Competition spotlight on ship-sharing agreements

The Association of Shipping Lines (ASL) has continued its longstanding application to the Competition Commission (CC) to be exempted from certain provisions of the Competition Act. This application has a chequered history, having being made initially during 2000, when it applied for exemption on the grounds that it would maintain and promote exports, promote the competitiveness of small business and was necessary for the economic stability of the industry. The CC initially refused to consider the application because it said that an exemption “would accord to the maritime industry a special status … not provided for by the Act”. However, on appeal, the Competition Appeal Court found that the commission was wrong and ordered it to consider ASL’s application. The ASL resubmitted, and the new application was gazetted during 2006. “But,” said Jenny Finnigan, partner at Shepstone & Wylie, and specialist in competition, corporate and commercial law, “one of the grounds of the exemption was industry designation and the ASL eventually failed to get the necessary designation. The ASL’s application was eventually withdrawn in 2012.” But, in the Government Gazette of July 25 this year, a CC notice announced that the ASL had again made an application for exemption. The subject of the application, said the CC, was for a “suite of agreements which involve the sale, exchange or pooling of spaces or slots between shipping lines on container ships bound to, around and from southern Africa or in certain instances, agreements between shipping lines and their customers”. It also noted that some of the agreements constituted what the CC referred to as “consortia agreements”. This because they made provision for joint services by two or more shipping lines to customers. But other agreements, it added, were “purely vertical” as they did not constitute the provision of joint services to customers. But the CC is a bunch of tough cookies to deal with when it comes to exemptions. So how is this latest application by the ASL likely to fare? The SA Competition Act allows the CC to issue exemptions – but under strict parameters, according to Finnigan. “It would be allowed only if it was deemed necessary to maintain or promote exports; promote the ability of small or black-owned businesses to become competitive; stop decline in an industry; or maintain or establish economic stability within an industry and designated by the minister responsible for that industry,” she said. “The shipping industry is critical to, and has a direct effect on, the SA economy. Whether or not it should be exempted from the Competition Act depends on whether its needs fall within the grounds for exemption listed in that act.” Given the local scene and its maritime market conditions, would an exemption from the act benefit both lines and shippers? Indeed it would, said Andrew Thomas, who is acting voluntarily for the ASL as the co-ordinator between the shipping lines. “We already have a number of vessel-sharing agreements between lines on all of SA’s main sea trades,” he said. “This benefits the lines in that they each don't have to deploy all the vessels that they’d need to run a service on their own. With vessel-sharing and slot chartering they can achieve all the economies of scale of a full service while only having to commit a few resources.” From the customers’ points of view, these multiline set ups see 20 to 30 lines, some of them relatively small carriers, being able to operate the SA trades, according to Thomas. “That effectively increases the competition available to the shippers,” he added. “If we didn’t have these agreements, then only five or six of the major lines would be able to operate on the trades on their own. And this would reduce the competition available to the shippers.” But, Finnigan pointed out, one of the areas that is bound to raise the suspicions of the CC is the fact that these agreements see contact between opposition lines. “The way they look at it is, if the lines are free to talk to each other about vessel sharing and slot chartering, what’s to stop them taking that a stage further, and talking about naughty things.” And by this, she is referring to possible market sharing and price fixing. But, according to Thomas, the shipping lines are so sensitive to the enormous legal penalties attached to such behaviour, and with numbers of them having been badly burned in the past, that this is just not on. “We haven’t heard any such comment on our application,” he said. “Why would lines meeting to discuss slot-charter agreements go any further? I can’t see any reason for this. Not a chance.” Thomas also pointed out that in the 12 years he has spent in the SA shipping industry he has never come across such an issue. “It really doesn’t happen,” he said. He couldn’t advance any sort of time frame for the CC to come to its final finding on this latest application. However, a meeting with the lawyers and the CC is scheduled for this week after this issue of FTW has gone to print. “After that, this time frame may become a little clearer,” he said. “But at this stage, I just don’t know. INSERT & CAPTION With vessel-sharing and slot chartering they can achieve all the economies of scale of a full service while only having to commit a few resources. – Andrew Thomas CAPTION Most lines are involved in vessel-sharing agreements … and commentators believe that they effectively increase competition because without them only five or six of the major lines would be able to operate on the trades on their own.