Container Carriers Commit to European Commission on Price Transparency - Global Trade Magazine
  July 14th, 2016 | Written by

Container Carriers Commit to European Commission on Price Transparency

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  • EC suspected that container carrier General Rate Increase announcements allowed them to coordinate their behavior.
  • General Rate Increase announcements provide only partial information to customers and are not binding on carriers.
  • EC: Practice of making General Rate Increase announcements could lead to higher prices and less competition.
  • Container carriers: Future price announcements will include more information and will be binding as maximum prices.

The European Commission has adopted a decision that renders legally binding the commitments offered by 14 container liner shipping companies. The commitments aim to increase price transparency for customers and to reduce the likelihood of coordinating prices.

The commitments address the commission’s concerns that the companies’ practice of publishing their intentions on future price increases may have harmed competition and customers. This practice may have raised prices on the market for container liner shipping services on routes to and from Europe, in breach of EU antitrust rules.

“Container shipping accounts for the vast majority of the non-bulk freight carried by sea to and from Europe,” said Margrethe Vestager, the commissioner in charge of competition policy. “Competitive shipping services are therefore essential for European companies and for the EU’s economy as a whole. The commitments offered by 14 carriers will make prices for these services more transparent and increase competition.”

More than half of EU imports and exports are carried by sea, of which around 40 percent is shipped in containers.

According to a commission report, 14 container liner shipping companies have regularly announced their intended future increases of freight prices on their websites, via the press, or in other ways. The carriers are CMA CGM (France), COSCO (China), Evergreen (Taiwan), Hamburg Süd (Germany), Hanjin (South Korea), Hapag Lloyd (Germany), HMM (South Korea), Maersk (Denmark), MOL (Japan), MSC (Switzerland), NYK (Japan), OOCL (Hong Kong), UASC (UAE), and ZIM (Israel).

These price announcements, known as General Rate Increases or GRI announcements, do not indicate the fixed final price for the service concerned, but only the amount of the increase in U.S. dollars per TEU, the affected trade route and the planned date of implementation. They generally concern sizable increases of several hundred dollars per TEU.

General Rate Increase announcements are made typically three to five weeks before their intended implementation date, and during that time some or all of the other carriers announce similar intended rate increases for the same or similar route and same or similar implementation dates. Carriers are not bound by the announced increases and some carriers have indeed postponed or modified announced general rate increases, possibly aligning them with those announced by other carriers.

The commission had concerns that General Rate Increase announcements do not provide full information on new prices to customers but merely allow carriers to be aware of each other’s pricing intentions and may make it possible for them to coordinate their behavior.

Announcing future price increases may signal the intended market conduct of carriers and by reducing the level of uncertainty about their pricing behavior, decrease their incentives to compete against each other. Because the announcements provide only partial information to customers, and may not be binding on the carriers, customers may not be able to rely on them and therefore carriers may be able to adjust prices without the risk of losing customers.

This practice may lead to higher prices for container liner shipping services and harm competition and customers, in breach of EU and European Economic Area (EEA) competition rules, the commission concluded.

To address the commission’s concerns, the carriers committed to stop publishing and communicating General Rate Increase announcements. Future price announcements will include at least the five main elements of the total price (base rate, bunker charges, security charges, terminal handling charges and peak season charges if applicable) and will be binding on the carriers as maximum prices for the announced period of validity. Further, price announcements will not be made more than 31 days before their entry into force, which corresponds to the period when customers usually start booking in significant volumes.

The commitments do not apply to communications with shippers who already have an existing rate agreement in force nor during negotiations tailored to the needs of shippers.

After carrying out a market test of the commitments, the commission announced that it is satisfied that they address its concerns. “They will increase price transparency for customers,” a commission statement said, “and reduce the likelihood of concerted price signaling by binding the carriers to the prices announced.”

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