Holy Cargo Collusion, Batman–Shipping Companies Under Investigation!

 In freight rates, International Shipping, P3 Alliance

Go back to 2011. Carriers experience losses in the billions of dollars.

In 2012, those shipping companies put together strategies to raise freight rates and regain profitability.

General Rate Increases (GRIs) are at the top of the carriers’ strategies to make it happen.

The major trans-Pacific shipping lines came together in the Transpacific Stabilization Agreement, allowing them to plan and synchronize GRIs.

Batman Cargo CollusionI thought international shippers might see this like all the villains teaming up in the 1960’s Batman movie for an evil conspiracy. I also argued that carriers shouldn’t really be seen as the bad guys of international shipping as they provide the service that allows importers and exporters to do international business.

However, now in 2013, carriers are being investigated for allegedly illegally colluding to raise freight rates on global shipping routes.

Holy cargo collusion, Batman!

The Wall Street Journal reports that the European Union’s antitrust regulator is investigating possible price fixing by shipping companies. In the article by Costas Paris and Martina Stevis, they detail:

The European Commission said on Friday that it is investigating the way these companies announce price increases and whether their actions were, in essence, a veiled effort to coordinate price hikes. The commission declined to name the firms under investigation, but two shippers—Denmark’s A.P. Moller-Maersk and France’s CMA CMG—said they had either been informed they were part of the probe or intended to cooperate. Both said they have acted legally in their pricing practices.

There is not much reported on the specifics of the investigation, but here are key points reported in the Wall Street Journal article:

– 14 shipping companies are under investigation, including major world container-shipping companies from Europe and Asia.

– “Transparant” price increase announcements may have been illegal signaling of price intentions between shipping companies to fix pricing.

–  Price announcing being probed has been happening since 2009.

Often, Universal Cargo Management has blogged about GRIs and other rate increases carriers have announced. There have been several over the last couple years as the big shipping companies have been trying to rebound from the terrible losses of 2011.

Carriers have managed to increase freight rates over the last couple years, especially in the spot rate market. However, making announced GRIs stick has been a struggle.

The Wall Street Journal article exemplifies this struggle as follows:

Maersk, CMA CGM and Switzerland-based Mediterranean Shipping Co., the world’s top three container shipping firms by capacity, have announced prices increases, roughly simultaneously, three times so far this year, with a fourth hike planned for December. But those attempts have all been undercut by smaller container companies offering cheaper pricing, and the hikes didn’t stick.

In June, the world’s three largest container shipping carriers, Maersk, Mediterranean Shipping Co., and CMA CGM announced a long-term operational alliance on East-West trades, calling the triumvirant the P3 Network.

The decrease in competition from this alliance could be a bad thing for international shippers, as was considered in our blog, Will Shippers Benefit from P3 Alliance of Largest Container Shipping Carriers?

Of course, if it turns out the shipping companies were already cooperating to illegally fix prices as is being investigated, it could hinder the triumvirate from being allowed to make the official alliance.

The Wall Street Journal article says,

The probe could result in steep fines if investigators find evidence of collusion. But it also puts a fresh cloud over a separate effort by Maersk, MSC and CMA CGM to bolster their business [the P3 Alliance]…. The EU is currently weighing whether to approve that deal—set to go into effect sometime next year, pending green lights from regulators in Europe, the U.S. and China.

Maersk and MSC have both announced that in their view they have acted fully within the law.

It will be interesting to see whether the European Commission ends up sharing that view.

Source:

http://online.wsj.com/news/articles/SB10001424052702304337404579213523015029740

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