Liner ‘oligopoly’ a major concern to shippers

8/14/2017

The increasing concentration of market share among an emerging “oligopoly” of major container shipping groups and alliances is already reducing service standards for customers and could drive up freight rates further, according to shipper representatives.

Fabien Bequelin, Maritime policy Manager at European Shippers’ Council, told Lloyd’s Loading List that the emergence of a “liner oligopoly” was now a huge concern for shippers on a number of levels and needed to be addressed by regulators.

Bequelin was responding to recent reports highlighting the growing power of lines within the container shipping industry, which is due to return to profitability this year on the back of an “unprecedented” 16% estimated increase in average global freight rates, according to Drewry. However, the analyst said pricing was now being supported by oligopolistic behaviour due to recent industry consolidation which has seen the number of global shipping lines fall from 20 to 11 in just two years.

“First are the operational concerns,” Bequelin said. “It becomes more and more complicated to organise transport operations with fewer and fewer partners − some are not taking dangerous goods or not serving a precise port, for example.

“Then it is a concern in terms of the mindset of carriers. Unfortunately, carriers these days are not in a partnership mood with their customers. They are living in their bubble where they take decisions for their own interest without considering customers, the interest of the goods, or even any other stakeholders in the chain, which is a big problem.”

Benquelin said that while shippers were not against collaboration between carriers if this improved services, at present tangible benefits were difficult to discern. “The relationship is not balanced between the carrier and the customer, and this is not sustainable,” he added.

“When looking at North Europe to Asia and back, we can say that there is no competition − or very little − in the market with so few alliances. The problem is that there is no competition outside the market that could drive the carriers to be customer-minded.

“There is no real alternative in term of capacity available or in terms of price competitiveness. So shippers are forced to use one of the three players in the market.

“Furthermore, if you look into the detail, the market is even worse because many port-to-port pairs are only served by one alliance, so in many cases you don’t have any choice.”

He said the original idea of alliances − to make serving niche markets economically viable − had now instead become the norm on East-West Trades because over-ordering of new vessels had forced lines to find ways of rationalising operations.

“We are living in 2017 and the second round of alliances − the first one was very disappointing for shippers,” he said. “It was presented as a way to improve the quality of services but it has not − the number of ports called has decreased, lead time has increased, etc.

“We, as ESC, are constantly monitoring the market and we will be able to see what is the real impact of this second round of consolidation. This will give us lots of valuable information for the revision of the European Commission’s Block Exemption Regulation (BER) or any other competition topic.

“We expect competition authorities, mainly in Europe, to revamp regulations regarding the liner industry. The Commission should repeal the BER in the coming year, and reconsider Vessel Sharing Agreements, alliances, or whatever you call it, as mergers and acquisitions in the end force carriers to submit a public file to competition authorities before being allowed to enter into such co-operations. Furthermore, discussions with other competition authorities should be continued.”

He also called for a change in mindset from European regulators who should focus on preventing competition abuses, not curing them after offences had already been committed.

“This approach would have prevented some problems like the capacity crunch we had at the beginning of this year,” he added. “This resulted in millions of losses of sales and a loss of competitiveness around Europe.”