Canada's Recession-proof Shipping Conferences
Canadian Shipping Industry Protected by Legalized Price Collusion
Oct 29, 2008
The Canadian government first enacted the SCEA into law in 1987 as a measure to protect the feeble Canadian shipping industry, which was much too small to effectively compete on world markets with leading waterway countries like the United States and United Kingdom.
Ironically, SCEA members are now in a much stronger position to survive the recent financial meltdown that continues to impact competing transportation companies in most other countries.
A major impact of slowing global demand for commodities is the expected failure of a significant number of ocean and waterway transportation companies that deliver products including coal, iron ore and grain. With a fleet of 55 vessels, Ukraine’s Industrial Carriers has already filed for bankruptcy due to shipping prices that have fallen by up to 70% over past 3 months, frozen credit markets and banks’ unwillingness to issue letters of credit that transporters use to finance shipping cargo purchases.
SCEA Legalized Price Collusion
Conference members are permitted by law to set collective tariffs for the rates charged on the movement of cargo. Excluded are those tariffs that Canadian customs impose. Regardless of global shipping rates, SCEA-member companies are free to establish rates that differ from normal market-driven structures.
Other Benefits from SCEA Membership
Members protected under Canada’s Shippers Conference Exemption Act can also:
- Share cargo loads with other members going to the same destination.
- Agree to allocate ports of call.
- Share in profits and losses.
- Offer loyalty contracts to clients who use member services.
- Promote the flow of business to members through referral services.
- Admit or expel other members.
Negotiated Annual Cargo Volumes
In addition to pre-setting applicable tariff rates for moving cargo, SCEA members also meet to establish annual volumes of cargo.
While members can legally collude on shipping prices and volumes, Canadian law also has a service contract provision that provides for bonuses for members that meet or exceed performance targets. The service contract in turn encourages friendly competition among conference members.
SCEA Legal Exclusions
Members of the SCEA are not allowed to negotiate or agree with inland carriers in advance of formal SCEA decisions. The Act specifically excludes such negotiations and agreements for cargo volumes and tariff rates. Inland carriers include truckers, railroads and pipelines.
Disadvantages for Non-Conference Shippers
Transport companies that are not members of the SCEA are subject to the Canadian Competition Act, also known as C-34. This Act provides for the general regulation of trade, thus regulating against conspiracies, trade practices and mergers affecting competition.
Non-conference members are independent from each other, and have no fixed schedules for cargo volumes or prices.
Like the insolvent Ukrainian transport company Industrial Carriers, Canadian shippers outside the SCEA are now beleaguered with dramatically lower shipping prices and much lower volumes of cargo. Because fixed and variable business costs for running an ocean or waterway delivery business at the very least are not going away while many costs are going up, non-conference members run grave risks of going bankrupt.
Meanwhile, Canadian law insulates SCEA members from the dramatic downturn in global trade.
Reference:
David M. Neiport, A Tour of International Trade (Prentice Hall 2000).
