Opinion divided on Competition Commission’s Block Exemption decision

OOCL loading container

The decision, announced Tuesday by Hong Kong’s Competition Commission, to issue a block exemption order for vessel sharing agreements but not provide similar treatment with regard to voluntary discussion agreements has sparked controversy among industry bodies in the city.

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.

The HKSLA 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.

By contrast the Hong Kong Shippers’ Council was broadly supportive of the Commission’s order.

“The Hong Kong Shippers’ Council welcomes the Competition Commission’s decision of not granting block exemptions to liners’ VDAs and cautions that the conditional BOE granted to VSAs must be properly monitored,” the Council said in a press release issued today.

The Council added: “The main function of VDAs is to facilitate discussions and agreements among member shipping lines over commercial matters including pricing. VDAs, entirely anti-competition in nature, remain a core of any competition considerations.”

The operating environment for liner shipping has undergone massive reorganisation over the last 18 months in response to a weak freight market that has seen some lines go to the wall and others merge. Shippers are now expressing fears that the tide may have turned too far.

“The world’s top four shipping lines now account for over 70% of total capacity with the rest each holding only a very minor capacity share in major trading lanes,” the Council said.

“In addition, shippers are left virtually with only three shipping alliances to choose from. In a highly concentrated market, it is a duty of the authority to ensure that the interests of shippers be properly protected.

“The condition of a 40% market share cap for an alliance is absolutely needed. The buffer of allowing and alliance to reach 45% of market share for consecutively two years is very lenient indeed,” the Council added.

The Commission has given operators a grace period of six months ending on February 8, 2018 for them to make changes to their business arrangements.

 

 

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