By NAZERY KHALID
IT was reported recently that the big boys in the container shipping industry were among the companies that were raided by the European Union (EU) anti-trust officials over a possible collusion. This has sparked an interest to re-visit the subject of EU anti-trust law in the liner shipping industry, which was implemented in October 2008.
Last week, Bloomberg reported that AP Moller-Maersk A/S, CMA CGM SA and Hapag-Lloyd AG were among companies raided by EU anti-trust officials. The companies were reported to give full cooperation to the officials to carry out the probe.
EU regulators said they had “reason to believe” that the companies might have breached EU cartel or monopoly-abuse rules. The raid doesn’t mean that the companies are guilty of anti-competitive behaviour, according to the European Commission.
The raid came in the midst of investigation into how container shipping freight rates rose in 2009, although demand dropped sharply amid the global recession and industry capacity swelled owing to delivery of huge new tonnage in the box trade.
Since the implementation of the anti-trust law, liner shipping companies have lost their privileged status under EU competition law with the withdrawal of the liner conference block exemption, which authorised horizontal price-fixing and similar agreements.
In areas where the liner consortia block exemption does not apply, all cooperative arrangements are carefully and individually vetted under the competition provisions of the European Council Treaty.
The competition regime, while lauded by importers and exporters, in the EU liner shipping context is not without problems, though.
Several legal questions have been raised over the introduction of the competition law in EU, in areas such as cooperation between liner shipping companies and the benefit of cooperative arrangement between liner shipping companies over the negative impact on competition. The strategies of these companies that may lead to an abuse of a dominant position have also been put under scrutiny.
Liner shipping companies have had to reconfigure their discussion agreements and business strategies to accommodate the abolishment of the block exemption so generously accorded to them before the enactment of the EU competition law.
This has led to greater competition among them in the EU trade, which is lauded by shippers.
It was reported that Hong Kong’s OOCL, a powerful player in the liner shipping trade, cautioned against implementing anti-trust laws that prevent shipping lines from developing solutions and rationalisation exercises to deal with capacity overhang. While stopping short at endorsing price-fixing conferences, OOCL lamented that anti-trust laws have restricted liner companies from collectively discussing issues affecting the liner trade.
That coming from the world’s 11th largest container shipping operator (based on 2010 ranking) is noteworthy. OOCL’s grouse echoes that of many other liner companies which fear that the onslaught of open competition will adversely affect their business.
This anxiety is echoed by the recent recommendation of Singapore Competition Commission for the Singapore government to extend the block exemption to allow liner conferences to continue their trade until December 2015, with minor changes. This was made on grounds that anti-trust exemptions remain the norm for the global liner trade and most of Singapore’s trading partners.
Also getting into the act are Australia and Japan, which are also looking to apply competition rules on liner shipping.
To this end, the recent announcement by the Joint Global Shippers Forum (JGSF) to promote anti-trust laws in Asia should make governments sit up and take note. Countries, especially trade dependent ones, which ignore the call by this powerful forum do so at their own peril and run the risk of being bypassed by shippers.
Best business behaviour
With the Competition Act slated for enforcement in Malaysia on Jan 1, 2012, companies in the maritime sector are expected to make a major leap forward in their business conduct and be at their “best business behaviours.”
Operating in a borderless theater and ultra-competitive environment, the local maritime sector, which facilitates 95% of the nation’s trade, is expected to take the front in realising the targets of the Act, in line with the aspiration to make Malaysia a regional shipping and logistics hub and a globally competitive maritime nation. Being an open but small economy, Malaysia must put in place an institutional framework that will not only lure investors and businesses but also to align local companies with international best practices to enable them to compete globally.
Even skeptics of anything good introduced by the Government would be hard-pressed to argue against the virtues of the Competition Act.
However, those who will be affected by the Act need to keep to the letter and the spirit of the Act, which must be strictly enforced without fear or favour, to ensure its optimal effectiveness and the attainment of its objectives.
The dynamism generated in the marketplace by the injection of greater competition and innovation through the Act can only be good for a country that is racing against time to become a fully developed nation by 2020. Sharp focus will be trained on the maritime sector to help fulfill this lofty ambition.
● Nazery Khalid is a senior fellow at Maritime Institute of Malaysia.