Vessel sharing arrangements face new Congressional challenge

Written by Nick Blenkey
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Image: Architect of the Capitol

Container shipping alliances remain nobody’s darlings in Washington and their vessel sharing arrangements are again in the cross-hairs. Congressman Jim Costa (D.-Calif) has reintroduced the bipartisan “Ocean Shipping Antitrust Act.” The legislation (H.R. 1696) is co-sponsored by U.S. Representatives Dusty Johnson (R.-Ala.), John Garamendi (D.-Calif.), Josh Harder (D.-Calif,), and Jimmy Panetta (D.-Calif).

According to its sponsors, the bipartisan legislation “would repeal the exemption for ocean carriers from all federal antitrust laws and addresses unfair practices that harm American businesses and consumers. The reintroduced legislation for this Congress would maintain and codify the employer immunity for collective bargaining within the maritime industry, which employers in all other U.S. industries enjoy under longstanding federal case law. Additionally, the legislation authorizes the Federal Maritime Commission to formally comment on mergers and acquisitions under review by the U.S. Department of Justice’s Antitrust Division. Other regulators like the Federal Aviation Administration enjoy a similar comment authority for antitrust reviews for the transportation industry.”

The World Shipping Council (WSC), which represents ocean carriers, doesn’t see things quite that way. It argues that the Shipping Act establishes rules that provide legal certainty to ocean carriers to share space on ships while ensuring competitive markets. Being able to share space on ships through vessel sharing arrangements allows more carriers to provide more services more efficiently to more ports than carriers could provide individually. That is good for shippers, ports, consumers, and all of the workers that keep the global supply network running. H.R. 1696 would remove that system and undermine competitiveness and choice for liner shipping services.

“Nobody has offered a reason why we should throw away such a useful tool as vessel sharing arrangements (VSAs), and I think some of the rhetoric comes from a misunderstanding about how VSAs help the supply chain work better,” says John Butler, president & CEO of the WSC. “We look forward to working with the bill’s sponsors to better understand their policy objectives. A similar bill was introduced in the last Congress, but did not gather significant support.”

The WSC says that VSAs are purely operational agreements that enable carriers to share space on one another’s ships. This way, carriers can ensure that vessels sail as full as possible, minimizing the cost of transport. At the same time, vessel sharing allows more carriers to compete on a route, offering more frequent sailings and serving more ports. From a customer perspective, this means lower costs and better service, as well as reduced transport emissions.

Each member of a VSA determines its own commercial terms, including prices. Therefore, carriers within a VSA compete with each other, and with other carriers outside of that VSA, when selling their services to customers. Carriers also offer services outside of the VSAs in which they participate.

“Liner shipping is a hotly contested market,” says WSC. “The Federal Maritime Commission in its Fact Funding 29 Report last May found that “the individual ocean carriers within each alliance continue to compete on pricing and marketing independently and vigorously”, and that “[t]he transpacific is a highly contestable market.”

The liner shipping industry is competitive by any definition, says WSC. There are no carriers with a capacity share above 20%, only three carriers with capacity shares higher than 10%, and only seven with capacity shares above 5% globally.

During the pandemic, inland congestion reduced available ocean capacity by preventing ships from making port. Together with surging U.S. consumer demand this drove up rates. Today, as high import volumes and inland congestion have faded, freight rates have fallen back to pre-pandemic levels. Reliability is also returning to normal. The market is competitive and working as it should, says WSC.

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