Maritime CEO Issue Three 2020

Page 17

MARKETS CONTAINERS

Should regulators intervene? Lars Jensen from Sea-Intelligence Consulting ponders whether liners have colluded to create today’s high freight rate environment

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eptember saw Chinese regulators enter into the arena regarding carriers’ pricing and capacity management. Presently it is not yet fully clear exactly what the meeting between the carriers and regulators will result in, as there are apparently (at the time of writing this) not any specific written guidelines in place, and such may not be forthcoming either. Instead it appears to be a somewhat softer pressure to curb the seven-week string of record freight rates on the tTranspacific trade and introduce some guidelines on blank sailings. What this will eventually amount to remains to be seen. But it raises another, different, question: Should or will regulators intervene? Let us first deal with perceptions. If you are a shipper, you will have been through a period of significant disruption of your supply chain. First in the form of a raft of blank sailings with limited advance warning. Then in the form of rapidly rising (spot) rates as well as rolled cargo. Not to mention the usual issue of quite low schedule reliability. On top of that you are seeing carriers publish quarterly results indicating

ISSUE THREE 2020

that 2020 stands to be much more profitable than 2019 despite the pandemic impact. Add to this knowledge that the strength during the pandemic downturn stems from the carriers’ ability to manage capacity effectively – and that this position has been obtained through industry consolidation. From some shippers’ perspective this looks very much like consolidation has led to collusion and price gouging. This is also why we should expect more regulatory bodies to step in and take a closer look – because appearances look like they warrant it. However, should we expect this development to actually be foul play and hence warrant an intervention? And what will be the consequence? Intervention into pricing, and especially regulation related to advance notice and filing of rates, go against the digital development in the industry of instant and transparent pricing – it would serve to decouple rate formation from the actual market status rather than make the two more closely linked. And as a consequence would pull the market more in the direction of the old ways of handling pricing rather than proceed with the new digital tools. Should we expect to see carriers be investigated for potential collusion? This might well happen, simply because of the combination of rapid price hikes and the industry’s past history. However, we need to keep in mind that seen from the outside it cannot easily be discerned whether the increases are due to foul play or whether they are the result of each carrier making perfectly rational decisions. After all, if demand is

expected to drop it is perfectly rational to decide to cancel sailings. If demand then increases faster than anyone expected, it is perfectly rational to increase prices as space is at a premium. Proving collusion would therefore require the ability to show carriers across alliances planned the current scenario – and whilst nothing is ever impossible, it would appear far more likely that the present situation is due to rational decisions by each individual carrier rather than from collusion. This is a topic which is likely to continue to shape debate in the industry for a while to come and there are multiple additional nuances to the discussion which cannot be kept in the limited space of this text, however seen from an observer who is neither a shipper nor a carrier, it would seem that further regulatory scrutiny might well happen – but also that such scrutiny is unlikely to uncover foul play. Also, that if the current situation leads to regulatory intervention related to price formation or capacity management this could be seen to stabilise the markets right now, but is more likely to also make the markets more volatile in the long run as well as slow down elements of the digital transformation of the industry. ●

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Andrew Craig-Bennett

3min
page 45

Charlie Du Cane

3min
page 44

Gadgets

1min
page 43

G2 Ocean

3min
pages 35-36

Travel

4min
pages 40-41

Gestion Maritime

1min
pages 37-38

Books

2min
page 42

Torm

3min
pages 32-34

Erasmus Shipinvest

2min
page 39

BULL

2min
pages 29-30

Asian Bulk Logistics

1min
page 31

Containers

3min
pages 17-18

2020 Bulkers

3min
pages 27-28

Finance

2min
page 19

Cover Story Vogemann

3min
pages 25-26

Tankers

2min
pages 15-16

Just what is decarbonisation?

5min
pages 20-24

At The Prow

3min
page 5

Dry Bulk

2min
pages 13-14
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