Memorandum by the Freight Transport Association
THE FUTURE OF THE UK SHIPPING INDUSTRY
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.
2. THE ROLE
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
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
3. BARRIERS TO
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
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.
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.
Global Logistics Manager
4 December 1998