Many in the shipping industry will recall the heated debates leading up the decision of the European Commission (the “Commission”) to repeal the block exemption for liner shipping conferences in 2008 (the “Repeal”), thereby opening the container trades to the same competition law enforcement regime that applies to other sectors of the wider economy.

Nearly three years on, shipping operators may have been forgiven for wondering what all the fuss was about. What, if anything, had changed in practice? The answer, until very recently, was: not very much. Following the Repeal, the Commission did not appear particularly keen to pursue liner shipping. Shipping operators meanwhile - by and large - maintained, superficially at least, traditional operating models.  

The cosy status quo, however, may be about to change: in May 2011, the Commission launched an investigation into the container liner shipping sector. Its focus is reportedly on agreements entered into after the Repeal came into force. The Commission’s investigation is at an early stage and it is yet to be seen whether it is “merely” conducting a temperature check which may result in “tweaking” such agreements or whether the investigation will develop into a full-scale cartel probe. The use of unannounced inspections - or “dawn raids” - at the premises of a number of key operators suggests the Commission is serious but much will depend on the quality of the evidence gathered.  

Pending the outcome of the investigation, shipping operators would be well advised to review their compliance with EU competition law by reference to the substantial body of guidance now available.  

Firstly, in 2008 the Commission - faced with intense lobbying from all sides - took the unprecedented step of issuing sector-specific guidelines on the application of EU competition rules to maritime transport services (the “2008 Guidelines”). Readers may, however, recall that these guidelines were not as specific or helpful as many had hoped. On that score, one important recent development is the publication earlier this year of guidelines of general application on information exchanges between horizontal competitors (the “2011 Guidelines”). While the 2011 Guidelines technically do not supersede the 2008 Guidelines, they are highly instructive as they provide an insight into the Commission’s up-to-date, “true” thinking on the exchange of competitively sensitive information between competitors such as liner shipping operators.  

This alert summarises the Commission’s views on the limits of admissible information exchange relevant to liner shipping conferences contained in both sets of guidance.

Intentional infringements

Both sets of guidelines make it very clear that any exchange of information between competitors with the aim of restricting competition is illegal. In this context, the 2011 Guidelines expressly state that exchanging information on companies’ individualised intentions concerning future prices are considered a restriction of competition “by object” - in other words, an “absolute” and “intentional” offence. The Commission has stated that such information exchanges would normally be considered, and fined, as if they are cartels.

Effects-based analysis of non-intentional infringements

In the case of exchanges of other types of information, it is necessary to analyse the characteristics of: (i) the market affected by the information exchange; and (ii) the exchanged information itself. Lastly, it is necessary to determine whether there are any pro-competitive benefits of the exchange which outweigh any anticompetitive effects the exchange may have. These main parameters are examined below.

Market characteristics

As set out in the 2008 Guidelines, “containerised liner shipping services” constitute the relevant product market for liner shipping. Geographically, the market is limited to the area in which the services are marketed, generally the range of ports at each end of the service.1 The 2008 Guidelines did not, however, provide much useful commentary on the effect market characteristics have on the susceptibility of the market to anti-competitive practices.

The 2011 Guidelines, on the other hand, provide a certain amount of guidance in this respect. Using the criteria set out below, shipping operators can assess where on the spectrum the markets in which they operate fall:

Transparency:

the more transparent the market (in terms of prices, capacity, demand, costs, etc.), the more likely an information exchange will have anti-competitive effects;

Concentration:

the existence of only a few competitors in the market will make anti-competitive effects more likely. Conversely, such effects are less likely in fragmented markets;

Product characteristics:

anti-competitive effects are more likely in markets for single, homogenous products. The containerised liner shipping markets are characterised by a highly homogenous “product” (i.e. transport by standardised container);

Volatility:

stable markets are more likely to be susceptible to collusion than volatile markets. As a general rule, volatile demand, large swings in market share, frequent entry by new competitors make collusion less likely; and

Structure:

symmetric market structures characterised by competitors which are homogeneous in terms of costs, demand, market share, capacities, etc., are more likely to give rise to anticompetitive effects than asymmetric, heterogeneous market structures.

Characteristics of the exchanged information

As a starting point, any information exchange which reduces strategic uncertainty in the market is likely to be considered problematic. A wide range of data may be deemed “strategic”. The most relevant to liner shipping conferences are prices; capacities; and costs. The 2011 Guidelines list a wider range of other categories of data which may be problematic. The most relevant to liner shipping are: discounts; price increases and reductions; rebates; customer lists and turnover information.

