Wednesday, January 6, 2016

Import Ocean Container Freight by Rail Transport Row Settled - For Now

ORR Accepts Guarantees Over Contract Carriage
Shipping News Feature
UK – In June 2013 the Office of Rail and Road (ORR), the independent regulator charged with administering the economic and safety protocols which govern Britain’s rail and highway transport, received a complaint from DB Schenker Rail UK regarding the carriage of deep sea containers (DSC’s) by rail by Freightliner, its largest competitor in the field. The complaint alleged that the sector was uncompetitive because of the way Freightliner operated, holding sway over much of the ocean freight import traffic arriving at the UK’s deep water ports.

In August 2013 ORR and the Office of Fair Trading (OFT), latterly to become the Competition and Markets Authority (CMA), agreed an investigation would best be handled by the ORR and in that November the investigation was launched after a preliminary assessment which showed there were ‘one or more markets within the DSC intermodal transport sector which might be captive to rail’.

It was put forward that Freightliner had the infrastructure to handle such traffic and might have abused its dominant position with agreements in place which could effectively prohibit competition. Freightliner had, by engaging in exclusionary conduct through one or more of such agreements with customers, acted contrary to EU regulations that is Chapter II prohibition, and/or Article 102 TFEU.

In March 2014 the ORR deprioritised part of the investigation but the abuse of power investigation continued to January 2015, and very thorough it appears to be. Although seemingly simplistic to the seasoned freight professional the report illustrates how the ORR entered into formal investigations of Freightliner and its customers, additionally (and unsurprisingly) drawing on the experience of the original complainant.

After it became clear that the investigation was likely to find that competitive issues did arise, in July 2015 Freightliner proposed a set of commitments which, in the ORR’s provisional view at that time, fully addressed its competition concerns. However after receiving feedback to a second consultation with stakeholders that closed in October of that year the ORR’s position changed which resulted in a second set of commitments from Freightliner being offered in November 2015.

These latest commitments have now been tacitly agreed by the ORR to satisfy its concerns and it has discontinued its investigation. However, couched in the usual legalistic terms the ORR has not concluded whether or not the EU anti competition rules have actually been infringed.

Freightliner’s 'Final Commitments' to the ORR now have six weeks from the acceptance date to be fully implemented and will remain in force until 31 March 2019. The full details of the commitments can be read from Page 30 of the ORR publication onward confirming the arrangements. They broadly include a restriction on the length of contracts, a ban on automatic ‘rollover’ of contracts, no ‘exclusivity’ contracts, no proscription of informing other service providers of contract conclusion dates, reductions in wagon commitments after three years, rebate limitation and no contracts which place any restrictions or conditions on customers reselling unused contract capacity to third parties.

Many may find it ironic that a Deutsche Bahn subsidiary is complaining about anti-competitive behaviour given the size of the fine (€31.8 million) it was given over its own European rail freight cartel activities, the cynical disregard it has had for EU regulations regarding the financial support given illegally by one subsidiary to another, and abuses of its own dominant position in some rail markets (just the accusation it levied against Freightliner), arguments ably put by Tony Berkeley of the European Rail Freight Association.

That said, this latest victory for DB Schenker Rail UK has not been greeted exactly enthusiastically, with the company acknowledging that whilst the enforcement of Freightliner’s commitments may give ‘other rail freight operators’ increased opportunity to compete for the transport of deep sea containers, it remains concerned that ‘the overall effect of the commitments will still be insufficient to resolve the serious competition problems that the ORR has uncovered in its investigation.’ Geoff Spencer, CEO at DB Schenker Rail UK, commented:

“We made the formal complaint because we want to see the relevant markets opened up and operating efficiently for the benefit of the industry. We welcome the ORR’s intervention and believe the commitments offered will go some way towards addressing certain inefficiencies within the market. However, we continue to have concerns regarding future competitiveness of the market, particularly in light of the capacity constraints at Felixstowe and Southampton as well as the fact that the commitments do not extend to Freightliner’s operations out of London Gateway.”