Il futuro del mercato del trasporto marittimo è basato sui contratti confidenziali e non sugli accordi di cartello

L'European Shippers' Council (ESC) ritiene che il futuro delle negoziazioni del trasporto marittimo sia basato sulla formulazione di contratti confidenziali, piuttosto che su accordi di cartello.

La valutazione è stata espressa all'OECD che, dopo il workshop dello scorso anno sulla riforma delle normative per il settore del trasporto marittimo, aveva richiesto all'ESC un parere sulla fissazione di tariffari, sulla formazione di cartelli tra le compagnie di navigazione e sul loro impatto sui caricatori e sulle stesse compagnie. A seguito della richiesta l'ESC aveva effettuato un'indagine tra i suoi associati, tra cui figurano le più importanti società e industrie dell'export europeo, che aveva mostrato come il variare delle rate dipende dagli accordi tariffari stabiliti dalle conference marittime.
Il segretario generale dell'ESC, Chris Welsh, ha ricordato che «le compagnie di navigazione sostengono che la fissazione dei prezzi va a beneficio dei loro clienti». «Come risulta dall'indagine dell'ESC - ha però sottolineato - tali accordi si affiancano semplicemente alla volatilità delle rate. L'indagine, la prima di questo tipo svolta dall'ESC, mostra come i caricatori abbiano vissuto una grande volatilità dei prezzi, con variazioni anche superiori al 50%. Quello che queste cifre non mostrano è l'estrema volatilità che esiste nello stesso mercato, con rate che variano notevolmente di valore negli anni per ciascun caricatore sulla stessa rotta». «L'indagine - ha spiegato Welsh - mostra anche come in questi traffici, dove sono presenti contratti individuali e confidenziali, nell'ambito di condizioni normali di mercato, dove le compagnie competono tra loro, la volatilità dei prezzi si riduce. Ciò non ha sorpreso l'ESC, da quanto il settore dell'autotrasporto ha dimostrato che nel Regno Unito, in questo mercato, dove esiste una serrata concorrenza, le rate sono mantenute ad un livello stabile e competitivo».

Welsh ha ricordato che da una parte le compagnie di navigazione premono per fissare i loro tariffari e dall'altra le associazioni dei loro utenti chiedono la definizione di un mercato basato su accordi individuali e confidenziali. Ma - ha concluso - «dovrebbero essere i clienti a decidere qual è il loro interesse, non le compagnie di navigazione».

Pubblichiamo di seguito il documento che l' European Shippers' Council ha inviato all'OECD.

European Shippers' Council

Maritime Regulatory Reform The European Shippers' Council's submission to OECD
10 April 2001

Contents

The European Shippers' Council
Introduction
The European Regulatory Structure
Impacts of Common Pricing resulting from Liner Conferences, Discussion and Stabilisation Agreements
- Price fixing Increases Volatility
- Conference Discipline and Competition from Independents

Continued
- Profitability and return on investment

Comparisons with Road, Air Transport Markets and other Industry Sectors
Conclusions
Results of ESC Survey on Effects of Collective Activities Among Liner Carriers on Shippers

The European Shippers' Council

The European Shippers' Council (ESC) represents the interests of European industry as users of freight transport services. The ESC represents all commercial, commodity and product groups using all modes of transport, including deep sea liner and bulk shipping, inland waterways, rail, road and air transport services. The ESC membership comprises the key national European transport user organisations in thirteen European countries and a number of European commodity trade associations with a special interest in transport matters, including CEFIC- the European Chemical Council.

In this capacity, the ESC represents the views of European business to a wide range of European Union institutions and international business and inter-governmental organisations, including BIAC, the UNICE Transport Working Group (European industry and employers' organisation), and the ICC. The ESC also regularly contributes to the work of the OECD MTC, Consultative Shipping Group (CSG), IMO and the UN/UNCTAD.

The ESC submitted detailed comments on the OECD Regulatory Reform in Maritime Discussion paper in 2000 and participated in and represented European industry at the OECD Regulatory Reform Workshop in May 2000. In November 2000 the ESC subscribed to a joint Shippers' Tripartite declaration sent to the OECD Secretary General in support of the OECD Regulatory Reform initiative in the maritime transport sector. The Tripartite is a grouping of the major shippers' representative organisations in Europe, North America and Asia.

