Competitor collaboration between international shipping lines New - - PowerPoint PPT Presentation

New Zealand Shippers Council

Wednesday 21 February 2018

Katie Rusbatch & Harriet Young

Competitor collaboration between international shipping lines

New sections 44A and 44B: Shipping exceptions

• Context of law reform :
• Commerce (Cartels and Other Matters) Amendment Act

2017

• Shipping Act regime is outdated, sector-specific,

unbalanced (ie, only regulates outbound shipping)

• Regulation via Commerce Act is in line with other sectors
• f the economy as well as international precedent
• But, recognition of potential risk and cost arising from

uncertainty among international liner shipping industry

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Halfway house solution

• Commerce Act now applies to international liner shipping

services

• But…
• Specific exceptions for specified activities relating to

international liner shipping services

• Transition period of two years – Shipping Act will

continue to apply until August 2019

• During this period, can seek authorisation or

collaborative activity clearance for international liner shipping services currently exempt from Act

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Commission guidance

• Commission has issued Competitor Collaboration Guidelines
• utlining approach to:
• Collaborative activity exception and clearance regime
• Vertical supply exception
• Joint buying exemption
• No guidance issued on shipping exceptions – to be

considered

• Is complex – today’s presentation provides initial views only

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How the exceptions work

• Like current regime, the exceptions only apply to

international liner shipping services

• Does not apply to tramp services

international liner shipping service— (a) means a service exclusively for the carriage of goods by sea from a place in New Zealand to a place outside New Zealand, or from a place outside New Zealand to a place in New Zealand, that— (i) operates at regular intervals on a fixed route or fixed routes in accordance with an advertised schedule; and (ii) is supplied, as its capacity allows, to any paying customer; but (b) excludes a service for the carriage of goods to or from a ship or the loading

• r unloading of a ship

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Section 44A: exception for cartel provisions which restrict output and allocate markets

• Restricting output: an agreement between competitors to

prevent, restrict, or limit output, production, capacity, supply, acquisition, etc, when buying or selling goods or services

• Allocating markets: an agreement between competitors not

to sell to or buy from certain customers or suppliers, or in particular areas

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Market allocation and output restriction provisions are permitted if:

• all parties to the arrangement containing the provision(s)

supply an international liner shipping service in cooperation with each other

• the co-operation improves the service supplied to owners or

consignors of goods carried at sea

• the provision(s) relate to a “specified activity” carried out for

the purposes of the cooperation (or an ancillary activity that is reasonably necessary for the purposes of the cooperation)

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Effect of s 44A exception

• Immunises qualifying agreements from:
• section 27: prohibition on agreements that substantially

lessen competition; and

• section 30: prohibition on agreements that contain cartel

provisions

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• “All parties”
• Exception will not apply if there are additional parties to

the agreement which do not supply international liner shipping services

• Note s 44A(7): for the purposes of the exception,

interconnected bodies corporate are not considered party to the agreement (s 30B(a))

• “In cooperation”
• Work jointly towards the same end

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• 1. All parties to the arrangement containing

the provision(s) supply international liner shipping service in cooperation with each

• ther

• “Improve”
• Unlikely to be any magic in this term
• Any improvement must relate to the services supplied to
• wners/consignors of goods
• Requires assessment of service both with and without

the cooperation

• RIS: “Benefits might include decreased cost, which may

be passed through as a decrease in price. Other benefits might include increased network coverage, or increased frequency and reliability of service.”

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• 2. The cooperation improves the service

supplied to owners or consignors of goods carried at sea

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• 3. The provision(s) relate to a “specified

activity” carried out for the purposes of the cooperation (or an ancillary activity that is reasonably necessary for the purposes of the cooperation)

• “Ancillary activity”: something related to a specified

activity that forms part of the cooperation

• “Reasonably necessary”: something more than merely

desirable/preferable, but less than essential

“Specified activities”

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• Coordinating schedules and determining port calls
• The exchange, sale, hire, or lease (including the sublease) of

space on a ship:

• Pooling ships to operate a network:
• Sharing or exchanging equipment such as containers:
• Capacity adjustments in response to fluctuations in supply

and demand for international liner shipping services.

Section 44B: exception for price fixing in relation to space on ships

• Price fixing: an agreement between competitors to fix,

control, or maintain:

• the price of good or services that two or more of the

parties to the agreement supply or acquire in competition with each other; or

• any discount, allowance, rebate, or credit of goods or

services that two or more of the parties to the agreement supply or acquire in competition with each other.

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Price fixing in relation to space on ships is permitted if:

• As per the market allocation/output restriction exception:
• all parties to the arrangement that contains the cartel

provision are supplying an international liner shipping service in cooperation with each other; and

• the co-operation improves the service supplied to owners
• r consignors of goods carried at sea

And…

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• The provision relates to the exchange, sale, hire, or lease

(including the sublease) of space on a ship between the person and 1 or more parties to the arrangement; and

• The exchange, sale, hire, or lease (including the sublease) is

carried out for the purposes of the cooperation. More targeted range of scenarios as opposed to the “specified activities” under s 44A exception

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Effect of s 44B exception

• Immunises qualifying agreements from section 30:

prohibition on agreements that contain cartel provisions

• DOESN’T immunise from section 27: prohibition on

agreements that substantially lessen competition More limited coverage than s 44A exception

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Types of agreements that might be covered by the exceptions

• Allocating shipping routes between competitors to increase

the efficiency of services offered to owners/consignors of goods

• Specifying the number of containers competing international

shipping liners may have on a ship to facilitate security of supply for owners/consignors

• Agreement between competing international shipping liners

that space on a ship will be sold for a specified wholesale price to allow the competitors to provide a service that

• therwise would not be provided

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Types of agreements that are unlikely to be covered by the exceptions

• Allocating shipping routes between competitors for the

purpose of limiting competition on shipping routes, resulting in fewer options for owners/consignors

• Specifying the number of containers competing international

shipping liners may have on a ship for the purpose of limiting supply of services to owners/consignors and resulting in price increases

• Agreement between competing international shipping liners

that space on a ship will be sold for a specified price to reduce competition and facilitate price increases

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If the exceptions do not apply…

• Collaborative activity exception available
• applies to a cartel provision in an agreement if:

– the parties to the agreement are involved in a collaborative activity; and – the cartel provision is reasonably necessary for the purpose of the collaborative activity

• A collaborative activity is where two or more persons:

– are carrying on an enterprise, venture, or other activity, in trade in cooperation; and – are not doing so for the dominant purpose of lessening competition between them

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Collaborative activities

• If the CA exception applies, the cartel provision is immunised

from the section 30 prohibition (section 27 still applies)

• Additional comfort from CA clearance regime: if clearance is

given, an agreement will be immunised from both sections 27 and 30

• Likely to be similar in effect to the targeted shipping

exceptions – just broader in terms of the types of activities covered

• Unlikely to be a workaround if a provision does not meet

shipping exception threshold

• That said, may be appropriate if the activity is not a

“specified activity”

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Contact us

Email: Katie.Rusbatch@comcom.govt.nz Harriet.Young@comcom.govt.nz Website: comcom.govt.nz

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