A version of this article was first published by The DCN in November 2023.
The international supply chain is a complicated and expensive space. Aircraft, container and bulk vessels, airports, cargo, port and stevedore infrastructure require massive investments of time and finance to be planned, commissioned, constructed, and put into operation.
Circumstances can arise which threaten or compromise the operations and investment which are beyond the control of the owners and operators in the supply chain, and which can threaten the operation and the investment.
The rationale for allowing antitrust exemptions
Given the scale of investment required, there is a natural economic consequence that ownership of the various assets is consolidated within a relatively small number of parties. Those parties need to maximise their profits to satisfy their financiers and stakeholders, often including shareholders.
In all those circumstances, it is not entirely surprising that there have been instances in the air cargo industry where providers of services both domestically and internationally have been found to have entered into agreements with each other to fix the prices for fuel and security surcharges.
However, governments have also recognised that certain collective arrangements between companies that would otherwise be competing should be permitted to ensure that services are provided as needed. The theory is that such collective arrangements, or consortia, can lead to economies of scale and better use of the space in vessels, allowing the provision of services in circumstances where they may not otherwise be provided.
The Australian approach
The Australian approach to the exemption from competition laws for liner shipping is found in Part X of the Competition and Consumer Act 2010 (the Act).
As stated in a summary published by the Australian Department of Infrastructure, Transport, Regional Development, Communications and the Arts:
“The main objective of Part X is to ensure that exporters (and to a lesser extent, importers) have continued access to outwards liner cargo shipping services of adequate frequency, capacity and reliability at freight rates which are internationally competitive.”
The Australian arrangements have been in place for some time, but in recent times, the existence of Part X of the Act has been regularly questioned. The Harper Review – which examined Australian competition law and policy – made a series of recommendations to reform competition policy with a view to raising future economic growth.
A recommendation contained in the report was that Part X of the Act should be revoked and that the liner shipping industry should be subject to normal competition regulation and the Australian Competition and Consumer Commission (ACCC) provided with power to grant ‘block exemptions’ for liner shipping arrangements that meet a minimum standard of pro-competitive features.
More recently, there have been further reviews of Part X of the Act. The Australian Productivity Commission (Commission) was commissioned by the previous federal government to undertake an inquiry into Australia’s maritime logistics system, which was released on 9 January 2023. The Commission report was issued shortly after the ACCC issued its annual Container Stevedoring Monitoring Report (monitoring report) which, itself, drew upon an earlier interim report of the Commission.
Both the Commission report and the monitoring report contained recommendations that Part X of the Act be removed. The Commission commented:
“While agreements enable shipping lines to achieve economies of scale, the law permitting them (Part X of the Competition and Consumer Act) does not require shipping lines to show that their arrangements provide a net public benefit to Australia – a requirement faced by similar industries. Putting shipping lines onto the same footing as other industries would ensure that any anticompetitive avenues for price co-operation are only available to shipping lines when the cost of reduced competition is outweighed by other benefits to the Australian community.”
However, there has not been any response from the federal government to the Commission to date, which would mean that the resolution of the European Commission (EC) not to extend the antitrust block exemption for liner shipping consortia has particular significance.
The EC resolution
By way of a press release from Brussels dated 10 October 2023, the EC announced its decision not to extend the antitrust block exemption for liner shipping consortia, known as the ‘Consortia Block Exemption Regulations (CBER)’ or ‘CBER’. The stated reason for the decision is that the CBER no longer promotes competition in the shipping sector. On that basis, the EC advised the CBER will be allowed to expire on 25 April 2024.
The news has certainly caused significant international comment with many wondering how this will impact consortia exemptions or concessions which may be in place throughout the world.
The decision was not reached in a hurry, as the EC had first adopted the CBER in 2009, then subsequently renewed in 2014 and 2019. The EC resolution followed a review process launched in August 2022 to secure information regarding the value of the functioning of the CBER since 2020 ahead of its expiry on 25 April 2024.
In August 2002, the EC launched a ‘call for evidence’, inviting submissions from stakeholders on the performance of the CBER. This included questionnaires being issued to affected parties in the supply chain which was extended to competition and regulatory authorities in Europe and the United States (US), and the commissioning of an independent fact-finding study. Many industry associations such as peak shippers’ organisations and FIATA also worked actively to lend support to the removal of the exemption. Based on the available research, the EU published its Staff Working Document summarising the outcomes of its evaluation of the effectiveness and efficiency of the CBER during the 2020-23 period.
As contained in the press release, the EC summarised the outcome of its research, concluding that it did not support the extension of the CBER beyond 25 April 2024 on the following basis.
Given the small number and profile of consortia falling within the scope of the CBER, the CBER brings limited compliance cost savings to carriers and plays a secondary role in the carriers’ decision to cooperate. Furthermore, over the evaluation period, the CBER was no longer enabling smaller carriers to co-operate among each other and offer alternative services in competition with larger carriers.
However, just as importantly, the EC found that the expiry of the CBER did not mean that co-operation by shipping lines would necessarily become unlawful under the antitrust rules of the EU, relying on guidance in the Horizontal Block Exemption Regulation and Specialization Block Exemption Regulation. This means there is likely to be some uncertainty around the types of behaviours which would be allowed.
Further, the decision may be disadvantageous to smaller lines, as the larger lines are well resourced and able to operate without the arrangements with smaller lines. In fact, it could create issues for parts of the world where collaboration has a positive effect and has allowed services to be provided which would not otherwise be provided, or only be provided in a more limited manner than is currently the case.
This could create real issues in the provision of regular services by the lines to Australia and New Zealand. It may be that we need the shipping lines more than they need us.
The response to the EC resolution
The EC resolution has created some significant level of interest both here and overseas. Interested parties in the US and the United Kingdom (UK) have called on relevant regulators to remove or adjust current exemptions to liner operators from antitrust regulation (also known as competition regulation).
However, others have observed that the removal of the exemptions will create significant uncertainty as to the operating regime which will be allowed to provide services on a consistent and global basis.
Currently, there is no obvious movement in Australia on dealing with Part X of the Act or any of the other practices in the supply chain which the Commission report recommends needs closer attention from a competition perspective.
To date, even with the best advice from the primary agencies responsible for reviewing competition issues in the Commission and the ACCC, there is no obvious sign that the federal government is on the brink of movement on the Part X of the Act exemption, let alone the other contentious issues raised by the Commission report.
Possibly the view is that the EC resolution has no relevance to Australia and the Pacific with its very different market and very different competitive drivers.
Even so, if the recommendations of the ACCC, the Commission and the action of the EC are not enough to move the reform to the Australian maritime supply chain, it remains a question as to what would drive such a change.
If you are an individual or Australian business and would like to discuss any current trade or supply chain issues your business is facing, please contact a member of our Customs & Trade team.
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