Expert Column The Significance and Impact of the Abolition of CBER

Amid the strong wave of globalization, the liner shipping industry has become a key pillar of the global economy. The liner shipping industry plays a pivotal role in facilitating trade and economic activities between countries, and its importance is growing day by day. The container shipping industry (also known as the liner shipping industry) acts as a bridge for international trade, helping to transport goods safely and efficiently around the world.

This allows goods to flow seamlessly from point of production to point of consumption, which greatly increases the efficiency of the supply chain. In addition, containers of various sizes and modernized ship technology enable transportation of various goods in large volumes, which contributes to the diversification and growth of global trade.

The development of the liner shipping industry is indispensable to the economies and trade of countries around the world, and the specialized goods, raw materials, and finished products that are transported around the world through this industry bring together the global economy more closely. In this context, the transformation of the container liner industry is a critical issue for the global economy. In this article, we will examine the impact of the abolition of the Consortia Block Exemption Regulation (CBER) on the collective behavior of shipping lines and its implications for liners and shippers.

1. Basic Concept of Joint Action by Shipping Lines Due to the highly competitive nature of the industry and the high fixed costs of vessels, joint action by shipping lines in the shipping industry is permitted. For example, the cost of building a very large container ship is as high as $225 million. The joint action serves to mitigate destructive competition among carriers and promote investment and service stability. In doing so, the carriers sought to increase efficiency and reduce market uncertainty by cooperating on freight rates, schedules, and route operations.

Freight rate agreements is one of the main ways in which carriers cooperate beyond competition. By setting freight rates jointly, carriers have worked to prevent unrestrained price competition and maintain the quality and profitability of their services. This cooperation ensured market stability and provided carriers with a predictable revenue structure.

Through scheduling and route cooperation, carriers increased the reliability and efficiency of their services. These joint actions were instrumental in preventing overcapacity on routes and providing better service to customers.

Resource sharing and joint investments have also contributed to optimizing the cost structure of the shipping industry. By sharing ships and making joint investments, shipping companies have been able to reduce costs and respond more effectively to market fluctuations. This has paved the way for carriers to operate stably even during recessions.

2. History of Joint Action by Shipping Lines The Rise of Ocean Alliance and Its Implications
The advent of steamships in the 1870s has completely revolutionized the shipping industry. No longer dependent on the wind, ships were able to maintain a regular schedule, leading to the formation of the liner market. However, with this came increased competition in freight rates, which caused a destructive level of competition among shipping companies. In response, shipping companies to seek ways to create a stable operating environment, and a cooperative system called the “Shipping Conference” was created. The origins of the Shipping Conference can be traced back to 1875, when 12 British shipping lines transporting cargo to Calcutta (now Kolkata), India, came together to form the Calcutta Alliance. The backdrop was a sharp decline in freight traffic due to the British economic depression of 1873. The alliance was a type of cartel formed when shipping companies, faced with freight rate competition to attract cargo, decided to cooperate with each other to avoid bankruptcy. An ocean alliance is a way for shipping lines to agree on freight rates and quality of service, and to keep competition at a reasonable level by jointly operating routes and setting freight rates (UNCTAD^[1]; OECD^[2]).

The Emergence of Consortium and Its Characteristics
In the 1960s, the shipping industry underwent another wave of transformation with the introduction of container ships. This new type of vessel greatly improved logistics efficiency, but it also required high initial investment and operating costs for shipping companies. In response, shipping companies adopted a new model of cooperation, the consortium, which allowed them to operate more frequently and reduce fixed costs (OECD ^[3]). Through a consortium, carriers work more closely together on the use of ships, port facilities, and sailing schedules. The focus is on reducing costs and increasing efficiency, especially on certain routes. Consortia are relatively short-term projects compared to ocean alliances, and are more of a collaboration for a specific purpose.

Consortia operate in a variety of forms, such as “Vessel Sharing”, “Slot Charter”, and “Slot Exchange”, which allow carriers to share costs and build a wider network. Vessel sharing allows carriers to operate vessels jointly, sharing freight rates and costs to increase frequency and reduce fixed costs. Slot charters allow carriers to lease one or more slots to another carrier’s containership to expand coverage on specific routes. Slot exchanges allow two carriers operating different routes to swap slots, increasing the frequency of service on their main routes and allowing them to offer services on a variety of routes. This type of cooperation has become a means for carriers to increase efficiency and strengthen their competitiveness.

The Emergence and Growth of the Global Alliance
The ocean alliance system commonly used today actually refers to the global alliance system. The system emerged after the United States introduced the Shipping Act in 1984. Larger ships and technological advances required shipping lines to form new cooperative organizations, and the global alliance (APL, MOL, Nedlloyd, and MISC), which emerged in 1995, became the cornerstone of global shipping alliances (OECD^[2]).

The global alliance redefined international cooperation among shipping lines and has had a major impact on the continuous evolution and reorganization of the shipping industry. 2017 marked an important transition from a four-alliance to a three-alliance system globally. In 2015, the four major alliances, being 2M (Maersk, MSC), O3 (CMA-CGM, China Shipping, UASC), CKYHE (Hanjin, COSCO, K-Line, Yang Ming, Evergreen), and G6 (Hyundai Merchant Marine, APL, MOL, Hapag-Lloyd, NYK, OOCL), dominated the shipping line market. In 2017, the alliance system was reorganized into 2M (Maersk, MSC), Ocean, Alliance (OOCL, COSCO, Evergreen, CMA-CGM), and The Alliance (NYK, Hapag-Lloyd, MOL, K-Line, Yang Ming). In addition, 2M will be dissolved in January 2025, and Maersk and Hapag-Lloyd will start a new partnership called Gemini Cooperation in February 2025.

