OCEAN liner shipping industry participants should take advantage of the window for submissions to the ACCC and prepare for a significant shift in the exemptions landscape in 2020 and beyond. In December 2019, the Australian Competition and Consumer Commission released its long-awaited Discussion Paper regarding a proposed block exemption for ocean liner shipping.
For more than 50-years, ocean carriers in Australia have had access to varying exemptions from otherwise anti-competitive prohibitions (generally in line with most of Australia’s largest trading partners).
The current iteration of the exemption regime is set out in Part X of the Competition and Consumer Act 2010 – a regime which is well understood by shipper and carrier interests alike, and which provides a degree of certainty in an often uncertain and challenging operating environment.
However in 2015, a block exemption for liner shipping agreements (which meet a minimum standard of pro-competitive features, to be determined by the ACCC) was a key recommendation of the Harper Review into Australia’s competition policy.
The ACCC has now committed to taking submissions (by 28 February 2020) on the industry’s view of parameters for the development of such a block exemption. With respect to the form of the block exemption, it is anticipated that a second round of public consultation will follow, ahead of implementation.
Once a block exemption is in place, Part X of the Act will continue to exist – at least until it is repealed legislatively (an action not within the purview of the ACCC). For a time at least, ocean carriers could have a dual exemption regime with which to contend. In addition, the ACCC makes plain that parties which do not fall within the confines of the final form of the block exemption will still be able to make use of the case-by-case notification and authorisation procedures under the Act, to apply for exemptions in relation to conduct which might otherwise contravene competition provisions. In our view, however, it seems unlikely that conduct which does not meet the requisite threshold for the (new) block exemption could otherwise be viewed by the ACCC as discharging the net public benefit test necessary for the alternative authorisation.
What is a new block exemption expected to look like?
For starters, and perhaps unsurprisingly, the ACCC is already on record that it “expects that a class exemption for the shipping sector [to] cover a narrower range of cooperation activities than Part X of the [Act] currently permits”. In that respect, it seems almost certain that any (new) block exemption would not cover agreements (or any form of coordination) on price. Those industry participants which coordinate freight rates and surcharges will probably find themselves outside the (new) automatic protection regime. Similarly, the allocation of customers and market shares between ocean carriers is unlikely to be covered by the new exemption, with the ACCC taking the view that such conduct carries significant risk of lessening competition.
Further, the ACCC is considering the implementation of a (combined) market-share limitation on eligibility for automatic protection under the new regime. Examples cited by the ACCC include the EU (40%) and Hong Kong (30%) which impose market share limits in this respect. It seems the ACCC’s preference is to include such a market share cap, which will limit which ocean carriers (or combination of carriers) will be afforded protection.
Finally, the ACCC has indicated it is also considering affording cargo interests the right to bargain collectively with ocean carriers over matters such as fees, surcharges and scheduling, among other things.
Such a right would be in addition to a separate block exemption under consideration for collective bargaining by small businesses, opening the door for a combination of large and sophisticated cargo owners to negotiate with ocean carriers, and potentially drive rates down further.
What does this mean for the ocean liner shipping industry?
Industry participants should take advantage of the window for submissions to be made to the ACCC, which is open until 28 February 2020, and otherwise anticipate and prepare for a significant shift in the exemptions landscape in 2020 and beyond. After numerous reviews and recommendations regarding Part X of the Act, it now seems more likely than ever that it really is on the chopping block for good.