Introduction

The European Shippers' Council (ESC) welcomes the opportunity to contribute to the OECD discussion on Regulatory Reform in International Maritime Transport. This submission is made in response to the OECD's request for information on the collective impacts of common pricing and competition law exemption on shippers in relation to liner conferences, discussion and stabilisation agreements, and the possible effects of their removal.

To assist the OECD inquiry the ESC undertook a survey of the shipper members of the ESC Maritime Transport Council (ESC MTC) covering the main liner shipping trades to and from Europe as well as a number of smaller niche liner markets. The findings of the survey are contained in the body of this submission, particularly at Annex 1 of this report. The findings also include those of the Dutch Shippers' Council (EVO), the Federation of Swedish Industries and the British Shippers' Council (Freight Transport Association) who were invited separately to submit information to the OECD. The three aforementioned shippers' organisations, being members of the ESC MTC, have participated in the overall ESC MTC survey. The findings and views of these organisations are therefore contained in this submission.

The European Regulatory Structure

Regulation 4056/86- The Liner Conference Block Exemption

In 1986 the European Council of Ministers adopted Regulation 4056/86 which provided a block exemption for liner conferences from Articles 85 & 86 of the Treaty of Rome (EU Competition Rules) (now Articles 81 & 82 as amended by the Amsterdam Treaty). Article 3 of Regulation 4056/86 provides a broad-based exemption for liner conference agreements including common or uniform rates.

Regulation 4056/86 is the most generous block exemption Regulation afforded to any industry sector in the European Union. No other industry sector has an exemption from European competition rules for price fixing. Regulation 4056/86 is also unique in that it takes no account of the effectiveness of competition on specific trades and there is no review mechanism to take account of changing economic or commercial circumstances.

European business strongly opposed the all-embracing nature of the liner conference block exemption prior to the adoption of Regulation 4056/86 in 1986. Both the ESC and UNICE, the European industry and employers' association, strongly argued that liner shipping conferences should be subject to the normal application of EU competition rules. The ESC and UNICE maintained that like other industry sectors exemption from the normal provisions of EU competition policy should be subject to applications for individual exemption, provided it could be shown that benefits to customers were demonstrated and that effective competition was not eliminated in the relevant markets concerned.

The ESC remains opposed to the liner conference block exemption, particularly the price fixing or rate setting provisions. As will be shown in this submission, liner- shipping conferences do not provide freight rate stability or economic efficiency. On the contrary, liner conferences contribute to economic inefficiency, not least because prices are typically based on the costs of the least efficient and most expensive operators .
(Theodore Prince, former Vice President and Chief Operating Officer of K Line "Conferences usually priced based on the costs of the least efficient - most expensive - provider". Comments made in an article on costs in liner services, Containerisation International March 2001)
This perpetuates the least efficient operators in the market, stifling innovation and preventing the most efficient operators for obtaining the full benefits of economies of scale and scope.

Moreover, the advent of individual and confidential contracting, especially in US trades as a result of the Ocean Shipping Reform Act, demonstrates that price fixing is not indispensable to the provision of liner shipping services. Indeed, many of the world's major liner carriers have publicly stated their preference for individual and confidential contracting or similar one-to-one agreements as the most preferable form of doing business in the future.

As is the case in all normal competition policy assessments, the onus of responsibility for those seeking special exemptions from the normal application of competition policy, must rest on the beneficiaries and those seeking such exemptions to ensure that such restrictions on competition are in the public interest. The burden of proof must, therefore, rest with the liner shipping industry to demonstrate the relevance and need for price fixing or rate setting liner conferences in the era of individual and confidential contracting.

The trend of consolidation and the network of cooperation agreements in the liner shipping industry further removes any perceived need for price fixing mechanisms. Indeed, as the table set out below shows the accelerating rate of consolidation through merger and acquisition poses future serious competition problems and is a further reason why price fixing or rate setting not only remains problematical, but a serious impediment to competition in liner shipping markets. Market concentration will inevitably be higher on individual trades, and it is well recognised that price fixing arrangements are particularly likely to eliminate competition in concentrated markets.

