Logistics Terms Shipping Conference

• Shipping Conference is an international cartel^* related to shipping in which two or more shipping companies operating on a specific regular route agree on freight rates and business conditions for the purpose of avoiding excessive competition.
  (*Cartel : refers to a form of monopoly in which companies in the same industry enter into agreements on price, production, etc. for the purpose of restricting or alleviating competition)
• It is a cooperative organization that negotiates freight rates and other transportation conditions for regular routes, in order to promote profits by regulating unnecessary competition internally, and to improve the economic status of members by acquiring and strengthening monopoly power externally.
• Numerous maritime alliances formed on most regular routes around the world are each limited to specific trade routes. Since each alliance negotiated between shipping companies applies only to transportation services between specific routes or specific ports, one company can join several conferences at the same time. Therefore, the agreement of one of them is separate from the agreement of the other.

• The Calcutta Conference, signed by British merchants in 1875, was the beginning of the maritime alliance. At that time, the route between India and Europe was limited because not many routes were developed. British shipowners were concerned about the damage caused by excessive competition on limited routes, so they signed the Calcutta Conference to agree on freight rates on the route from England to Calcutta, India.
• The number of Shipping Conference increased significantly until the 1970s, and at one time, there were 350 Conferences. The major Shipping Conferences were Trans Pacific Freight Conference of Japan/Korea (TPFCJK), the Hong Kong – Taiwan, the Pacific Westbound Conference (PWC), etc. Since the 1980s, the shipping companies have left the Shipping Conference due to the intensifying competition in the shipping industry, and the number of Shipping Conference has steadily decreased due to the increasing number of companies that provided low-priced services.
• In 2008, the European Union decided to repeal the ‘General Block Exemption Regulation’ granted to the Shipping Conferences. Following this decision, one of the world’s largest Shipping Conference, Far East Freight Conference (FEFC), declared dissolution in the same year.

A conference, mainly used on North American routes centered on the United States, that can be freely joined by shipping companies with a certain level of service capability. Usually, only freight agreements are concluded, so the unity between the individual companies is low. Also, countermeasures against changes in the situation are difficult to be established.

A conservative alliance with strict restrictions on joining and leaving the conference with respect to the vested rights of the conference ships. Upon joining, the consent of all members is required, and the unity among members for external competition is strong.

1. Rate Agreement
   • Since competition in the shipping industry eventually leads to freight rate competition, rate agreements between conference members are the most conventional and universal agreement.
   • There is a fixed rate agreement, which determines the fare level, and a minimum rate agreement, which determines only the lowest fare level. Although the effect is the same, such a change in the agreed fare rate requires the consent of the conference members.
   • In addition, there are free fares (fare applied to free cargo) that are excluded from the agreement fares depending on the route conditions, and the agreement fares are also called “tariff rate” because they are indicated on the fare table.
   
   
2. Sailing Agreement
   • It is to prevent excessive competition by controlling and limiting the amount of shipping on a specific route. This includes restrictions on the number of ships used by Conference members, regularization of departure and arrival times and frequency of voyages, agreements between departure and call ports, and allocation and restrictions on the types and quantities of consigned cargo.
   
   
3. Pooling Agreement
   • This is a method of distributing the net freight income remaining after deducting the required costs such as freight costs or a certain amount from the freight rates obtained by each shipping company within a certain time according to a predetermined pool point among the members of the conference. In this case, there is a case where the pool cargo and pool port are pooled.
   • Since this method is to hand over a portion of the import freight from over cargo to under carrier, it is a highly integrated method that minimizes the collective competition among member shipowners.
   
   
4. Other Methods
   • There are methods such as signing of an agreement prohibiting the provision of benefits to shippers, joint takeover of cargo such as joint sales cartel, or a joint management of the relevant route by part or all of the Conference members (to exclude the competition through joint management and for the purpose of rational allocation).
   • The system that establishes neutral supervisory organization to monitor violations between members of the Conference and imposes a penalty, and the pool lay-up system are also internal competition regulation system.

1. Fighting Ship
   • This is a method, which makes outsider to force ships to abandon conference routes by following the same time and date at the ports of call that the conference obstructs the commissioning of the outsider and competing at a low fare ignoring profitability. This method is legally prohibited in the United States for unfair reasons.
   
   
2. Dual Rate System
   • This is a system that applies a contract freight rate that is cheaper (usually about 10 to 15%) than normal non-contract freight rates to contract shippers, who have signed a contract with the conference to ship exclusively to conference ships. It is called the dual rate system because the tariff of the conference is double the contract rate and non-contract rate.
   • Many conferences tend to adopt a dual rate system. If the contract shipper violates the contract and ships with an outsider, then the violator will have to pay a penalty or reject the next contract, which is a system of retaliatory discrimination against the shipper.
   
   
3. Fidelity Rebate System
   • When the shipper does not use the outsider for a certain period (usually 4 months) without prior contract with the conference and submits a prescribed form of the shipping statement, the conference can confirm it and a part of the received freight to the shipper is returned upon the expiry of the period upon request of the shipper.
   • As with the dual rate system, the shipper is not bound by the contract from the beginning, and even if the shipper uses outsider, the shipper just loses the right to claim rebate and there is no penalty payment.
   
   
4. Deferred Rebate System
   • When the shipper does not ship to the outsider for a certain period (usually 6 months), the shipper is entitled to recover a certain part (usually 10%) of the total freight rate paid within the period. Moreover, this is a method, in which the amount is rebated to the shipper when only the conference ship is used for the next period.
   • Since it is unreasonable to detain shippers because they must continually use conference ships to receive a rebate, it is prohibited as illegal in the U.S. import and export routes.

Until 2017, there were 4 Shipping Conferences, which are2M, CKYHE, G6, and O3.
It was reorganized into the Alliance as the focus was placed on cooperation. Currently, there are three major Shipping Alliances, which are 2M, Ocean Alliance, and THE Alliance.
There was also a change in the types of cooperating shipping companies. Hyundai Merchant Marine of the Republic of Korea was added as a strategic partnership to 2M. In Ocean Alliance, China’s COSCO, which merged with CSCL, France’s CMA CGM with Singapore’s APL, Taiwan’s Evergreen, and Hong Kong’s OOCL cooperated.
In 2020, Hyundai Merchant Marine’s strategic partnership ended, leaving only MAERSK and MSC remaining in 2M. In Ocean Alliance, only COSCO, which acquired OOCL, CMA CGM, and Evergreen remain. Hyundai Merchant Marine, which changed its name to HMM, joined THE Alliance in 2020.

Denmark’s MAERSK, the world’s No. 1 shipping company, and Switzerland’s MSC, the world’s No. 2 shipping company, are in the 2M Alliance. In 2019, it occupies about 37% of the market share based on East Asia-Europe routes.

France’s ‘CMA CGM,’ the world’s No. 3 shipping company, China’s ‘COSCO Shipping,’ and Taiwan’s ‘Evergreen’ are in the Ocean alliance. In 2019, it occupies about 37% of the market share, based on East Asia-Europe routes.

Germany’s ‘Hapag-Lloyd,’ Japan’s ‘ONE,’ and Taiwan’s ‘Yang Ming’ are in THE Alliance. In 2019, it occupies about 25% of the market share based on the East Asia-Europe routes.