The European Union (EU) is approaching the date it has decided to abolish the Consortium Block Exemption Regulation (CBER). Last year, the EU decided not to extend the CBER, which was set to expire on April 25, 2024. This marks the end of the anti-monopoly exemption system that has allowed joint operations among shipping companies for the past 14 years. There is growing interest in the impact this will have on the shipping industry.
What is CBER?
CBER stands for Consortia Block Exemption Regulation, which refers to a system that comprehensively exempts consortia from regulations. The EU has allowed alliances through CBER, permitting shipping companies to engage in joint activities without individual review, only requiring the submission of a self-assessment report.
This originated in the 1870s when British liner shipping companies formed “shipping conferences” to avoid bankruptcy. Later, in the 1960s, when the introduction of container ships led to high initial investment and operating costs, shipping companies adopted a new cooperation model called “consortia” to reduce costs and improve efficiency. CBER supported this model. The EU set fair freight rate setting and competition coordination among shipping companies as the main objectives of CBER. However, it granted exemption benefits only to the extent that individual shipping companies’ market share did not exceed 30%.
What is the Background of the CBER Abolition Decision?
CBER, introduced after the abolition of shipping conferences in 2010, has been operated with the primary purpose of ensuring fair freight rate setting and competition coordination among shipping companies. However, the EU has recently decided to abolish CBER, citing three main factors:
- The competitive landscape of the relevant market has changed significantly. In fact, on the Asia-Northern Europe route, the Ocean Alliance accounts for 40%, THE Alliance for 30%, and the 2M Alliance for 25% of the market share, solidifying their oligopolistic system. The Asia-Mediterranean route shows a similar pattern, with the Ocean Alliance at 35%, THE Alliance at 30%, and the 2M Alliance at 25%. Considering the market reality reorganized around a few large alliances, the EU seems to have judged that there is less justification to maintain CBER.
- The effectiveness and efficiency of CBER are being questioned. According to the EU, the number of consortia enjoying block exemption benefits is decreasing, and even this does little to enhance the competitiveness of small and medium-sized shipping companies. While the need for surveillance of market-dominant operators has increased, the regulatory simplification effect through CBER is limited.
- The behavior of shipping companies revealed during the COVID-19 pandemic was a decisive trigger. As shipping freight rates soared and securing ship space became difficult, shippers’ complaints skyrocketed. It is analyzed that the EU authorities’ awareness of the problem has heightened as shipping companies took excess profits without improving service quality.
In this situation, the EU judged that CBER is not fulfilling its originally intended purpose and function, leading to the decision to abolish it. This is interpreted as a measure to establish a flexible regulatory system in line with changes in the market environment and to restore competitive order.
What Does the Abolition of CBER Mean?
The abolition of CBER is a major issue that shakes the foundation of the global alliance system through strategic alliances. CBER has stipulated various cooperative activities such as vessel sharing, joint operations, and joint terminal use among shipping companies as exemption targets.
However, shipping companies now face the burden of individually proving compliance with competition laws. According to the Specialisation Block Exemption Regulation (SBER) presented by the European Commission, the combined market share of the parties to the joint action must not exceed 20%, and price fixing and production volume restrictions are prohibited.
This suggests that joint operations of existing alliances may be significantly restricted. Shipping companies will have no choice but to increase the proportion of individual operations. Small and medium-sized shipping companies with weak market dominance are expected to be hit harder.
CBER Abolition, ‘Tsunami’ in the Global Shipping Market Beyond Europe
The European Union’s decision to abolish the Consortium Block Exemption Regulation (CBER) is showing signs of spreading to the global shipping market. Although CBER is a regulation limited to the EU region, its influence cannot be underestimated given the close connectivity of the global shipping industry.
First, the abolition of CBER is expected to change the way international shipping alliances operate. As the exemption benefits previously applied to European routes disappear, shipping companies must comply with the EU’s general competition law provisions. This is expected to bring significant changes to the business models of shipping alliances that are tightly intertwined worldwide.
In addition, considerable impact is expected on trade flows on major trade routes. In particular, the Asia-Europe and Asia-North America routes inevitably fall under the direct and indirect influence of CBER abolition. This will likely become a new challenge for domestic and foreign shipping companies and import/export companies traveling on related routes.
Furthermore, the possibility that the EU’s decision will spread to other countries or regions cannot be ruled out. Countries around the world may seek similar regulatory changes to protect their own shipping markets and trade environments. This has the potential to significantly change the landscape of the global shipping industry.
