcing
a crackdown on those companies overcharging American businesses and consumers.”
So, will this legal change make a difference?
The degree to which the World Shipping
Council campaigned to retain CEBR suggests that it will make a difference. Then
again, it may be that the major lines were
already adapting to a decision they had
anticipated. The 2M Alliance will complete
its break-up in 2025. The very largest carriers
are likely to operate their global networks on
a stand-alone basis or with support from the
smaller players; there may even be a further
consolidation because the nine leading lines
cannot each sustain global networks alone.
While for smaller markets, lines may be able
to make a case that market shares above 20%
are in the wider interest, this will not be the
instance for the larger markets.
The impact may extend beyond the
lines themselves. Page 32 of the COM staff
working paper discussed the relationship
between CEBR and the container terminals
that the leading lines also control, implying
that CEBR also protected the relationship
between lines and these terminals, and its
end could raise questions about the rights of
equal-term access. Such uncertainties may
be compounded where different regulators
(on a trade route) have differing rules; some
(e.g., Singapore) allow up to a 50% market
share for a given consortium.
To raise awareness and to question
Rather than make a firm prediction,
we put forward three potential outcomes.
Firstly, one that does not favour the lines
and to which an excess supply weakens
their position. The uncertainty that may
apply to the relationship between terminals
and lines post-ending of CEBR may play to
the advantage of the non-liner major stevedores, who did not have the leverage to
make super profits during COVID. These
stevedores seek to develop a closer relationship with shippers, which will improve
their ability to provide value-added services
and onward transport services (directly or
by sub-contract). This is already happening; stevedores own companies feedering
containers (DP World – Unifeeder, Peel
Ports – BG Freight Line, Abu Dhabi ports
– Safeen Feeders, etc.), and ports contract
for space with railroad operators. At the
same time, port-centric distribution hubs
secure cargo to an individual port. The
lines themselves come under increasing
pressure to offer the most cost-efficient
services, leading to further consolidation of liner services. Non-vessel operating common carriers expand their port-centric distribution centres and, likewise,
their capacity purchasing from the lines.
Quite clearly, this may not be attractive
to some of the shipping lines. The ability to
make profits by charging an economic rent
to pass through a port will pass to the ports
themselves. The step taken at Jebel Ali is
worth noting, where DP World announced
that cargo owners, not the lines, will pay
terminal handling charges.
The second scenario favours the lines.
If market shares do not exceed 20%, an individual shipping line will continue to vertically integrate (including with terminals,
inland transport services, and door-to-door
logistics). In an environment where scale
economies are crucial, any share less than
20% could, therefore, be uncompetitive, and
a very small number of look-alike global
vertically integrated operators emerge. Ports
whose terminals are not included in such
networks may find it challenging to remain
in the market. Individual lines (and two of
the existing ones already reach this scale)
are supported by a range of sub-contractors
(feeders, third-party logistics, etc.) who are
effectively rate takers; the advantage will lie
with the lines. The relatively broad definitions of markets may be such that within
these, sub-markets remain oligopolistic.
Outcomes may not be so extreme, and
much may depend upon the legal interpretation of the new regulatory environment.
The World Shipping Council may have
a point that change will generate legal uncertainty (but that’s in the nature of change).
Thirdly, a possible course of events in
which nation-states and regulators take
a more proactive approach. Given the problems shippers faced during the pandemic,
the decision to terminate CEBR despite the
position that the lines have taken, and the vast
challenges faced to decarbonise the industry, global bodies may choose to examine
whether the current industry structure serves
the public interest to promote trade. Such
an examination may consider that regular
and reliable liner shipping services should
be seen as a global trading utility, providing
a minimum level of connectivity, frequency
and reliability (including to emerging economies). In these circumstances, it could be that
lines will find themselves being obliged to
offer minimum levels of service to individual
nation-states to be authorised to operate at
ports in their countries.
We do not suggest which, if any, of
these ‘travel directions’ might be followed.
However, one of the effects of the industry’s
reaction to the pandemic has been to raise
awareness of the vulnerability of world trade
to investment and operational decision-making by a relatively small number of companies and to question the level of resilience the
industry offers.