Layup plan may impact ports

If a German plan to put a group ship layup in place gets past the European Commission, it might well further impact on already burdened European ports.

Mike Burns: plan “cannot be good news for port growth strategies” “Given the huge oversupply of feeder ships in the coastal European market, operators have found themselves between a rock and a hard place in either laying up container ships long term or trading at a loss – and with either option courting insolvency,” Mike Burns, Marine & Transit Partner of law firm Weightmans told Port Strategy.

The scheme would apply to container vessels under 1,400 teu. Since most of the smaller, feeder or tramp ships are German-owned, the original idea was broadly for the German owners to get together (with finance house backing) and share a group layup cost via a centrally-owned umbrella company. This organisation would also only charter out vessels at a minimum base-level somewhat above the current depressed market rate.

Opponents of the scheme, principally chartering interests, have vociferously argued this would have the effect of artificially inflating the market charter rate from both insisting on a price threshold, and reducing vessel supply in the market.

“Obviously the level of complaints rang alarm bells in Brussels,” said Mr Burns. “Under EC competition law (Articles 81 and 82) it is illegal for parties in the same industry to collude so as to fix prices whether directly or indirectly. It was pretty obvious at the outset that this scheme would run into problems.” Consequently, the plan was amended to take out the minimum charter price but to retain the lay up incentive.

But this hasn’t silenced the angry noises from other northern European parties, who still feel that this is going to be a cartel, with all that implies. “It still leaves room for the accusation that it distorts the market,” explained Mr Burns. “I could see a possible way round it if there was a wider benefit to others in the logistics chain, including the consumer - there are limited exemptions under EC regulation - but the proposed scheme only seems to benefit its participants.”

Aside from the probable German winner of the layup lottery – a lay up site near Kiel having already been ear-marked - Mr Burns said he doesn’t think the scheme bodes well for European ports. “Against a background of fewer ships on the water, if this scheme comes to fruition and encourages a large part of the feeder pool to layup instead of trade, port throughput will be depressed and that cannot be good news for port growth strategies in the immediate term.”

(Source: Port Strategy)