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Forme di cooperazione nel settore marittimo-portuale: quale spazio per un’equa competizione E. Musso - C. Ferrari - M. Benacchio University of Genoa, Faculty.

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Presentation on theme: "Forme di cooperazione nel settore marittimo-portuale: quale spazio per un’equa competizione E. Musso - C. Ferrari - M. Benacchio University of Genoa, Faculty."— Presentation transcript:

1 Forme di cooperazione nel settore marittimo-portuale: quale spazio per un’equa competizione E. Musso - C. Ferrari - M. Benacchio University of Genoa, Faculty of Economics SIET- Società Italiana degli Economisti dei Trasporti Palermo, 13-14 Novembre 2003

2 Competition and Co-operation Both affect firm’s efficiency (Beamish, 1998) Any co-operative behavior is not automatically a collusive move, affecting consumer’s surplus (Buckey-Michie, 1996) Cooperation often allows achieving a better competitive climate and enlarging the competition field by: - widening operative borders of a single firm - achieve adequate scale to compete in global markets - quickly enter new markets maximising the output for each partner’s input (Ryoo-Tanopoulou, 1999)

3 Increasing competition hinterland overlapping lowering tariffs

4 SOME RAW ISSUES LOOKING FOR DEEPER ANALYSIS… Are the two industries experiencing a comparable horizontal concentration process? Is there a room for inter-firm cooperation for the attainment of mutually defined goals, in the stevedoring sector? If any, are there similarities in the liner shipping and stevedoring trend for co-operation? What are main effects on logistic service markets from those induced changes in maritime and port industry? Interactions? Are/will the two industries competing to control the logistic chain?

5 Maritime industry Stevedoring industry Main changes Technical: Rate of containerization Ships’ specialization Growth in ships’ size Organizational: Routes/calls Hub & Spoke Transhipment Operational: Strategic alliances slot agreements/ interlining A TOP-DOWN RELATIONSHIP? Ext. Environment: Production, logistic and market changes

6 (ALLIED) SHIPPING LINES Ports Threat of services relocation by all the allied carriers (“take_or_leave” policies) Contracts with different terminal operators located in ports belonging to the same range (for different services) Search for dedicated terminals ELEMENTS OF PRESSURE: Which “responses” for counteracting liner industry’s growing power? Increasing bargaining power

7 In the medium-long run competition is mainly based on terminal capacity stevedores consolidation 1.In the short run terminal competition is mainly based on tariffs (since “plant” size is given) Effects on terminal competition

8 STEVEDORES CONSOLIDATION and NETWORKING HPH PSA P&O Ports ICTSI SSA ECT Modern Terminal CSX World Terminals MAERSK-Sea Land HHLA EUROGATE HESSENATIE 1998: nearly 65 million of TEU BIG 5 drewry, 1998 CONTSHIP NOORD NATIE 32% of the market (top 20 carriers: 55%)

9 SOME ECONOMIC GROUNDS FOR CONSOLIDATION The need for huge scale of investments (capital requirement, sunk costs); exploitation of economies of scale (fixed costs); exploitation of economies of scope (interrelated branches); exploitation of network economies (H&S, O/D); aims at expanding in new markets increasing the revenue generating capabilities (portfolio approach); available economies for multiplant units (i.e. investments in technology, R&D, promotion and operating synergies); possibility of managing supra-structures as resource pools (labour?); shareholders’ pressure for increasing rates of returns

10 Profit erosion Quality improvement through product differentiation for increasing profits MARKET CHANGES (TOWARDS OLIGOPOLISTIC FORMS) INCREASING PORT COMPETITION Price and quantity strategies are not sustainable for core business The role of cooperation? (Heaver et al., 2000)

11 COOPERATION FOR DIFFERENTIATION (1/2) 1. Improving the effectiveness of port service to ships: the case of dedicated terminals Terminals’ main opportunities: securing client loyalty processing vessels immediately upon arrival, eliminating time losses re-scheduling service timetables according to a free disposability of the terminal pursuing standardization of (faster) procedures due to common features of liner’s fleet “Vertical” agreements (line-terminal) for “horizontal” competition (with other terminal operators)

12 Outside the port: controlling (internal) nodes in the logistic network (e.g. inland terminals) controlling connections within the logistic network (e.g. railways operators) 2. Adding new functions to port services Within the port: value added logistic activities (VAS, e.g. distriparks, EDC, IT) “Vertical” agreements affecting “horizontal” and “vertical” competition (terminals-carriers-logistic operators) Elements of conflict between main players? COOPERATION FOR DIFFERENTIATION (2/2)

13 Is a trial of strength between stevedores and carriers going on for logistic chain control? carriers Terminal operators Port authorities Can financial capacity be considered an important proxi of contractual power, source of external pressures and lobbying capacity? Source: Bloome, Iame 2000

14 Cooperation in the maritime and port sectors as market-driven developments…. But they affect the market structure and the conducts of an international industry How are co-operation agreements (including integration strategies) evaluated by antitrust regulation and antitrust policy? How do antitrust regulation and antitrust policy fit the changes in the maritime and port industry?

