Ms Gina Cass-Gottlieb, head of the competition watchdog, has criticised the part of the law that allows shipping companies to collaborate in certain circumstances.
And the ocean shipping industry is mostly OK with that.
This shouldn’t come as a shock – the Australian Competition & Consumer Commission has repeatedly criticised Part X of the Competition and Consumer Act. And Shipping Australia has repeatedly also said that the industry is mostly OK with it.
Ms Cass-Gottlieb is right – Part X is an anachronism. It’s also a pain to deal with in terms of its bureaucracy and its costs. Ms Cass-Gottlieb is also right that other countries that had similar exemptions have removed them or limited them. What’s missing from the speech is that other countries – and, indeed, whole supra-national regions (we’re talking about the EU here) – have instead given a block exemption from competition law to shipping companies.
Bad parts of Part X are bad
Some of the bad parts are obviously bad. We’ve mentioned them above – it’s costly, bureaucratic, and difficult to deal with. Some of the bad parts are less obvious. Believe it or not, Part X allows shipping companies in some limited circumstances to fix or co-ordinate freight prices. That’s pretty much a no-go in this day and age. And, as far as Shipping Australia is aware, there is only one Part X ocean shipping agreement (the Pacific Islands Agreement) that allows shipping companies to discuss price. No-one has actually used that right agreement in years.
Apart from the Pacific Islands Agreement, no shipping services have had Part X price discussions in years.
Shipping Australia’s views, and the view of its members, are that container shipping companies do not see a need for price discussions. We also don’t a need for co-ordination of surcharge sharing, or pooling of earnings, losses or traffic.
We’re on record as saying all of these things with none other than the ACCC.
You can read that statement here. And we’ve also said it publicly on our website too.
Good parts of Part X are good
The good parts of Part X allow ocean shipping companies to lawfully collaborate on such matters as sharing vessels and container slots. The key thing to realise is that the main beneficiaries of shipping line collaboration are shippers.
One important reason why there are many services is because ocean shipping companies have an exemption from competition law that allows them to work together on operational matters such as jointly fixing sailing timetables and port calls; exchanging, hiring, selling, leasing and sub-leasing spaces on vessels; and pooling vessels.
Shipping is an expensive and complicated business. One way to lessen risk, and to become more able to handle complexity, is to co-ordinate and collaborate on services as described above.
What would happen if this exemption were taken away?
Well, obviously, shipping companies would not be able to work together. Some of the smaller shipping companies contribute one or two vessels to a loop. If they cannot lawfully work together with other, bigger, shipping companies then it will be too expensive to operate one or two ships on the Australian trades and they will be withdrawn.
Sure, the bigger companies would remain. But they probably would not commit extra vessels to make up for the lost capacity caused by withdrawal of the smaller ships. Meanwhile, the Australian trades are particularly expensive and they’re often disrupted (cyclones, heatwaves, high winds and swell, and industrial action are often causes of disruption). So it’s entirely possible that, not only could the smaller companies withdraw, but some of the mid-size companies could withdraw too.
Removing the exemption for shipping companies to work together on an operational basis would lessen competition, increase concentration in the maritime freight trades in Australia, and would likely cause freight rates to surge.
Instead, the ACCC could write up a series of conditions that would result in a block exemption to competition law. If the regulated entities (in this case, ocean shipping companies) meet those conditions then they’re entitled to – and benefit from – the block exemption. Done. No need for registration, administration, hiring consultants, or consulting with third parties who are not directly involved in the business.
Replacement of Part X with a good quality block exemption preserves competition, boosts the service to shippers, lowers costs, benefits Australians while saving time, money and effort.
And that’s something that all right-thinking people ought to welcome.
