[110311.EN.SEA] OOCL's Tung: EU 2008 Conference Ban Led To Bad Decisions

EVERYONE in the supply chain would benefit if carriers could talk openly, something now forbidden since the 2008 European Union's ban on shipping conferences, according to CC Tung, chairman of Orient Overseas (International) Ltd, the parent of Hong Kong's Orient Overseas Container Line (OOCL).

"Some governments, particularly the EU, expect carriers to operate with less, not more information than ever before," Mr Tung told the Trans-Pacific Maritime Conference in Long Beach in his keynote address to the assembly.

"The industry needs to brainstorm more of these issues and share information on how to proceed. This would not involve a return to the conference system of old. Rather we need to be able to discuss this issue in an open and transparent forum," he said, reported American Shipper.

The EU banned carriers conferring of supply and demand questions as they continue to do in the US in quasi-shipping conferences called discussion agreements, reported Newark's Journal of Commerce, which sponsored the conference.

Shippers groups have since risen in protest against continuing such practices and clamour for the US Government to remove the existing American antitrust exemptions that some say allows carriers to fix prices.

Since the EU conference ban, shippers and carriers have subjected to wild swings in rates and buffeted rafts of compensating surcharges. The Federal Maritime Commission (FMC) is studying the impact of the EU ban, said FMC chairman Richard Lidinsky, who also addressed the conference.

Mr Tung said westbound Asia-Europe rates only moved within a 22 per cent band of transpacific rates before the ban, but gyrated wildly over a 153 per cent range after it was imposed.

To this, the FMC's Mr Lidinsky said: "I saw the numbers, but what they don't tell us is why the fluctuation was that great. Was it because the exemption was removed or because of the market conditions at the time? But the numbers themselves don't lie."

Mr Tung said in 2009, carriers overreacted by idling too much capacity in response to the plunge in demand during the recession, leaving shippers without adequate service. This was the result he said of a lack of sound market information. Since then they have quickly added capacity, causing rates to plunge.

"Within the space of a few months at the end of 2009, we moved quickly from a shortage of space to an 80 per cent load factor and a drop of 20 per cent in freight rates on the Asia-Europe trade lane," Mr Tung said. He said the situation cannot endure and demonstrates why carriers "should be allowed to talk and exchange information on macro demand growth and other industry issues."

Mr Tung also said the rate volatility accompanying the recession was due to "simple supply-and-demand economics that might have been mitigated by better information sharing. Instead, we saw a serious threat to the industry's survival."

With the world fleet expected to grow nine per cent in 2011 and 2012, and with 0.2 per cent of the tonnage afloat, Mr Tung said the industry is "not out of the woods yet, and the only way we can have a clear view of the future is to increase our information exchange on key industry issues."

Source : HKSG, 09.03.11.