Antitrust: Draft Guidelines for maritime transport - frequently asked questions

13 September 2007
by eub2 -- last modified 13 September 2007

The European Commission on 13 September 2007 launched a public consultation on draft Guidelines on the application of EU competition rules to the maritime transport sector. The consultation is an interim step in the preparation of the Guidelines, due to be finalised in 2008. The draft Guidelines follow the repeal of the block exemption for liner shipping conferences and the extension of the scope of the competition implementing rules to cabotage and tramp shipping services (Regulation 1/2003) decided by the Competitiveness Council on 25th September 2006.

Under Council Regulation (EC) 1/2003, companies have to themselves assess whether their agreements with other companies, whether competitors, suppliers or distributors, comply with EU competition rules. The draft Guidelines for maritime transport, currently subject to public consultations with a view to adoption in 2008, are intended to help companies carry out this task.

What is the scope of the Guidelines?

The draft Guidelines cover all maritime sectors that are affected by Regulation 1419/2006 on the application of the competition rules to the maritime sector, namely cabotage, liner and tramp shipping services. The principles set out in the Guidelines should be applied having in mind the circumstances specific to each case and this guidance should not be used in other economic sectors.

What are liner shipping services?

Liner shipping involves the transport of cargo, chiefly by container, on a regular basis to ports of a particular geographic route, generally known as a trade. Other general characteristics of liner shipping are that timetables and sailing dates are advertised in advance and services are available to any transport user.

What are tramp shipping services?

Tramp services concern the non-regular, maritime transport of bulk cargo that is not containerised, and include a range of economically important services such as the transport of oil, agricultural and chemical products.

What are cabotage services?
Cabotage services are maritime transport services, either scheduled (i.e. liner) or unscheduled (i.e. tramp shipping) that take place exclusively between ports in one and the same EU Member State.

What is a pool agreement?

The content of pool agreements in tramp shipping varies widely. In general, a tramp shipping pool brings together a number of vessels of a similar type under different ownership. It is usually operated under a single administration (e.g. a pool manager) responsible for the commercial management and the commercial operation. The shipping service itself is usually performed by individual ship-owners and their crews.

Are all tramp pools problematic for competition?

Tramp pool agreements do not pose competition problems if the participants cannot be considered actual or potential competitors.

In addition, pools that have very low market shares are unlikely to raise competition problems provided that the agreement does not contain provisions regarding joint price fixing and/or joint marketing.

Is the fixing of prices in tramp shipping pools compatible with EU competition rules?

Any agreement between competitors that results in the fixing of prices requires careful consideration under the competition rules. Agreements on prices or sharing of markets between competitors are severe restrictions of competition explicitly prohibited by Article 81 (1) of the EC Treaty. They normally lead to higher prices without producing countervailing value to consumers.

These agreements however may still be compatible with EU competition law if they have countervailing efficiencies fulfilling the four cumulative conditions listed in Article 81 (3) of the Treaty. Pool members would need to demonstrate that their agreement:

• produces efficiency gains
• that these benefits are passed on to transport users, for example as lower transport costs or new logistic solutions
• that there is no less restrictive way to obtain the efficiencies and finally
• that in so doing there is no elimination of competition in relation to a substantial part of the market considering, for example the market share of the pool and the number of competitors operating in that market.

The draft Guidelines provide a framework of analysis.

Is existing Commission guidance relevant for the assessment of pool agreements in the tramp shipping sector?

The Commission Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, the Guidelines on the application of Article 81(3) of the Treaty, the Commission Notice on the definition of the relevant market and the Commission Notice on agreements of minor importance are particularly relevant when assessing a pool's impact on the market.

What is the relevant market in tramp shipping?

The main purpose of defining a relevant market is to identify in a systematic way the competitive constraints faced by companies in the market(s) in which they operate.

In tramp shipping, the relevant market comprises all those transport services which are regarded as interchangeable by the transport user (i.e. the shipper).

Tramp vessels are geographically mobile, which however does not automatically imply that the vessels compete with each other worldwide. Hence t relevant market may be defined as global, European or on the basis of specific routes or port ranges. A case by case analysis has to be carried out.

Are tramp shipping pools joint production agreements?

Pools vary widely. In principle, most pools would not qualify as joint production agreements because their main purpose is to carry out joint selling of a service that is performed individually by the members of the pool.

Do tramp shipping pools fall under the EC merger regulation?

A tramp shipping pool falls under Council Regulation (EC) No 139/2004 (the EC Merger Regulation) if it qualifies as a full function joint venture and has a Community dimension, i.e. it meets the turn-over thresholds set out in Article 1 of the Merger Regulation.

In order to be considered a full function joint venture, a tramp shipping pool has to perform on a lasting basis all the functions of an autonomous economic entity on the same market. It must have a management dedicated to its day-to-day operations and access to sufficient resources including finance, staff and assets.

Further information on full-functionality can be found in the Commission consolidated jurisdictional notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings.

The EU has abolished liner conferences. They are tolerated in other jurisdictions. What consequences does this have for the industry?

The decision to end the exemption from the competition rules for shipping lines operating as conferences means that as of October 2008 all EU and non-EU carriers which currently take part in conferences operating on trades to and from the EU will have to end their conference activities, in particular price fixing and capacity regulation, on those trades.

Although conferences are tolerated in other jurisdictions, no conflict of law arises. This would only be the case if one jurisdiction were to require carriers to participate in conferences, whereas another was to prohibit it. This is not the case.

Liner carriers will continue to be allowed to take part in consortia. Block Exemption Regulation 823/2000 allows shipping lines to engage in operational co-operation for the purpose of providing a joint liner service, but not to fix prices

Will the Guidelines have an impact on the maritime consortia block exemption Regulation?

No. In 2005, the Regulation was extended until 2010 as both shipping lines and transport users considered it to be working well. (At the time the Commission indicated that more substantial amendments could be necessary after the repeal of the liner conference block exemption.) The Commission launched a market investigation in July in order to verify whether the block exemption Regulation still reflects today's market reality. Once that evaluation is made the Commission will assess the changes that may need to be made to the liner conference block exemption.

Source: European Commission