CENTRO INTERNAZIONALE STUDI CONTAINERS
ANNO XXXVIII - Numero MARZO 2020
COMMENTARY: "WALKING THE TIGHTROPE OF ANTITRUST
There is nothing quite like it in the world. The type of
antitrust immunity granted to international containership lines is
certainly not covered in business schools except in those savvy
enough to offer courses in transportation operations and management.
The European Commission (EC), through its Director General of
Competition, proposed allowing consortia of containership lines to
retain their exemption from European Union (EU) competition law.
While this has been in place since 2009, the exemption was set to
expire in April 2020. The proposal is for a four-year renewal. In
this setting, containership lines may form consortia (i.e.,
strategic alliances or discussion agreements) without fear of
running up against charges of antitrust activity leading to
excessive market control.
"Even the United States offers limited antitrust
immunity to international containership lines by allowing discussion
agreements among the carriers. These are filed with the Federal
Maritime Commission (FMC)."
The EC's assessment of current market conditions led it to
recommend a block exemption regulation (BER). The 2009 BER was
granted just one year after the EU removed the BER on the more overt
form of antitrust activity known as liner "conferences."
This form of joint rate-making (i.e., price-fixing) had been the
norm since 1875 and was built into the culture of the industry.
A BER on the supply side of the ocean carrier market is not
regarded well by most shippers on the demand side. The World
Shipping Council (WSC), which represents the carrier side, is
pleased with the EC's judgement while other shipper councils
representing consignors and consignees are not. In fact, the WSC's
19 carrier membership represents about 90% of international carrier
capacity. Other entities that deal with carriers may not be pleased
either. These include freight forwarders, ports and terminal
operators. At this stage of the debate, the demand side is simply
hoping for some amendments to the BER since outright abolition is
not the EC's position. One suggestion from the European Shippers
Council is to change the BER from a 30% threshold of trade lane
activity to 25% in order to trigger an investigation by the EC into
market dominance. Of course, the threshold had been reduced from 35%
to 30% when the switch from conference to consortia BERs took place
Even the United States offers limited antitrust immunity to
international containership lines by allowing discussion agreements
among the carriers. These are filed with the Federal Maritime
Commission (FMC). Business students might be surprised to hear that
it is U.S. policy to grant such a degree of market protection to an
industry that is mostly foreign-owned. Even as the industry moved
away from U.S.-flagged vessels to flags of convenience (e.g., those
granted by Liberia, Panama, etc.) the protection remained. Such is
the prominence and necessity of international container shipping to
the U.S. economy.
Yet in 2017 a meeting of the industry's top CEOs in Sausalito,
California was raided by antitrust officials wielding subpoenas for
information. This nearly two-year investigation was ultimately
closed by the U.S. Department of Justice (DOJ) in February 2019 with
no charges filed. There was nothing clandestine about the meeting.
It was one of the biannual meetings of the International Council of
Containership Operators (affectionately known to some as the "Box
Club"). Several of its CEOs are members of the WSC as well.
U.S. antitrust officials do indeed sit in on these meetings to make
sure that the discussions do not veer into overt price-fixing. The
group can discuss pricing guidelines (i.e., methods) but not actual
prices. These guidelines are also taken by the membership to be
voluntary when they set their individual freight rates. Anything
more than that would be akin to cartel-like behavior.
Nonetheless, the demand side of the market sometimes raises its
suspicions. In other words, when do guidelines become price signals
among the CEOs? It certainly is interesting that DOJ felt it
necessary to open a formal investigation into an organization it
immunized. It was likely in response to recent consolidations among
the world's largest container lines. Of course, the FMC approved all
of these alliances in the first place and is aware of the
inter-carrier discussion agreements. Thus, the regulators have quite
the balancing act to perform.
