Submission to the Competition Commission on its Initial Consultation regarding Review of the Competition (Block Exemption For Vessel Sharing Agreements) Order 2017

1. The Consumer Council (the Council) is pleased to submit its views concerning the Competition Commission’s (the Commission) initial consultation launched on 5 August 2021 regarding its review of the block exemption order for vessel sharing agreements (VSAs) issued in 2017 (the Order).

2. While the Council is not in the position to provide market information on the developments in the liner shipping industry, for example, with regard to general market conditions, prices, service levels, the state of competition and the level of cooperation among shipping lines, the Council puts forward a few observations in the following paragraphs for the Commission’s consideration when reviewing the Order.

European Commission’s (EC) decision on the prolongation of consortia block exemption regulation (BER)

3. Notwithstanding that there are differences between the legal and economic context underlying exemptions regimes overseas and in Hong Kong such that the approach taken in other jurisdictions cannot be imported ‘wholesale’ into Hong
   Kong as previously mentioned in the Commission’s Statement of Reasons in 2017, the Council notes that the consortia BER is extended by the EC recently and that there is social-economic aspect which may be worth for the Commission to look into in granting the Order. 

4. According to the International Chamber of Shipping, VSAs bring economic benefits to all stakeholders, enabling shipping companies to satisfy shippers' and consumers' demands in terms of frequency, reliability, efficiency, quality and price.  The EC opted to prolong the consortia BER for another four years until 25 April 2024 upon its expiry date of April 2020.  The industry considered that VSAs, such as slot sharing, are a fundamental part of the structure of the global liner shipping transportation network.  Furthermore, International Maritime Organisation has set concrete goals for greenhouse gas emission reductions for the international shipping industry, and that vessel sharing is a key tool for containerships to reduce their fuel consumption and thus their CO₂ emissions, as well as costs for shippers.  In addition to supporting operational efficiency and broader service offerings, the BER helps carriers reduce air emissions and greenhouse gases through higher utilisation of vessel space.

5. The Council considers that the Commission may take the EC’s experience and justifications in prolonging the consortia BER as a reference, while also taking the local context into consideration, for instance, whether the benefits of VSAs identified by the EC also apply in local, when determining whether the Order should be renewed.  The Council would welcome to see similar greenhouse gas emission reduction targets be set and achieved by the liner shipping industry in Hong Kong.  Having said that, the Council is of the view that this cooperation in sustainability should not be used to provide an opportunity to the shipping companies to engage in any anti-competitive behaviour which would defeat the supposed benefits to promote social goals.

Surge in producer price indexes of water transport

6. According to the statistics published by the Census and Statistics Department, the producer price indexes of water transport has demonstrated a significant upward trend from 2019 onwards and increased sharply from 2020 to 2021.  In the second quarter of 2021, the index was 144.3, representing a surge of 57% as compared with the same period in 2020 (91.9).

7. Whether this upward trend, which the market claimed was highly due to the COVID-19 pandemic, is short-term or long-term, it may be a factor to consider in assessing competition issues in the shipping industry.  Thus, the Council believes that the Commission would seek information from the liner shipping industry about the surge in price of water transport in its determination of the renewal of the Order.

A fair share of the resulting benefit by consumers

8. The Council noticed that in the Statement of Reasons published by the Commission in 2017 regarding its decision to issue the Order, the Commission stressed the efficiency exclusion required that consumers received a fair share of the efficiencies claimed by the parties and generated by the agreement or category of agreements in question.  In this regard, the Commission pointed out that a limited number of parties had, however, voiced concerns regarding the extent to which these efficiencies were in fact generated, and thus passed on to customers, in light of the levels of market concentration on, for example, trades which were characterised by a small number of large strategic alliances.

9. Given there is no disclosure from the shipping industry on the sharing of benefits by consumers from the block exemption in the past five years, the Council is of the view that it is important for the market and consumers to have more transparent information on this regard.  The Council would welcome to see more elaborations be given by the Commission to the general public about experiences from the user-end (comprising of users of liner shipping services such as shippers, consignees, freight forwarders, logistics companies and other customers).

Conclusion

10. At last, the Council wishes the Commission would take into consideration the above issues as well as comments provided by stakeholders during this consultation exercise when assessing the renewal of the Order with a view to draw a decision which will bring the maximum benefit to consumers and the society.