01 Oktober 2009

[EN-SEA] EU Extend Block Exemption for Shipping Consortia

THE European Commission (EC) has agreed to extend the current block exemption regulation to enable shipping lines to continue "cooperation for the purpose of providing a joint service in transporting cargo."

"After careful examination the commission has decided to prolong the consortia block exemption regulation for five years," said Competition Commissioner Neelie Kroes.

CC Tung, chief executive of Hong Kong's Orient Overseas International (OOIL), parent of OOCL, had earlier called for anti-trust regulations to be relaxed.

"Our goal should be to work with governments to provide our industry with the ability to collectively discuss capacity management and rationalisation for a short-term period of, say, one year," said Mr Tung in an article marking the 60th anniversary of China's Communist, reported the Financial Times.

"In this crisis, the key is to restore a degree of supply/demand balance in an orderly manner, which is best achieved by carriers collectively rationalising capacity," said Mr Tung before the EC announcement.

The EC announcement extends the current exemption for such co-operation for five more years, until April 2015. Without this new extension, the current consortia block exemption regulation would have expired in April 2010.

The move comes after last October, when the EC scrapped the block exemption for liner shipping conferences, thereby banning liner shipping consortia from operating in trades to and from Europe.

Said the EC statement: "Changes notably include a reduction of the market share threshold above which companies do not qualify for automatic exemption under the regulation and an extension of the scope of the exemption to all cargo liner shipping services.

"The EC said agreements by shipping lines, operating in a consortium, to provide joint maritime cargo transport services "usually allow shipping lines to rationalise their activities and achieve economies of scale.

If consortia are faced with sufficient competition, the users of the transport services provided by consortia (such as shippers) usually benefit from improvements in productivity and quality of service.

"The EC said the new regulation "aims at better reflecting current market practices and bringing the consortia block exemption in line with other block exemption regulations for horizontal cooperation between companies. The scope of application of the new regulation has been extended to all liner shipping cargo services, whether containerised or not."

The EC statement continued: "The list of exempted activities has been revised in order to better reflect current market practices. The market share threshold has been reduced from 35 per cent to 30 per cent and the method of its calculation clarified.

Finally, the exit-clauses and lock-in periods, in case a member wants to withdraw from the consortium, have been prolonged to better reflect current market practice but still safeguard the carriers' flexibility."

Source : HKSG.

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