Report: Global Alliances in Container Shipping Could Raise Competition Concerns

Container shipping alliances could raise competition concerns in what has become a concentrated market, according to the latest report issued by OECD’s International Transport Forum (ITF).

In 2018, the top four container carriers accounted for 60 pct of the global container shipping market. Nowadays, the market share of the biggest carrier (19 pct) is larger than the market share of any global liner alliance before 2012, signifying the different character of current alliances, according to ITF.

The report has found several impacts of global alliances which give more market power to carriers. They represent barriers to entry on East-West trades and could function as vehicles for collusion between carriers, as they provide carriers with in-depth insight of the cost structures of their competitors. What is more, alliances give very considerable bargaining power to carriers with regard to ports and terminals.

As explained, the result can be declining rates for port services, carriers requesting additional public infrastructure, and vertical integration by carriers, in particular in terminal operations.

Consequently, the market share of carrier-dominated terminal operators has increased from 18 pct in 2001 to 38 pct in 2017. This could raise competition concerns if dedicated terminals exclude other carriers and if carriers’ terminal investments raise entry costs that make container shipping a less contestable market, the report says.

Speaking about benefits from maintaining block exemptions, ITF said that liner shipping does not have unique characteristics that justify exemptions from competition law, either for liner conferences or alliances. Therefore, generic antitrust rules should apply to all agreements between liner shipping companies with regard to the cooperation that is allowed. The European Commission needs to allow the EU Consortia Block Exemption Regulation to expire in April 2020, the report recommends.

“A repeal of block exemptions is unlikely to result in the termination of current and future alliances, as these could still be authorised under competition law on a case by case basis. However, it would ensure greater scrutiny of individual alliances and thus more effectively deter any anticompetitive conduct in the sector,” ITF said.

Additionally, public expenditures needed for ports upgrade should be based on sound economic assessments, with risk-minimization strategies in place. New port and hinterland transport projects need to be based on sound projections of cargo flows, particularly from shippers. The adoption of common principles for port pricing could help to offset the monopsony power of alliances and support sound project analysis in cases where new facilities are proposed to accommodate mega-ships, according to the report.

Finally, more coherent ports policies should be established in order to clarify roles and reduce risk of creating overcapacity.

2M, Ocean and THE Alliance are the three global alliances which became operational since April 2017. They regroup the eight largest container carriers of the world, representing around 80 pct of overall container trade and operating around 95 pct of the total ship capacity on East-West trade lanes.