CBER Abolition, Beyond Shipping Alliance Upheaval, ‘Survival Threat’ to Small and Medium-Sized Shipping Companies
The abolition of CBER is expected to fundamentally shake up the shipping alliance map. The global liner shipping market is firmly in an oligopolistic system centered on a few large shipping companies. As of April 2024, the top 5 companies (MSC, Maersk, CMA CGM, COSCO, Hapag-Lloyd) account for 59.3% of the capacity share, with the presence of No. 1 MSC (19.8%) and No. 2 Maersk (14.6%) particularly standing out.
Amid this, the dissolution of the 2M Alliance in January 2025 has been formalized, and Maersk and MSC’s independent moves are becoming visible, signaling considerable changes in the alliance landscape. With the launch of the new partnership ‘Gemini’ between Maersk and Hapag-Lloyd in February next year, the upheaval of existing alliances seems inevitable.
However, there is growing weight to the prospect that the impact of CBER abolition will not be limited to Europe. As global liner companies use European ports as major hubs, the possibility of extraterritorial application of EU competition law is being raised. Changes are expected to be inevitable, especially on major trade routes connecting Asia, Europe, and North America.
In this process, as market concentration further increases, concerns are being raised that small and medium-sized shipping companies may lose their place. If the market share of the top 5 companies soars to over 65%, even mid-sized shipping companies such as ONE (6.3%), HMM (2.8%), and YML (2.5%) may face the risk of bankruptcy.
This is expected to act as a factor that increases uncertainty in the shipping market. As dependence on a small number of shipping companies increases, freight rate volatility intensifies, and logistics confusion and cost increases may spread throughout the global supply chain. The abolition of CBER not only threatens the survival of small and medium-sized shipping companies but also burdens the shipping industry and shippers.
Thus, the abolition of CBER has the potential to not only change the shipping alliance landscape but also bring about structural changes in the entire global shipping ecosystem. For the time being, the industry’s attention will inevitably be focused on this change.
Post-CBER Era, What Are the Shipping Industry’s Response Strategies?
The shipping industry’s response direction is largely divided into two paths. In the short term, it is necessary to closely examine how the existing alliance system will change, and to what extent freight rate and service competitiveness can be secured.
According to the 2025 outlook, the Ocean Alliance is expected to record the highest market share at 29.1%. The newly formed Gemini between Maersk and Hapag-Lloyd is also expected to have a 21.6% share, so the impact of their strategy changes on the market should be closely watched. In addition, attention should be paid to the moves of individual shipping companies such as ONE (6.3%) and Evergreen (5.7%) after the dissolution of 2M.
In the medium to long term, survival strategies in preparation for the dissolution of alliances should be prepared. Top shipping companies should secure economies of scale through mergers and acquisitions (M&A) and new investments while accelerating digital transformation and decarbonization to enhance competitiveness.
In the case of HMM, a Korean ocean-going shipping company, it is necessary to further accelerate the strengthening of global competitiveness. As it entered the top 8 in the world as of 2022, it should strive to expand differentiated services and regional networks while seeking strategic alliances.
Small and medium-sized shipping companies should focus on specialized strategies for independent survival. This includes targeting niche markets or developing premium services to increase added value. At the same time, it is essential to actively utilize digital technologies to improve operational efficiency.
With the abolition of CBER, shipping companies need to re-evaluate operating agreements and comply with general EU competition law rules. To this end, they should refer to the detailed guidelines provided by the EU while adapting to the new legal structure. Efforts should also be made to ensure regulatory clarity through continuous dialogue and cooperation with regulatory authorities.
Shippers and logistics companies also need to prepare for risk management. When managing global supply chains and establishing import/export plans, changes in the shipping environment should be actively considered. It is also worth considering signing medium- to long-term contracts in preparation for freight rate hikes and vessel shortage, as well as exploring alternative means of transportation.
In particular, shippers should closely monitor the possibility of transportation cost increases and service changes due to the abolition of CBER. They need to collect relevant information through close communication with shipping companies and flexibly adjust logistics plans.
It is also urgent to prepare support measures at the government level. While supporting the competitiveness enhancement of domestic shipping companies through financial support and tax benefits, it is necessary to minimize conflicts in extraterritorial application by strengthening communication with competition authorities in major countries.
The abolition of CBER is likely to act as a ‘regulatory blade’. EU-level investigations and sanctions on freight rate collusion are expected to be strengthened, and global shipping disputes are also expected to increase. Appropriate risk management by domestic and foreign shipping companies has become more important than ever.
The shipping industry needs to use the abolition of CBER as an opportunity for a new leap forward. If shipping companies, shippers, and the government seek win-win measures based on mutual understanding and cooperation, they will be able to overcome the crisis and build a healthier shipping ecosystem.
Creating a shipping environment where fair competition and innovation circulate is a task for all of us. A long-term perspective is required to promote sustainable development beyond short-term interests. We hope that the Korean shipping industry will solidify its global competitiveness in the new order.
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