2.2 Different forms of cooperation in liner shipping

2.2 Different forms of cooperation in liner shipping

2.2.1 Introduction

Different forms of cooperation and variations of interactions can give rise to several platforms for sharing information between liner shipping companies. Since an exchange is either considered isolated (pure) or in the context of its agreement (ancillary), the type of cooperation is important for the further assessment. Consequently, to effectively assess whether information exchanges between competing carriers restrict competition by object, the features of the different cooperation must first be established.

2.2.2 Liner conferences

Liner conference was defined in Regulation 4056/86 as an agreement or arrangement between two or more vessel-operating carriers in liner shipping which “operate under uniform or common freight rates and any other agreed conditions” relating to international liner services.(1) Regulation 4056/86 art.1 (3)b). One condition is thus that the agreement sets a common rate charged for the transport services offered, hereunder fixing prices. The East Asia Trades Agreement (EATA) decision exemplifies that the conditions are to be interpreted strictly. That agreement’s express purpose was to allow the parties to increase their freight rates.(2) Case 1999/485/EC Europe Asia Trades Agreement (EATA) para.9. However, the Commission found it to fall outside the “liner conference” definition in the BER, as it had “no direct mechanism for agreeing on the implementation of freight-rate increases.”(3) Ibid. para.82. Arguably, members of liner conferences must explicitly set one common freight rate, obligating the parties to adhere to it. Regardless of whether they are deemed “conferences” such agreements fulfil the “cooperation” condition in Art. 101.

2.2.3 Liner consortia

Unlike conferences, a liner consortium encapsulates agreements between two or more vessel-operating carriers in international liner shipping having the objective of joint operations “in order to rationalise their operations by means of technical, operational and/or commercial arrangements.”(4) Regulation 906/2009 art.2 nb.1. One simplified distinction between conferences and consortia is that the prior agreements concern prices, while the latter concern capacities.(5) Case 1999/485/EC EATA para.132. Consortia enable operational cooperation such as joint operation centres and slot-sharing between ships. However, the content and extent of different consortia varies according to their degree of integration.(6) Regulation 906/2009 para.3 Such agreements remove the competition between participants with regard to offering their capacities to shippers which is generally regarded as anti-competitive “control” of the service production in a market. However, they also increase the capacity-utilisation of each ship, improving the transport services offered in the market.

2.2.4 Shipping pools

Shipping pools are in essence operational agreements creating one common fleet of ships under different ownerships.(7) Wen et al. (2019) p.737. Pooling is particularly normal on the tramp shipping market, where vessels operate on the spot market, namely through contracts on irregular schedule and over varying routes.(8) Power (2019) p.686. However, pooling also occurs in liner shipping, for instance by pooling cargo, revenues or losses between the participants.(9) Pozdnakova (2008) pp.63-67. One consideration is that a larger fleet can serve larger regular shipments on each route, enabling companies to offer transport to demands exceeding the individual carrier’s capacity. Additionally, pooling of cargo may decrease issues of excess capacity in the market, since coordination is expected to improve the utilisation of the ships carrying capacities.

Shipping pools are traditionally organised in different ways. However, as a starting point, pooling agreements will include clauses on rights and obligations of the parties and of one designated pool manager. The pool manager will often be responsible for collecting and redistributing revenues achieved in the pool, as well as keeping financial records and continuously inform pool participants of developments. Normally, the participants are bound to place all or some of its ships under the commercial control of the pool, serving the contracts entered into by the pool. Consequently, each participant has right to a proportionate share of the pool’s revenues, as well as right to compensation in different scenarios. Such clauses often include the right of each party to review and control the correctness of the participants’ results and their underlying documentation (full disclosure). Pooling agreements can, subject to its conditions, enjoy the exemption in the Consortia BER, but they can also remove the incentive to compete on prices and capacity between the members, resulting in a decreased supply for shippers.

