Commissioner Daniel B. Maffei’s Report on London meetings in September 2016

October 25, 2016

Commissioner Daniel B. Maffei
Federal Maritime Commission
Commission Meeting
October 19, 2016
Prepared Remarks

Thank you, Mr. Chairman. At the end of September, I was in London to participate in two events and I would like to report to you, my fellow commissioners and the public about my trip.

The events were the annual conference for the European Maritime Law Organisation – known as EMLO – and the observance of World Shipping Day by the International Maritime Organization – the IMO.

Founded in 1991, EMLO is an independent organization that provides a neutral and independent forum for debate and research on EU maritime affairs. It holds conferences and seminars on all aspects of EU maritime law, ranging from competition and trade to safety and the environment. I know some of my fellow commissioners have attended past events. This year’s 22nd annual conference was themed “From Collaboration to Concentration: Where is the Competition?”

One key area of debate was whether the current oversight regime in place at the European Commission (EC) Directorate General for Competition is effective. In November 2013, The EC opened formal antitrust proceedings to investigate the practice of publishing general rate increase (GRI) announcements. The concern was that these GRI announcements allowed carriers to signal each other about prices without needing to make any binding commitment, to the potential detriment of shippers.

In July of this year, the EC set a policy it says will increase price transparency for customers of container carriers and reduce the likelihood of concerted price signaling by binding the carriers to announced prices. The EC decision will take effect on December 7, 2016, at which time the commitments made by fourteen liner carriers to avoid further regulation in this area become legally binding.

These commitments include the cessation of announcing prices through the publishing of nonbinding GRIs, making elements of an announced price more transparent, making the announcements of a price binding as the maximum price, and refraining from making the announcement more than a month beforehand.

The EC said the commitments address its concerns that the companies’ practice of publishing GRIs may have harmed competition and customers. However, the carriers represented, did not think the so-called “commitment decision” would do much good. For example, on one panel the representatives of the carriers talked about how the EC’s policy will do no harm but they do not believe it will amount to any advantage to customers. Caroline Pontoppidan, Global General Council at Maersk Line, said that the consumers didn’t benefit at all from the EC’s July 7th action. Frank Stanford, General Counsel of MSC, nodded in agreement with the comments.

In another part of the conference, the highest EC official present – Henrik Morch at the Competition Directorate — acknowledged that there is room for mergers and alliances among carriers and the resulting increase in market share does not appear problematic due to the continued overcapacity issues. However, he is concerned that members of an alliance might influence prices through the joint setting of capacities.

He also brought up another key area discussed – state subsidies. Mr. Morch said that overall he spends more time on state aid rather than alliances. EU State aid law is becoming of increasing significance in the sector. In many instances, member states have to notify proposed aid schemes to the EC for prior approval. Mr. Morch acknowledged that the EU allows so-called operating aid in recognition that maritime is truly global and countries across the world often have substantial subsidies.

A third theme often touched by the conference was whether alliances would be enough to satisfy the liner industry or would we go to mergers. Tony Mason, Senior Associate, Drewry Maritime Advisers, London, talked about the cycle which comes about in the economics of the liner industry and how we are currently stuck in the “over tonnaging” part of the cycle. He observed that, while carriers on average have been losing money, there was a large variation among the profit margins of the fifteen main carriers.

He discussed the upsides and downsides of alliances and asked if consolidation would be a better solution, which prompted much discussion throughout the day. A sub-topic was whether carriers would ever scrap substantial capacity on their own or whether the tendency to buy larger, more efficient ships is endemic among large carriers.

There were panels on dealing with handling international antitrust investigations. And another dealing with multi-jurisdictional damages actions.

Of course, three developing news events found their way into many conversations:

1. the bankruptcy of the Hanjin line, which actually had a higher profit margin in 2015 than about half the other carriers;
2. the referendum in the UK approving departure from the EU, where the group had the advantage of having the EMLO Chair, the Right Honorable Lord Phillips of Worth Matravers, who happens to be one of the UK’s most prominent constitutional experts (There were other experts there as well, indicating a surprising amount of overlap in Great Britain between maritime law and constitutional law.); and
3. the U.S. presidential election – I won’t elaborate on those conversations.

While in London, I also met with officials at the International Maritime Organization (IMO) and attended events marking the official observance of World Maritime Day. World Maritime Day is an official United Nations day that annually draws attention to the importance of shipping and each year emphasizes a particular aspect of IMO’s work. All of the events this year shared the theme – “Shipping: indispensable to the world.”

I participated in a celebratory reception attended by representatives of dozens of nations active in international shipping and met briefly with IMO Secretary-General Kitack Lim. I also had a very productive meeting with IMO Director of Legal Affairs and External Relations, Frederick Kenney, who is a retired U.S. Coast Guard officer. He is a past Coast Guard colleague of Commissioner Dye. He sends you his personal greetings Commissioner.

Earlier in the day, I attended an open discussion of the challenges that world shipping faces now and in the future. Some examples of challenges discussed were:

1. security in the maritime industry and, in particular, cyber security;
2. the challenge of collecting accurate industry-wide data; and
3. attracting more women into maritime professions.

The point was made that shipping has brought the world together in a tangible way just as the Internet has brought the world together in a virtual way. In this context, international coordination is essential because, without a global framework of rules and practices in which to operate, the maritime industry would become inefficient and wasteful.

I came away from the day at the IMO believing it is more important than ever that the Federal Maritime Commission work with the IMO to help make maritime activities as beneficial as possible to businesses, shippers and consumers around the globe. Thanks to Chairman Cordero and Commissioner Dye’s leadership, the FMC was able to play a constructive role after the IMO’s change to the Safety of Life at Sea (SOLAS) convention requiring a mandatory container weight verification. I think it also underscores the utility of developing better lines of communication between the FMC and our IMO delegation and a closer working relationship, where appropriate, with the IMO itself.

One opportunity is for the FMC to provide input for next year’s World Maritime Day. The theme for 2017 “Connecting Ships, Ports and People” fits in with the FMC’s mission generally and, in particular, with the supply chain initiative led by Commissioner Dye.

With the support of my fellow commissioners, I will follow-up on these matters. Thank you, Mr. Chairman and my fellow commissioners.