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Policy & Compliance
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Concerns about developments in the maritime environment As freight rates soar, shipping lines have been consolidating and also buying up freight forwarders to which they then give favourable rates. Add in the changes coming with digitisation and decarbonisation, and there is much to be concerned about
As an island nation reliant on trade, the UK is heavily dependent on the maritime sector for raw materials, components and finished goods. Although statistics vary, over 85% by volume arrives and departs our shores in vessels of varying descriptions. Given the government’s intention to expand UK trade on a global basis, this mode will become increasingly important. In the traditional maritime model, shipping lines transported goods in their vessels on behalf of larger companies who had sufficient volumes to make a direct contractual arrangement viable for both parties. Shipping lines would also transport fully loaded containers from freight forwarders who, in addition to groupage containers, could make their contract rates for full containers available to clients who did not have sufficient volumes to contract directly with the line. Forwarders provide a wider range of logistics services than the shipping line, such as transport, warehousing, loading/devanning of containers, and facilitated customs entry and compliance activities. Over the years these distinctions have become increasingly blurred as shipping lines have purchased forwarders so
Shipping lines enjoy significant benefits; they are excluded, and will continue to be after 2023, from the rules regarding paying a minimum tax rate of 15% on the profits earned by large multinational enterprises in each jurisdiction where they realise profits. Also, they are excluded from some aspects of competition law, unlike airlines for instance. Under EU block exemption regulations, the lines are exempted from certain elements of EU competition law where there are benefits for the consumer. This permits them to form alliances, plan sailing schedules and share information, etc. These block exemptions were carried forward into UK law. Market consolidation. At the same time, we have seen significant market consolidation. In 2015, there were 27 major shipping lines carrying global trade, with the largest, Maersk, having a 15.3% market share. Today there are 15 lines, organised into three major alliances, carrying this trade. Statistics are difficult to fully analyse, but the 2M Alliance of Maersk and MSC has an estimated 35% market share; some observers highlight that this could be larger on certain key routes. There is a developing consensus that commercial power is becoming increasingly concentrated, resulting in diminished market choice and competition. Many believe that the current pandemic has highlighted and accelerated this development. Against this background we have seen historically low service levels and high rates,
and the lines have to bear some responsibility for these problems. Recently there have been low service levels; during 2021 on average only 35% to 43% of vessels arrived at the destination port within 24 hours of their allocated berthing time. At the same time, we have seen the highest freight rates ever, with US$20,000 being charged for moving a 40 ft container from the Far East to UK. Depending on the baseline, this is between five and ten times the cost of moving the same container in the 2019/2020 period. Due to higher than expected freight rates in the second half of 2021, many carriers have increased their revenue/profit forecast. Drewry’s revised profit forecast for the main ocean carriers in 2021 is now US$150 billion. To put that in perspective, that is more than they have made in the previous 20 years combined (US$109 billion). This is undoubtedly causing resentment amongst forwarders and their customers and leading to consumers paying more at the retailer. IKEA has increased its prices by on average 10% in UK stores, citing increased logistics costs as a factor. Against this background we have seen
that they can provide such services. Particularly over the last 10 years,
representatives of the forwarding sector both domestically and internationally have become increasingly concerned at certain developments that will benefit a relatively small number of carriers but adversely affect the wider maritime community, whether that be freight forwarders or medium and smaller sized traders.
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February 2022
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