Wednesday, October 8, 2014

Australia Considers Eliminating Cartel Opt Out for Container and Other Ocean Freight Shipping Lines

Draft Report Suggests Dropping Key Clause Which Protects Carriers from Anti-Trust Actions
Shipping News Feature

AUSTRALIA – WORLDWIDE – As foretold in our July article on the subject, the Australian Competition Policy Review Panel has published a draft report on the review of country’s competition policies and practices, which recommends that ‘Part X’ in the Competition and Consumer Act 2010 (CCA), which provides immunity to liner shipping operators to cooperate with each other, be repealed, which could see a whole host of conference agreements for container and other freight shipping lines exposed to the full rigour of Australia's competition laws.

Part X of the CCA allows shipping operators to enter into agreements among themselves in relation to matters such as freight rates, the pooling of revenues, the identification of trade routes and the quantity and kinds of cargo to be carried. While such conduct might otherwise fall foul of the cartel conduct prohibitions under the CCA, the registration of these shipping agreements with the Registrar of Liner Shipping confers upon the operators exemptions from those prohibitions, provided the Registrar is satisfied that there is an overall benefit to Australian exporters or importers.

The historical justifications for such exemptions included the need to secure stability of trade and to deliver an efficient supply of liner services to Australia, as well as avoiding destructive competition, points which many in the airfreight industry will scoff at with carriers recently having to fork out tens of millions of dollars in fines for antitrust behaviour.

The Panel has formed the view that while the current system requires the demonstration of an 'overall benefit' to Australia, before an agreement can be registered under Part X there is no requirement for an assessment of the competitive effects of that agreement. Furthermore, under the current system, the registration process completely bypasses the Australian Competition and Consumer Commission (ACCC), the same body which has levied such swingeing penalties on the cargo airlines, in favour of the Registrar of Liner Shipping, an office specifically created under Part X of the CCA.

No other industry enjoys legislative exemption from Australia’s competition laws, despite the fact that other industries have similar economic characteristics to the industry, particularly, as we have noted, the international airline industry. As with other countries however ocean freighters carry by far the largest amounts of both imported and exported goods. The review states that if participants in those industries wish to make agreements that would otherwise contravene the competition laws, they are required to seek authorisation from the ACCC. The authorisation process is designed to test, in a public and transparent manner, whether agreements between competitors are in the public interest, weighing the potential anti-competitive detriment against any public benefits that the agreements may generate.

The recommendations that the Panel suggests in the draft report can be split into several points; repeal Part X of the CC; subject the industry to the normal operation of the CCA; grant new powers to the ACCC; and subject the conference agreements that do not have pro-competitive features to individual authorisations through the ACCC.

Whilst many have welcomed what is after all a wide ranging and complex draft report there are those in the shipping community who have voiced the opinion that, should the suggested changes be adopted, the recommendations could have the potential to add an unnecessary level of complexity and bureaucracy to a system which is well understood and certain in its application, although perhaps bringing the industry in line with other similar sectors.

Industry participants around the world have until 17 November 2014 to consider the recommendations and make submissions in respect of them, if they so wish. Full details of the complete Competition Policy Review (Harper Review) can be seen here together with the dates and locations of briefing consultations happening across Australia in October 2014.

Photo: Container carriers can expect rougher times ahead if Part X vanishes from the CCA menu.