The EU is reviewing the antitrust framework in liner consortia

Stakeholders in the supply chain of liner shipping companies are invited to submit their comments on the legal framework exempting liner consortia in the container shipping industry from EU antitrust rules, the European Commission has issued.

The committee sent targeted questionnaires to supply chain stakeholders (i.e. carriers, shippers, agents as well as port and terminal operators) on the impact on their business from 2020 of joint ventures between liner shipping companies.

The services of liner shipping consortia include the provision of regular and scheduled shipping of containers on a specific route. They play an essential role in EU trade and the EU economy as a whole.

The reason for the Europe-wide evaluation was the pre-established institutional framework examination of the extension of the exemption regulation governing joint ventures, which expires on 25 April 2024.

The Commission extended the Block Exemption Regulation for consortia in 2014 and 2020.

The extension to 2020 was decided because the evaluation showed that, despite market developments (increased consolidation, concentration, technological change, increase in vessel size), the Block Exemption Regulation for consortia was still fit for purpose, in line with the Commission’s Better Regulation approach to policy-making, and achieved its objectives.

It is noted that the exemption only applies to consortia with a market share that did not exceed 30%, whose members were free to set prices independently.

The aim of the relevant exemption from the EU, which is determined with special conditions in the consortia of liner shipping companies, was to ensure financial benefits for consumers and also to contribute to the improvement of the distribution of products between EU countries.

The EU, which will summarize the results of the assessment in its staff working document, which is expected to be published in the last quarter of 2022, has sent targeted questionnaires to stakeholders in the supply chain of liner shipping companies (i.e. carriers, shippers and transport agents, port and terminal operators), on the impact on their activities, from 2020, of joint ventures between liner shipping companies, as well as the block exemption regulation for joint ventures.

Interested parties will be able to submit comments for eight weeks, until 3 October 2022.

It is noted that EU antitrust rules generally prohibit agreements between companies that restrict competition.

However, the Consortium Block Exemption Regulation allows, under certain conditions, liner shipping companies with a total market share of less than 30% to enter into cooperation agreements for the provision of common cargo transport services, also known as “consortiums”.

Over the past two years, the Commission has been in regular contact with market participants such as shippers, freight forwarders and carriers, as well as competition authorities and regulators in Europe, the US and other jurisdictions, on the challenges facing shipping sector.

It is noted that operators of the supply chain had spoken of exorbitant increases in liner fares, while they had long ago asked the European Commission and the US to start the procedures for revising the competition regulation in the container shipping industry.

Record earnings for liners

According to Drewry, a consulting firm that collects and processes shipping market data, early data suggests that liner shipping companies, after the $190 billion in profits they recorded in 2021, will have an even better 2022.

Already Cosco, the fourth largest liner in the world, has reported that at the six-month level its profitability will increase by 74%.

Maersk, the world’s second-largest container line, revealed earlier this month that it expects to post a record full-year profit of $31 billion, also citing the strong long-term freight environment.

Maersk will exceed $10.4 billion in EBIT in the second quarter of the year, up $1.3 billion from the same period last year.

As is Evergreen, which is expected to post all-time record performance in the second half of 2022.

Nevertheless, global capacity has not increased significantly compared to the same period last year.

According to Alphaliner data, in the first half of the year the total capacity of the fleet increased by 1.7% and reached 25.4 million teu. Of the 10 largest liners, six managed to increase the capacity of their fleets, while another four recorded a marginal decline. Blue Alpha Capital sees container shipping posting a net profit of $256 billion this year, while British consultancy Drewry has forecast an even higher figure of $270 billion.

Liner shipping is set to smash last year’s record gains by as much as 73%, Blue Alpha Capital forecasts, citing a surge in contracts secured by carriers in 2022 and ongoing port congestion issues.

Net income this year will likely reach $256 billion based on the 11 companies tracked by Blue Alpha Capital, a figure Bloomberg noted is roughly equivalent to Portugal’s gross domestic product.

Source: AMPE