Governments and other jurisdictions have facilitated the rise of ocean freight rates and the current supply chain crisis by creating a supportive legal framework for alliances and consortia, reports Splash247 quoting the OECD-affiliated think tank International Transport Forum (ITF) suggests.
Joint fleet capacity management
According to the ITF, many jurisdictions have regulations in place that allowed the cooperation of the largest carriers to create integrated shipping networks around the world and to jointly manage fleet capacity.
This might have been justified by expectations of increased efficiencies from integrated supply chains, but the integration has also created a situation in which local problems can easily become global, ITF noted, adding that a few decades ago, liner shipping consisted of a multitude of regional shipping companies specialised in specific trades. “This regional specialisation would have acted as a buffer and guaranteed that local problems remain local.”
Extreme increases in ocean transport costs impose costs on shippers, which are then passed on to consumers, potentially fueling inflation or jeopardizing shippers’ profitability, particularly small and medium-sized businesses, which have less bargaining power with carriers and are often more reliant on spot markets.
Management of a globalised container shipping industry
The report pointed out that one principal reason, which regulators made possible, could be capacity management of a globalised container shipping industry that shifted ship capacity to trans-Pacific trade lanes in order to accommodate the increased demand for consumer goods in the US causing freight rates on other trade lanes, such as Asia-Europe, to rise rapidly.
Consequently, the authors of the report, ITF’s Olaf Merk and MDS Transmodal’s Antonella Teodoro found that European shippers are paying the price for a US-driven demand boom for consumer goods, US port congestion, and the ability of the global container shipping industry to shift capacity to where profits are highest.
“European shippers are right to wonder why the ocean freight rates to and from Europe have risen exponentially and why it has become increasingly difficult to book cargo space, considering that the European demand for container shipping is essentially flat and port congestion in Europe is negligible,” the report said.
Regulatory initiatives in the EU and the US
Fleet capacity management has become the main element of coordination between shipping lines following regulatory initiatives in the EU and the US in the early 2000s to prohibit joint price-fixing in shipping conferences. “Expectations that this intervention would stimulate price competition and lower shipping prices were confounded, however, by the record-high freight rates since 2020.”
The ITF report argued that competition in liner shipping goes largely unchecked due to the lack of specialised government agencies in this area and that competition authorities in most countries only occasionally review the competitive conditions of the liner shipping industry, often in response to official complaints. “Existing maritime authorities in most countries do not deal with economic regulation.”
The report suggested that the preferred solution would be to limit the possibilities of joint capacity management to introduce more real competition between carriers.
“Competition authorities and regulators could require their prior consent for joint withdrawal by alliances or consortia of ship capacity on relevant trade routes. They could restrict the possibilities of carriers active in alliances to form consortia with carriers active in different alliances. Alternatively, they could require the dissolution of a consortium if the combined market share of its members reaches a certain threshold,” ITF proposed in the Performance of Maritime Logistics report.
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Source: Splash247
