PSA Europa Terminal
Source: PSA International

In another letter to the European Commission (EC), ten shipper and forwarder organisations have again outlined their concerns over the liner shipping market, raising the new complaint that carriers are abusing their dominant position to obtain commercially sensitive data.

According to the letter, seen by The Loadstar, the information liner shipping companies want relates to the location, volumes, timings and destination of freight moved by cargo owners, and could be deemed commercially sensitive data.

The letter claims this information: “Is quite likely to be deemed stock market sensitive and hence will be subject to strict controls on disclosure to third parties. Noting that Article 3.4(a) of the Consortia BER (EC Regulation 906/2009) permits the use of computerised data exchange systems for implementation of agreements falling within its scope, there is currently an absence of controls on the use, disclosure, protection and storage of such data between operators within consortia.”

Clecat director general Nicolette van der Jagt told The Loadstar smaller and medium-sized freight forwarders and shippers were particularly vulnerable to the carrier pressure to reveal sensitive information, as carriers withhold freight offers until this information is provided.

It is similar to Australian shipper complaints that carriers will only offer space to companies that allow them to complete the inland portion of the transport, from shipper to port, thereby forcing the forwarder to reveal customer details.

As a result of these and other concerns, the signatories have asked the EC to bring forward the review date for the BER to this autumn rather than next spring when it is due. Reviews of the BER take place in the two years prior to the end date of the current exemption. Normally, this would start after three years, however, the BER was renewed early in the pandemic, in spring 2020, for a four-year period, rather than five. The BER is therefore due to expire in the spring of 2024.

In previous correspondence with the shippers, the EC said it was monitoring the liner shipping market and had received no formal complaints about the conduct of carriers.

Following the recent tripartite meeting between US, Asian and European regulators, hosted online by the EC, The Loadstar asked for details regarding the content of these discussions and an EC spokeswoman said: “Commission services are in contact with other agencies and are in regular exchange with market participants to fully understand the current circumstances, and identify any scope for intervention that can facilitate return to normal operations. The commission has not at this stage received evidence or identified anti-competitive behaviour from shipping alliances in relation to these price hikes, but will continue its close monitoring of the sector.”

Clecat and its co-signatories are not convinced by this and claim that even the European Parliament has raised concerns about the state of the liner shipping market.

Ms van der Jagt said shippers and forwarders were extremely concerned about new developments, with the major carriers now making massive profits and acquiring smaller players along the supply chain. She believes this could give carriers even greater control over European supply chains.

Moreover, the letter points to a number of previously aired concerns from shippers, including the March grounding of the Ever Given in the Suez Canal in March. According to the shippers, the EC “echoes” the carrier view that this was an unfortunate accident and that these events, including the subsequent congestion were an “inevitability” – which shippers hotly contest.

“While the reasons for the collision of the Ever Given have not been confirmed, the risk or recurring incidents, and the consequential impact on world economies is linked to number of ultra-large container vessels (ULCVs) in service that are designed and operated at the limits of the infrastructure intended to serve them. In our view, more than anything, this incident and its consequences underline the necessity to review the regulatory framework of liner shipping,” wrote the shippers and forwarders.

In their view ULCVs’ huge payloads mean far longer dwell times at ports and stretching inland and connecting supply chains to their limits.

“In our view, the impact of the ULCVs is the real reason for the current problems in the maritime logistics supply chain, which has been on its limits for a while. The pandemic and the unexpected increase in demand were just the trigger.”

That is not a view supported by management consultant McKinsey. Its report into the container shipping industry, published last month, argues that while the increase in global demand has been comparatively small, at 5%, changes to consumer behaviour have been the cause of increased volumes in key regions.

For example, in the US there has been a 25% decline in spending on recreational activities and an 11% fall in food and beverage sales. That meant that many of the working consumers and those who benefited from the fiscal stimulus were still consuming, boosting physical imports.

Steve Saxon, a partner at McKinsey, based in the gateway region of Shenzhen in southern China, told The Loadstar it was a lack of capacity that had caused the bottlenecks, including an 11% fall in capacity due to the congestion.

Mr Saxon said: “Carriers are now blanking sailings because the ships are stuck in Los Angeles and Long Beach, so they have not got the ships, rather than as deliberate move to keep prices high.”

That is not a scenario the shippers recognise.

“We believe that the aftermath of the Ever Given provides evidence of communication that falls in the realm of price signalling. For instance, we interpreted operators’ assertions made at the time of the closure that the vulnerability of supply chains would require cargo owners to restructure their supply chains to a just-in-case basis as tacit admission that the container shipping industry would be unable to provide a reliable service in the future and that customer expectations should therefore be lowered.”

Nevertheless, Mr Saxon believes that the supply and demand scenario being played out within the realms of the Asian supply chains to the US and Europe shows that “shipping is a commodity”.

He said: “Prices go up to the point to where the willingness of the marginal shipper to pay is reached, at the point where the prices are too high the shipper stops shipping. It’s like the market in zinc, low demand sees prices fall and then there’s a fly-up as demand rises rapidly. In times of over-supply, prices fall to the marginal cost of providing the service.”

According to Mr Saxon, both shippers and carriers have realised that the current situation is unsustainable, with carriers concerned that regulators will become involved, as they have in Asia and the US, and new entrants into the market will eat into their market share and that the service they are providing is extremely poor.

Meanwhile, shippers are suffering because of the high prices with many smaller cargo owners unable to move containers, and space being taken by larger shippers panicking, concerned over whether they will get shipments through in time for Christmas and over-booking space as a result of those concerns.

Mr Saxon believes that, as normality returns to the market by the end of this year, and backlogs are cleared, capacity will return. That will allow carriers and their customers to agree long-term contracts, which he says will be preferred by both sides of the market.

He estimates that the marginal costs for moving a 40ft box is around $1,500/feu with added fixed costs totalling $2,000/feu. That means, with a reasonable margin of profit, contracts could be agreed at around $3,000-3,500/feu.

Until that point is reached, however, Ms van der Jagt believes current prices, of more than $20,000/feu, are driving some companies to the wall.

“It is frustrating that the EC blames the pandemic for the current state of the market,” she said.

And shipper representatives are not convinced by McKinsey or the EC’s take on the causes of the pandemic, which they believe are more profound and more complex.

They wrote: “While there are undoubtedly significant impacts of the pandemic, they occur in a container shipping market which is fundamentally flawed. Your accurate assessment that liner shipping has become a business ‘with little margin for adjustment’ speaks to this. In our view, an unwillingness by the commission to address the concerns about the functioning of the market would fail European consumers and contribute to a weakening of Europe’s competitiveness.”

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