The Federal Maritime Commission, the U.S. maritime watchdog, has seen no evidence of price-fixing by the recently formed ocean-shipping alliances and expects more consolidation from the industry during the worst downturn in 30 years, according to the agency’s head.
In an interview, commission Chairman Mario Cordero addressed concerns of cargo owners and maritime regulators that alliances formed by the top container operators in the past two years might have resulted in secret deals to push up freight rates.
The three alliances, which allow ship operators to save billions of dollars annually by sharing ships, networks, and port calls, now move more than 95% of all cargo across the world’s oceans.
Two of the alliances have been approved by the FMC and the approval application for the third one reached the agency early Monday.
“So far, we see no major issues with the alliances,” Mr. Cordero said in a recent interview at the Danish Maritime Days shipping conference in Copenhagen. “Any concerns we have, we sit down and work it out…it’s progressing well.”
Container ships move the vast majority of the world’s manufactured goods, ranging from food and heavy machinery to clothes, electronics, and furniture.
Industry growth has been depressed for the past three years by slowing global trade, overcapacity and other factors that have pushed freight rates to below sustainable levels and prompted a wave of consolidation, including the formation of the alliances, as ship operators try to stay financially viable.
“More consolidation will be coming,” Mr. Cordero said. “There are expectations that the major container operators will be reduced by as much as half.”
In 2011, 25 big competitors dominated the shipping industry, Mr. Cordero said. Now that number is down to 16.
South Korea’s Hanjin Shipping Co., the world’s seventh-biggest shipping company in terms of capacity, filed for bankruptcy protection in August and is in the process of selling its vessels to bigger competitors.
Japan’s top three shipping companies— Nippon Yusen KK, Mitsui O.S.K. Lines Ltd., and Kawasaki Kisen Kaisha—said last week they would merge container operations to fight the industry’s downturn.
The Journal reported on Friday that Israel’s Zim Integrated Shipping Services Ltd. is looking to sell its global container network and shrink into a Mediterranean carrier. Zim hasn’t joined any of the alliances.
Mr. Cordero predicts that in 2017, 14 out of those 16 big competitors will belong to the three alliances.
“For the ones left outside, it will be very difficult to compete, and I would not be surprised if we have one or two more [mergers] coming from Asia,” he said.
The FMC approved last month the Ocean Alliance made up of France’s CMA CGM, China’s Cosco Group, Hong Kong’s Orient Overseas Container Line Ltd., and Taipei-based Evergreen Marine Corp.
It had earlier approved another alliance—the 2M—between A.P. Moller-Maersk A/S’s shipping unit Maersk Line and No. 2 global operator Mediterranean Shipping Co.
The FMC began reviewing Monday a third grouping, called The Alliance, comprising European and Asian operators.
The alliances said that any cost savings will trickle down to end users.
“The jury is still out whether the expected cost benefits from the alliances will be realized,” Mr. Cordero said. “At this point, the alliances and consolidation are neutral for the American consumer.”
Mr. Cordero said freight rates could rise in the future.
“To be fair, there has to be a more sustainable environment” for the carriers, he said. “But we are monitoring alliances for information-sharing and joint negotiation power that could lead to rate increases.”
Global regulators have investigated and sometimes fined carriers for price-fixing in recent years.
Mr. Cordero said that if alliance agreements result in an unreasonable rise in costs for shippers, the FMC could take measures, including annulling the alliances and barring members from reaching the U.S. coast.
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Source: WSJ
