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Riding on the crest of maritime reform - Business Times Singapore

22nd October 2008

Emerging powers China and India can lead change by implementing new regulations, says JOHN LU

At the conclusion of the recent annual gathering of the Global Shippers Forum in Montreal, Canada, the issue at the top of the agenda was maritime reform.

Taking place as it did on the cusp of the impending repeal of liner shipping block exemption by the European Union on Oct 18, it was felt the move by Europe could act as a catalyst to bring about much needed reforms in maritime regulation worldwide.

After the EU repeal, shippers will no more be subject to anti-competitive behaviour, price fixing and deliberate anti-competitive market manipulation through dominance.

Shippers in Europe will be able to freely negotiate rates and surcharges with carriers for the first time in more than 125 years. And we should ride on this momentum to bring about reforms to foster competition in Asia.

The implications for the industry are that liner conferences to and from Europe trade lanes will become illegal and conference tariffs and surcharges will no longer exist. But liner conferences outside European trade remain legal.

As carriers to and from Europe are now subject to normal EU competition rules, each carrier will have to determine its own rate policy based on its own costs and profit objectives.

Great opportunity

New price benchmarks will be found through an open knowledge of costs, cost drivers and transparency of charges. As such, liners will have to operate independently on their own merit in this competitive environment.

There could well be a period of price volatility while lines work out how to accurately cost their services. With increasing capacity and declining demand in the current economic climate, we may see some consolidation among liner operators.

But the changed environment brings with it great opportunity for carriers. The best form of communication is with their customers - not their competitors. Through collaboration with shippers on operational, supply chain and service - issues that matter most to shippers - new revenue models can emerge based on greater service differentiation offered to customers.

Shippers are not looking simply to obtain the liners’ services at the lowest possible price. They are ready to pay the real cost of competitive services that meet their different needs. For example, shipping lines such as APL have started this process by creating their own tariffs and freight rates as well as other charges in a cohesive and transparent manner, providing regular updates on the calculation and determination of tariffs and charges.

Moving ahead

The liner sector can provide the leadership to guide the shipping industry to be forward-looking and to fully embrace and capitalise on the new market environment.

Asian governments should take this opportunity to review the situation in their respective countries and align the regulatory environment with that in other major jurisdictions. This has taken on added importance in the current environment, as continuing financial turmoil has cast a long shadow over the global economy.

By injecting market-based principles into liner shipping, they can help enhance international trade and improve service levels, sharpening the ability of companies to compete for a slice of the shrinking market.

Asia’s emerging powerhouses China and India can take the lead by implementing the full measure of the competition law in liner shipping, and being effective models for the region and the world.

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