Aust probes shipping cartels

While the Government may be against sanctioning conferences, transtasman history has traditionally accepted the groupings as vital to attract services. GREG ANSLEY reports.

CANBERRA - Conference shipping - 120 years old and still going strong - will face a new investigation by Australia's competition watchdog this week as public hearings begin into the global giants that dominate the nation's most important trade routes.

The findings of the Productivity Commission's inquiry will also have implications for New Zealand, whose exports rely to a large extent on similar arrangements.

Both countries, lying well out of the world's major sea lanes, have specifically excluded shipping conferences from trade practices legislation outlawing anti-competitive cartels and monopolies.

The argument for New Zealand and Australia has always been that without laws allowing conferences, shipping companies would have little incentive to provide regular, efficient and competitive services on routes critical to both economies.

But opposition remains.

The Australian Chamber of Commerce and Industry and the Law Council of Australia, for example, want the law changed to end "existing Government-sanctioned cartelisation".

So far the Productivity Commission remains unconvinced, with its draft report into Part X of the Trade Practices Act - the section allowing conferences - reluctant to change the findings of three earlier inquiries, all of which favoured its retention.

In New Zealand, the freedom for shipping companies to form conferences and agree on freight rates is contained in the Shipping Act 1987, which exempts conferences from the Commerce Act's ban on restrictive trade practices and control of prices.

Both countries have barely known life without conferences: the first began operating soon after the opening of the Suez Canal in 1869 and moved rapidly to embrace trade with New Zealand and Australia.

Conferences are groups of liner shipping operators which coordinate the supply of shipping services, usually concentrating on one leg of a sea route or to trade between several countries.

About 300 conferences operate around the world, most with fewer than 10 members - although some have as many as 50 - and many companies are members of several conferences.

Their influence has been significant.

In the 1950s and 1960s particularly, the Productivity Commission said, they held significant market power.

They may engage in joint price-setting, capacity rationalisation, revenue and/or cost pooling arrangements, discriminatory pricing structures and customer loyalty arrangements. On one hand, the commission says, they may promote efficient and stable shipping services by coordinating shipping capacity and providing reliable, scheduled services.

On the other hand, their behaviour might be "more consistent with the actions of producer cartels and, as such, facilitate monopolistic or oligopolistic practices and pricing".

In practice, the commission says, conferences may be a blend of good and bad.

Judging the balance is important to Australia.

Liner ships - handling everything but bulk cargo - carry 4 per cent by volume and 48 per cent by value of Australia's exports, and 23 per cent by volume and 74 per cent of the nation's imports.

Conferences account for more than 50 per cent of Australia's liner exports and more than 60 per cent of liner imports by value, although conference shares of liner cargoes have fallen in the past two decades.

The commission says that as Australia relies almost entirely on foreign shipping, any reduction in the cost of liner cargo will promote national economic well-being by reducing the cost of imports to consumers and users of imported components, and lifting Australia's international competitiveness.

It argues that regular, scheduled and coordinated services at reasonable prices require economies of scale - and a single shipping line may be reluctant to provide such services using several large vessels where demand is uncertain and rivals are circling.

Conferences instead link potential rivals to beat uncertainty and provide economies of scale.

The commission says that evidence so far in its inquiry suggests the balance lies in favour of conferences, and that their market power on Australian routes is constrained by "substantial" competition.

Freight rates for both conference and non-conference liner shipping services on most major Australian trade routes have fallen steadily and significantly in both nominal and real terms since the beginning of the decade.

Between Australia and Hong Kong, for example, conference rates have almost halved from about $US1100 per 20ft equivalent unit (TEU) to $US600, fallen from $A1300/TEU to as low as $A450 on the Singapore route, and plunged from $A4500/TEU to $A3000 on reefer rates for meat from Australia to Japan and Korea.

The commission says that while the level of reductions has varied between different trade routes, on average the difference between conference and non-conference freight rates has narrowed - and that the difference reflects the level of service provided.

The commission says service levels to Australia have also improved, and that there is evidence that conferences provide somewhat better coverage of smaller Australian ports than independent operators.

It says conferences do not have a monopoly on any trade route into or out of Australia and that they are subject to effective competition, although the commission intends further investigating the level of competition before completing its final report.