EU commission: EU regulators have limited room to respond to shipper complaints

European regulators should follow the lead of other countries and look into carrier practices, believe shipper and forwarder associations. Photo credit: Shutterstock.com.

European shipper and forwarder groups are urging regulators to investigate container carrier practices that they say have disrupted supply chains, but admit there is little room for immediate action due to the structure of the European Commission (EC).

In a joint letter this week to the Competition Directorate of the European Commission, the European Freight Forwarders Association (CLECAT) and the European Shippers' Council (ESC), called for competition authorities to intervene, accusing carriers of violating existing contracts, establishing unreasonable container booking conditions, and unilaterally setting rates "far in excess of those agreed in contracts." 

A spokesperson for the European Commission told JOC.com Wednesday that it had received the letter and would respond "in due course," adding that the commission was aware of investigations being conducted in some jurisdictions into liner shipping practices.

"The European Commission will continue monitoring the developments in the sector of liner shipping," she said. 

But Nicolette van der Jagt, CLECAT's director general, acknowledged that even if the EC did take action, its ability to intervene was limited.

"In our letter to the EC, we referred to the investigation of the US Federal Maritime Commission [FMC], and also noted that we recognize that the US regulatory regime is different from the European regime, and that the EU does not have the same instruments and resources as the US at its disposal," van der Jagt told JOC.com. 

While the EC is the executive branch of the European Union, the FMC is an independent federal agency tasked with monitoring and regulating the ocean container shipping system for the benefit of US exporters, importers, and consumers.

The FMC has shown a willingness in recent years to launch investigative probes, and although it doesn't regulate rates, it has issued warnings to carriers when it sees behavior potentially violating the crux of the Shipping Act of 1984 in that there's a so-called unreasonable decrease in service and/or unreasonable increase in cost. 

"However, when freight rates are rising by an average of 500 percent within weeks, and when firm contracts between carriers and their customers are being broken unilaterally, we believe that Directorate General for Competition [DG Comp] should take the opportunity to use the existing tools at its disposal to adequately respond to the current situation," van der Jagt said.

Regulators keep an eye on carriers

Global regulators have increased their scrutiny of container lines. The FMC in November increased its monitoring of the three major global shipping alliances, requiring them to provide carrier-specific US trade data monthly rather than quarterly. South Korean authorities on Nov.

12 warned carriers not to prioritize higher-paying Chinese exports, and Chinese regulators on Sept.11 strongly suggested that carriers inject more capacity and less aggressively raise rates.

Sustained demand in Europe for Asian imports through the festive period, combined with a persistent equipment shortage, is filling all available shipping capacity and driving rates to record levels. Spot rates from China to North Europe reached £4,091 per TEU on Dec.

31, according to last week's reading of the Shanghai Containerized Freight Index (SCFI), an incredible 264 percent increase year over year. The rate has increased almost sixfold since a 2020 low reached in April.

An acute container equipment shortage has worsened since the widespread blanked sailings during the second quarter 2020 lockdowns in Europe left boxes out of position. Carriers are struggling to return empties to factories in Asia to be filled with exports, frustrating shippers and forwarders.

Carriers such as Maersk and Hapag-Lloyd blame the equipment imbalance on measures imposed by both origin and destination markets to cope with the COVID-19 pandemic, and point out that they have deployed as much ocean and container capacity as they can find on Asia-Europe.

According to Alphaliner, at the end of 2020, the idle fleet was just 230,000 TEU, a decline of 83 percent compared to a year ago that reflects the intense global demand for tonnage.

A spokesperson for Maersk said although visibility on demand in 2021 remained limited, the current freight buying patterns and the equipment and vessel availability issue would be temporary.

But van der Jagt dismissed this argument, and pointed instead to the recent carrier exemption from competition laws through the Consortia Block Exemption Regulation, which was extended last year to 2024. She maintained that the distorted market situation would not have been reached had the carriers not been able to jointly reduce capacity while increasing rates.

Last year, shippers, forwarders, terminal operators, and others in the maritime supply chain expressed their dissatisfaction with the European Commission decision to extend the block exemption regulation for liner shipping, calling it "a one-sided exercise to the benefit of the carriers."

"Consortia agreements authorize carriers to collectively agree on blank sailings," this week's joint CLECAT-ESC letter to the commission stated. "The current shortage of capacity has enabled carriers to significantly raise rates on spot market cargo and for cargo under contract. The unreasonable practices of carriers regarding container equipment, rates, and demurrage and detention charges, present a serious risk to the ability of economic recovery in Europe."

Van der Jagt added, "For us, it is somewhat ironic that this situation is materializing just after the EC renewed the block exemption for liner shipping consortia."

Claims of refused bookings, rolled cargo

The associations charged that shippers and forwarders were being confronted with refused bookings and rolled cargo if carriers deemed it more profitable to accept cargo with higher rates for a particular sailing.

The letter said "unacceptable practices" included imposing an extra fee as a price for accepting cargo at a new tariff, or refusing to accept bookings, forcing customers with contract rates to move to the spot market at a higher price.

This was confirmed by the logistics director for a South Europe shipper, who told JOC.com it felt like he was "steering every container almost by hand." He said some of the carriers had cut his contracted allocations and were charging premium prices to move the additional boxes.

"This behavior is making us question our partnerships, and when we put out our annual Asia-Europe tenders after Chinese New Year, we will have to make up our minds about which carriers will be good partners in tough situations," he said. 

Many of the containers moved on Asia-Europe are handled by forwarders.

Asked whether their contracted allocations were being honored by carriers, forwarders told JOC.com that the agreed volume was mostly being accepted, but it was often impossible to secure a shipment above the allocation, regardless of price.

"We are getting the space and allocation that we negotiated, but getting more is very difficult, to say the least, and it also doesn't really matter anymore which price you or your clients want to pay to get additional space," the logistics director said. "When a new opportunity to get space arises, then you need to pay a premium, and spot premium rates have priority."

Edoardo Podesta, chief operations officer for air and sea logistics at Germany-based forwarder Dachser, said the current tight space situation would likely worsen later in January and continue until Chinese New Year in mid-February.

"Right now we are fighting for space and containers for almost every shipment," he told JOC.com. "In the last two to three weeks it has been easier to work with carriers, most of the allocations are respected, and we generally can get additional space ... provided we pay."

Contact Greg Knowler at [email protected] and follow him on Twitter: @greg_knowler.

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