Feb 24, 2016

Shipper reps welcome container lines’ agreement

by Scott Ogden in Uncategorized

Will Waters | Tuesday, 16 February 2016

FTA ‘looks forward to more transparency in prices’, as European Commission inquiry forces carriers to change pricing announcement mechanism

Shipper representatives today welcomed an agreement by 15 leading container lines to abandon general rate increases (GRIs) in favour of a new pricing announcement mechanism following a two-year inquiry by the European Commission into possible competition infringements – alleged “price signalling” – by lines.

The UK’s Freight Transport Association (FTA) said it “looks forward to more transparency in shipping line prices” following the European Commission’s investigation, which led an announcement today by the Commission proposing the new pricing structure.

The FTA noted that fifteen shipping lines involved in the three-year enquiry into “price signalling” have agreed to change future pricing regimes, stating that the news was “a major victory for FTA’s British Shippers’ Council, whose members first raised concerns about uncompetitive behaviour in 2010”.

It added: “The European Commission today published a communication in the Official Journal confirming that the lines had offered commitments to the way prices are announced. The Commission’s commitments decision will introduce a degree of transparency into maritime transport pricing for the first time.

“In particular the lines have agreed that they will cease to announce general rate increases and publish the actual prices available to customers on an individual basis. Under Article 9 of the main EU competition law procedural regulation (Regulation 1/2003), the Commission has now published a notice in the EU Official Journal giving interested parties, such as shippers, one month from 16 February 2016 to comment on its proposed commitments decision. This is called a ‘market test’,” the FTA noted.

Chris Welsh, FTA director of global and European policy, said: “We welcome the Commission bringing this important case on liner shipping prices to a satisfactory close. As one of the original complainants, FTA will respond to the market test now that the Commission has published its Notice.

“We look forward to a new clear and open approach by the shipping line operators which will remove the need for our members to resort to court proceedings for competition damages, an option which has been made easier by the 2014 EC Competition Damages Directive and the new Consumer Rights Act 2015 competition legislation in the UK.”

The Notice details the content of the competition law infringements issued to the parties and confirms that the proposed changes to future pricing behaviour are acceptable to the Commission, FTA said.

“While the Notice also acknowledges that the shipping lines deny any infringements that does not alter the Commission’s original assessment of the allegations. What it means is that the Commission has agreed not to continue its investigation in exchange for a commitment from the shipping lines to significantly change their pricing behaviour in the future,” FTA said.

“While the lines involved will not be the subject of a decision finding infringements nor fined, they have agreed to stop the behaviour, which the Commission considers unlawful, and undertaken to improve the system of price announcements in future,” the FTA concluded.

The European Commission announced today that it is inviting comments from interested parties on the commitments offered by the fifteen container liner shipping companies to address concerns relating to their pricing practices. Interested parties can submit comments within one month from the date of publication, today.

The Commission launched its investigation in 2013 in response to “concerns that container liner shipping companies’ practice of publishing their future price increase intentions may harm competition and customers by raising prices for their services to and from Europe, in breach of EU antitrust rules”.

The Commission noted that 15 container liner shipping companies have regularly announced their intended future increases of freight prices on their websites, via the press, or in other ways. The carriers are: China Shipping (China), CMA CGM (France), COSCO (China), Evergreen (Taiwan), Hamburg Süd (Germany), Hanjin (South Korea), Hapag Lloyd (Germany), HMM (South Korea), Maersk (Denmark), MOL (Japan), MSC (Switzerland), NYK (Japan), OOCL (Hong Kong), UASC (UAE) and ZIM (Israel).

The Commission noted that these price announcements, known as General Rate Increases or GRI announcements, do not indicate the fixed final price for the service concerned, but only the amount of the increase in US-dollars per TEU. General Rate Increase announcements are made typically 3 to 5 weeks before their intended implementation date, and during that time some or all of the other carriers announce similar intended rate increases for the same or similar route and same or similar implementation date.

Announced General Rate Increases have sometimes been postponed or modified by some carriers, possibly aligning them with the General Rate Increases announced by other carriers, the Commission said, adding: “The Commission has concerns that General Rate Increase announcements may not provide full information on new prices to customers but merely allow carriers to explore each other’s pricing intentions and coordinate their behaviour. Such conduct would breach EU and European Economic Area (EEA) competition rules’ ban on concerted practices between companies (Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the EEA Agreement).”

In order to address the Commission’s concerns, the carriers offered the following commitments:

* the carriers will stop publishing and communicating General Rate Increase announcements, i.e. changes to prices expressed solely as an amount or percentage of the change;

* in order for customers to be able to understand and rely on price announcements, the price figures that the carriers announce will benefit from further transparency and include at least the five main elements of the total price (base rate, bunker charges, security charges, terminal handling charges and peak season charges if applicable);

* any such future announcements will be binding on the carriers as maximum prices for the announced period of validity (but carriers will remain free to offer prices below these ceilings);

* price announcements will not be made more than 31 days before their entry into force, which is usually when customers start booking in significant volumes and

* the commitments proposed by the parties include two exceptions in situations that would be unlikely to give rise to competition concerns. Namely, the commitments will not apply to: (i) communications with purchasers who on that date have an existing rate agreement in force on the route to which the communication refers and (ii) communications during bilateral negotiations or communications tailored to the needs of specific identified purchasers.

The commitments would apply for a period of three years.