A Lesser Known Cartel

A lesser known Cartel but one that has a direct impact on international trade, is the shipping cartel that exists among the world’s shipping companies. Every two weeks about 20 shipping line managers gather for their usual meeting to set rates on tens of billions of dollars of cargo. They do not refer to themselves as a cartel but rather operate under such innocuous names as the Trans Atlantic Conference agreement. Regardless of the name they set the rates on about 70 percent of the cargo shipped between the United States and Northern Europe, Shipping between the United states and Latin American ports and between the United states and Asian ports also is affected by shipping cartels. Not all shipping liens are members of cartels but a large number are; thus they have a definite impact on shipping. Although legal, shipping cartels are scrutinized by the US Congress and new regulations may soon be passed.

Another cartel is the diamond cartel controlled by De Beers. For more than a century De Beers has smoothly manipulated the diamond market by keeping a tight control over the world supply. The company mines about half the world’s diamonds and takes in another 25 percent through contracts with other mining companies. In an attempt to control the other 25 per cent De beers runs an outside buying office where it spends millions buying up diamonds to protect prices. The company controls most of the world’s trade in rough gems and uses its markets power to keep prices high.

The legality of cartels at present is not clearly defined. Domestic cartelization is illegal in the United States, and the European Union also has provisions for controlling cartels. The united states does permit firms to take cartel like actions in foreign markets, although it does not allow foreign market cartels if the results have an adverse impact on the US economy. Archer Daniels Midland Company the US agribusiness giant was fined $205 million for its role in fixing prices for two food activities lysine and citric acid. German, Japanese, Swiss and Korean firms were also involved in the cartel. The group agreed on prices to charge and then allocated the share of the world market that each company would get on to the tenth of a decimal point. At the end of the year any company that sold more than its allotted share was required to purchase in the following year the excess from a coconspirator that had not reached its volume allocation target.

Although the EU member countries have had a long history of tolerating price fixing the European Union is beginning to crack down on cartels in the shipping, automobile and cement industries among others. The unified market and the single currency have prompted the move. As countries open to free trade, powerful cartels that artificially raise prices and limit consumer choice are coming under closer scrutiny. However the EU trustbusters are fighting tradition – since the trade guilds of the middle ages, cozy cooperation has been the norm. In each European country, companies banded together to control prices within the country and to keep competition etc.

Government influenced Pricing:

Companies doing business in foreign countries encounter a number of different types of government price setting. To control prices, governments may establish margins, set prices and floors or ceilings, restrict price changes, compete in the market, grant subsidies and act as a purchasing monophony or selling monopoly. The government may also influence prices by permitting or even encouraging businesses to collude in setting manipulative prices.

The Japanese government traditionally has encouraged a variety of government influenced schemes.
Source: International Marketing