The global alliance was formed through a strategic alliance between the shipping lines. The alliance encompasses various modes of cooperation, including vessel chartering, joint use of terminal, joint use and coordination of containers, and coordination on feeder routes. Through these collaborations, carriers benefit from expanded global service networks, increased operational efficiency, and integrated service offerings.

The scope of strategic alliances has expanded beyond vessel sharing to include space leasing, joint use of terminal, coordination and joint use of containers, and coordination on feeder routes. In addition, the coordination of inland services is also within the scope of legally permitted strategic alliances. These alliances have been a key tool for improving service quality and increasing operational efficiency.

3. Regulation of Joint Action by Shipping Lines The Consortia Block Exemption Regulation (CBER) was introduced after the abolition of the Shipping Conference in 2010. The main purpose of the regulation was to set reasonable freight rates and coordinate competition among carriers. To this end, restrictions were imposed to prevent fare collusion and ensure that the market share of a particular liner does not exceed 30%. The key pillar of CBER was to exempt from antitrust law a variety of collaborations between shipping lines, including scheduling, vessel exchanges, use of common terminals and offices, and provision of equipment. It provided a legal framework for carriers to form strategic alliances, improve service quality, and efficiently utilize resources. However, the CBER will not be renewed when it expires in April 2024.

The supply chain disruptions and rising freight rates caused by the COVID-19 pandemic have raised questions about the rationale for the existence of the CBER. Shippers have faced severe import and export delays due to record-high freight rates and congestion in port infrastructure. This disruption in the supply chain, the sharp rise in the freight rates, and the difficulty in securing vessel capacity were the decisive factors that led to the abolition of the CBER. Furthermore, an analysis of the alliance's market share added justification for the abolition of the CBER. On the Asia-North Europe route, the 2M Alliance has consistently maintained a market share of more than 30%, while the Ocean Alliance has a market share of up to 44.8%. THE Alliance also had a market share close to 30%. A similar pattern is observed on the Asia-Mediterranean route, with 2M showing a particularly high share of 42.2%.

The abolition of the CBER marks an important turning point for the oligopoly in the liner industry, as it has played a central role in the operation of shipping companies' strategic alliances, or global alliances. For example, the abolition of the CBER means that Vessel Sharing Agreements will no longer be available, and carriers will be forced to operate more of their own ships than before.

4. Future Prospects of Liner Shipping Industry The abolition of the CBER will mark an important turning point in the EU's regulatory approach to the shipping industry. If the current 30% market share threshold is lowered, it may lead to the emergence of multiple alliances. This could have the effect of decentralizing the current market structure, which is dominated by a few large alliances, thus promoting market diversification and increased competition.

The liner industry will also see a shift in capacity management strategies, which play a central role in the industry. Carriers will adjust their capacity to meet the new regulatory cap and be more cautious about route arrangement. This means that carriers will modify their strategies to efficiently utilize capacity while maintaining a reasonable market share. These changes will force the industry to reconsider the way it has traditionally operated, and help transitioning to a more competitive market environment.

Shipping lines are likely to focus more on medium- and long-distance routes in pursuit of more efficient and flexible operations. Carriers will shift their service models from simple sectors to multimodal transportation and place more emphasis on building long-term relationships with customers. This means a shift to door-to-door service via multimodal transport, as carriers will prefer stable customer relationships based on long-term contracts to tackle the uncertainty of the spot market.

Large carriers with more than 2 million TEUs of capacity - MSC around 5.7 million TEUs, Maersk around 4 million TEUs, CMA-CGM around 3.6 million TEUs, COSCO around 3 million TEUs, and Hapag-Lloyd around 2 million TEUs - will be able to offer independent services based on their own operational capabilities. Freed from the constraints of the CBER, they are likely to further strengthen their position in the market through vertical cooperation structures. Meanwhile, smaller carriers are expected to seek opportunities to collaborate with larger carriers in route operations or to find niches within cooperative networks. 5. Possible Impact on the Shippers The elimination of the CBER will bring about changes for shippers, which can be considered in two key ways.

First, if carriers operate services independently, service frequency and connectivity may be hampered. This can cause reduction in service portfolio, less competition, and higher freight rates, leading to lower service quality and additional challenges for logistics planning and supply chain management. As a consequence, shippers will need to develop strategies to respond appropriately to these higher freight rates and service irregularities.

Another perspective is that the abolition of the CBER could make it easier for carriers to secure vessels. The expansion of independent operations will provide shippers with a wider range of service options, which will offer customers more choice. These changes will give shippers more flexibility in choosing logistics solutions and, in the long run, contribute to greater diversity and competitiveness in the shipping market.

Following the abolition of the CBER, shippers will need to prepare for these different scenarios. This goes beyond adapting to rising freight rates and service volatility, and includes developing strategies to effectively capitalize on the diversification of service options. These changes will require shippers to take a new approach to logistics and supply chain management, and will impact the shipping industry and global trade paradigm as a whole. # Reference [1] UNCTAD(1974), Convention on a Code of Conduct for Liner Conference.
[2] OECD(2002), Regulatory Issues in International Maritime Transport.
[3] OECD(2015), Competition Issues in Liner Shipping.
[4] Port Economics, Management and Policy, Alliances in Container Shipping
[5] Drewy, Container Capacity Insight

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