FMC Says U.S. Liner Trade Not Impacted by EU's Repeal of Block Exemption
On February 16, 2012, the Federal Maritime Commission released its 350 page study on the EU's 2008 repeal of its Liner Conference block exemption. The Study’s primary finding is that through 2010, the repeal of the block exemption did not appear to have resulted in any negative impact on U.S. liner trades. Rates declined to the same degree in both U.S. and EU import trades, and increased to a similar degree in both U.S. and EU export trades being compared.
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If No Negative Impact, Study Asks What Difference Does Anti-Trust Immunity Make?
According to the study, the European Union's repeal of the block exemption does not appear to have resulted in any negative impact on US liner trades. Average revenue per TEU (a proxy for all-in rates) declined to the same degree in both US and EU import trades being compared. Average revenue per TEU increased to a similar degree in both US and EU export trades being compared.
These results raise the following questions: Given the results for average revenue per container in the two trades, what difference, if any, does it make to carriers or shippers if a block exemption or antitrust immunity is granted or withheld for conferences or rate discussion agreements? Given the results of the rate volatility comparison, does discussion and information sharing among rate discussion agreement member lines have a separate and distinct utility apart from the success or failure of the lines’ common pricing proposals (general rate increases and other pricing guidelines)?
The Study recommended further review of trends following the 2006-2010 time period examined. In response to the study's conclusions, FMC Chairman Richard A. Lidinsky, Jr. stated: "We hope the Study will provide a sound, fact-based point of reference for policymakers examining liner shipping regulatory regimes both here and abroad."
The Executive Summary of the study also makes the following points (partial list):
- Trivial impact on revenue. The impact of the repeal on average revenue per TEU appears to have been trivial, a result that suggests that the repeal likely did not, independent of the global recession’s impact, produce a relative decline in average rate levels in EU trades as compared with US trades from October 2008 through 2010. Average revenue per TEU declined by $150 in the Far East/US trade, and by $141 in the Far East/EU trade. A comparison between the westbound US/Far East trade and the eastbound Europe/Far East trade shows a similar minor difference in the US and EU export trades. On a pre- and post-repeal comparative basis, average revenue per TEU increased by $149 in the US/Far East trade, and by $125 in the Europe/Far East trade.
- Increase in EU rate volatility. There appears to have been an increase in rate volatility in the EU trades, a result that suggests the possibility that the activities of the discussion agreement in the Far East/US trade may have had a dampening effect on rate volatility. However, other factors, such as the prevalence of annual contracts in the Far East/US trade and the difficulty in redeploying very large vessels from the Far East/North Europe trade, may also have contributed to the differences in rate volatility.
- Small increase in market concentration. Following the repeal, there appears to have been a small increase in market concentration, a result that suggests that, in the absence of a forum for carrier discussions and information sharing, market concentration may increase slightly more rapidly.
- Relative decline in market share. There was a relative decline in market share stability that may be related to rate volatility and market concentration -- Market share stability noticeably declined in the Far East/North Europe trade in the post-repeal period. That was also the trade in which relative rate volatility and market concentration appeared to have increased. In contrast, there was increased market share stability in the Far East/US trade.
(According to the study, the two legislative measures that provide the context for this study are the Ocean Shipping Reform Act of 1998 (“OSRA”) that took effect on May 1, 1999, and European Commission (EC) Regulation No. 1419/2006 that repealed the EU liner conference block exemption.
The former achieved certain reforms while allowing continued antitrust immunity for liner agreements with rate authority. The latter eliminated such immunity in EU liner trades by repealing the conference block exemption, but allowing immunity to continue for “consortia,” which are roughly equivalent to vessel sharing agreements under FMC regulations, below a given market share threshold.
In practical terms, the main difference between the two regulatory approaches is that US regulations, based on OSRA reforms to the Shipping Act of 1984, allow carrier rate discussion agreements to operate in US trades. Carrier rate discussion agreements are prohibited in EU trades.)
Study available here.