Drewry analyst warns that EU rule changes could reduce rather than increase container competition

As reported in IMN yesterday, the European Commission has decided not to renew the Consortia Block Exemption Regulation (CBER), having previously renewed it twice.

The shipping alliance exemption expires on April 25th next year. Shippers generally welcomed the news.

Nicolette van der Jagt, director general of the European Association for Forwarding, Transport, Logistics and Customs Services (CLECAT) said that the organization was “pleased that the commission has listened to the voice of the customers, freight forwarders and their shipper clients. For many years, we have told the European Commission that the regulation is no longer fit for purpose.”

The British International Freight Association (BIFA) urged the UK government to follow suit. BIFA director general Steve Parker said that “the EC has taken a sensible decision and the UK government should follow suit to ensure that shipping lines in future will be subject to competition law”.

But Drewry senior manager of supply chain research Simon Heaney warned that the decision by the EC could have unintended consequences that could work against shippers’ best interests.

“Firstly, there was no compelling case that carriers abused market power during the pandemic. Such was the extraordinary impact of Covid on supply chains that freight rates would have soared with or without the CBER. Secondly, the hoped-for increase in competition will be stymied by legal uncertainty and extra bureaucracy”, wrote Heaney on LinkedIn.

The EC itself attempted to dilute the blow by trying to claim that scrapping the CBER might not make much difference, as it would not amount to a prohibition of cooperation between carriers. This would still be possible provided it was compliant with general competition rules (as per the Horizontal Block Exemption and Specialisation Block Exemption Regulations).

Heaney was sceptical at this. He said that the carriers might hesitate to continue their current consortia agreements because of the danger that they would be exposed to potential legal action .

“By effectively coercing lines to operate independently, the logical conclusion is each carrier will have to downsize service portfolios in terms of frequency and connectivity”, wrote Heaney.

And the result of that would be a reduction rather than an increase in competition on a port-pair basis. That in turn would push up freight rates.

Drewry MD and head of supply chain advisors practice Philip Damas provided his own cliff notes of Heaney’s careful analysis, The decision, said Dumas, would “result in worse service for shippers and less competition”.

2m, ONE and THE Alliance are the three main “consortia”, and market views were that some divorces would be rushed through. With the alliance lines considering standalone services, that could accelerate mergers and acquisitions – once again, causing a reduction in the level of competition rather than an increase.

Alphaliner however said that it did not think that the change in rules would have much of an impact in the real world. It said that the major alliances, the 2M, ONE and THE Alliance had all sought EU antitrust clearance. It also noted the realpolitik of the situation, observing that “CBER’s abolition might have been politically necessary, given its opposition by many forwarders and port operators increasingly competing with the large, integrated carriers”.

Heaney had noted that previous reviews of CBER had “stirred up long-standing grievances against carriers, but other than providing an opportunity to vent, they were ultimately renewed”, while noting that “this latest review occurred in even more febrile times”.

He observed that in the US the FMC had been another part of what looked like global carrier bashing “which became a bigger sport in the wake of their extreme profits made during the pandemic”.

The next question, of course, is how will the US react to the decision by the EC? Will it see it as a green light to take even tougher action against the (mainly European and Asian) carriers, who have been painted as ruthless exploiters of homegrown US companies attempting to make a living.