Part X of Australia's Competition and Consumer Act 2010 (CCA) permits liner shipping operators to enter into, and register, agreements among themselves in relation to the freight rates to be charged and the quantity and types of cargo to be carried on particular trade routes. Registration confers an exemption from the cartel conduct prohibitions in the CCA that would otherwise be applicable. On 22 September 2014 the Competition Policy Review Panel (Panel) published its Competition Policy Review Draft Report (Draft Report) which includes a recommendation that Part X should be repealed. This recommendation was made despite the Panel receiving detailed submissions from peak industry bodies representing operators and shippers arguing for retention. The Panel's recommendation, if sustained, will be an unwelcome development for all operators in the shipping and logistics sector servicing Australia and their customers.
For almost 50 years liner shipping services have enjoyed a degree of immunity from Australia's prohibitions relating to cartel conduct. The exemption for registered agreements between shipping operators (which may otherwise amount to illegal behaviour such as price fixing) was enacted, and has survived, due to concerns regarding cost, capacity and scheduling.
Consortia arrangements between shipping lines enable the sharing of space on pooled vessels so that a more frequent and wider range of port calls can be offered to shippers at a much lower cost than would otherwise be possible. It is therefore unsurprising that:
- Part X has received (and continues to receive) strong support from shippers in Australia
- Many of Australia's major trading partners, including China, Japan, Korea, Singapore and the United States, have competition laws permitting similar consortia arrangements between shipping lines
The most recent major reviews of Part X were conducted by the Australian Productivity Commission in 1999 and 2005. In 1999 the Commission concluded that, on balance, Part X served Australia's national interest whereas in 2005 the Commission recommended that Part X be repealed or, alternatively, reformed. In response to the 2005 review the then Australian Government opted for reform rather than repeal.
Creation of the Panel and publication of its Draft Report
In 2013 the Australian Government commissioned an independent 'root and branch' review of Australia's competition laws and policy in recognition of the fact that the Australian economy has changed markedly since the last major review of competition policy in 1993. The review is being undertaken by the four-member Panel comprising individuals from the public sector, academia and private legal practice. The Terms of Reference, announced in March 2014, directed the Panel to consider a very broad range of topics impacting upon competition policy in Australia, including the question of whether the existence of Part X is still warranted.
The Panel's Draft Report was published on 22 September 2014, after receiving 318 non-confidential submissions from stakeholders between April and June 2014. The submissions included detailed and persuasive submissions from Shipping Australia, the International Chamber of Shipping, FONASBA and the Australian Peak Shippers Association, arguing for the retention of Part X.
With respect to Part X, the Panel concluded that:
- it should be repealed and the liner shipping industry should be subject to the normal operation of the CCA;
- the ACCC should be given power to grant block exemptions for conference agreements which contain a minimum standard of "pro-competitive features"; and
- alternatively, if the block exemption recommendation is not adopted, parties to conference agreements should be required to seek authorisation from the ACCC on the basis of the normal net public benefit test.
The Panel noted that the repeal of Part X would necessitate a transition period and considered two years sufficient for the creation of a block exemption and for the authorisation or modification of agreements that do not qualify for the exemption.
What the Panel's recommendation regarding Part X means for the shipping and logistics sector and its customers
It remains to be seen whether the Panel's recommendation regarding Part X appears in its final report and, if so, whether the Australian Government ultimately accepts any such recommendation. Any repeal of Part X would present a number of challenges for stakeholders within, and outside, Australia:
- It would result in Australia adopting a law inconsistent with the laws of many of its major trading nations, adversely impacting upon international liner shipping in the region
- It would destabilise current liner services, which are vital to the continuity of access to all export markets
- It would be likely to deprive shippers, and by extension their customers, of the reduced costs, more frequent sailings and increased choice that Part X has facilitated for many years
- The proposed alternative arrangements would result in an unnecessary level of complexity and bureaucracy for a sector that is already being pushed to the limit by a drop in transport volumes, doubling of bunker prices and strict limits on ship emissions
Consultation regarding the Draft Report
The relevant section of the Draft Report tends to suggest that the Panel's recommendation to repeal Part X was heavily influenced by the submissions of the Australian Chamber of Commerce and Industry and other stakeholders who possess a (relatively) limited understanding of the unique aspects of international liner cargo shipping in Australia and the South Pacific, and the purpose and scope of the exemption. It is also unfortunate that the Panel appears to have largely overlooked persuasive submissions by the Australian Peak Shippers Association - the peak industry body representing the interests of the sector surely best placed to identify any shortcomings with the present arrangements.
The Panel has invited stakeholders (not necessarily limited to Australian interests) to provide submissions on the Draft Report. Submissions are due by 17 November 2014 and the Panel's final report is likely to be presented to the Australian Government by March 2015.