Transport Canada is reviewing how it regulates cooperative agreements between ocean carriers and how it could modernize existing regulations. Currently, the Shipping Conferences Exemption Act (SCEA) exempts certain agreements from the Competition Act, but with changes in global shipping, these “shipping conferences” no longer operate on Canada’s major trade routes. Instead, “shipping alliances,” which coordinate services but do not set rates or capacity, have become the norm.
This review follows recent concerns about competition in marine shipping, heightened by fluctuating freight rates during the pandemic. Other countries, like the US and the EU, have also strengthened regulations on these agreements.
(Shipper groups such as the Freight Management Association of Canada have called for the scrapping of the 1987 SCEA legislation.)
Transport Canada is seeking feedback on how repealing the Shipping Conferences Exemption Act might affect competition and whether current complaint mechanisms for shipping alliances are adequate. It urges stakeholders to submit comments to marineliability-responsabilitemaritime@tc.gc.ca by November 15, 2024.
Marine shipping accounts for about 20% of Canadian imports and exports by dollar value. It generates about $30 million in economic impact for the Canadian economy. “It is important that marine shipping is competitive and fair to support the supply chains Canadians rely on for both imports and exports,” Transport Canada stated.
Because Canada is not a major ship-owning country, most vessels involved in international trade are foreign-owned and foreign-flagged. In the past, global marine shipping was dominated by “shipping conferences.” These were agreements between shipowners that set freight rates and allotted each member company a certain freight volume.
In line with the laws of our major trading partners, Canada passed the Shipping Conferences Exemption Act. This act exempts these conference agreements from the Competition Act, under the assumption they create market efficiencies that benefit both shippers and carriers.
The Shipping Conferences Exemption Act sets standards for conference agreements and requires that they are filed with the Canadian Transportation Agency. Any person can file a complaint if they believe that a shipping conference has unreasonably reduced the availability of services or unfairly increased prices. Ocean carriers that are found in violation of the Act can be fined.
By the 2000s, changes in the global maritime shipping industry led some of Canada’s trading partners to remove exemptions for shipping conferences from their competition law. Ocean carriers responded by making new cooperative agreements called “shipping alliances.”
Shipping alliances allow ocean carriers to coordinate their services. This improves efficiency and offers better freight rates, more routes and better transit times. They are usually limited to shipping containerized cargo, though the same companies involved in shipping alliances also often ship bulk cargo outside of their alliance agreements. Unlike shipping conferences, shipping alliances do not set freight rates, capacity limits, or allot market share.
Shipping alliances currently carry about 80% of containerized trade globally. They mostly cover east-to-west shipping routes between North America, Europe and Asia. Ocean carriers continue to independently operate north-south routes, for example between Canada and South America.
Recent developments
The rapid rise in freight rates and capacity issues during the COVID-19 pandemic raised concerns about competition in Canadian marine shipping. Freight rates continue to fluctuate due to both consumer demand and the impact of geopolitical events and climate change on shipping routes.
Many Canadian shippers are small to medium-sized enterprises. They have raised concerns about their ability to negotiate favourable rates and terms with ocean carriers, and the health of competition in the industry.
Canada’s trading partners have continued to move away from exemptions to competition law for cooperative agreements between ocean carriers. This year, both the European Union and the United Kingdom did not renew exemptions to competition law for shipping alliances.
In the United States, cooperative agreements between ocean carriers are subject to federal competition law. The 2022 Ocean Shipping Reform Act strengthened the Federal Maritime Commission’s ability to review and block agreements if they have a negative impact on competition.
(Dreamstime photo of Port of Vancouver)
