Hong Kong’s Block Exemption decision may accelerate port’s decline

Jonathan Beard
Dr Jonathan Beard

Two leading professionals close to the maritime industry in Hong Kong have hit out at the decision by the Competition Commission not to issue a block exemption of voluntary discussion agreements between liner companies.

Dr Jonathan Beard, head of Transportation and Logistics, Asia at Arcadis and Caroline Thomas, a partner at Hill Dickinson told Market Intelligence, “While we understand the logic behind this proposal, our view is that, given that shipping alliances operate globally and given that Hong Kong is a small open economy, the grant of a narrower block exemption by the Hong Kong Competition Commission than equivalent exemptions granted in competing ports could well speed up the relative decline of Hong Kong port. In other words we believe that the Competition Commission should also grant a block exemption for VDAs so that Hong Kong’s block exemption at least matches Singapore.”

The decision, announced on 7 August by Hong Kong’s Competition Commission, to issue a block exemption order for vessel sharing agreements but not provide similar treatment with regard to VDAs sparked controversy among industry bodies in the city at the time.

The ability for liner services to jointly operate vessels services and exchanging vessel spaces is limited to companies with a 40% market share or less.

The order by the commission, which came into effect on Tuesday, was in response to an application for BEO from the Hong Kong Liner Shipping Association submitted in December 2015.

In a statement the Commission said it accepted that “operational cooperation through VSAs could give rise to certain improvements in production or distribution and/or the promotion of technical or economic progress.” The BEO will be valid for five years.

However, the Commission had decided not to issue a BEO for VDAs because it was not demonstrated that the relevant VDA activities met the terms of the efficiency exclusion.

While the decision was broadly welcomed by the Hong Kong Shippers’ Council, The Hong Kong Liner Shipping Association was quick to register its disappointment.

“While we are glad to see [the commission] recognise the value of operational agreements to Hong Kong’s economy, we are indeed disappointed that commercial agreements were not given the same level of recognition and included in the ruling,” Roberto Giannetta, secretary general of the Hong Kong Liner Shipping Association told Hong Kong’s South China Morning Post.

 

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