15 EU Competition Policy and liner shipping regulation 1) CONFERENCE AGREEMENTS: CAPACITY CONTROL CAPACITY CONTROL RATE FIXING (freight rate) RATE FIXING (freight rate) REGULATION 4056/1986 2) CONSORTIA (ALLIANCES): TECHNICAL, OPERATIONAL OR COMMERCIAL ARRANGEMENTS REGULATION 823/2000 Only horizontal co-operation agreements in the maritime sector are explicitly regulated for a possible antitrust block exemption

16 Logic framework of application of the block exemption: 1) Have the agreements the object or effect of restricting competition? 2) … but contribute to improving the production or distribution of goods or to promoting technical or economic progress? 3) … while allowing users a fair share of the resulting benefits? 4) … and do not impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objects? 5) … and does not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the services in questions?

17 Clearly demonstrate that benefits exceed costs Are benefits from exemptions and immunities related to liner shipping still greater than costs? Anti-trust exemptions Does the arrangement restrict competition? Do benefits to the community outweigh the costs? Clearly demonstrate that they are not restrictive Can the objective of legislation be met by better means? Remove restrictions Device alternative approach Retain existing approach yes no yes no yesno

18 Some problems arise: 1) Conferences vs. alliances Since Conferences’ price fixing (horizontal agreements having the object and not only the effect) and limitation of production are hardcore restrictions of competition, is price-fixing a necessary pre- requisite for the maintenance of a reliable scheduled service? Consortia/alliances could be as well effective and less restrictive? 2) Efficient fleet sizing does the block exemption encourages the maintenance of excess of capacity? Do shippers fund the cost of excess of capacity through supra-competitive freight rates? 3) transfer of a fair share of the resulting benefits to users If rates are set at the level necessary to cover the average cost of the least efficient member of the conference, the efficient members reap benefits, while the cost savings and efficiency gains of these carriers are not passed on to shippers

19 4) eliminating competition in respect of a substantial part of the markets? External competition: - mainly other liner shipping services - limited for other mode of transport or tramp (to be evaluated case by case) Internal Competition - by the same members of the agreement 5) Market definition the need for re-assessing analysis of liner shipping markets: - trade-by-trade basis (each trade is a relevant market)? - additional product (port services, logistics and inland carriage) - geographic market definition (port competition)?

20 6) Mergers - mergers between members and non members may strengthen the dominant position for the conference/alliance - mergers between members of the same conference/alliance could lead to a reduction in competition between its members and a increasing “singleness” of purpose and conduct of the market 7) Alliances - positive attitude towards alliances/consortia (purposes otherwise achieved through mergers) -alliance within a conference: concern for super-imposing of price- fixing activity (Conference) on co-ordination of shipping operations and joint marketing (Alliance) - REG 823/2000 In order to qualify for the exemption, a consortium must possess on each market upon which it operates a market share of under 30 % when it operates within a conference, and under 35 % when it operates outside a conference.

21 Current EU debate: Is Reg. 4056/86 still rationale? See “Consultation paper on the review of Council Regulation (EEC) Nov 4056/86” http://europa.eu.int/comm/competition/antitrust/review/marine_transpor t_comments.html is the scope of the regulation cabotage / tramp services are the reasons for the block exemption Stability Reliability adequate efficient scheduled maritime transport services benefits to transport users indispensability still valid? [see also OECD “Competition Policy in Liner Shipping” DSTI/DOT(2002)2] Public Hearing: Review of Council Regulation 4056/86 governing maritime transport - 4 December 2003

22 Recent cases by the Commission and Court of First Instance Trans-Atlantic Conference Agreement – TACA Trans-Atlantic Conference Agreement – TACA The First Match (Decision 1999/243/EC, case IV/35.134) the Commission imposed fines of 273M.Euro on the 15 TACA parties for altering the competitive structure of the market inland price fixing inland price fixing fixing of brokerage and freight-forwarder remuneration fixing of brokerage and freight-forwarder remuneration collusion and abuse concerning the terms and availability of individual service contracts (ISC) collusion and abuse concerning the terms and availability of individual service contracts (ISC)

23 Trans-Atlantic Conference Agreement – TACA Trans-Atlantic Conference Agreement – TACA The Revenge (?) (Court of First Instance – 30 September 2003): The Court has upheld both the Commission's finding that the TACA infringes the competition rules and its refusal to grant exemption to the member companies The Court has essentially upheld the Commission's finding that the restrictions in relation to service contracts constitute an abuse (the first abuse), but has set aside for lack of evidence and infringement of the rights of defence that part of the decision concerning the measures inducing competitors to join the conference (the second abuse). the Commission had not demonstrated that the specific measures, rather than particular commercial considerations, had induced the only two shipping companies who joined the conference between 1994 and 1996 - Hanjin and Hyundai - to become members of the conference.