2.2.5 Liner shipping alliances

The formation of alliances between competing carriers is a more extensive form of horizontal cooperation in liner shipping. The “strategic alliance” for instance, provides a framework for different agreements and governs coordination of the service capabilities of the participants.(10) Slack et al. (2011) pp.65-66. An alliance may regulate the terms of container utilization for several routes and often exceeds the scope of a single vessel-sharing agreement optimising capacities on one particular route.(11) Panayides & Wiedmer (2011) p.26.

Three liner shipping alliances define the current global market: 2M (Maersk Line, MSC, and Hyundai), The Alliance (ONE, Hapag, and Yang Ming) and OCEAN ALLIANCE (CMA-CGM, COSCO/CSCL, Evergreen, and OOCL).(12) Ghorbani et al. (2022) p.449 Fig 4. The combined global market share of these 10 currently exceed 80 %.(13) Alphaliner (16. November 2022). Although their geographic coverage varies in different regions, the alliances undoubtedly have significant impact on competition in liner shipping markets.

The strategic alliance is distinct from pooling agreements, as the former aims at co-operation in the employment and utilization of ships, including e.g. sailing schedules, itineraries (route programmes) and container co-ordination.(14) Panayides & Wiedmer (2011) p.26. Also, alliances may consist of a combination of vessel sharing, slot exchange and slot chartering.(15) Van Bael & Bellis (2021) p.1458. Put simply, one may regard a strategic alliance as a vessel-sharing agreement covering many services and routes.(16) OECD (2015b) p.3. Accordingly, alliances can in principle be exempted via the Consortia BER, provided that the agreements within the alliance fulfil its conditions. Due to the alliances’ sizes, however, they may exceed the market share thresholds in the Consortia BER, making the exemption inapplicable. The extensive framework for cooperation supplied through alliances, combined with their substantial market coverage, makes them particularly suited to potentially restrict competition.

The agreement types evaluated involve some degree of ancillary information exchanged, for instance related to the competing vessel’s capacity and cargo management. Since they constitute “agreements” within Art. 101 (1), they will not be discussed further in this chapter. The final form of cooperation concerns pure information exchanges, which potentially fall under the scope of “concerted practices.”

2.2.6 Cooperation through pure information exchanges

Information shared outside the forum of for instance a pooling agreement or shipping association will not be addressed under Art. 101 unless it is deemed a “concerted practice.” Simply put, a concerted practice is a common understanding between competitors to act in a certain manner, without formalising the mutual understanding as an agreement or decision.(17) See e.g. Case 48-69 ICI para.64. In liner shipping, information can for instance be exchanged orally in a meeting,(18) Case T-279/02 Degussa v Commission (Degussa). via messages,(19) Cases C-40/73 Suiker Unie and Others v Commission (Suiker Unie). in databases or algorithms(20) Communication 2022/C164 para.435., or through public announcements.(21) Cases T-191/98 Atlantic Container Line and others v Commission para.1154. The question is when such sharing of information amounts to a “concerted practice” under Art. 101 (1).

Container Shipping provides but one example of how public unilateral announcements from independent competitors can constitute a concerted practice.(22) The case is also referred to by the Commission in Communication 2022/C164 in relation to public announcements, see para.434 footnote 236. In that case, 14 competing carriers had developed a common practice of publishing their respective intentions of future price increases. Such General Rate Increases (“GRI’s”) were published several times each year through different medias such as websites and press-releases. The Commission’s investigations caused the preliminary concern that the carriers were able to coordinate their prices, constituting a concerted practice restricting competition by object.(23) Case AT.39850 Container Shipping.

Accordingly, much cooperation between liner shipping companies has traditionally taken the form of agreements, either regarding prices (conferences), capacities (consortia), or pooling of ships and revenues, or as larger structures of alliances. Information exchanged within these agreements is to be assessed within the context of the agreement. Next section analyses the legal borders between independent conduct and concerted practices in relation to information exchanges on their own, i.e. not as part of an agreement.