The level of market consolidation is in fact more acute in certain trades and particular niche markets than the overall global figures suggest. That is why in any assessment of market concentration it is necessary to analyse the relevant markets in question to determine the real competition impact of consolidation. Moreover, it is apparent that the planned stock market fluctuations to fund investment for market growth and consolidation by a number of leading liner shipping companies will accelerate market concentration in the sector.

This was underlined by Mr Tim Harris, the former Managing Director of P & O Nedlloyd, in an article in Containerisation International "Consolidation through merger is the only answer to improving margins and long-term survival".

Market Concentration in the liner shipping industry

1990 Top 20 lines 40% of total global slots
1995 Top 20 lines 50% of total global slots
1998 Top 20 lines 70% of total global slots
2000 Top 20 lines 76% of total global slots
Maersk Sealand (including subsidiary Safmarine) has 13.7% of total global slots
Maersk Sealand has between 21-23% of total slots of the Trans-Atlantic markets

* Sources: Containerisation International, November 2000
* Drewry Shipping Consultants

The shipping lines have not provided any evidence that reliable services would disappear or decline in the absence of the exemption of price fixing or rate setting from the standard prohibition of price fixing cartels. Every price fixing agreement has the objective of restricting competition and thereby to increase the level of prices above that which would be determined by normal market forces.

Accordingly, the ESC considers that no such public interest now exists, and that the be nefits resulting from cost -based market economy pricing through individual contracting and commercial rate agreements should not be distorted by liner conference rate fixing agreements.

Regulation 870/95 (as amended by Regulation 823/2000) -The EU Consortia Block Exemption

In the late 1980's the ESC asked the European Competition Directorate to examine the impact of liner consortia and vessel sharing agreements. The ESC maintained that liner- shipping consortia agreements were not liner conferenc es , and taken in conjunction with price fixing liner conference agreements, afforded the members of consortia agreements the possibility of eliminating effective competition by being in a position to control both price and supply in the market.

After an extensive investigation the European Union agreed with the ESC. The European Commission agreed that liner consortia agreements were not liner conferences. In 1996 the EU adopted the consortia block exemption Regulation. The Regulation s pec ifically precluded members of a consortium and vessel sharing agreements from fixing maritime prices. The fixing of inland transport prices was also prohibited. In addition, the Commission set trade share parameters for consortia agreements in recognition of the potential of consortia and vessel sharing agreements to distort competition in liner shipping markets. In 2000 the Commission reviewed the consortia block exemption Regulation and made some minor changes, including the conversion of trade s har es into normal market share thresholds. As a consequence, the block exemption only applies to consortia with market shares below 35% (with the possibility of individual exemption up to 50%).

The ESC believes that liner-shipping consortia and vessel sharing agreements are the most suitable form of cooperation between liner shipping operators and has no objection to them under EC competition rules (or US anti-trust law), provided such agreements comply with requirements such as those in the EU consortia block exemption regulation.

In this respect the ESC draws a clear distinction between price-fixing or rate setting liner conferences and liner shipping consortia agreements. The former category of restrictive price fixing agreements provide no benefits to shippers, and have largely been superseded by individual and confidential contracting (particularly in relation to US trades). Liner shipping consortia agreements may potentially provide benefits to both shippers and liner-shipping oper ators in terms of rationalisation of capacity and cost reduction.

European shippers' experiences of common price fixing and liner conferences

Unlike the US, and other jurisdictions, the liner conference block exemption Regulation 4056/86 has not been subject to review or revision by the European Commission. As previously stated Regulation 4056/86 has, unlike other EU block exemption regulations no review provisions, nor is the exemption limited in time by the Regulation.

As a result of growing concerns around the world about the attempts by price fixing liner conference cartels to eliminate competition on the trades in question, there have been a number of important reforms. The most influential of these reforms has been the Ocean Shipping Reform Act (OSRA) in the US which has promoted market economy pricing through individual and confidential service contracts as opposed to tariffs, rate fixing or price setting through liner shipping conferences. The enactment and adoptio n of the OSRA in May 1999 was a response to serious concerns expressed by shippers in the US and Europe about the steps taken to eliminate competition by various liner conferences, most notably the Trans-Atlantic Agreement (TAA) and the Trans-Atlantic Conference Agreement (TACA) during the 1990's.

In Europe, similar concerns by shippers led the ESC to register formal complaints with the European Commission in relation to various anti-competitive practices. These included:

dual rate structures intended to eliminate competition;
fixing of inland transport prices;
capacity management/capacity freezing agreements;
horizontal fixing of surcharges;
collusion and abuse concerning the terms and availability of individual service contracts; and
abuse of a dominant position in connection with market structure and conference membership.

The European Commission has adopted decisions in relation to the above mentioned infringements as follows:

TAA - Capacity management/capacity freezing agreements, fixing of inland prices, and dual rate structures;
TACA- Abuse of a collective dominant position concerning the terms and availability of individual service contracts, and market structure;
FEFC- Fixing of inland prices;
EATA- Capacity management and price fixing between FEFC conference members and non-conference lines;
FETTCSA- Agreement between the FEFC and independents not to discount off published tariffs.

The European Commission approach to date has been to enforce the provisions of Regulation 4056/86 and to deal with abuses that go beyond what is permitted by the EU liner conference block exemption.

The Commission has noted , (Jean-Francois Pons', Deputy Head of the EU Competition Commission, speech to the Containerisation International Shipping Convention 18-19 October 2000 ) however, that the recent market developments in liner shipping reflect what has been happening in other industrial sectors: namely, that globalisation and concentration, together with the emergence of the internet, will shape the course of liner shipping for the foreseeable fu ture. In addition, the Commission has noted that the most profound changes have been on the trades between the EU and the US where liberalisation introduced by the Ocean Shipping Reform Act (OSRA) has led to a dramatic increase in the number of individual service contracts and a substantial decline in the amount of cargo carried at the conference tariff. This was recently borne out by the Chairman of the Federal Maritime Commission, Mr Harold Creel, who confirmed that in 2000, the first fu ll y ear fol lowin g the implementation of OSRA that there were only 3 TACA conference service contracts, in comparison with approximately 650 individual and confidential service contracts in the Europe-US liner trades.

The ESC concurs with the Commission's analysis that globalisation and further concentration of the liner shipping market will shape the future structure of the liner shipping market. However, with regard to individual and confidential service contracts the ESC believes that it is too soon j udge whether such contracts will have the positive effects envisaged as the published tariffs fixed by the liner cartels are likely to influence individual contracts (see below), although based on information from ESC's members there are encouraging signs that it is having a beneficial impact.

It is important to stress, however, that the wider potential benefits available to US shippers through individual and confidential contracts are not widely available to EU shippers. Individual a nd co nfidenti a l contracts are only available and used in US connected trades. In European liner shipping markets outside of the US such contracts are not available, and this potentially amounts to a substantial competitive disadvantage to EU shippers in major trades such as the Far East. In the Europe-Far East liner market and on other liner trades to and from Europe the tendency is for shippers to negotiate rate agreements with individual lines rather than the conference. However, few formal wr itten c ontracts with obligations and service provisions exist and these agreements largely take the form of "gentlemen's agreements". Such individual rate agreements are usually based on discounts from the published tariff. Another major draw back with these agreements is that there is no confidentiality as provided by OSRA and conference lines are free to exchange information on rates and shippers with each other, thereby reducing any competitive advantage provided by individual rate agreements i n non-US related trades. This is substantiated by the findings of the survey of the ESC's MTC members, see further below

Impacts of Common Pricing resulting from Liner Conferences, Discussion and Stabilisation Agreements

Price fixing Increases Volatility

The members of the liner conference cartels seek to justify their cartels largely on the basis that in the absence of these agreements there would otherwise be "ruinous" price competition such that reliable services would not be available, and therefore that the cartels produce benefits to shippers. It is strongly submitted by the ESC that in a competitive market reliable services would be provided and prices would adjust in response to supply and demand conditions, with such prices acting as signals for the entry and exit of capacity as in other competitive markets. As a general proposition, there is no benefit to consumers of stable high prices which substantially exceed the competitive level , or o f an y ma rket structure in which the forces of competition have been muted to such an extent that individual operators do not have the appropriate incentives to maximise their efficiency and lower costs to the benefit of users.

