Monday, July 21, 2014

Shipping Cartels and Ocean Container Line Freight Agreements Get More Confusing Every Year

With Alliances Forged and Foundered Australia Reviews Anti-Trust Regulation
Shipping News Feature

AUSTRALIA – UK – WORLDWIDE – The London based International Chamber of Shipping (ICS) has submitted comments on behalf of the global shipping industry to a comprehensive competition policy review being conducted at the request of the Australian Government, which is looking at ways to ‘reinvigorate Australia’s competition culture’. In its submission, the ICS makes a firm point to support the maintenance of what it calls ‘important’ antitrust exemptions that currently apply to international maritime transport, particularly the container shipping sector, exemptions which it argues support the ocean freight industry in a myriad of ways, and the Chamber also draws attention to the practices and recent rulings of other countries that Australia has trade ties with.

The Australian Competition and Consumer Commission (ACCC) as the investigating body, considers that Part X of Australia’s Competition and Consumer Act (CCA), which provides cartel immunity to registered international shipping lines to enable them to cooperate with each other, is both out-dated and unnecessary. The ICS argues that these provisions have helped to ensure that international shipping markets function smoothly, notwithstanding their cyclical and highly volatile nature. However, these arrangements are now subject to a ‘root and branch’ review of Australia’s competition regulations.

The ACCC instead, wants to implement a higher threshold for immunity which would apply to all other industry sectors through the authorisation provisions of the CCA, as it reckons that the unique status afforded by Part X to international liner shipping result in a lack of transparency. Cooperative arrangements between competitors can be authorised by the ACCC if they deliver net public benefits to the Australian community.

The ICS opposes any change the CCA saying that the current regulatory environment in Australia encourages container lines to compete robustly in terms of the quality of service that they provide and that the current approach does not inhibit competition. Speaking from an international perspective the ICS added that:

“In particular, it is emphasised that ship operators trading to and from Australia are part of a global shipping market, and that the various maritime competition rules that apply globally (particularly those within the Asia Pacific region) are currently in broad alignment. In addition to the impact that it could have on the shipping industry’s customers in Australia, any major changes to Australia’s current maritime competition regime could also have negative implications for the liner (container) shipping industry globally.”

The ICS’ submission goes on to point out that other competition regulators around the word have recently reviewed their competition regimes to shipping and have found that ‘limited anti-trust exemptions are necessary to ensure that shipping lines are able to increase their range of services and markets, thereby satisfying shippers (and consequently consumers) demands more effectively in terms of frequency, reliability, efficiency, quality and price’.

Whilst the ICS acknowledges Australia’s intention to carefully examine practices that might distort competition, the ICS believes that it remains appropriate for exemptions to apply to certain carrier agreements which yield net benefits to shippers, exporters and consumers in Australia, as well as to the economy of Australia as a whole. They also suggest that whatever Australia decides, should at least be consistent with the Asia Pacific Economic Cooperation (APEC) Guidelines Related to Liner Shipping adopted by the APEC member economies in June 2011, in Brisbane. The ICS also notes that the European Commission has recently decided to extend the block exemption from competition rules that applies to liner shipping consortia until at least 2020.

Australia’s neighbour New Zealand also seeks to change antitrust practices in all industries including international shipping by including an amendment to its Commerce Act, in order to ‘deter hard-core cartel behaviour’. The amendment, yet to be passed, aims to allow pro-competitive competition between firms whilst discouraging anti-competitive cartel practices by clarifying the scope of competitive behaviour, introduce new exemptions, and introduce criminal sanctions on hard-core cartel behaviour, among other proposals. There is a part of the Cartel Bill that is dedicated to international shipping which would repeal the separate competition regime established under the Shipping Act and allow international shipping to be covered by the Commerce Act. Whether one considers collaboration as ‘hard core or pro-competitive’ probably depends where you sit.

The New Zealand Government does not believe that there is a good reason for treating international shipping differently from other sectors regulated by the Commerce Act. It considers that the carriage of goods by sea between New Zealand and the rest of the world should be subject to the generic competition regime under the Commerce Act. This part of the Bill would come into force 2 years after the date on which the Act receives Royal assent and doubtless will lead to some more wealthy lawyers at some time in the future, arguing over whether an agreement made thousands of miles away does actually carry the same weight as a domestic contract.

Shipping is vital to the Australian economy given that 99% of Australian imports and exports by volume are transported by sea. In addition, a proportion of Australia’s domestic freight also depends on coastal shipping. That said, of Australia's domestic freight, most cargo is carried by rail and in 2011-12, rail had a 48.5% share of the task, with road carrying 34.6% and coastal shipping carrying 16.8% of total domestic freight volumes. Coastal shipping can be an alternative to road and rail services, but may not always be available or competitive for Australian domestic routes or certain products, plus of course much of ‘domestic’ starts or ends life as import or export traffic.

Over the next 20 years, the Australia’s freight tonnages are expected to double and it will therefore be critical to improve freight flows by promoting competitive industry structures that provide signals for efficient use of existing resources and investment in future capacity. The ICS has made its position clear and many in the supply chain believe that, as time moves on, the view of commercial agreements are changing with what was viewed as normal business practice previously now seen as a profit centre for regulators which impose penalties retrospectively, sometimes on the current owners of transgressing businesses now long defunct.

The particular care indulged in by MSC, Maersk Line and CMA CGM in forging the ill-fated P3 Alliance, which passed muster with US and EU regulators only to fall foul of Chinese authorities, shows the degree to which national self-interest and restrictive practices can be imposed when one nation views a situation differently from another. MSC and Maersk have gone one to announce 2M with the likelihood that this arrangement too will be kicked into touch by regulators. Similar self-interest can be seen in the MyFerryLink case between British and French counterparts.

All in all this often leaves the shipping companies in a ‘damned if you do – damned if you don’t’ position with an agreement forged in Europe or elsewhere falling foul of authorities thousands of miles away due to change of how these things are viewed.