Transcript Market structure in container terminal operators and port

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
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)
A TOP-DOWN RELATIONSHIP?
Ext. Environment: Production, logistic and market changes
Technical:
•Rate of containerization
•Ships’ specialization
•Growth in ships’ size
Main
changes
Maritime industry
Organizational:
•Routes/calls
•Hub & Spoke
•Transhipment
Operational:
•Strategic alliances
•slot agreements/
interlining
Stevedoring industry
(ALLIED)
SHIPPING
LINES
Ports
ELEMENTS OF PRESSURE:
• 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)
Increasing
bargaining
power
• Search for dedicated terminals
Which “responses” for counteracting
liner industry’s growing power?
Effects on terminal competition
1. In the short run terminal competition is mainly based on tariffs
(since “plant” size is given)
•
In the medium-long run competition is mainly based on
• terminal capacity
• stevedores consolidation
STEVEDORES CONSOLIDATION and NETWORKING
• HPH
• ECT
• PSA
• Modern Terminal
• P&O Ports
• ICTSI
• SSA
BIG 5
drewry, 1998
• CSX World Terminals
• MAERSK-Sea Land
• HHLA
• EUROGATE
• HESSENATIE
1998: nearly 65 million of TEU
32% of the market
(top 20 carriers: 55%)
CONTSHIP
NOORD
NATIE
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
INCREASING PORT
COMPETITION
MARKET CHANGES
(TOWARDS
OLIGOPOLISTIC FORMS)
Profit
erosion
Price and quantity strategies are not sustainable for core business
Quality improvement through product
differentiation for increasing profits
The role of
cooperation?
(Heaver et al., 2000)
COOPERATION FOR DIFFERENTIATION
(1/2)
1. Improving the effectiveness of port service to
ships: the case of dedicated terminals
“Vertical” agreements (line-terminal) for “horizontal”
competition (with other terminal operators)
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
COOPERATION FOR DIFFERENTIATION
(2/2)
2. Adding new functions to port services
“Vertical” agreements affecting “horizontal” and “vertical”
competition (terminals-carriers-logistic operators)
• Within the port:
•value added logistic activities (VAS, e.g. distriparks,
EDC, IT)
• Outside the port:
• controlling (internal) nodes in the logistic network
(e.g. inland terminals)
• controlling connections within the logistic network
(e.g. railways operators)
Elements of conflict between
main players?
Is a trial of strength between stevedores and
carriers going on for logistic chain control?
Can financial capacity be considered an important proxi of contractual
power, source of external pressures and lobbying capacity?
Revenues global players, 1998, in million USD
Genoa Port Authority
HHLA (Hamburg)
Hessenatie
ECT (Rotterdam)
log. Prov. T-20
log. Prov. T-10
SSA
Hutchison Wampoa
P&O Ports
PSA
carriers top20 (average)
Antw erpen Port Authority
Port authorities
Terminal operators
RMPM (Rotterdam)
carriers
carriers top10 (average)
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Source:
Bloome,
Iame 2000
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?
EU Competition Policy and liner shipping regulation
Only horizontal co-operation agreements in the maritime sector
are explicitly regulated for a possible antitrust block exemption
1) CONFERENCE AGREEMENTS:
• CAPACITY CONTROL
• RATE FIXING (freight rate)
REGULATION 4056/1986
2) CONSORTIA (ALLIANCES):
TECHNICAL, OPERATIONAL OR COMMERCIAL
ARRANGEMENTS
REGULATION 823/2000
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?
Are benefits from exemptions and immunities related to
liner shipping still greater than costs?
Anti-trust exemptions
Does the arrangement restrict competition?
no
yes
Do benefits to the community outweigh the costs?
no
yes
Clearly demonstrate that
benefits exceed costs
Clearly demonstrate that
they are not restrictive
Can the objective of legislation be met by better means?
yes
Remove
restrictions
Device alternative
approach
no
Retain existing
approach
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 prerequisite 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
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)?
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 pricefixing 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.
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
Recent cases by the Commission and Court of First
Instance
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
• fixing of brokerage and freight-forwarder remuneration
• collusion and abuse concerning the terms and availability of
individual service contracts (ISC)
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.
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 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.
Last but not least…
• 29/01/1999:
notification of the revised TACA
• 14/11/2002:
Commission decision on the Revised TACA
(Case COMP/37.3962/D2 - Revised Taca)
“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”
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).
The Revised TACA decision (2002)
The structure of the market:
100%
90%
80%
39,4
38,5
40,2
41,7
40,5
70%
51,0
51,5
52,3
49,0
48,5
47,7
1999
2000
2001
60%
50%
40%
30%
60,7
61,7
59,8
58,3
59,5
20%
10%
0%
1994
1995
1996
1997
1998
TACA / Revised TACA
Others
More External Competition
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”
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)
The Revised TACA decision (2002)
Provisions not covered by the block exemption:
- service contracts
Individual exemption (antitrust immunity) ex art 81(3)
TACA
Revised TACA
• 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)
• 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
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