Maritime Commissioners Defend Ocean Carrier Alliance System - Global Trade Magazine
  May 10th, 2017 | Written by

Maritime Commissioners Defend Ocean Carrier Alliance System

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  • According to established criteria, the ocean shipping industry is not considered to be concentrated.
  • The number of major container carriers has dropped from 20 to 13, thanks to mergers.
  • The container shipping industry is now organized into three major alliances.

In testimony yesterday before a United States Senate subcommittee, federal maritime commissioners defended the ocean carrier alliance system and the agency’s role in regulating competition among ocean carriers.

The Federal Maritime Commission‘s acting chairman also noted that according to established criteria, the ocean shipping industry is not considered to be concentrated.

This, despite the fact that the number of major container carriers has dropped in recent years from 20 to 13, thanks to mergers, and the fact that the container shipping industry is now organized into three major alliances, Ocean Alliance, THE Alliance, and 2M. Alliances are essentially vessel-sharing agreements that also allow carriers to share information regarding their joint activities.

What will be the impact of the second generation of alliances? “I believe it will be in cost savings and efficiencies,” said Mario Cordero, the former commission chair who recently resigned to head the port of Long Beach.

But the information sharing and joint contracting that has come with the new generation of alliances does raise “serious concerns by stakeholders in the shipping community because of the potential for anticompetitive behavior.”

“Alliances are not permanent mergers like those reviewed by DOJ,” noted FMC chair Michael Khoury, “but are much more dynamic arrangements that…preserve price and service competition between and among participants. The ocean common carrier members of the alliance do obtain efficiencies and cost-savings that have historically been passed on to domestic consumers especially when healthy competition exists among vessel operators.”

According to Khoury, ocean carriers within each alliance continue to compete on pricing. They also add and withdraw vessels from trades which demonstrates “that competition remains in both vessel capacity decisions and pricing decisions within the alliances.”

As far industry concentration, it remains well below the level that would raise alarms in the Justics Department’s Antitrust Division. According to Khoury, the division uses the Herfindahl-Herschman Index (HHI) to assess industry concentration. DOJ’s merger guidelines regards markets as not concentrated if the HHI is below 1,500. Following the latest merger, the HHI for the container shipping industry in the international US trades today is 752.

Khoury credits the alliance structure with facilitating “the survival of independent companies, preserving competition, and averting further industry concentration.” “The interests of the American shipping public and the American consumer will not be well served,” he noted, “if carrier consolidations ultimately result in only a handful of mega-carriers remaining to transporting the nation’s cargo.”