What Are the Disadvantages of a Shipping Conference?

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A shipping conference is an association of shipping carriers that follow certain terms for service. They enter into a formal agreement that defines terms like their price to provide services. This system has been in vogue in the shipping industry for a long time. Recent laws have cut down on the scope due to abuse. Historically, there have been disadvantages resulting from the monopoly power of these shipping conferences.

Present Situation

  • Historically, the United States has largely exempted shipping conferences from antitrust provisions since 1914; however, the Federal Maritime Commission has had a certain discretionary power to investigate any abuses. Even then, shipping conferences had certain monopoly powers that put customers and competitors at a disadvantage. The Ocean Shipping Reform Act (OSRA), which went into effect in 1999, has cut down on some of the monopoly power of shipping conferences in the U.S.

Monopoly Power

  • Shipping carriers that are part of a shipping conference tend to have monopoly power in their areas of operation. In the event a carrier refused to join the conference, it had been the practice of such shipping conferences to use this monopoly power to try to put the non-cooperating carrier out of business. For instance, the conference could price its services lower than that of outsiders.

Lack of Choice

  • One common practice of shipping conferences was to offer a rebate to shippers who patronized their services. This rebate would be applicable after a specified contract period. In case the shipper used the services of the conference during this contract period, he would be eligible for the rebate. This way, the shipping conference cut down on the choice of customers.

Other Predatory Practices

  • Shipping conferences also used their market position in other ways to the disadvantage of their rivals and customers. For instance, if a shipper favored the services of an outside liner, the shipping conference might deny him service when he wanted it. Alternatively, they would discriminate against him in other ways, like in terms of service for example. The conference would also enter into contracts with American railroads to give conference vehicles preferential treatment to handle cargo at the docks.

References

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