18 January 2011
Comments of the Japanese Shipowners' Association
On the Notice of Inquiry of the Federal Maritime Commission
Concerning the European Union's Repeal of the Liner Conference Block Exemption
The Japanese Shipowners’ Association (JSA), which is a nationwide shipowners’
association consisting of 101 Japanese shipping companies, appreciates thisopportunity to respectfully submit to the Federal Maritime Commission (FMC) thefollowing comments, which, we believe, are in line with the intention of the Notice ofInquiry (NOI) issued on 1 November 2010 concerning the effect on international liner
shipping of the European Union's (EU) repeal of the liner block exemption fromcompetition laws.
1) JSA's fundamental stance on the antitrust immunity for carrier agreements
The liner shipping industry, which provides regular ocean transportation service tohundreds of ports worldwide, has developed largely because of the carriers’ ability toparticipate in cooperative commercial arrangements dating back over 100 years.
These arrangements have contributed to stable freight rates and, as a result, enabled
participating shipping companies of carrier agreements such as conferences,discussion agreements and consortia to save significant costs in providing reliable liner
shipping services and improve their service quality and efficiency. The JSA believes
that the antitrust immunity for carrier agreements (hereafter referred to as the"immunity system") is indispensable for the healthy development of the international
shipping industry, as well as the whole international trading industry. The immunity
system is the international regulatory norm, as it is permitted in virtually all major
trading nations around the world. We therefore fully support the recent decision in
Singapore to extend its current immunity system through the end of 2015 without anysignificant changes to its scope1.
2) The EU's repeal of the liner block exemption
At the time of the repeal of the block exemption in the EU in October 2008, the wholecontainer shipping industry was in a global economic downturn, which has been
described as a once-in-a-century recession. During this time, the shipping industry has1

http://app.ccs.gov.sg/PC_Archived_BEO.aspx-1JSA_comments_on_NOI_(final).doc

faced a considerable decline in cargo volumes and rates with operating losses of morethan 15 billion dollars in 2009. It is therefore difficult to assess what changes in theindustry during the period were attributable to the EU’s repeal of the block exemption
under such severe economic conditions.
However, it can be at least confirmed from Figure 1 below that the rate volatility of theAsia-EU trade greatly exceeds that of the Asia-US trade, which maintains immunity
systems in both port-end countries despite the similar trends in the container cargo
movements in both trades. In light of the sharp increase in freight rates in the Asia-EU
trade after recording the lowest rate in the spring of 2009, such a view, that the repealof the conference block exemption is the best available option to lower transport costs,
which was argued by the European Commission in the process of reviewing the EU’sblock exemption2, does not seem applicable.
Figure 11000 TEU
1,400

Freight Rate Benchmark and Cargo Volume Developmentsin Trunk Container Trades
$/FEU
6,000

1,200

5,000

1,000

4,000

800
3,000
600
2,000

400

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2000n
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Asia/EU cargo volume(WB)
Asia/US cargo volume(EB)Asia/EU freight rate(WB)
Asia/US freight rate(EB)Source: Japan Maritime Center “Monthly Container Freight Movement Review”
Remarks: 40-ft South China- North Continent Europe rate benchmark including surcharges
40-ft South China- US West Coast including surcharges

There have also been differences in ancillary charges prior to and after the abolition ofthe block exemption in the EU. For instance, the Terminal Handling Charge (THC),
which has remained virtually unchanged for nearly 15 years in Europe, has recently
increased in most European ports around the same time as the repeal as reported in a2SEC(2005) 1641 COMMISSION OF THE EUROPEAN COMMUNITIES-2JSA_comments_on_NOI_(final).doc

competition report3 which was produced for the European Commission in October 2009.
Furthermore, with respect to the Bunker Adjustment Factor (BAF) as well, we can see
different developments in both trades as shown in Figure 2 below. The price of marine
fuel, which is mainly CSO 380, reached a record level of more than $750 per tonne in
the summer of 2008, and they still stand at a high level of almost $500 per tonne. The
full cost recovery by imposing the BAF on customers with a minimal delay isindispensable for ocean carriers. Each carrier sets up its own BAFs in the Asia-Europetrade on an independent basis in the same way as in the case of THCs, while the TSA4
publishes non-binding guidelines for BAFs with a transparent calculation formula5 in theAsia-US trade. As a result, it may be said that the average BAF in the Asia/EU trade
increases more than that of the Asia-US trade in the case of an increase in marine fuelprices.
Figure 2BAF($/FEU) and CSO380($/ton) Developments$1,800$1,600$1,400$1,200$1,000$800
$600
$400
$200
$0n
Ja

08
20

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(3)
(2)
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(1) Asia/EU average BAF(WB)(3) average price CSO380 Singapore

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(2) Asia/US average BAF(EB)

Source: Japan Maritime Center

Taking the aforementioned into consideration, it can be found that the removal of theantitrust immunity does not necessarily contribute to lower ancillary charges orconsumer benefits.

3“Terminal handling charges during and after the liner conference era”
http://ec.europa.eu/competition/sectors/transport/reports/terminal_handling_charges.pdf
4Transpacific Stabilization Agreement5
http://www.tsacarriers.org/fs_bunker.html-3JSA_comments_on_NOI_(final).doc

3) Conclusion
The JSA welcomes the pragmatic approach of the FMC to carefully assess the effectsof the EU’s repeal of the block exemption on the various elements of transport services
in trunk lanes. For the foregoing reasons, the JSA is of the view that the repeal ofcarrier agreements would lead to greater rate volatility and less stable markets, which
is not likely to be in the interests of shippers, and eventually consumers, as well.
However, in light of the fact that the abolition of the block exemption in the EU
coincided with the severe global economic downturn, the JSA believes the FMC should
continue to further study its effects before considering any change in action to change
the current ocean regulatory system in the US.

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