Cartelisation in water transport sector

Financial Express, December 29, 2011

By Pradeep S Mehta

In November 2011, Spain’s competition authority, the National Competition Commission, descended harshly on the inland water transport sector, fining six ferry companies a total of around 16 million for operating price fixing and market allocating cartels on the Algeciras to Ceuta route. Since several countries, including India, are now enforcing, or countries like Bangladesh, Nigeria, Malaysia and Cambodia are in the process of adopting, modern competition laws, this example needs to stir them up to take action.

India’s inland water transport sector consists of a variety of navigable waterways comprising river systems, canals, backwaters, creeks and tidal inlets used for various purposes. These are used for passenger transport across rivers at numerous locations in the country. Inland water transport is also important for tourism, a growing activity with economic potential in Kerala, Alappuzha and, to a smaller extent, Kozhikode where houseboats are popular for the activity. The carriage of vehicles across areas such as West Bengal, Kerala and Goa also rely to some extent on inland water transport. Statistics from the Transport Research Wing, ministry of shipping, indicate that during 2009-10, nearly 370.85 million tonnes of cargo was moved through inland water transport. The active players in the sector include both state-owned and private companies and associations.

Although water transport in India has a very marginal contribution to overall transport movement (about 0.15% in 2004), players in the sector enjoy brisk business as the industry has remained lucrative over the years. Water-based transport is characterised by low operating costs of fuel with the waterway—the main infrastructure—being naturally available without much maintenance and upgrading costs. In addition, some waterfront locations can only be accessed through water transport, giving business advantages to the players.

Bangladesh is a country with rivers criss-crossing the whole country and water transport is a major means of communication. Nigeria and Cambodia are other countries where inland water transport plays an important role. All these countries are without a competition law.

In Cambodia, a CUTS study in 2002 discovered that the passenger ferry service from Phnom Penh, the capital, to Siem Reap, the most popular tourist town, was run by a cartel. Cut-throat competition, among the eight private companies involved, drastically drove down prices, resulting in the companies deciding to sit down and organise a price-fixing cartel that drove prices up significantly (from $5 to $10).

In addition, a market allocating arrangement was also worked out, where only one boat provided boat transportation services in a day, although bigger companies were allowed more quotas. Unfortunately, there was no competition law to deal with the issue, a problem existing up to now.

Eid is a major festival in all Muslim societies.

On the eve of Eid in Bangladesh, the staff of the government-owned Bangladesh Inland Water Transport Corporation indulge in price gouging by charging 1,800 takas instead of 1,200 takas per cattle-laden truck to ferry them across to Dhaka from another location. Naturally, this was a result of corruption rather than official action, and was therefore denied by the authorities. But action to curb it was missing.

In Malaysia, cartel activity took place between Lumut and the island of Pangkor, after two firms, the Pangkor-Lumut Express Feri Sdn Bhd and Pan Silver Ferry Sdn Bhd, got entangled in a price war in 2003. This reduced fares drastically (from RM10 in December 2002 to as low as RM1 in July 2003), resulting in collusion between the two players, which eventually saw prices increasing back to RM10. Malaysia, too, does not have a competition law, though it has just adopted one, whose implementation will begin in February 2012.

In June 2011, the Federal Competition Commission of Mexico imposed a 10-million-peso fine on Cruceros Marítimos del Caribe, and a 15-million-peso fine on Ruta Náutica del Caribel, for cartel behaviour in the ferry services sector. Even in more advanced countries in competition law enforcement, collusion is rampant. In Europe, the European Commission took measures against five ferry operators after an agreement to impose common currency surcharges on freight, following the devaluation of the pound sterling in September 1992. P&O European Ferries, Stena Sealink, SNAT, Brittany Ferries and North Sea Ferries were fined a combined value of ECU 685,000, with P&O European Ferries being fined the most, at ECU 400,000.

While allegations are yet to be levelled against players in India, one cannot discount the possibility of anticompetitive practices. The sector can also easily escape scrutiny due to the fact that not much notice is taken of it, even though operators are enjoying brisk business. There are not many players in this industry in India, which makes it easy for them to coordinate behaviour. In addition, some companies are very dominant, which gives them power to bully competitors into submission through real or imagined price wars. Based on the statistics from the Transport Research Wing in the passenger ferry services, Hooghly Nadi Jalapath Paribahan Samabaya Samity, Kolkata, has a dominant position as it carried 20.3 million passengers using 44 vessels during 2009-10, while the second placed West Bengal Surface Transport Corporation Ltd had a distant 6.8 million passengers from 23 powered vessels. The same pattern is also apparent in the cargo ferry services, where the leading company, Sesa Goa Ltd, could afford to carry over 6 million tonnes of cargo when second placed SV Salgaocar carried 1.5 million tonnes.

Associations also play a very active role in the trade, making it easy to coordinate behaviour.

Thus, conditions facilitating cartels are fulfilled, showing that India’s inland water transport system is also vulnerable to anticompetitive practices. The sector is, however, yet to be scanned through a competition lens, despite its importance in economic activity. Given the incidences of anticompetitive conduct that have been reported in other countries over the years, it is difficult to expect India to be an exception. Cartelisation in the sector would have bad consequences on the economy as well as on the public using the transport services, which would have an impact on poverty. Although CCI has over the years attempted to understand the nature of competition in several potentially vulnerable markets, the nature of competition prevailing in this sector is yet to be explored. This calls for a more detailed focus from CCI

Pradeep S Mehta Secretary General, CUTS International and Cornelius Dube of CUTS contributed to this article.

This article can also be viewed at: