How we all paid for the shipping giants’ $150 billion windfall
An expert reveals what’s wrong with ocean shipping giants. Consumers are footing the bill for their massive profits.
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That’s kind of a long way of asking my next question, which is, why do countries provide all of these tax benefits when these ocean carriers are going to go to those places anyway? It’s not as if they weren’t going to be servicing certain countries, whether or not there were tax benefits. Could you explain a little bit more about that?
MERK: “It is indeed, I think, a comparable mechanism to your point about Amazon and the different states — with the difference that this is probably not a monopoly but an oligopoly.
“There’s several players, but they work together in alliances. Especially if they operate in alliances, of course that represents a big chunk of the traffic of certain container ports. So that is one side.
“The other side is that the ports want to continue to be a big port and want to continue to be in, let’s say, the Champion Leagues of the ports. They consider the other ports in the region to be competitor ports.
“If you have, let’s say, the top 10 ports in Europe and the top 10 ports in Asia or in China, and if they would say, ‘Well actually, we’re not going to do this any longer. We’re not going to adapt to every round of new types of ships,’ I think that would end the race to have the larger ships. It would just require, actually, the coordination of some of the large ports or of the states that represent these.
“I think that that could have happened a few years ago, when China wasn’t really that sure that megaships were a good idea. At that moment the European Commission would have engaged in talks with China about this. I think they could have reached some sort of an agreement on ‘Well, maybe this is where to stop. Maybe this is the maximum that we think is desirable.’ I think that could still happen, but I think it’s a bit less likely than it was then.
“It is because there is a lot of competition between these ports, and sometimes the competition is so intense that some of the port authorities actually don’t see what they have in common. What they have in common is that no port really has an interest in having these very big chunks of cargo suddenly in their port that then they have to evacuate as quickly as possible.
“If you would ask a lot of the port directors on what are the kind of ships they would ideally like to see in their ports, I think if they’re honest, you’ll probably hear something like, ‘Well actually, we would prefer two 12,000-TEU ships instead of one 24,000 ship,’ because you’ll be able to spread it more evenly over the day or over the terminal. You’d be much more flexible than you are if you have to continuously serve these very large ships.”
The three big ocean alliances are also … allying with each other
FREIGHTWAVES: It seems like an essential issue here is that the ocean carriers of the world are aligned, but none of the ports are. The carriers can work together in some ways, but the ports are in this race to the bottom.Is that an accurate summary? Or maybe it’s more complicated than that?
MERK: “There are some ports in some parts of the world that have actually merged, such as Seattle and Tacoma [Washington], and there are some Japanese ports that have merged. Recently in Belgium, you got Antwerp and Zeebrugge that have merged. There is a bit of movement there, but of course it is much less than what happens in ocean shipping.
“What is generally underestimated is the extent to which ocean carriers incorporate not only in alliances, which is one thing, but also across alliances. This is what we found in a recent study, where we looked at all corporation agreements between the large carriers. That also includes vessel-sharing agreements or consortia, as they call it in Europe.
“Around a quarter of these corporation agreements are between the top 10 carriers that are not in the same alliance. What we conclude from that is that it’s the alliances that are dominating shipping. But actually there are a lot of links, a lot of bridges among the carriers that are in these alliances.
“You could really say that, to some extent, this is actually one big conglomerate with a lot of cooperation among the different carriers.
“And it is clear that no port on its own is strong enough to really confront these carriers. So yes, you really need some sort of cooperation among ports, if you want to put something in place that is more, let’s say more in the public interest rather than in the private interest of carriers.”
We — the taxpayers — have been unwittingly paying for worse and worse ocean shipping service
FREIGHTWAVES: OK, that’s interesting. So there are not just the three big alliances, but also the three big alliances even have an alliance among each other.I think we can all agree on the surface that, when we see this lack of competition, it immediately strikes most people as harmful and maybe something that we should avoid for consumer welfare and all these other issues.
What is kind of the bottom line? What is the true effect of these alliances? Does this result in higher rates? Does this result in less efficiency?
Some people might argue that these alliances are really just because the economics of ocean shipping are so complicated, and they really have to collaborate in order to make this all work. What have you found in your research that concludes why these alliances may be harmful?
MERK: “On that point, yes. They might need this form of cooperation, but that is also because they wanted these big ships. There essentially is no need for alliances if ships were much smaller. The reason why we have these alliances and why we have all these other forms of cooperation is because the ships have been so much bigger.
“Imagine a situation in which, instead of 24,000 ships, you have 10,000-TEU ships. Then it is much easier for a single carrier to offer one global network of connections that they cannot do at this moment, because they don’t have that scale. That’s one thing.
“But I think the biggest impact is on public infrastructure. Ports are essentially played out against each other and the taxpayer pays the bill. It’s not the carrier that’s going to pay for the dredging. “In theory it is, because they need to pay harbor dues or things like this. But if you look at it a bit more closely, you’ll find that carriers are actually not paying the whole bill. A lot of it is actually also coming from public money.
“Let’s say the taxpayer pays this. What does he get in return?
“Actually, not a better transport system. It doesn’t get more connectivity or more services or more reliability — especially the last few years. But this is a longer trend where you see that the connectivity has gone down. The number of services from Asia to North Europe or North America has also decreased. It’s not like the services have become better.
“Obviously taxpayers don’t know this, but you wonder why would they pay for something that hasn’t actually improved? I think that is a big problem, and that is related, of course, to this ever-stronger position of carriers, because they can essentially put ports or governments in the position to pay for this.