As the deadline looms for the review of Block Exemption Regulations (BER) by EU officials in Brussels, the jury is out on whether the current set of exemptions should be retained or scrapped. Effectively BER, which is up for renewal in April next year, exempts shipping consortia that have a market share of up to 30% from EU antitrust rules in specific circumstances. And while some may argue that it’s worked well since 1995, so why revoke it, the reality is that a lot has changed since then, says Rosalind Lake, director in the competition team at Norton Rose Fulbright. “Vessel sharing for the sake of maximising capacity is one of the reasons why ocean freight is affordable. “But the ever-growing consolidation and global investigations into coordinated conduct are possibly a reason for a rethink.” Last year, for instance, French-owned shipping line CMA CGM announced that along with several peer companies and software developer CargoSmart it had launched a consortium called Global Shipping Business Network – all in response to a similar business block, TradeLens, that had been launched by shipping major Maersk working in association with IBM. Although these consortia don’t necessarily pertain to the EU’s reconsideration of BER, it goes to show how complex and increasingly
complicated the shipping industry tends to become – in which case exemptions are “enormously helpful”, said Jennifer Finnigan, a partner in the commercial department at Shepstone & Wylie. “One of the things the EU has done through instituting exemptions is to use guidelines and regulations which make clear how the competition laws should be applied in that environment.” From a certainty point of view it makes a major difference to investors and helps to untangle legalistic parameters that shipping companies have to deal with daily. It’s a view that’s shared by John Butler, president and
CEO of the World Shipping Council, which in a submission to the EU emphasised that “the BER has worked very well for almost 25 years because it sets out clear rules that can be practically applied without the need for legal analysis”. Moreover, it helps to keep compliance costs down. Finnigan pointed out that in South Africa we operated in an environment of high legal uncertainty and high compliance costs. “It means people pay a lot of money to get an opinion on what the law probably says without any guarantees. It goes to show how helpful it is to have clear rules about what you can and can’t do.” Lake added that should the exemptions be scrapped, “it doesn’t necessarily mean that shipping companies won’t be allowed to work together. It just means that they themselves will have to do detailed assessments of the competition law implications of the alliances they enter into”.
So far though, it seems that the EU doesn’t have any real reason why BER should be scrapped. “The basis on which BER was originally granted is that ships are expensive to buy and costly to run,” said Finnigan. “If you want vessels to regularly call at a port you’re either going to have to accept that there are going to be longer intervals if the expectation is that each operator works independently, or you acknowledge that you need to optimise the use of a vessel as much as possible and allow competitors to share slots on vessels. “In any industry where you have expensive equipment and you run it half empty you’re going to go broke very
quickly if your vessel is half empty.” At best it had benefited the market and it had been proven that cost efficiencies had been passed onto consumers, Finnigan argued. And at worst, “price fixing and preferential capacity allocation have been largely dealt with”. And yet the International Transport Forum (ITF) has been working hard to make a compelling argument against BER, mainly reasoning that shipping shouldn’t be looked at in isolation, and that “generic antitrust law” should be introduced instead of BER. It has in its corner the Organisation for Economic Co-operation and Development which feels “liner shipping does not have unique characteristics that justify exemption from competition law”. Ultimately it was in the hands of Brussels, Lake said. “All Competition Regulators, when they issue exemptions, are bound to reconsider at some point whether the exemptions are still necessary and if, during the review process, it is found that there is a more competitive way that will benefit consumers they will most likely do away with or adjust the limitations.” But before the EU issues its pronouncement on the possibility of another fiveyear BER term, a hoped-for scenario by most lines calling at European ports, there is the ‘small’ matter of Brexit.
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The ever-growing consolidation and global investigations into coordinated conduct are possibly a reason for a rethink. – Rosalind Lake
Price fixing and preferential capacity allocation have been largely dealt with. – Jennifer Finnigan