The OECD wrote to the ESC asking for information on rates to assist the OECD Secretariat in assessing the impact on shippers of pricing fixing. In order to assist the OECD the ESC conducted a survey of members of the ESC Maritime Transport Council (the ESC M TC), particularly focusing on the rate volatility which liner cartels assert that they address. The ESC MTC includes the largest EU shippers covering a wide range of goods and commodities. The companies concerned represent a substantial amount of goods shipped from the European Union in the major liner shipping markets. The ESC survey covers the majority of the shipper members of the ESC Maritime Transport Council. They are therefore a good representative sample of the largest EU shippers. Being among st t he larg est s hippers in Europe they are likely to be in a position to negotiate the most favourable competitive terms and conditions.

In this regard, contrary to the liner cartels' claims that these cartels promote price stability the ESC's surveys of price trends through time indicate very considerable price volatility with this volatility being lower in relation to those trades which face greater competition (notably the Europe - Mediterranean trade appears to exhibit a lower level of volatility than other routes).

Indeed, the ESC believes that the liner cartels contribute to rate volatility because:

during times of low demand, the elimination of competitive pressures through a cartel agreement reduces the competitive imperative on firms to minimise costs wherever possible, including by withdrawing capacity which is surplus to requirements and, for example, reallocating that capacity to routes exhibiting higher demand. This excessive stability in capacity on certain routes exacerbates the price decline that occurs following a reduction in demand; and
during times of growing demand, the reduction in competition between cartel members enables them jointly to exercise market power to the greatest possible extent by increasing prices to a greater degree than would be observed in a competitive market.

Conference Discipline and Competition from Independents

The ESC's survey also asked for member's experiences of differences in pricing b etween members of the same conference or other discussion type agreements.

Members unanimously reported that there was only a small variance in pricing between members of the same conference or discussion agreement. 'Small' was defined in the survey as a variance in rate of below 5%. In ESC's view this reflects a lack of internal competition between cartel members, rather than prices being forced uniformly down to competitive levels.

This view is supported by the survey which also asked members of the Council for their perception of differences between rates charged by Conference and independent lines. If Conference prices were competitive, it would be expected that the independent lines would be more expensive, since they are usually smaller than the Conference lines and thus are unable to achieve the same economies of scale. However, the survey found that, (with the exception of the Far East - Europe trade), independent lines were over 10% cheaper than Conference carriers.

This shows the true value to the lines of the Conference system and particularly of lines being able to discuss rates amongst themselves. They are able to peg rates at levels far in excess of efficient and competitive costs (and even the higher costs of the independents), knowing that their customers will have little choice but to pay for those excess costs that their market dominance allows them to recover.

The NITL in the US also asked their members the same questions. Their findings were much less clea r cut, which c learly i ndicates the beneficial effects that confidential contracting has on the market. Only 50% (22) of NITL members reported a small variance in rate between Conference lines, 10 a moderate (6-10%) variance and 12 a substantial (greater than 10%) variance. Accordingly, unlike the European legs, there is greater evidence of price competition between cartel members. When Conference and independent lines were compared, only 27% of respondents found there to be a substanti al difference in rates, with 40% reporting a moderate (6-10%) difference and 33% finding only a small difference. Accordingly, it would appear that Conference rates have been forced down towards independent rates to some extent on the US legs.

With Conference lines serving the US no longer able to discuss a particular customer's rates with each other, shippers find that the lines in a Conference offer a far wider range of rates to their customers than in Europe. Since they do not know the rates that th eir competitors have off ered, they are far more willing to reduce rates to levels more in line with their costs, to ensure that they win the business. This is illustrated by the far smaller differential in rates between the Conference and independent lines, as market forces start to have an effect on the workings of the market.

Accordingly, the effects of confidential contracting are clear. Because lines serving the US are not able to discuss rates with each other, there is greater pri ce competition between them.

Profitability and return on investment

The ESC has attempted to undertake a study of the profitability of the liner shipping industry. Using publicly available information, the ESC investigated the financial performance of 22 major lines for the five years between 1996 and 2000.

The opaqueness of the financial reporting methods used by the lines presents difficulties in obtaining a clear picture of profitability. However, of the 81 individual results spread over the five - year period o nly 7 (9%) showed lines making a net loss.

In view of the difficulty in obtaining reliable profit/loss figures, the ESC turned to Containerisation International's ' Ci-Online' service to establish the return on investment for 20 of the 22 lines surveyed by ESC for the years 1996-2000. The lowest annual average return on investment for the lines surveyed as a whole was 5.2% in 1997. In 1998 they were 6.7%. For years 1999 and 2000 the average returns on investment were 8. 9% and 8.6% respectively.

