New Delhi: While allowing shipping firms to pool their capacities to offer better services, the Competition Commission of India, or CCI, the country’s anti-competitive practices regulator, is putting in place safeguards that will ensure that this is not misused to cartelize and thereby fix pricing.
Trade winds: A cargo ship at Jawaharlal Nehru Port. The Competition Commission of India has said the new system should lead to enhanced efficiency in the form of competitive pricing for the consumer.
Accordingly, the regulator has laid down that these groupings or consortia and alliances, which will replace the existing conference system in October, should lead to enhanced efficiency in the form of competitive pricing for the consumer.
The commission’s concern comes at a time when the shipping industry is preparing to undergo a transformation from what is perceived to be an oligopolistic regime of fixing prices and controlling the market — known as conference — to a more market-friendly but loose arrangement, termed as consortia or alliances.
A liner conference is a group of container shipping firms offering equitable freight rates, standardized shipping practices and regular scheduled services between designated ports. One such conference, the London-based India, Pakistan, Bangladesh, Ceylon, or IPBC Conference, is a group of 19 shipping firms which operates between Europe and the Indian subcontinent, carrying 70-80% of the container cargo on this route. Member lines of such conference agree on freight rates and other supplementary charges irrespective of market conditions, a decision that is acted upon by all the members.
The IPBC Conference will cease to be from October as the European Commission has decided to repeal the antitrust immunity given to such groups operating from and into Europe. India’s competition law also prohibits shipping conferences.
Shipping lines will have to negotiate rates with individual customers based on market conditions.
The shipping firms have been urging India’s antitrust regulator to allow them to operate consortia and alliances, a practice now adopted globally.
Anil Devli, executive director, Shreyas Shipping and Logistics Ltd, said the commission should look at consortia and alliances as these aid economy and trade.
“If there are no consortia or alliances, India’s economy and trade will suffer because individual lines will not be able to cater to the demands of the trade,” said an executive with German container shipping line Hapag-Lloyd, a member of the IPBC Conference.
“Under the consortia or alliance arrangements, a few shipping lines get together to offer services by pooling their resources and efficiencies. They won’t agree on rates, which was allowed under the conference arrangement,” he said.
To sort out the matter, representatives from the shipping industry such as the Northern India Shippers Association and Container Shipping Lines Association met commission officials along with those from ministry of commerce and shipping ministry. The shipping industry assured CCI that it will stop fixing prices.
While the competition law does not object to consortia and alliances, it considers arrangements that collude on fixing prices, sharing markets, limiting output and supply of services as anti-competitive.
So, while CCI is pleased that the industry is moving towards the more market-friendly regime of consortia and alliances, it wants to protect consumers against potential misuse of such groupings. This can happen through a mutual understanding on a wide range of activities. “We have told shipping lines that any consortium or alliance should add value which will help consumers benefit from it. Indian exports have been suffering because of mutual agreement on prices and other things in the shipping industry,” said a senior CCI official, who did not wish to be identified.
The official said any new alliance will be evaluated for the merit that it brings about in cargo movement.
All talks between shipping lines on tariffs, scheduling and capacity are off after October, said Jan B. Steffens, managing director of Germany’s Rickmer’s Line, another member of the IPBC Conference.
“Though consortia and alliances are allowed, they are also by no means allowed to talk on pricing. The conference system, which allowed this, will be gone by October and the shipping lines will have to live with that.” Shipping lines found violating this would be fined 10% of turnover or can even be excluded from the trade, he added.