Strong monopoly regulations a must if Sri Lanka needs to be an international centre of excellence

By The Fair Trader

As the country moves to an upper middle-income nation, it needs a new industrial structure to avoid the middle-income trap, and to move towards the next level of development. International investment, better competitive environment, and transparent legal systems are some of the pillars that a nation like Sri Lanka needs in order to aspire to reach the status of Indian Ocean hub, by attracting investors in multiple fields, to move to a new level of economic transformation and employment creation.

It is the duty of any Government to act in the larger public interest, and establish best possible competition rules. In this sense, a rare occurrence is seen where both Government and the Opposition members have seen that the shipping agency business is on one hand is promoting protectionism and stifling international competition, and at the same time monopolising the small Sri Lankan market, by directly and indirectly controlling the local shipping industry. The consequences are hidden, but at the end of the day the consumers, exporters and manufacturers pay for such unfair business practices, and the country slips its international rankings, which affects foreign direct investment. 

However, it seems that the Ministry of Shipping seems to be interested of protecting a few business interests and individuals, as the statement made by the Minister as his remarks at the CASA AGM held last week seems to be quite evident in this sense. The Minister’s remarks were bent on the sentiments of the very same companies who are opposing the Prime Minister and the Finance Minister in many fronts. It is obvious that the President has been misled and the President’s direction through Gazette number 1933/13 of 21/9/2015, allocating the duties and function to the Ministry and the Minister has not been read, where it clearly says that the Minister must establish the rules of competition for shipping services. It’s quite ridiculous to note, under these circumstances, why any Minister, Ministry Secretary, or any responsible corporate entity should oppose the strengthening of monopoly laws of this country, which is in the public interest!

Guess who is intervening?

Joint Opposition MP Vasudeva Nanayakkara has filed a public litigation case, citing that a few shipping agencies are monopolising the business in Sri Lanka and are acting against the interest of the country, and the shipping act itself must be strengthened. For any reasonable person, bringing in and strengthening monopoly laws should be welcoming news. This is exactly what the MP has sought from the Ministry of Shipping, the subject Minister, and the Judiciary of this country. Hence, no one expected any intervention for such a noble cause from any decent citizen or corporate of this country. However, two major operators, which control the largest share of the shipping agency business in this country, have now intervened in this public litigation case, as published in the Daily FT of 30 July 2018, namely Hayleys Advantis and McLaren’s Investments, requesting the courts to dismiss the case against the request to strengthen monopoly laws of the country, citing that there is no such need.

Guilty conscience needs no accuser

It is said that a golden bit does not make the horse any better, meaning an ugly thing will remain ugly even if its appearance is taken care of. It is also said that guilt is also a way for us to express to others that we are a person of good conscience. Now we can see who has control over the shipping agency business without batting an eyelid. If the forces behind this intervention are working in the interest of good governance and transparency, they are the ones who should have been coming forward to fix the weakness of the country and make the country more competitive. Interestingly, the two-petitioners work hand-in-glove on many fronts, including the agency business, and are trying their best to scuttle the anti-monopoly laws being strengthened and stopping other shipping agents’ rights being looked after.

If all industry players feel that MP Vasudeva’s public litigation is against fair trade practices and the public of Sri Lanka, then we should have seen the industry body CASA intervening on behalf of all their members, and the petition should have been unanimously signed by all 129 members.

Why unanimous? It is a fact, and it has been repeatedly exposed, that CASA is controlled by a few members and that they can force many members to sign a document by applying pressure, as most of the smaller members directly or indirectly depend on 3 to 4 members in the larger supply chain, who control well over 70% of the liner shipping business through the agencies, for both transshipment and local cargo. Hence some local small players would not want to disturb the apple cart, as they depend on these larger agencies for many other fronts.

Secondly, in the interest of the public, it would be interesting to see if shipping lines such as Maersk and MSC, who are the biggest customers of the Port of Colombo, would intervene on behalf of their agency house offices to stop such anti-monopoly laws being strengthened. Even if intervention is not possible, an official press article from the business owner of such as MAERK /MSC would help, if the parties intervening are correct with their arguments submitted to the courts to dismiss the case. Such a position will also help parties who are taking this matter to the FMC and EU competition commission to investigate the international violation that is happening in Sri Lanka, through an indirect means of cartelisation and harming competition.

Deception as evidence

If one goes through this intervention, it says the agency monopolisation is in line with international practice, where shipping alliances have been allowed to be formed by FMC, EU and other competition bodies. This is a total misguidance of the truth. Alliances are only allowed to share assets and plan route sharing, as shipping is a capital-intensive business and under pressure from global trade patterns. However, the sales and marketing, pricing, and capacity allocation is strictly prohibited to discuss, as they are considered cartelisation, which becomes monopolisation of the market, which will harm the consumer. Whilst alliances are formed, independently the shipping companies have their balance sheets and profit and loss accounts. If international airlines or shipping companies are found fixing prices and capacity, the firms will run into millions of dollars in fines. Therefore, a shipper gets differed freight rates from different shipping lines. 

However, in this case in Sri Lanka, the pricing and capacity is known to one agent in the local industry for many shipping lines, and inter departments are created as shared services. The same Board of Directors sit in the local agent’s office, hence they can collectively decide and inform shipping lines pricing division to control the freight market to their agency’s advantage. Sometimes the principal is not aware of the local market conditions, and totally depends on the agent’s recommendation. 

In simple language, when you have almost 70% of the international alliances capacity under two or three roofs, it is common sense that both pricing and capacity can be controlled by the local agency, even without the knowledge of the owner of the ship. This is why liberalisation too is needed, so that a ship owner can decide to have multiple agencies if they desire it: depending on the trade route, this action is indirectly prohibited in this country. It would be always better to have several agencies in the country, who can offer choice to the line and the customers, where more competition will reflect better service and price, and other agents too can expand and diversify their services. 

In another submission, one of the intervening companies says that it controls only 13 % as a group of the local market, which is simply not the truth. For example, CMA-CGM agency alone controls 11% of the local market; with its recent acquisition of the APL agency, its share has risen to 18%. This company accounts for many more lines within the system, including the investment of Sri Lanka shipping company, and are working under the umbrella of a shared services centre, and partners the other petitioner in shipping business too. This information can be obtained via Customs, to identify which line is carrying how much, and who would be the agent for that cargo.

Indeed, the mechanism is harmful to the country. Anti-monopoly laws must be strengthened to eliminate current and future actions of these few operators that would undermining the trading community and the consumers’ interest. In the interest of the shipping industry, it is high time that exporters/importers too now intervene in this public litigation (as they will pay the final bill), now that the “cat is out of the bag” as to who is against anti-monopoly laws.