Wednesday, 30 August 2017

A blast from the past

A reader who'd liked my post the other day on The Shipping News pointed me towards something I'd forgotten (or possibly missed at the time). It's the European Union's submission on shipping cartels, made to our Productivity Commission's 2012 inquiry into freight forwarding.

Why, you may wonder, was the EU bothering with a freight inquiry at the far end of the world?

Two reasons. The EU - through its competition arm, 'DG Comp' as it's known - had an interest because it had relatively recently (2008) abolished the shipping lines' exemption from cartel laws in Europe. And because it wanted to tell us that it thought the case for allowing shipping cartels (as we were doing at the time) was a load of cobblers.

DG Comp said that more countries were bringing shipping under the competition law or had never exempted them in the first place: "exempting container shipping cartels can hardly be described as the global regulatory standard" (para 9). And it pointed out that "the EU repeal is very significant in that it expressed the unanimous agreement of the then 25 EU Member States. Any Member State could have vetoed the proposed legislation. Yet all Member States chose to support" (para 7). In other words, getting the whole 25 to agree on anything is normally a colossal exercise in cat herding, but the case for getting rid of shipping cartels was so obvious that even the fractious 25 were all on board.

DG Comp also said that if the shipping lines' argument for cartels - "stable rates and reliable services" (para 12) -  had any merit, then exporters and importers would support them, but they don't: "the shippers have repeatedly stated that they would rather have competitive prices than stable high prices" (para 12). And the shipping lines' claims about the downside of abolishing cartels - "exemption would lead to "destructive competition", increased concentration, lack of investment and reduced service" (para 13) - had not been borne out by what had actually happened in Europe when cartels got the flick.

And it made the excellent general point (para 14b) that
the liner industry is no different from other fixed-schedule, high-fixed costs transport industries (such as the airline sector or the rail sector) that function well under the standard competition law regime.
So the good news is that we did, after navel-gazing for nearly six years, see the sense of views like DG Comp's, and we finally brought shipping cartels within the general competition law. The bad news is that we continued to give the shipping lines special treatment, in particular allowing them to cooperate on "capacity adjustments in response to fluctuations in supply and demand for international liner shipping services" (s44A(8)(e) of our amended Commerce Act). If they end up having the ability to jointly determine capacity, then effectively they will have ended up with the ability to jointly determine prices, so we'd be back to square one as if price-fixing had never been outlawed. And there's a further bit of leeway in s44B relating to an exemption for "price fixing in relation to space on ship".

Another oddity of the special treatment for the shipping lines is that the amended Act (in sections 65A through 65D) introduced a new clearance regime for cartel provisions that are "reasonably necessary" for the purpose of a collaborative activity. If there is indeed, as the shipping lines argue, a necessary link between cartel provisions and running a shipping service, they, like any other group of businesses, have now got this new avenue to get the official seal of approval.

But no: it's one law for the rest of the country and one law for the shipping lines. And this for a sector that's been revealed to have been a global competition scofflaw.


  1. Speaking of competition law amendments, you might be interested to see the effects test under s46 has been passed in Australia:

  2. Thanks for that, Ben. I confess I had no feel for the politics of the thing in the Aussie Senate so didn't know whether the Harper change to s46 would make it through. Good news that it has. You'd think that the desirability of trans-Tasman harmonisation would now kick in, but there seems to be a distinct lack of enthusiasm to do anything in the near term - partly sensible (maybe s46 as amended will spring some unforeseen leak) but mostly not.

    1. There may be a wrinkle. You'd think the news s46 is now done and dusted. But not so, if I've got this right.

      The new s46 bill, the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017, did indeed get the Governor-General's assent on August 23. But as the 'revised explanatory memorandum' explains, "The amendments will commence at the same time as
      Schedule 1 to the Competition and Consumer Amendment (Competition Policy Review) Act 2017. However, if that Schedule does not commence, the provisions of this Bill do not commence".

      But the Competition and Consumer Amendment (Competition Policy Review) Bill 2017 is still not through the mill. It was introduced into the House of Representatives on March 30 this year and is still there, so it needs to get through there and then go through the Senate. It's got a fair few Harper things in it: whether the Senate will jib at any of them, and how long the whole thing will take, is anyone's guess.

      So as I read it s46 is all dressed up, but still doesn't have a party to go to.

      As an amateur competition law analyst I may not have the right end of the stick on this (as my long-suffering friends learned in the law will surely attest), so happy to be put right!


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