This limited antitrust immunity was codified in the Ocean
Shipping Reform Act of 1998 (OSRA), which prohibited carrier
conferences along U.S. trade lanes. What did the carriers receive in
return for this loss in market power? A lifting of the prohibition
on negotiating confidential service contracts with preferred
shippers. Naturally, big shippers like Walmart and Target were more
than happy to leverage their ability to fill capacity on
trans-Pacific routes from China as international supply chains went
into high gear. The power of conferences was greatly diminished
anyway due to this hybrid of carrier cooperation and competition.
The FMC is the regulatory interpreter of OSRA. It is also
important to note that this limited protection applies only to
foreign-flagged carriers. Jones Act carriers (i.e., those performing
domestic transport) do not enjoy the protections codified in OSRA.
In either case price-fixing is illegal and DOJ has successfully
prosecuted cases involving international and domestic trade lanes.
"the current model of limited antitrust immunity may be
the only way to stabilize an inherently unstable mode of
A recent case involved Wallenius Wilhemsen Logistics (WWL), "K"
Line Japan, NYK Japan and CSAV. Each paid fines in 2016 for
price-fixing along trade lanes leading to the Port of Baltimore. In
this case it involved roll-on, roll-off shipments of automobiles and
trucks. WWL's fine after pleading guilty was $98.9 million. A case
in a Jones Act trade lane involved Horizon Lines, Sea Star Line and
Crowley Maritime paying fines in 2012 related to price-fixing along
the U.S.-Puerto Rico trade lane. Horizon Lines pled guilty and
agreed to pay a $45 million fine (though it was reduced to $15
million). The complainants in this case were The Kellogg Company and
Both sides of the ocean carrier market have one thing in common
- each wants certainty. Of course, each side differs on what ought
to be certain. The carriers will claim that they are only discussing
availability and sharing of capacity (i.e., operational issues). One
can argue that this leads to efficiencies through cost control which
can be passed along to the customers.
The demand side counters that covert price-fixing (rather than
innocent sounding pricing guidelines) serves to keep freight rates
higher and not lower. Also, as some claim, carrier operations can
involve an alliance speaking as one group when negotiating contracts
with tugboats, port operators, etc. A more mercantilist argument may
also suggest that foreign-based carriers, to the extent they do try
to lower rates, do so only for the purpose of squeezing out
non-members in a given trade lane. So, the argument would go, the
alliances would be good for customers only in the short run.
The EC and the FMC regulate an industry with a past legal
practice of price-fixing. More of the carriers are foreign and they
are further consolidating. Just three alliances control 80% of the
world's container vessel capacity. Their dominance is centered in
Europe-Asia and Europe-U.S. trade lanes.
The 2M Alliance is made up of four lines of which Maersk and MSC
are the world's two largest. The Ocean Alliance's six members
include OOCL and CMA-CGM, the world's third and fourth-largest.
Finally, THE Alliance's six members includes Hapag-Lloyd, the
world's fifth largest.
Despite this the industry is characterized by over-capacity.
Also, an increase in Triple-E class vessels promises to exacerbate
this problem in the years to come. These large vessels of more than
18,000 TEUs provide economies of scale and lower costs per TEU. But
the supply chain effects are not always positive. Since liners need
fewer vessels when switching over to the largest ones, this means
that it takes longer to load and unload them at those ports able to
handle them. Thus, from the perspective of the demand side of the
market, response time and flexibility are diminished. Only the
mega-consignors are able to easily adjust to mega-vessels.
Take an industry with huge capital costs, long lead times in
acquiring vessel capacity and couple that with the uncertainty of
global market conditions over that long time period. In this context
it probably never seems like a good time to invest in fleet size.
But periodic investment must take place and it is always a
risk-taking exercise. Unless the EU and the U.S. have the stomach
for regulating international containership lines like public
utilities, the current model of limited antitrust immunity may be
the only way to stabilize an inherently unstable mode of
international transportation. It is quite the regulatory balancing
- Piazza Matteotti 1/3 - 16123 Genova - ITALIA
tel.: 010.2462122, fax: 010.2516768, e-mail