Time for effective competition policy for global liner shipping
At the end of March, CLECAT and other maritime stakeholders including shippers, terminal operators, and inland waterway representatives voiced concern on the continued disruption in the maritime logistics supply chain with ongoing unreliability and peaking prices. During the ‘Maritime Forum’, organized by the competition and transport directorates of the European Commission, gathering maritime stakeholders - shippers, freight forwarders, carriers, port operators, and container carriers - developments in the container shipping sector and possible ways forward were discussed. But the Commission remained in a ‘listening mode.’
Today, we wonder whether it would be unreasonable to expect the Commission to start a serious investigation, and to step out of their observing role. CLECAT welcomed the Commission’s Maritime Forum initiative as it is vital that competition and transport authorities engage with the market to monitor the consequences of the special privileges they have granted to the shipping industry, especially during times of unprecedented market turbulence. But we continue to question why it is taking the Commission so long to assess the situation, fearing to lose momentum whilst carriers continue to fine-tune their in-depth capacity management and price discipline. Maersk Group reported the strongest quarterly profit in its history, with earnings driven upwards by strong demand across the ocean freight division and capacity shortages. Overall container carrier profits are peaking as never before.
Meanwhile carriers are continuing to lobby high-level authorities at national and international level to maintain their special status. This may not come as a surprise because there are three important distortions which are caused predominantly by the fact that the major liner companies have integrated other activities in their service offering including freight forwarding and intermodal transport (also called ‘vertical integration’).
Let me address these points one by one. First of all, shipping lines benefit from a considerable favourable tax regime compared to others in the logistics supply chain. The analysis of the International Transport Forum shows that the effective tax rates for freight forwarders, logistics operators and port terminal operators is two to three times higher than that of the shipping sector as a whole. The effective corporate income tax rate for shipping is 7%. For freight forwarders this is 27%. Carriers are seeking to remain exempted from a global minimum tax for multinational enterprises, within the context of the ongoing work of the OECD to reform the international tax system. They are alerting governments to the special character of their sector and the ‘longstanding consensus on the special privileges’ of the shipping sector.
When it comes to state aid, CLECAT has noted last year that European state aid guidelines allow carriers to benefit from preferential tax treatment for ancillary services, such as cargo handling activities and other services also provided by logistics service providers, which distort competition with the logistics sector. Most recently, we have even seen a manifest call from shipowner associations – such as the VDR in Germany - for the inclusion of door-to-door services within their national tonnage tax regimes. This would not only distort competition, but also provide incentives for carrier haulage (door-to-door transport arranged by the carrier) rather than merchant haulage and for the coverage of the non-waterborne services by tonnage tax regimes. The allocation of state aid into carriers’ vertically integrated structures, provides carriers with a substantial competitive advantage vis-à-vis freight forwarders.
The third and most bespoken problem relates to the Consortia Block Exemption privilege which allows shipping lines to exchange information and data to compete with the forwarding industry on land-based services, with the latter unable to rely on similar protection. The European Commission granted container lines another four years of exemption from its competition laws under the Block Exemption Regulation (BER), under which container lines are allowed to share operational data and form shipping alliances which are perfectly able to manage capacity.
EU regulation does not take account of this, perpetuating special regimes for liner shipping on competition, state aid and taxation. With this in mind, the service options provided by many medium-sized freight forwarders in Europe, giving shippers the choice and options of service and routes, is effectively being rejected by the European Commission in favour of oligopolistic companies.
Clearly, the market will not solve what the inaction of the European Commission has caused. It will come as no surprise that we express our firm disappointment with the Commission’s attitude to keep the carrier’s privileges under close review during these unprecedented times. CLECAT calls on policy makers in the EU Member States to take a close look at the current situation in view of the dependence of European trade on global container shipping services.