Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum by the Freight Transport Association (FUS 15)



  FTA welcome the committee's inquiry into future of the UK shipping industry, believing it to be particularly timely. UK industry is facing an increasingly difficult export market, making the need for efficient, market led shipping services of paramount importance. The investigation comes at a significant time for the regulation of the shipping industry, with the passing of the Ocean Shipping Reform Bill in the USA and the recent judgment by the European Commission on the Trans Atlantic Conference Agreement (TACA) legal case.

The Freight Transport Association

  The Freight Transport Association represents the transport interests of 12,000 businesses, ranging from small family firms to multi-national, blue chip companies. All members have a common interest in the efficient movement of goods regardless of mode. FTA members are responsible for more than 90 per cent of the freight carried on Britain's railways and operate around half of the lorries on the road, whilst FTA also represents the interests of exporters using shipping and air cargo services.

  FTA, together with the French Shippers' Council, was one of the key supporters of the Commission's action against the TACA group of lines which dominate the market between Europe and the US. FTA believes that the Commission's findings and the record fines that were imposed, upon the lines for abusing their market power and for breaching EU competition rules fully justifies the legal action that was taken. It also upholds exporters' views that many practices routinely employed in the shipping industry are uncompetitive and serve against the best interests of industry as a whole. FTA is fully participating in and supporting the discussions which are now taking place with the lines, European Commission and other bodies to overcome these issues and place the industry on a more commercial business footing to the benefit of the UK as a whole.


  Any analysis that is undertaken of the sea freight industry should not look just at the shipping industry alone, but should also investigate the role that it plays in enabling the UK's exporters to serve their markets efficiently and to develop them further. This is vital to produce the wealth and income that the UK as a whole needs to grow and to ensure our continued prosperity.

  Industry regards the ability to utilise a wide range of competitively priced, market responsive shipping services as being imperative to it being able to successfully serve it's overseas markets, in the face of increasing competition from low cost markets. The importance of maritime transport to the UK economy is shown by the fact that 95 per cent of exports go by sea, whilst international trade accounts for 6 million (1 in 3) jobs in the UK.

The Importance of Competitive Shipping Services

  The global supply chain approach adopted by industry in recent years has seen exporters looking for shipping lines which are able to serve their global business needs. The shipping lines that have successfully met this challenge have been those that have relied upon a portfolio of services that are able to win business based upon their service levels and their ability to provide exporters with what they want.

  This is all the more important as competition in the marketplace increases. Experience in other modes has shown that transport companies can make a significant contribution to increasing the competitiveness of products by working with manufacturers and exporters to tailor their services to the needs of the final customer to reduce costs yet increase customer services. It is of paramount importance that similar developments are able to take place in the maritime sector, to allow exporters to continue to grow export markets.

    The committee should contact its inquiry in the context of the importance to industry of competitive shipping services. Its recommendations should be compatible with such an aim.


  UK industry has made great strides over the last 10 to 15 years in increasing the efficiency of it's supply chain, to ensure that is can win customers both on grounds of price and quality. However, of all the modes, the liner shipping sector is one that has seen the least progress being made. FTA believes that this is due to several inherent institutionalised characteristics of the sector that are preventing the development of the open commercial relationships that exist elsewhere in industry and that are preventing exporters fully realising the full potential of the maritime supply chain. These barriers need to be removed so that UK exporters can trade as efficiently as possible.

The Liner Conference System

  The global shipping industry is dominated by the liner conferences, groups of shipping lines that restrict competition and keep prices for both sea and land transport far higher than they otherwise would be, at the expense of exporter's competitiveness in overseas markets. The lines are able to establish these conferences as a result of generous exemptions from competition law that exist around the world (in the EU Regulation 4056/86 provides the necessary exemption), and whilst the reasons why they deserve such exemptions may have been valid in the 1980s when the first conferences were established, they no longer apply. They harm exports interests in three main areas, outlined below:

1. Lack of Confidentiality

  Most conferences have market shares of well over 50 per cent, which means that if exporters want the sort of sailing frequency and wide port choice that today's industrial demands require, they have little choice but to use one of the conference's members. However, before a conference member can sign a contract with an exporter, it must obtain the approval of all of the other members. Therefore, if a line chooses to undercut the other members, or to offer an improved level of service, it will be vetoed by the other members of the conference.

  This prevents exporters seeking separate quotations to obtain the best rate and service levels, and means that they must settle for the conferences requirements both in terms of rates and service levels. The recent TACA judgment by the European Commission found this lack of confidentiality to be highly anti competitive, in that it reduced the service level provided to that of the least efficient member of the conference and inhibited the development of new "value added" services. This lack of confidentiality also prevents the development of "global" contracts with individual lines, since the length of time and bureaucracy involved in a line obtaining the approval from all of the conferences that they are members of makes them unviable.

