OECD TO GOVERNMENTS: END LINER CONFERENCES’
IMMUNITY
OECD TO GOVERNMENTS: END LINER CONFERENCES’
IMMUNITY
The transport division of the Organization for Economic Cooperation and Development has recommended in a draft report that governments remove the antitrust immunity of conferences, discussion agreements and stabilization agreements.
The draft “Liner Shipping Competition Policy Report” prepared by the Paris-based policy think-tank is based on a review of current regulatory regimes and market practices. It incorporates information provided by shippers’ and carriers’ representative organizations.
The review “has not found convincing evidence that the practice of discussing and/or fixing rates and surcharges among competing carriers offers more benefits than costs to shippers and consumers, and recommends that limited antitrust exemptions not be allowed to cover price fixing and rate discussions,” the draft report said.
The first recommendation of the report is that “countries, when reviewing the application of competition policy in the liner shipping sector, should remove antitrust exemptions for common pricing and rate discussions. Exemptions for other operational arrangements may be retained so long as these do not result in excessive market power.”
The OECD endorsed the antitrust exemption of ocean carriers for global alliances, consortia, vessel-sharing and other operational agreements that do not involve joint pricing.
The OECD report rejected the ocean carriers’ argument that their industry is “unique” and needs special treatment under competition law.
“The cost structure of the industry is not significantly different from that of other transport industries and returns in liner shipping are similar to those of other scheduled transport providers,” it said.
The report’s introduction stressed that the OECD countries have undertaken regulatory reforms and put a greater reliance on competitive markets in various industry sectors in the past 20 years.
“A well-functioning competitive market environment allows for buyers to decide and communicate what products and services they desire, and allows sellers to respond to this demand as creatively and inexpensively as the market will permit,” the report said.
However, the report warned that the policy review on liner shipping could not find sufficient data concerning freight rates and carrier costs to prove a causal relationship between the price of liner services and the existence of an antitrust exemption for conferences.
The OECD report said that conference pricing “acts to reduce the exit of inefficient capacity” and that “price fixing is not an inevitable feature of a stable liner shipping industry.” Rate-fixing also “serves to act as a brake to keep freight rates from becoming aligned with those of the most efficient carriers.”
Conference tariffs and “suggested” discussion agreement rates now serve mainly as benchmark for rate negotiations, the OECD report said. Even in an environment of greater competition, rate-setting introduces “a distorting element in the liner rate-setting exercise that impacts shipper costs.”
The report also criticized discussion and stabilization agreements — carrier groups that discuss rates and issue “voluntary guidelines” on rates without having the authority to set binding prices. “This type of organization resembles a ‘soft cartel,’ where key messages can be communicated and acted upon by erstwhile competitors,” the report said. “The ability among carriers to discuss, in aggregate, rate levels emerging from negotiated agreements can still be seen as prejudicial to shippers.”
The report is available from http://www.oecd.org/oecd/pages/home/displaygeneral/0,3380,EN-home-52-nodirectorate-no-no-no-25,FF.html .
The draft report of the OECD will be discussed during an inter-government and industry meeting on competition policy in liner shipping on Dec. 6 in Paris.
Chris Welsh, secretary general of the European Shippers’ Council, welcomed the “strong report” of the OECD and its recommendation on ending conference antitrust immunity.
“It’s well known that we have long campaigned for a reform of liner shipping regulation,” he told American Shipper. He added that U.S., European and Asian shippers all support a regulatory regime fully open to competition. Shippers’ contributions to the fact-finding exercise carried out by the OECD to produce its report “has been influential,” Welsh said.
Organizations representing shipping lines are expected to reject the recommendation of the report on removing the antitrust immunity of conference and discussion agreements.