Monday , 22 October 2018
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FMC: Alliances are good for US trade

Marine terminal alliances and carrier ones like the recently formed THE Alliance and OCEAN Alliance can be very beneficial for US exporters, importers and consumers, the Federal Maritime Commission (FMC)’s acting chairman has claimed.

According to Michael Khouri, evidence shows that members of the alliances obtain efficiencies and cost-savings which have been historically passed on to domestic consumers, particularly if there is a healthy competition among vessel operators.

While testifying at a hearing on maritime transportation, Khouri said that the commission’s alliance monitoring programmes showed that the individual ocean carriers part of the alliances are continuing to “independently and vigorously” compete on pricing.

As he added, competition remains in decisions on both vessel capacity and pricing, with the individual carriers continuing to add and withdraw vessels from trades both inside and outside the alliances of which they are part.

According to Khouri, the alliances also offer carriers flexibility and “may facilitate 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 if carrier consolidations ultimately result in only a handful of mega-carriers remaining to transporting the nation’s cargo,” he added.

Several changes have recently shaken up the shipping industry, including the two new alliances starting operations last month.

Recent mergers and acquisitions and the bankruptcy of Hanjin resulted in the number of major shipping lines falling from 20 in 2015 to 13 by next year, when K Line, MOL and NYK will create a consolidated container line.

Khouri said: “Clearly, the industry is entering a new era and it is not surprising that some question whether ocean carriers will move into a position to exert some level of market power on freight rates.

“In fact, by all economic benchmarks used by the Department of Justice (DOJ), the Federal Trade Commission (FTC), and the FMC, the ocean liner marketplace is not concentrated.”

According to Khouri, while DOJ’s antitrust guidelines regard market as concentrated only if the Herfindahl-Herschman Index (HHI) is 1,500 or above, the current HHI for the container shipping industry in the international US trades is 752.

He also claimed that the reduced number and increased size of the major alliances, namely 2M, THE Alliance, and the OCEAN Alliance, changed the way in which the FMC approaches these joint ventures (JV), with broad agreements with imprecise authority language likely to be challenged.

Khouri added: “Since these are ongoing cooperative agreements rather than mergers, the Commission is further charged by Congress with continuous monitoring after the initial review and following the effective date of the agreements.

“The Commission checks for anticompetitive behaviour that would violate the Shipping Act [and] may challenge an agreement at any time after the effective date.”

The FMC recently rejected on jurisdictional grounds the merger of Japan’s three biggest container carriers, which is expected to be officially established on July 1 this year with operations as a new business entity starting in April 2018.