Competitor collaboration between international shipping lines New Zealand Shippers Council Wednesday 21 February 2018 Katie Rusbatch & Harriet Young
New sections 44A and 44B: Shipping exceptions • Context of law reform : Commerce (Cartels and Other Matters) Amendment Act o 2017 Shipping Act regime is outdated, sector-specific, o unbalanced (ie, only regulates outbound shipping) Regulation via Commerce Act is in line with other sectors o of the economy as well as international precedent But, recognition of potential risk and cost arising from o uncertainty among international liner shipping industry 2
Halfway house solution • Commerce Act now applies to international liner shipping services • But… Specific exceptions for specified activities relating to o international liner shipping services Transition period of two years – Shipping Act will o continue to apply until August 2019 During this period, can seek authorisation or o collaborative activity clearance for international liner shipping services currently exempt from Act 3
Commission guidance • Commission has issued Competitor Collaboration Guidelines outlining approach to: Collaborative activity exception and clearance regime o Vertical supply exception o Joint buying exemption o • No guidance issued on shipping exceptions – to be considered • Is complex – today’s presentation provides initial views only 4
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 or unloading of a ship 5
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 6
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) 7
Effect of s 44A exception • Immunises qualifying agreements from: section 27 : prohibition on agreements that substantially o lessen competition; and section 30: prohibition on agreements that contain cartel o provisions 8
1. All parties to the arrangement containing the provision(s) supply international liner shipping service in cooperation with each other • “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 • 9
2. The cooperation improves the service supplied to owners or consignors of goods carried at sea • “Improve” Unlikely to be any magic in this term • Any improvement must relate to the services supplied to • owners/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.” 10
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 11
“Specified activities” • 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. 12
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. 13
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 • or consignors of goods carried at sea And… 14
• 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 15
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 16
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 otherwise would not be provided 17
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 18
If the exceptions do not apply… • Collaborative activity exception available applies to a cartel provision in an agreement if: o 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 19
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” 20
Contact us Email: Katie.Rusbatch@comcom.govt.nz Harriet.Young@comcom.govt.nz Website: comcom.govt.nz
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