November 4, 2014: The one-year exemption granted to container shipping alliances known as vessel sharing agreements or VSAs from the purview of competition laws will come up for review next month. For more than one reason, New Delhi needs to take a view on the long-term impact of such alliances on the countrys trade. A closer look at the trends in and nature of such agreements could help understand the reasons better. Usually in such alliances, two or more shipping lines join together to deploy vessels on select international routes to ensure, what they say optimum capacity utilisation. After the collapse of the liner conference system groups of shipping lines operating on particular routes -- container service operators started getting into VSAs and such other arrangements. The prolonged slowdown in global shipping since 2009 forced more lines to pool their resources to cut cost of operations. Unlike the liner conferences, VSAs do not cover fixing freights rates. One such global alliance called `2M between worlds tow biggest shipping lines -- Maersk and Mediterranean Shipping Company -- is expected to become operational early next year. This 10-year alliance which covers Asia--Europe trade emerged after China refused permission in June this year to P3, another global grouping of these two lines along with the French carrier CMA-CGM, on the ground that it would hurt the interest of the Chinese shipping interest. It is not clear how far this 2 M alliance will impact India.
There are several other alliances and cumulatively they represent about 75 per cent of the world container trade. Shippers (exporters and importers) are against granting blanket exemption to shipping alliances from the anti-trust laws as they fear it could restrict competition and lead to unfair trade practices. As such global liners are inducting large vessels and resorting to practices such as slow steaming. These cost cutting measures, shippers say, affect their shipment schedules. These lines also go for exclusive tie-ups with terminal operators which again restrict the shippers freedom to select ports of their choice. Shipping lines, on the other hand, asserts that VSAs are their lifeline without which many of them will sink in the troubled waters of global shipping. Liner shipping suffers from chronic over capacity which leads to low freight rates and under-utilisation of capacity. Pooling of resources, according to them, help liners to offer more frequencies and better service. In the absence of such arrangements smaller lines will gradually disappear and there will be the monopoly of big operators which will be worse than VSAs. Given the current weak freight market, the existence of VSA is justified as a strategy to cut cost and keep the vessels afloat. As pointed out by a shipping company official, Shipping Corporation of India could offer more international sailings only because of vessels and slot arrangements with other global operators. No doubt, shippers have been enjoying lower freight rates.
However, the situation could change in the future and therefore, India needs to take a long-term view on the exemption granted to VSAs. For one, India is a cargo-generating country and its containerised volume is expected to go up substantially in the future. Two, SCI is the only domestic line operating global container service and its share in the liner cargo is below two per cent. There are reports of the government company planning to trim its global service further to cut losses. This means, there will be only foreign lines carrying the countrys containerised cargo. Three, unlike the US, Europe or China, India has no regulation to take care of the interest of shippers. The countrys maritime administrator does not even have the facility to monitor the activities of VSAs. Last year, when the government asked the Director General of Shipping to monitor VSAs, it outsourced the job to the Indian Register of Shipping, a classification society. If New Delhi wants to ensure that Indian exporters and importers are not left to the mercy of global operators, a longterm blanket exemption for global shipping alliances from the purview of Competition laws is obviously not the best option.