Recently, the European Commission has decided not to extend the antitrust exemptions granted to shipping alliances, as outlined in the Consortia Block Exemption Regulation (CBER). The current exemptions will expire on April 25, 2024. According to the CBER, shipping alliances are allowed to have a market share of no more than 30% for jointly operated cargo services. The European Commission’s decision not to extend the exemptions is based on the belief that shipping alliances have created new market conditions, particularly evident during the COVID-19 pandemic.
Currently, the container shipping market is dominated by shipping alliances formed through joint operating agreements. However, from a legal standpoint, the behavior of individual shipping companies under the current circumstances does exhibit monopolistic tendencies. For example, the synchronized imposition or elimination of charges such as the Bunker Adjustment Factor (BAF), Currency Adjustment Factor (CAF), and Peak Season Surcharge (PSS) by various shipping companies can be considered monopolistic behavior.
Nevertheless, considering the practical situation where some shipping companies lack the capacity to operate services covering all global routes, the exemption granted to shipping companies takes into account both general legal principles and industry realities.
Based on the legal framework, shipping companies can open new routes at lower costs, meeting the needs of economic development. Smaller companies can also compete with major shipping companies through cooperative arrangements. While shipping companies may engage in certain activities that can be deemed monopolistic, they fundamentally cannot obtain monopolistic profits. Since the adoption of the CBER in 2009, shipping companies have struggled to achieve profitability.
The industry events that occurred around 2016 provide ample evidence of this. In addition to Hanjin Shipping’s bankruptcy, China COSCO Shipping merged with China Shipping Group to form COSCO Shipping, United States President Lines was acquired by CMA CGM Group, and Japanese companies Nippon Yusen Kabushiki Kaisha (NYK Line), Kawasaki Kisen Kaisha (K Line), and Mitsui O.S.K. Lines (MOL) merged their container shipping businesses to establish Ocean Network Express (ONE). Furthermore, with the operationalization of alliances, industry concentration further increased. However, the profitability of shipping companies did not see significant improvement.
During the COVID-19 pandemic, the shipping industry experienced a surge in demand and increased congestion, leading to a significant depletion of capacity and a severe shortage of shipping services. As a result, maritime freight prices skyrocketed, intensifying the conflict between shippers and carriers. Major economies initiated investigations into shipping alliances. However, the investigation results indicated that the fluctuations in maritime prices were entirely market-driven, and during periods of price surges, carriers self-imposed restrictions on price increases due to external pressures. The integration of shipping alliances did not change market conditions but rather represented incidental benefits gained by carriers during the pandemic, causing widespread public dissatisfaction.
The reason for this adjustment is that Europe demanded that carriers relinquish their benefits. Although carriers did not engage in obvious violations during the pandemic, there are ways to compel carriers to relinquish their benefits, as the various monopolistic behaviors exhibited by shipping alliances over the years have provided the rationale for such actions.
The expiration of the CBER does not mean a prohibition on shipping alliances. Instead, it means that individual carriers within shipping alliances will no longer be granted overall exemptions, and each carrier will have to individually face the EU’s antitrust laws, effectively reducing the threshold for penalties. Under overall exemptions, punishing carriers presents two difficulties. Firstly, it is challenging to apply antitrust laws, and secondly, even if antitrust laws are applicable, punishing one carrier would require punishing all carriers within the shipping alliance.
For example, Maersk and Mediterranean Shipping Company (MSC) both belong to the 2M Alliance, and the behavior of carriers within the alliance is the same. To punish MSC, one would have to punish Maersk as well, expanding the scope of impact and inevitably encountering greater resistance. By removing overall exemptions, it becomes possible to individually penalize a specific carrier without involving other companies, which reduces the resistance. This may also incentivize a carrier to report “certain behaviors” of other carriers within the alliance to avoid penalties themselves.
Regardless of the companies involved or the capacity, the Asia-Europe trade route is undoubtedly the most affected. Let’s consider an extreme scenario after the termination of the CBER: the dissolution of shipping alliances, with each carrier independently operating the Asia-Europe trade route. It is certain that if carriers operate the trade route individually, there will be reduced options for shippers.
Under the current scenario with cooperation through shared vessel agreements and the formation of shipping alliances, Evergreen Marine offers seven routes from Chinese coastal ports to major European ports for shippers to choose from. If shared vessel agreements are prohibited, Evergreen Marine would only be able to provide two routes.
With seven routes, it can ensure that there are at least 3-4 staggered departures per week, with a ship departing almost every two days. Taking the CES and CEM routes in Ningbo as an example, their sailing days are Wednesday and Thursday, respectively. If a ship is missed on Thursday, shippers would have to wait six days, clearly reducing their options.
For carriers, the situation is equally challenging because carriers face the issue of vessel-space matching. The vessel schedules and capacities of carriers are fixed, but the booking capacity and shipping times of shippers are not. Assuming that Evergreen Marine’s CES and CEM vessels are both 10,000 TEU capacity ships, the carrier has a capacity of 20,000 TEUs per week. Once the shipment volume exceeds the capacity, container roll-overs and missed shipment opportunities become inevitable.
Under shared vessel agreements, excess cargo can be loaded onto other carriers’ vessels. Without shared vessel agreements, the excess cargo would have to be stored at the ports. This invisibly creates pressure on ports, causing significant fluctuations in container yard operations and terminal activities, affecting the allocation of manpower and space resources.
For small and medium-sized carriers, they would essentially have no access to the Asia-Europe trade route. Perhaps this is also one of the intentions of the EU, to preserve the market share of large European carriers amidst the declining share of the European economy and prevent other carriers from competing with European carriers.
Currently, the industry can only wait and see for further specific actions by the EU. After a period of adjustment and adaptation, the industry will engage in mutual bargaining, and eventually, a stable state may be reached.