However, there were wide variations in return on investment between individual lines, with ACL, for example, achieving returns of 22.3% in 1998, Maersk Sealand 12.1% in 1997 and CP Ships 13.3% in 2000. Other lines did not perform so well with Yangming returning a minus -5.2% return on investment in1997.

The findings in this report indicate that the increased competition that would result from the removal of rate fixing or setting by liner conferences would reduce the variation i n carriers' retu rns by ind ucing less efficient carriers to reduce their costs and more efficient carriers to align their prices more closely with their lower costs.

Comparisons with Road, Air Transport Markets and other Industry Sectors

Other Industry Sectors

The liner shipping industry is not sufficiently different to other industry sectors and transport markets and does not warrant competition law exemption.

Indeed, a large part of manufacturing industry is saddled with high fi xed costs. In addition to this, many other industries and manufacturing sectors suffer the problems of "lumpy" investment. Most, if not all, other industries are cyclical and suffer seasonal and other fluctuations in demand. This is certainty the case of most other industries.

The liner shipping industry, like other industry sectors, is capable of reducing capacity to match demand. The liner- shipping industry is able to rationalise, reduce and withdraw capacity through liner-shipping consortia, vessel sharing agreements and alliances.

The Road Haulage Market

The road haulage market in the United Kingdom has operated in a deregulated environment since the Transport Act 1968. This is also the case in the wider EU road transport market where all barriers to a fully competitive market have now been removed. Deregulation has meant a highly contestable market with relatively low barriers of entry into and exit from the industry. The result for users of road freight services is a highly competitive industry in which service quality is high. The resultant improvements in efficiency mean that since 1968 the number of heavy goods vehicles using UK roads has fallen by 580,000 to 415,000 a reduction of 28 per cent. However, over that period road freight activity has doubled from 79 billion tonne kilometres to 157 billion tonne kilometres.

Baseline haulage charges are determined by the hauliers' cost base. The UK Freight Transport Association's (FTA) experience is that there is limited variation between carriers offering similar vehicles types on similar journeys.

UK hauliers have faced significant price increases for key operating cost components in recent years (see further the chart below). Despite significant increases in fuel costs as a result of racheted increases in UK diesel duty levels and, more recently increasing world oil prices, many UK haulage rates surveyed in FTA's Manager's Guide to Distribution Costs have remained unchanged for long p eriod s of time (see further the chart below). The relaxation of cabotage restrictions throughout the EU has opened up the domestic UK haulage market to foreign based hauliers which have been able to benefit from a lower tax base and from the strength of sterling against the Euro. The effect of this new competition has been to increase pressure on UK based hauliers to reduce their cost base and to maximise operational efficiency if they are to retain existing domestic haulage contracts.

The road haulage market experiences similar problems of imba lances in inter-regional traffic volumes to those encountered in container shipping. And like the container shipping industry, the resultant inefficiencies need to be accommodated by flexible deployment of resources. Even so, inter-regional imbalances in road traffic volumes mean under-utilisation of capacity. In 1999 65 million tonnes of freight moved by road from North East and North West England and Scotland to the rest of Great Britain, while 77 million tonnes were moved into these regions from the rest of Great Britain.

Some commodity types preclude two way loaded movements. For road freight, refuse vehicles will always leave disposal sites empty, fuel tankers will return to terminals empty.

In addition, road haulage experiences inefficiencies as a result of incompatibility of product handling characteristics. While bricks and food may use pallets to unitise loads, the products require different handling equipment at the unloading poi nt. Bricks w ill be off-loaded by lorry mounted crane, while food will be unloaded by lift truck. These very different handling characteristics mean specialist vehicles are often required and limit opportunities for sourcing return loads.

Arguably, hauliers with specialist vehicle types are more heavily influenced by seasonal patterns of demand than shipping lines. Oil distribution vehicles experience demand peaks in the Q4 and Q1 each year, and are much less active over the summer. Agricultural tippers are active during the Q3 and Q4 each year during the grain harvest and in Q1 during the sugar beet harvest but experience a drop off in activity in the Q2 each year. The standardised nature of containers means that the need for specialisation of the vessel to accommodate certain seasonal flows is avoided. If flows are seasonal, vessel slots can in principle be taken up by other flows.

