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Executive Summary

  1. Competition issues have long been subjects ofCouncil's studies. This Report outlines two complaints made to the Councilalleging anti-competitive conduct engaged in by a collective group of shippinglines providing container liner shipping services to Hong Kong shippers(importers/exporters). The Consumer Council has a concern with such allegations,given the effect that any market distortion could have on consumer welfare,through increased costs for Hong Kong businesses that could be passed on toconsumers.

  2. The complaints relate to the manner in which aYen Appreciation Surcharge (YAS) and Terminal Handling Charge (THC) aredetermined and imposed by competing container liner members of collective groupsof shipping lines. The groups are commonly known as 'conference agreements' andare a common feature of international shipping.

  3. With regard to the YAS complaint, it was allegedthat the YAS did not reflect contemporary movements in the exchange rate, and asa result this lead to losses by importers/exporters because tariffs were higherthan they should have been, taking into account the exchange rate that appliedat the time of transportation. With regard to the THC complaint, it was claimedthat the charge had been increasing at an unchecked rate since its introductionin 1990 resulting in a situation where Hong Kong shippers, as of May 2001, werepaying the highest THCs in the world.

  4. Since there is an element of pricing uniformityin the conference agreement members' operations, as far as charges areconcerned, the conduct of the conference agreements raises a genuine concern andcomes within the category of business conduct that, according to theGovernment's Statement on Competition Policy, requires close scrutiny.

  5. While the procedures followed by conferenceagreement members appear to provide some transparency in regard to the mattersagreed or discussed by member shipping lines, the procedures do not satisfy allthe shippers who use those services. For instance, the complainants who do notbelong to the Shippers Council. In addition, there is also the wider issue ofwhether the effect of the collaborative efforts by the conference agreementmembers raises a concern as to the reasonableness of the terms and conditions oftariffs and surcharges, such as the THC or YAS.

  6. In view of the Government's preferred sectorspecific policy approach to competition policy, the Council suggests the Portand Maritime Board (as the sector-specific agency with responsibility for thissector) should take on the role of facilitating the following processes.

 

Competition analysis

  1. A process should be introduced whereby anyallegations of restrictive practices by members of shipping line agreements(such as conferences or discussion agreements) are examined to ascertainwhether:

  1. a service provided by shipping lines inco-operation with each other is subject to effective competition from lines thatdo not belong to the co-operative agreement;
  2. where a shipping line agreement exists, theterms of the agreement allow each individual line to offer individual services,outside the agreement, if the line so chooses; and
  3. where a shipping line agreement exists, theparties to the agreement demonstrate that there is a public benefit in theagreement that outweighs the inherent detriment to competition that would beexpected to arise.

 

Facilitating effective negotiation

  1. When competitors agree with each other onmatters that could otherwise be subject to competition, a concern naturallyarises that shippers will not be able to negotiate a better deal for themselves,in terms of a low cost service, wider product choices, and higher quality ofservice.

  2. In view of the concern that arises from themarket power held by aggregations of competitors, the Council considers that amechanism should be established that provides some countervailing power forshippers when attempting to negotiate terms and conditions.

 

Introduce transparency

  1. The Hong Kong Shippers' Council has agreed todisseminate details of any new charges, or changes in the levels of currentcharges to their members and Hong Kong shippers in general through circulars andthe "Shippers Today" magazine, as and when IADA furnish them withdetails. Likewise, the Secretary for IADA has also agreed and made a commitmentto give the Hong Kong Shippers' Council due notification whenever there arechanges in IADA's recommended surcharge items which may impact the Hong Kongshipper/consignee. The Consumer Council believes that those measures whenimplemented will go a long way to help improve communication and transparency,avoiding misunderstandings.

 

Self-regulation

  1. In the long run, the Council considers that inthe absence of its preference for a general competition law in Hong Kong, andthe Government's encouragement of self regulatory measures to govern competitivesafeguards, that an industry code of practice could be introduced:

  1. to provide an appropriate degree oftransparency, and opportunity for those who use the services of lines party tothe agreements to negotiate terms and conditions;
  2. to obtain information that justifies anyclaimed cost recovery mechanisms built into service agreements; and
  3. to provide a complaint handling mechanism forany persons aggrieved with the actions of the members of shipping agreements.(Such a mechanism has been advocated in a general sense by the Hong Kong GeneralChamber of Commerce in its 'Chamber Statement on Competition'.)

  1. In this regard, the liner shipping industrycould be requested to develop a code of practice that addresses the issue ofcompetition, along the self-regulatory lines preferred by Government, and whichprovides for the above safeguards and complaints handling mechanism.

  2. The Port & Maritime Board noted thatimproved arrangements to increase transparency were facilitated and brokeredthrough the mediation efforts of the Board. The Shippers Council has also usedits web page to show details of charges as well as their advice to shippers onthese charges. The Consumer Council believes that these measures will go a longway to help improve communication and transparency, avoiding misunderstandingsin the market. A diagrammatic representation of the Council's recommendationscan be found at Figure 1 attached to this report.

  3. The Council has a statutory function ofencouraging business and professional associations to establish codes ofpractice to regulate the activities of their members. Accordingly, the Councilwould be pleased to make its resources available to work with government andindustry in assisting with the development of a self-regulatory a code.

　

Figure 1
 Council's Recommendations