transport sector susceptible to anti-competitive
Financial Express, Bangladesh, June 21, 2012
Pradeep S Mehta
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, back waters, creeks, and tidal
inlets; used for various purposes. It is used as passenger transport across
rivers at numerous locations on all waterways 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 the period 2009-10, nearly 370.85mn 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 the
overall transport movement (about 0.15 per cent 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, Cambodia are other
countries where inland water transport plays an important role. All these
countries are without a competition law but in process.
In Cambodia, a CUTS (Consumer Unity & Trust Society) 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 drove down prices drastically, resulting in the
companies deciding to sit down and organise a price fixing cartel which drove
prices up significantly (from US$5.00 to 10.00). In addition, a market
allocating arrangement was also worked out, where only one boat provided boat
transportation service 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, staff of the government-owned Bangladesh Inland Water Transport
Corporation indulged in price gouging by charging Taka 1800 instead of Taka 1200
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 was missing.
In Malaysia, a cartel activity resulted 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. The price war reduced fares
drastically (from RM10 in December 2002 to as low as RM1 in July 2003). This
resulted in collusion between the two players, which eventually saw prices
increasing back to RM10 in 2003. Malaysia too does not have a competition law,
though it has just adopted one, whose implementation will begin in Feburary,
In June 2011, the Federal Competition Commission of Mexico imposed a ten million
pesos fine on Cruceros Marítimos del Caribe, and a further 15 million pesos to
another company Ruta Náutica del Caribe for cartel behaviour in the ferry
services sector. Even in more advanced countries in competition law enforcement,
collusion is also 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 biggest fine of ECU 400,000.
While allegations are yet to be levelled against players in India, one cannot
discount possibilities 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 cower
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 the 2009-10
period, 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 too is vulnerable to anticompetitive practices. The
sector is however yet to be scanned through competition lens, despite its
importance in economic activity. Given the incidents 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 the Competition
Commission of India (CCI) has over the years attempted to understand the nature
of competition in several potentially vulnerable markets, the nature of
competition prevailing in the sector is yet to be explored. This calls for a
more detailed focus from CCI.
The writer is
Secretary General, CUTS International, based in Jaipur, India.
Cornelius Dube and Udai Mehta of CUTS contributed.
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