In short, notwithstanding the many similarities between road haulage and liner shipping, it is clear that active price and service competition is not inimical to the provision of reliable services.

Real Term Changes in UK Hgv Operating
Costs and Domestic Road Haulage Rates

Index (Q1 1995 + 100)

Air Transport

The air transport industry is a highly comparable industry with the liner shipping industry. The airline industry has high fixed costs, suffers trade imbalances and experiences seasonal fluctuations in demand. In addition, in common with the liner shipping industry the air transport in dustry is cyclical and is subject to sharp changes in supply and demand.

Like the liner shipping market the aviation industry provides scheduled air transport services (for passenger and freight services) and, in common with shipping, utilisation of capacity is the key to profitability.

However, unlike the liner-shipping industry airlines are not allowed to fix prices or set air cargo rates. Passenger and air cargo prices are therefore determined by normal competitive market economy pricing conditions, with airlines competing head-on with each other, subject to supply and demand conditions in the relevant markets.

Airlines are only allowed to consult with each other on the interline segment of air fares, and are only permitted to consult with each other with the express purpose of facilitating interlining. Such interlining amounts to a very small proportion of air passenger and air cargo journeys. Both passengers and air freight users generally want direct flights. Interlining consu l tations are precluded in the US and prohibited in respect of air cargo services in the EU. The European Commission is currently reviewing the block exemption which permits airlines to consult over interline fare segments.

The aviation industry, both for passengers and freight, is a highly competitive international market. The absence of price fixing and rate setting has provided no evidence of ruinous prices or destructive price competition. Indeed, deregulation of the aviation industry has resulted in signi ficant innovation, market growth and the introduction of new and innovative services for customers.

Conclusions

For the above reasons, and in the absence of any convincing evidence to the contrary from other interested parties, the ESC invites the OECD to conclude that:

common pricing under competition law exemptions has clear negative impacts on both carriers and shippers;
conference, discussion and stabilisation agreements have a negative impact on both carriers and s hippers;
the removal of competition law exemptions for liner shipping is likely to increase the efficiency and profitability of lines with shippers enjoying the benefits of consequent cost-related pricing;
the burden of proof should be on the Conference lines to justify a unique competition law exemption for price fixing which is not supported by the European or US customer trade associations. In the ESC's view, customers' views should be determinative as to the existence of the alleged customer benefits of price fixing claimed by the liner cartels.

More generally, the ESC strongly submits that for an industry to benefit from a unique immunity from anti-trust laws prohibiting price fixing it is essential that the benefits of price fixing are so overwhelmingly pro ven and that there are appropriate safeguards to prevent abuse. In the case of liner shipping no substantive evidence has been provided that reliable services would not be provided on a competitive basis, despite the fact that the very object of Conference's price fixing is to restrict competition.

If the ship owners' claims about destructive price competition were true shipping would only be able to operate as a monopoly/utility. As such, liner shipping would have to be strictly regulated. A world shipping regulator would have to be established. The regulator would have to set prices and approve prices. These prices would have to be based on operators/providers with the lowest costs with the regulat or setting expected cost efficiencies and savings to achieve cost reductions for consumers.

Results of ESC Survey on Effects of Collective Activities Among Liner Carriers on Shippers

Introduction

To assist the OECD in its investigation, the European Shippers' Council (ESC) surveyed members of its Maritime Transport Council to discover how the major liner markets have performed since 1996. The Maritime Transport Council comprises representatives from many of t he m ajor exporters in Europe and Israel, and includes many of the largest purchasers of shipping services in the World amongst its membership.

Members of the Council were asked to provide information on rate movements in the major trades since 1996. Responses were received from members of the Council who are some of the largest international consumer and producer goods exporters. That many members were willing to respond by providing information that for many of them can be difficult to find and that is subject to huge commercial sens itivities and confid ence is testament to the importance that European industry places on the OECD's work, and their willingness to assist the organisation in its investigation.

It should be noted that due to their size these companies will enjoy a greater degree of bargaining power than smaller shippers, and accordingly it is likely that smaller exporters will have faced greater price increases than even those noted below.

Members of the Council were a sked to provide information on the percentage increase or decrease in rates for each of the previous four years in the Transatlantic and Far Eastern trades to and from Europe. Members also provided information on the Europe - Mediterranean, and Europe - Israel and return trades.

North Atlantic Westbound

Shippers reported that, generally, rates decreased for services from Europe to North America for 1997, 1998 and 1999, with a large increase then b eing recorded for 2000.

What these average figures do not show i s the huge volatility that exists in the market, with rates moving by substantial amounts between years for individual shippers. A major UK based company, for example, reported a 50% decrease in its rates for 1998-1 99 9, which was followed by a 200% increase the following year.

While the 200% annual increase was the largest recorded by any respondent in any of the trades that were surveyed, the huge volatility that has characterise d the market over the last two years has seen some shippers seeing rate decreases of 40%, 40% and 50% respectively in 1998-1999, with rises in the following year of 70%, 20% and 45% respectively.

North Atlantic Eastbound

Again, shippers have faced considerable price volatility in the eastbound trades into Europe from the US. Two small decreases in rates in the first two years surveyed were followed by a slightly larger rate decrease (8%) in 1998-1999, followed by a major increase (29%) in rate s the following year.

The survey has also illustrated that again there is wide difference between the rates that are being paid by different shippers. The greatest increase recorded in the trade was a 100% increase in 1999-2000, which followed a 37% increase the previous year. In 1998-1999, one shipper reported a 37% increase in rates, yet another found that rates fell by 35%, illustrating the wide variance in rates being offered to different shippers at the same time. Accordingly, individual sh ipper s experience even greater volatility than a consideration of averages suggests.

Europe - Far East

The trade has been characterised by a series of rate decreases over the period, with shippers generally only paying rate increases for 1999-2000. Again, volatility has been the key feature of the trade. Rates decreased by 18% in 1997-8, by a further 33% the following year, and then a 38% increase was recorded for 1999-2000.

There was also a huge difference in the experiences of different sh ippers. One shipper, for example, recorded a 35% decreas e for 1997-8, a 43% decrease the following year and a 108% increase for 1999-2000. However, a different shipper recorded rate decreases of 14% in 1996-7, 20% in 1998-1999 and 16% in 1999-2000, with rates remaining level in 1 997-1998. One respondent to the survey also reported that rates remained level during all four years. This was the only respondent who reported this, for all of the trades that were covered by the survey.

Far East - Europe

The trade from the Far East to Europe has been the least volatile of all of those that were studied. A 7% decrease in rates in 1996-1997 has been followed by two rate increases of 4% for each of the following two years, and rates then remained stable for 1999-2000.

Again, volatility is more noticeable at the level of individual shippers. The largest rate increase in the trade was a 30% increase for a shipper in 1998-1999. However, in the same period a different shipper recorded a rate decr ease of 20%.

Europe - Mediterranean

Variations in rates in the trades from Nor thern Europe to the Mediterranean were not as widespread as in the main liner trades. In addition, the highest variation recorded by an individual shipper was a 10% increase in 1999-2000, but this was the only time respondents experienced rate variations that went into double figures in this trade.

Of all of the trades that were surveyed, this is the one that is open to the greatest competition. In addition to the Conference cartel there are also large numbers of services provided to the region from Northern Europe by specialist short sea operators, while many lines also carry containers bound for the Mediterranean on vessels heading to or from the Middle East and Far East. Shippers to the region are also able to choose from the many road and rail services that are available to the Mediterranean area from Northern Europe.

Europe - Israel

The Israeli Shippers' Council (ISC) surveyed their members' experienc es of price changes between Israel a nd Europe.

Large rate increases are again the norm. A small 5% decrease in 1997-1998 has been followed by very large increases of 50% and then a further 31% increase in the following two years. On routes into Europe from Israel, rates have followed an almost identical pattern, with a 5% decrease in 1997-1998 being followed by rate increases of 50% and then a further 33%. A number of large shippers reports that they were able to negotiate discounts of 10-15%, but the ISC reports that small and medium sized shippers' paid the increases in full.

A new conference covering the Europe - Israel trades was established in 1999, which enjoys a market share of greater than 90%, and which has been able to use the power that such a market share affords it to force through these large rate increases. This trade does not face the same competition from other services as the Mediterranean trades.