Shipping regulators singing a new tune as the spotlight hits VSAs

Photo: © Richardmodhamma

There was a palpable shift in the mood music emanating from competition regulators’ offices as US shippers, in particular, were quick to call out anti-competitive behaviour by the shipping lines, and regulatory scrutiny duly followed.

US regulators concluded that the carriers and, to a lesser extent, terminals and rail companies were using detention and demurrage charges (D&D) to add to their already bulging coffers.

The Ocean Shipping Reform Act (OSRA) 2022 has increased the Federal Maritime Commission’s (FMC) ability to regulate the application of D&D charges, with respect to making certain those charges are helping to keep cargo flowing rather than just bolstering bottom lines.

In the latest regulatory move, last week, California democrat John Garamendi introduced the Ocean Shipping Competition Enforcement Act (OSCEA) to the House of Representatives.

Deregulation of the shipping industry in 1984 was the spark that has led to OSCEA, according to Mr Garamendi who told Congress: “Because of that [deregulation], today the industry is dominated by nine foreign-flagged ocean liners that openly collude under three carrier alliances, handling some 80% of cargo.”

At first sight it would appear, from Mr Garamendi’s view, that OSCEA is aimed at the alliances, but the bill is much broader than that and will, if passed into law, affect liner shipping and its regulators far more profoundly.

In fact, the OSCEA legislation was requested by FMC commissioners Max Vekich and Carl Bentzel because any behaviour deemed by the commission to be anti-competitive would require the regulator to get a court order to stop it – a process that could take months and use up much of the resources of what an FMC spokesperson pointed out was “just a small regulatory office”.

OSCEA effectively passes the judgment, of whether an action by an ocean carrier or terminal operator is anti-competitive, to the FMC, without recourse to the courts.

Vessel operators have reacted by claiming that by enforcing OSCEA, and other anti-trust regulation, the regulator will effectively outlaw vessel-sharing agreements (VSAs) which, they claim, allow carriers to operate vessels with more efficiency.

John Butler, president & CEO of the World Shipping Council (WSC), argues: “Nobody has offered a reason why we should throw away such a useful tool as a VSA, and I think some of the rhetoric comes from a misunderstanding about how VSAs help the supply chain work better. A similar bill was introduced in the last Congress, but did not gather significant support.”

Shippers and forwarders on both sides of the Atlantic say the WSC’s view that VSAs would be outlawed is “scaremongering”. However, their concern is that anti-trust immunity, particularly at a time when many shipping lines and some terminal operators are vertically integrating by buying logistics companies, airlines and other companies, is giving carriers access to much greater levels of potentially sensitive commercial information.

There is a growing sense that EU regulators may also be rethinking the competition regulations within which the container shipping industry operates, with a decision on the Competition Commission’s review of the block exemption afforded carriers set to be delivered possibly within weeks.

If the EU, does decide to remove anti-trust immunity, it is very likely that Asian regulators will follow the US and European lead.

Whether these regulatory moves will prompt shippers and their service providers to start singing from the same hymn sheet is anyone’s guess right now. But given the latent anger towards the carriers from their own clients, it is not a tune likely to hit the charts anytime soon.