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Monday, July 26, 2021

Maritime Logistics Professional

Suspending anti-trust immunity not the answer, Mr Tung

Posted to Far East Maritime (by on October 27, 2009

As losses mount and capacity grows, the boss of a Hong Kong-based carrier wants to turn back the clock, at least for a little while.

Orient Overseas International Ltd (OOIL) chairman and CEO C.C. Tung made a surprising statement in a recent editorial.

He said instead of governments bailing out container shipping companies, governments should instead provide a temporary reprieve from anti-trust regulations.

That would allow the liner industry to work together to collectively rationalise the chronic overcapacity that it is stuck with.

Nice try, Mr Tung, but it’s never going to happen.

The grossly overdue reversal of the anti-trust immunity enjoyed by carriers was because for years they had been working together to fix prices and distort the market. There is no way Brussels will suspend the regulations and allow the lines to talk among themselves once again, and rightly so.

It was pointed out by OOCL that Tung was not advocating a permanent return to anti-trust immunity, he just wants a year off. However, it will be impossible to discuss capacity without indirectly, or even directly, addressing freight rates. That is whole point about rationalising capacity, right? Reduce capacity so the freight rates can rise.

There may be some understanding among shippers about the situation facing the lines but there is very little sympathy for their plight. After all, the carriers arrived at this point as a result of some very bad executive decisions on capacity and freight rates, something that was pointed out several times by speakers at a Shenzhen conference last week.

It was the insane investment decisions by the carriers that have resulted in the situation they are in today, was the stark view of Electrolux’s logistics boss.

It is slowly dawning on the carriers that the way out of this mess is to take a very hard look in the mirror, something Tung addressed in his editorial.

“If we cannot cover our fixed costs during a downturn, the industry will eventually collapse,” he warned. “These are extraordinary times, and we are facing a seismic shift in the global economy. We need to embrace new strategic thinking and find new ways to do business, even if it involves a major structural change.”

Whether the liner business is capable of strategic thinking and of instituting “major structural change” all by itself is debatable, but with an unsympathetic customer base in the front and an abyss at their backs, the carriers had better come up with something fast.
It will require creative thinking, but judging from the creative way the industry manages to levy a host of "cost recovery" surcharges, that should not pose too much of a problerm.