Review by the European Commission of the block exemption regulation for consortia of maritime carriers

The European Commission has launched a call for contributions on the block exemption regulation for consortia (regulation 906/2009).

The European Commission (the Commission) issued a call for submissions and issued a press release asking for comments on the Consortia Block Exemption Regulation (CBER) which provides an exemption from EU competition rules for liner shipping consortia that meet certain conditions, including a 30% market share limit. This briefing describes CBER’s background, provides an overview of the call for evidence, and advises companies on how they can provide feedback in response to the call for evidence.

Background

Section 101(1)4 of the Treaty on the Functioning of the European Union (TFEU) stipulate that “all agreements between undertakings, decisions by associations of undertakings and concerted practices liable to affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the market interior” will be prohibited. There is, however, an exemption contained in Article 101(3)5 of the TFEU which provides that the prohibition will be inapplicable where the agreement in question “contributes to improving the production or distribution of goods or to promoting technical or economic progress, while reserving to consumers an equitable share of the resulting benefit”.

In accordance with Article 101(3) TFEU and Council Regulation 246/20096, the Commission may exempt consortia of shipping lines from the prohibition under Article 101(1) TFEU for a maximum period of five years, although this may be extended. In 2009, the Commission adopted CBER, which sets out the conditions for the exemption, and which was extended in 2014 and 2020. Recital 2 of CBER states that “the justifications for a block exemption for liner consortia are still valid”. The Commission’s view, as indicated in recital 5, was that consortia “generally contribute to improving the productivity and quality of the liner shipping services available by virtue of the rationalization they bring to the activities of member companies and by the economies of scale they allow in the operation of ships and the use of port facilities. They also help to promote technical and economic progress by facilitating and encouraging greater use of containers and more efficient use of ship capacity”.

The position, as set out in Article 5 of CBER, is that a consortium may benefit from the exemption where the combined market share of the members of the consortium in the relevant market in which the consortium operates does not exceed 30%. . Consortium members must set their own prices independently.

CBER offers a degree of legal certainty to liner shipping companies in that their cooperation agreements do not violate EU competition law.

The types of relevant cooperative agreements between liner shipping companies that benefit from CBER include:

  • The joint operation of liner shipping services, including the coordination of schedules and calls, the exchange of slots, the pooling of ships and certain infrastructures, and the use of joint operating offices.
  • The ability to make capacity adjustments in response to fluctuations in supply and demand.
  • Joint operation or use of port terminals and related services such as stevedoring services.

However, CBER does not exempt cooperative agreements involving the following types of activities that will generally violate EU competition law:

  • Pricing.
  • Limitation of capacity and sales (other than adjustments made in response to fluctuations in supply and demand).
  • Distribution of customers and markets.

The conditions that must apply for parties to a cooperative agreement to benefit from CBER are broadly that:

  • The parties to the cooperation agreement hold a combined market share not exceeding 30 percent in any market in which they operate.
  • Any party to the cooperation agreement is entitled to terminate the agreement unconditionally upon giving notice of up to six months after an initial blocking period of up to 24 months (these periods can be extended to 12 months and 36 months respectively for highly integrated consortia).

If CBER does not apply to a relevant cooperation agreement, it does not mean that the agreement will automatically violate EU competition law. But it will not automatically benefit from the safe harbor.

Since CBER is meant to apply to parties operating fixed routes on a regular schedule basis, it is of paramount importance to the container shipping industry.

The extension in 2020seven was decided because the Commission’s assessment had shown that despite market developments (increased consolidation, concentration, technological change, increase in the size of vessels), CBER was still fit for purpose, in line with “Better Regulation of the Commission8 approach to policy development and achieves its objectives. In addition, consortium agreements that met the conditions set out in CBER continued to meet the conditions set out in Article 101(3) TFEU9. Specifically, the Commission found that CBER resulted in efficiencies for carriers that could better utilize vessel capacity and offer more connections. The exemption applied only to consortia whose market share did not exceed 30 per cent and whose members were free to set their prices independently. In this context, these efficiency gains have translated into lower prices and better quality of service for consumers. More specifically, the evaluation had shown that over the past few years, both costs for carriers and prices for customers per twenty-foot equivalent unit (TEU) had fallen by around 30% and that the quality of service was remained stable. The extension was limited to four years, compared to CBER’s traditional five-year term, in order to be able to react more quickly to possible changes in market conditions. CBER must therefore expire on April 25, 2024, at which time the Commission must decide whether to maintain, modify or not renew the exemption for the period following April 25, 2024. In this context, in July 2022, articles of press report that ten trade organizations have written a letter to the Commission calling for a reconsideration of the position within the framework of CBERten. Freight forwarders also argued that large shipping companies expanding into logistics risked distorting business relationships and leading to discrimination.11.

Call for evidence and European Commission press release

On August 9, 2022, the Commission issued a call for submissions seeking comments on CBER. It also sent questionnaires to interested parties, including shippers, freight forwarders and carriers. The call for testimony12 is designed to gather feedback and determine how CBER has performed since its last extension in 2020. It allows interested parties to provide feedback through October 3, 2022.

According to the Commission’s press release13the feedback provided by the call for testimonials will supplement the “evidence it has collected through its sector surveillance activities” and of “exchanges with market players” and several competition authorities around the world.

And then ?

As indicated above and in line with the Commission’s press release 14interested parties can “submit their comments to the call for testimonials and targeted questionnaires until October 3, 2022”. The press release states that the Commission will consider the comments and then summarize the results of the assessment in a staff working document which is expected to be published in the last quarter of 2022.

Interested parties should consider submitting evidence by the October 3, 2022 deadline, either directly or through a trade association.

On August 24, 2022, the UK Competition and Markets Authority (CMA) announced that it would conduct a review of the retained CBER (retained in UK law following the UK’s exit from the EU).15 The CMA intends to assess whether the retained CBER serves its purpose in order to make a recommendation to the government on whether to replace or modify it when it expires. As part of its review, the CMA will take into account the specificities of the UK economy for the benefit of UK businesses and consumers. He will also examine the possible implications for the retained CBER of recent developments in liner shipping, including the impact of global supply chain difficulties. The CMA plans to conduct a consultation on its proposed recommendation on the future of CBER retained in 2023.