News broke this week about an investigation launched by the United States Justice Department (DOJ) into container shipping companies. The DOJ has ordered top executives to testify in an antitrust investigation, which is exploring whether shipping companies have been price-fixing.
Shipping executives were in San Francisco for a large meeting last week, as members of the International Council of Containership Operators, commonly known as the Box Club. Crashing the meeting, the DOJ issued supoenas to multiple companies in attendence.
Here's what we currently know about the investigations and how it might impact you.
1. Who has been subpoenaed?
Multiple publications reported that Maersk Line, a unit of Danish conglomerate AP Moller Maersk and the world’s biggest container shipping line, received a supeona. Reuters reported that MSC of Switzerland, Germany's Hapag Lloyd, Taiwan-based Evergreen, and Hong Kong-based Orient Overseas Container Line confirmed that they were also subpoenaed during the meeting. Other smaller operators were visited personally by investigators.
2. Why are these companies being investigated?
Regulators around the world have been looking into whether new alliances between carriers could lead to anti-competitive behavior. Because the companies are so large and account for such a high percentage of global shipping capacity, the US is worried that price-fixing could slow global trade.
These new alliances are set to begin operations in April, with the largest ocean carriers sharing port calls and vessels in an effort to save billions of dollars in operating costs. While this benefits the carriers, a negative impact on trade would be far reaching, as Reuters points out "90 percent of the world's traded goods by volume and over 60 percent by value - $4 trillion - is transported by sea on container ships."
3. What are the main concerns with the proposed alliances?
While the DOJ points to concerns over an overall slowing of global trade, there are more specific concerns. The first, as the investigation would indicate, is price increases by way of price-fixing. The Maritime Herald also stated that analysts worry about reduced services along with rate hikes.
Others, like SeaIntelligence Consulting's Lars Jensen, raise concerns about the alliances squeezing out competitors, forcing other companies to either join, become regional carriers, or go out of business. In the Wall Street Journal article Shipping Alliances Shore Up Industry, Unsettle Customers quoting Jensen, others express concerns over things like decreased sailings and reliance on larger ports, due to larger ships. These larger ships will also require heavy upgrades for ports, including larger cranes and more trucks ready to take goods inland.
Why would decreased sailings matter if ships are bigger? Well, even with bigger ships in play, The Australian reported that shipping prices from Europe to Asia rose sharply this month when shipping lines reported that "ships were full," which is highly unusual on routes that usually have plenty of capacity.
In the same article, Patrik Berglund, CEO of container shipping analysts Xeneta, contends that carriers have been able to raise prices by idling ships. If this is true, having fewer entities in control of ships, routes, and sailings could magnify the effects of this practice.
4. What do I need to do to protect my business?
Each company's situation is different, but one of the first things you can do to mitigate risk is to spread volume across multiple carriers. This is true even now, when we talk about carrier mix. Many of our customers see benefits from comparing multiple carriers for each shipment, whether it's freight or parcel. Check out our article on How to Pick a Shipping Carrier for more information on the different types of carriers and establishing a good mix.
Keep watching for more information about investigations and shipping alliances in the news in the coming weeks. You should also watch your rates for any abnormal fluctuations.
If you are a Pacejet customer interested in turning on any new carriers to increase your options for rate shopping, contact support at email@example.com. If you are new to Pacejet, but looking to increase your shipping options, contact us for a consultation so that we can discuss your unique business needs.
Let us help you. Contact us today to learn more about how Pacejet can help you grow your business with a better shipping strategy.
Pacejet does not currenly have agreements in place with any of the carriers mentioned in this article. While some of our customers do engage in global trade, the majority of our business focuses on parcel and freight shipments, as well as parcel international shipments. This article is intended to provide perspective on the industry and to also let you know how it may impact your rates and carrier choices, regardless of whether you ship with the carriers under investigation.
Photo courtesy of Agustin Garcia on Flickr Creative Commons