Factors which determine whether exchanged information is likely to raise competition law concerns include:  

Market coverage:

only information exchanges covering a “substantially large part of the market” are capable of having anti-competitive effects. This is a question of fact to be assessed on a case-bycase basis as neither set of guidelines define what percentage constitutes a substantial part;

Level of aggregation:

exchanges of genuinely aggregated data, where the identification of individualised company data is impossible, are unlikely to have anti-competitive effects. Conversely, the more individualised the data, the more likely it is to be problematic. However, the 2008 Guidelines caution against the exchange of aggregated capacity forecasts - in particular in concentrated markets - as capacity is a key parameter of competitive conduct in liner markets and has a direct effect on prices. More helpfully, the 2008 Guidelines state that price indices showing the average historic price movements for the transport of a container are unlikely to be problematic if based on appropriately aggregated price data;  

Age of data:

the exchange of genuinely historic data is unlikely to be problematic. However, neither set of guidelines specifies a precise threshold at which data becomes historic.2 The 2011 Guidelines confirm that the question of when data becomes historic depends, in particular, on the frequency of price renegotiations and suggest that data can be considered historic if it is several times older than the average length of contracts in the industry. This interpretation is stricter than the 2008 Guidelines which state that exchanges of recent appropriately aggregated data on volume and capacity are unlikely to be anti-competitive;

Frequency of exchange:

frequent exchanges of information are more likely to have anti-competitive effects than infrequent exchanges. Much depends on the characteristics of the relevant market (e.g. in volatile markets characterised by short-term contracts frequent information exchanges are less likely to be problematic than in more static markets with long-term contracts). In highly concentrated markets even one-off exchanges may give rise to accusations of collusion;3 and

Availability of information:

the 2008 Guidelines provide that the exchange of information in the “public domain” is generally safe. However, the 2011 Guidelines state that only “genuinely public information” is non-problematic. This concept is narrower than that of information in the public domain. Genuinely public information is described as information which is equally accessible to all competitors and customers, including in terms of collection costs. Information in the public domain will not constitute genuinely public information if the costs involved in collecting the data deter others from doing so. In addition, exchanges making data equally accessible to all interested parties (including customers) on non-discriminatory terms are less likely to have anti-competitive effects than closed, exclusive exchanges.

Balancing exercise

Once it has been established that an exchange of information is problematic due to the characteristics of the information exchanged and the market affected by that exchange, it is necessary to determine whether there are any pro-competitive effects of the exchange which outweigh its anti-competitive effects. To do so, the parties will need to be in a position to demonstrate that each of the following cumulative conditions is met:  

Efficiency gains

Both sets of guidelines recognise that information exchanges may generate efficiency gains. For instance, exchanges may alleviate information asymmetries for competitors and consumers alike - thereby making markets more efficient. Further, sharing of information may result in cost savings, better planning of investments and more efficient use of capacity, etc. As a general rule, exchanging current and past data is more likely to give rise to efficiency gains than exchanging information regarding future intentions.

Indispensability

The restriction of competition resulting from an information exchange must be indispensable to the attainment of the identified efficiency gains. The parties need to be in a position to demonstrate that the exchanged data, its level of aggregation, age, confidentiality and frequency, etc. “are of the kind that carries the lowest risks indispensable for creating the claimed efficiency gains”.

Pass-on of benefits to consumers

The parties to the information exchange must allow consumers of their services a fair share of the efficiency gains brought about by the indispensable restrictions (e.g. by way of lower prices, increased flexibility, better market information, etc.). In other words, efficiency gains which only benefit the participants of an information exchange are insufficient to justify its existence.

No elimination of competition

Lastly, the information exchange must not permit the participants to eliminate competition in respect of a substantial part of the products covered by the exchange.

Conclusion

While the 2011 Guidelines do not differ radically from the 2008 Guidelines, they do provide greater detail and appear to tighten certain criteria relevant to the assessment of compliance with EU competition rules. The mere fact that the Commission has now published the general 2011 Guidelines may be taken as a further indication of the importance attached by the Commission to policing this type of activity. Shipping operators already had the benefit of the sector-specific 2008 Guidelines. Read in conjunction with the 2011 Guidelines, the body of available guidance is now quite detailed - indeed unusually so. Making compliance mistakes in such circumstances is considerably less excusable.

Even so, there are few hard and fast rules to determine whether an information exchange is competition law compliant. This much, however, is clear:  

  • exchanges of individualised future prices or capacities constitute a serious breach of EU competition law;
  • frequent exchanges of recent, disaggregated, non-public, strategic data covering a substantial part of a concentrated, transparent, stable and symmetric market for container shipping services by way of nonpublicinformation exchanges are highly likely to infringe EU competition law. Few, however, will considerthis to be “breaking news”; and
  • infrequent exchanges of historic, aggregated, genuinely public, non-strategic data covering an insubstantialpart of a fragmented, opaque, volatile and asymmetric market by way of non-discriminatory information exchanges are unlikely to raise concerns. However, companies may well conclude that such exchanges are also pointless.

As the above (polarised) examples demonstrate, the devil is, as usual, in the detail. Liner shipping operators need to strike a balance between information exchanges which are useful to them and complying with the available guidance. Above all, they must be ready and able to demonstrate that any anti-competitive effects of the information exchange are outweighed by its pro-competitive effects.

Guidance issued by enforcement authorities is always welcome and this area of activity now has the benefit of more guidance than most. As a result of the Commission’s efforts to outline the boundaries in this area, liner shipping operators should now be in a position to better understand what type of information can be exchanged, and in what circumstances. The outcome of the Commission’s investigation may result in further useful guidance. It will be interesting to see whether this area of competition law enforcement eventually leads to a radical change in the structure of the container trades. If the rules denude conferences of their commercial benefits then their demise is only a matter of time.