Restrictive shipping practices

Unfair shipping practices
Unfair practices in maritime commerce

Nature

Maritime commerce has many conflicting parties whose self-interest leads to unfair practices. They include governmental and industrial shippers, shipowners, bankers, brokers, forwarders, port labour and merchant marines. Others having important roles are: governmental and intergovernmental regulatory or investigatory bodies; conference line shipowners; owner consortia; vertically integrated transnational corporations who may control production and inland as well as maritime transport up to the end markets; and dockers and seafarers unions. Shippers, shipowners and union interests are too often competitively opposed to each other, and competition within the shippers and shipowners industries itself are the factors that can lead to unfair business practices.

Background

Shipping conferences, 'rate agreements', 'freight agreements' and 'freight associations', groups of shipping lines operating on routes with basic agreements for charging uniform rates, for allocating routes, berthing and sailing rights, and for pooling cargo and revenues, and intended to shut out non-conference competition, are among the earliest cartels in international trade. A particular feature of shipping conferences is the power which they exercise in regulating the conditions under which liner services can operate in a particular trade. They make unilateral decisions which vitally affect the interests of users of shipping services, and hence the national or public interest of the countries whose trades they serve. From the earliest days they have caused considerable discontent on the part of shippers, who complain that the monopoly power of these conferences has led to abuse, and that they require regulation in the public interest.

Claim

The protection of the national economy against the possible harmful effects of combinations of firms for the purpose of regulating markets is usually embodied in restrictive business practice legislation. There are two main practices which separately or together are the targets of such legislation: price fixing and other agreements which adversely influence competitive conditions. Since it is one of the objectives of conferences to concentrate market power, to influence the conditions of the trades in which they operate, to decide on who can engage in the trade, and to fix by common agreement the prices in those trades, these practices might prima facie be considered to be in conflict with the spirit of such legislation. Restrictive business practices legislation has not, however, been applied to shipping conferences by most of the countries which have such legislation.

Despite the rules which conferences lay down to regulate the behaviour of member lines, competition among the members of a conference may appear in certain forms which are in breach of the conference agreement. This includes such malpractices as intentionally miscalculating freight charges (for example, by charging freight on the basis of weight when it should have been charged on the basis of volume and vice versa) accepting a wrong description of the cargo or ignoring certain physical or chemical properties of cargo so as to give a shipper the advantage of a lower freight rate, or giving secret rebates to shippers. Advantages of a non-pecuniary kind may be given to shippers by the wrong dating of the bill of lading or accepting cargo after the booking for a particular sailing has been officially closed. These constitute only a few of the various malpractices which may occur and which are contrary to the spirit of conference agreements, although they are not specifically forbidden in all agreements.

Counter-claim

Although it is recognized that liner conferences place restraints on competition, it is justified by their ability to coordinate regular and more frequent scheduled services than would be possible otherwise, a benefit for which conference and shippers both want to avoid paying too high a price. For many developed countries this requires that they maintain competitive access to cargo in their liner trades and that they permit conferences to choose their own members. In that sense such conferences are closed, but since members of such conferences do not compete freely among themselves, they are required to face non-members competing with them for all the cargoes they carry. Since ships are mobile assets, and liner trades can never therefore be impermeable markets, such competition can develop quickly, so long as governments do not restrict the carriers permitted to offer service or the cargoes for which they may compete. On some liner trade routes, non-conference lines may carry 30% or more of the trade indicating that the conferences and non-members are battling for market-share. The workings of market forces therefore will normally be sufficient to safeguard consumer interests and to produce an efficient allocation of resources.