On 18 October the transitional period for the liner industry to adjust to life without the EC liner conference block exemption ended. These agreements, which have governed prices and capacity for the liner trade for over a century, are now illegal under European competition law. All liner trades which call at European ports are covered, and it is possible other jurisdictions will follow the European lead.
Liner conferences were originally intended to provide stability to the liner trade and allow shippers looking to transport freight to have a reliable and predictable service, as the lines agreed together, on the basis of historic demand, the capacity to be offered and the conference rate which should apply. To the European Commission this was a price-fixing agreement, and it has now succeeded in removing the historic protection afforded to these agreements.
The Commission will now be looking very closely at cooperation between liner companies to ensure they comply with the new rules. Evidence of cooperation or discussion between lines on pricing or capacity levels may have serious consequences. Should it decide to launch a test case in the industry, fines of up to 10 per cent of annual global turnover may be imposed1.
Not all cooperation is prohibited however. Consortium agreements between lines remain legal – these allow for slot-chartering and vessel-sharing between operators on specific trades, but without the price or capacity fixing that existed under conference agreements.
What price stability?
It seems slightly ironic that the original justification for the setting of conference rates and volumes – to preserve a stable and reliable service on the oceans – is suddenly more relevant in the context of the global economic crisis. The certainty provided by conferences is being removed at a time of great uncertainty about demand levels (as well as concerns with over-supply), and lines face tough questions about maintaining services when there may not be the freight to fill them.
The European Liner Affairs Association has suggested it intends to continue to facilitate exchange of supply and demand data between liner companies to combat this. It believes this is essential to the trade being able to operate efficiently (and pass such benefits on to its customers), but the legal framework within which such cooperation is permitted is complex and potentially risky for the companies involved.
At the same time as the conference exemption is removed, the European Commission is stepping up its enforcement activities in non-liner shipping, with the period of “soft enforcement” against tramp shipping coming to an end concurrently with the end of the liner conference block exemption.
Agreements between operators in this sector – notably tanker pools - will be subject to scrutiny and will need to be justified under the competition exemption criteria. Companies are required to “self-assess” their position, and are at particular risk where an agreement provides for a single price to be offered by a pool where the pool is not indispensible to its members’ ability to operate in the market. Market share is the crucial issue here – pools with high market shares which offer a fixed tariff are likely to be illegal. However, defining the relevant market in tramp shipping is difficult, and the Commission is offering little certainty on its intended approach2.
In this changing regulatory context, companies at all levels of the market – both liner and non-liner, as well as their respective suppliers and customers – need to be aware of competition law risks. The Commission has been very successful in recent years in cracking hard-core cartels through the incentivisation of whistle-blowers by means of its leniency programme. The consequences of such investigations in the neighbouring aviation and freight forwarding sectors are ongoing, but already well-publicised.
Under leniency programmes, the first companies to come forward with evidence of anti-competitive practices are able to claim complete immunity from fines, while their competitors may be subjected to dawn raids, lengthy (and costly) investigations, as well as punitive fines and the possibility of damages actions from customers who have been damaged by the conduct in question.
Companies are therefore increasingly involved in in-depth reviews of existing and historical conduct to identify potential concerns, as well as compliance training to minimise risk of involvement in future competition investigations. Where conduct is uncovered which raises concerns, an approach to the authorities for leniency may be made (in hypothetical terms in the first instance, in order to ascertain whether such leniency may be available).
The end of the liner conference will feel like the end of an era for many involved in the trade, but in reality their importance had been diminishing for some time. However, how shipping lines and their customers respond to the new regulatory framework - and how the authorities respond to their new powers to investigate this area - remains to be seen.