24 Trans-Atlantic Conference Agreement – TACA The Revenge (?) (Court of First Instance – 30 September 2003): The Court further held that the Commission had infringed the rights of the defence by using documents in support of its complaints without giving the TACA parties the opportunity to comment on the interpretation which the Commission intended to place on them. Consequently, since those documents were the only evidence of those specific measures, the Court found that those measures were not validly proved.The Court further held that the Commission had infringed the rights of the defence by using documents in support of its complaints without giving the TACA parties the opportunity to comment on the interpretation which the Commission intended to place on them. Consequently, since those documents were the only evidence of those specific measures, the Court found that those measures were not validly proved. The Court therefore annulled the Commission's decision in so far as it found that the TACA parties had abusively altered the structure of the market, together with the fines imposed in respect of the second abuse. The Court therefore annulled the Commission's decision in so far as it found that the TACA parties had abusively altered the structure of the market, together with the fines imposed in respect of the second abuse.

25 29/01/1999: 29/01/1999: notification of the revised TACA 14/11/2002: 14/11/2002: Commission decision on the Revised TACA (Case COMP/37.3962/D2 - Revised Taca) Last but not least… “Pursuant to Art. 81(3) the provisions of Art. 81(1) of the Treaty are declared inapplicable to those aspects of the Revised TACA falling within the scope of Reg. No 4056/86 and Reg. No 1017/68, for a period of six years from May 1999”

26 The Revised TACA decision (2002) The relevant market evaluated in the decision: - product: “containerized liner shipping between North-EU and USA using the sea routes between ports in North-EU and the ports in the USA and Canada - geographic: “the area where these services are marketed, i.e. the catchment area of the North-EU ports” Mediterranean ports have been considered not substitute Land transport services which shippers acquire as a part of a multimodal transport operation for the carriage of containerized cargo between North-EU and USA don’t fall under Reg. 4056/86 and will be dealt under a separate procedure (e.g. regulation No 1017/68).

27 The Revised TACA decision (2002) The structure of the market: More External Competition

28 The Revised TACA decision (2002) Applicable regulation art 81 Reg. 4056/86 which does not cover the inland on- or off-carriage of cargo supplied in combination with other services as part of an intermodal transport operation (e.g. cargo handling services for which there is specific supply and demand distinct from that of maritime transport) Application of the block exemption to: - price-fixing for liner services tariffs (provide commercial stability) - regulation of the carrying capacity offered by each of the members (capacity arrangements have involved the withdrawal of vessels and have resulted in significant cost savings) “always provided that the Parties shall not increase any tariff rates in conjunction with any capacity regulation program on any trade covered by such program or create an artificial peak season”

29 The Revised TACA decision (2002) Through intermodal freight rates: the “not-below-cost” rule (application of exemption ex Reg. No 1017/68) - the Parties are not authorized to agree prices with each other for inland transport services supplied to shippers as part of a multimodal transport operation for the carriage of containerized cargo; - the Parties are authorized to agree that, where they provide maritime transport services pursuant to the Tariff, no member may charge a price less than the direct out-of-pocket cost incurred by it for inland transport services supplied in combination with those maritime transport services (“not-below-cost-rule)

30 The Revised TACA decision (2002) Provisions not covered by the block exemption: - service contracts Individual exemption (antitrust immunity) ex art 81(3) TACA TACA The Parties agreed terms and conditions under which they might enter into service contracts with shippers; and The Parties agreed terms and conditions under which they might enter into service contracts with shippers; and placed restriction on the availability and contents of these contracts (mainly individual service contracts - ISC) placed restriction on the availability and contents of these contracts (mainly individual service contracts - ISC) Revised TACA The availability of ISC is not restricted (and indeed they constitute the preferred form of arrangement on the trade covered by the Revised TACA The availability of ISC is not restricted (and indeed they constitute the preferred form of arrangement on the trade covered by the Revised TACA more internal competition more internal competition

31 ELEMENTS FOR FURTHER RESEARCH Relationships consolidation-integration-profitability (stevedoring is not a price setting industry) The role of freight forwarders, shippers and other service suppliers in the supply chain integration Forms of co-operation involving Port Authorities: with other port Authorities with the stevedoring/logistic industry with carriers with shippers


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