    Members of the Committee should test the damage that this does to the ability of exporters to obtain the services and rates that they want and thus the damage that it does to the UK's competitive position in world markets.

2. Fixing Rates

  One of the key activities of a conference is that it seeks to fix the rates that are charged by members. This removes any incentive for lines to keep costs down and ensure that capacity matches demand.

  Conferences also have other ways of ensuring that rates remain high. As well as fixing rates, they also often have a number of non negotiable surcharges in place, which can cover a whole range of contingencies, from changes in fuel prices to declining water levels in the panama Canal. Competitive pressures in the market place mean that exporters are unable to pass such surcharges on to customers, meaning that the whole viability of an export consignment may be changed, even though the exporter has a contract with a line to ship his goods at a particular rate.

    The committee should test the justification for such surcharges with the lines, and compare this with practices in other sectors of industry.

3. Restricting Choice

  Conferences also serve to restrict choice of line to exporters, and prevent new independent lines coming into the market to compete with the conference.

  Since most conferences include all of the large lines that are able to offer high sailing frequencies and serve a wide range of ports, the barriers to entry tend to be very high, due to the considerable investment required to be able to match the incumbent carriers.

  However, when new companies enter trades, the conferences will often make information on the main customers, traffic patterns and rates available, to the new entrant and will also offer them the opportunity to participate in existing contracts. This removes two of the main barriers to entry, in that it provides the new company with highly sensitive information about the market (that would normally be regarded as being confidential between the parties concerned) and ensures that there will be cargo available for them to carry when they choose to commence operations.

    The committee should consider if this action actually encourages the development of new services or if, as the European Commission found in the TACA case, it prevents new entrants competing with the conference.

Inland Haulage Rates

  Whilst exporters welcome the opportunity to obtain a "door to door" rate (combining the sea leg with that to and from the port) from lines on an individual basis, conferences have often fixed inland haulage rates for transporting consignments to and from ports at levels far in excess of those charged in the normal haulage market. Exporters arranging their own haulage services find that they are faced by exorbitant handling charges at ports, which removes any savings from doing so. Even though such action has been found to be illegal by the European Commission in the transatlantic trades, it continues to be widespread elsewhere.

    The Sub Committee should consider what action is required from Government to prevent such practices continuing, and how the interests of UK exporters can be upheld.

State Protectionism

  The high levels of state protectionism that is afforded certain lines by their national governments often serves against exporter's (and also British lines') interests by reducing competition in the marketplace and keeping rates high.

  Such activities range from allocation bureaux which state which lines an exporter to the country must use, to more complex arrangements which require lines wishing to serve the country concerned to file their rates to the Government. Any rate that is deemed unacceptable is refused, and the line prevented operating to that country. Such practices serve to protect inefficient national carriers and can drastically increase the costs involved in exporting to a particular country.

    The Sub Committee should establish how prevalent such practices are, and urge the Government to raise such measures when talks are held with foreign Governments.


  The passage of a consignment through a port at either end of the sea leg of it's journey is becoming an area of increasing interest in the maritime supply chain, since the journey through the port can often take several days.

  Ports in the UK currently enjoy an enviable reputation for efficiency and customer service, ensuring that they are attractive to both exporters and ship operators, meaning that many liner services stop in UK ports, to the benefit of UK exporters. However, with trade levels expected to increase further, it is important that the competitive position of UK ports can be maintained and their continued efficiency upheld. This is particularly in the UK where the potential for further land to be used for port development is limited.

    Exporters believe that the lack of state subsidy has seen UK ports becoming world leaders and that the sub-committee investigates how this position can be maintained.


  Exporters believe that the development of a free market, liberalised shipping industry is essential to ensuring that they are able to fully maximise the opportunities that are open to them. They believe that were the issues outlined above to be addressed there would be a significant boost to the competitiveness of UK products in world markets, with a consequent increase in wealth and employment for the UK. Achieving such benefits are particularly important at the present time, when the international market place features both increased levels of competition and a looming global recession.

  Exporters are well aware that many of these issues cannot be solved by the UK Government unilaterally, but are subject to international agreements and legislation that would have to be discussed with other Governments and particularly the European Commission. However, exporters believe that the time has now come for such discussions to take place, and recommends that the committee places the interests of Britain's exporters at the very heart of its inquiry, to see how their international competitiveness can be improved and recommend to Government that it follows a policy of promoting competition and liberalisation throughout the global shipping industry to the benefit of the UK as a whole.

Neil Johnson

Global Logistics Manager

4 December 1998

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