European Commission adopts decision in price signaling case

The European Commission said new rules will take effect this December, which are aimed at increasing price transparency in container shipping.    The European Commission (EC) has adopted a decision it said will increase price transparency for customers of container carriers and reduce the likelihood of concerted price signaling by binding the carriers to announced prices.
   The EC’s Competition Directorate said its decision, effective December 7, 2016, “renders legally binding the commitments offered by 14 container liner shipping companies.”
   The carriers have committed to:
     • Stop publishing and communicating general rate increase announcements (GRIs), i.e. changes to prices expressed solely as an amount or percentage of the change;
     • Making future price announcements useful for customers by including at least the five main elements of the total price (base rate, bunker charges, security charges, terminal handling charges and peak season charges if applicable);
     • Making price announcements binding as the maximum prices for the announced period of validity, but carriers will remain free to offer prices below these ceilings;
     • And not making price announcements more than 31 days before their entry into force, which corresponds to the period when customers usually start booking in significant volumes.
   Customers typically plan their shipments between four weeks and one week before they need to move their consignments, the EC said.
   The commitments will not apply to communications with purchasers who already have an existing rate agreement in force on the route to which the communication refers and communications during bilateral negotiations or communications tailored to the needs of specific shippers.
   “We are very pleased that the EU Commission has closed the case without finding an infringement of EU competition law,” Maersk Line Chief Legal Counsel on Competition Compliance Camilla Jain Holtse said. “We and the other shipping companies have throughout declared that we have not engaged in any practices that contravene EU competition law.”
    The EC said the commitments address its concerns that the companies’ practice of publishing GRIs may have harmed competition and customers. “This practice may have raised prices on the market for container liner shipping services on routes to and from Europe, in breach of EU antitrust rules,” the EC said.
    “Container shipping accounts for the vast majority of the non-bulk freight carried by sea to and from Europe. Competitive shipping services are therefore essential for European companies and for the EU’s economy as a whole. The commitments offered by 14 carriers will make prices for these services more transparent and increase competition,” said Margrethe Vestager, the EC commissioner in charge of competition policy. The EC said more than half of EU imports and exports are carried by sea, 40 percent of which are shipped in containers.
    The EC opened formal antitrust proceedings on its own initiative to investigate the practice of publishing GRI announcements in November 2013. The Commission invited comments from interested parties on the commitments offered by the carriers in February 2016.
   The EC’s concern about GRIs came at a peculiar time as the container shipping industry has seen some of the lowest freight rates in history in recent years.
   The EC noted that GRIs do not indicate the fixed final price for the service concerned, but only the amount of the increase (normally in U.S. dollars per TEU), the affected trade route, and the planned date of implementation.
   “General Rate Increase announcements are made typically three to five weeks before their intended implementation date, and during that time, some or all of the other carriers announce similar intended rate increases for the same or similar route and same or similar implementation dates,” the Commission explained. “Carriers are not bound by the announced increases and some carriers have indeed postponed or modified announced general rate increases, possibly aligning them with those announced by other carriers.”
   The EC expressed concerns that GRI announcements do not provide complete information on new prices to customers, but merely allow carriers to be aware of one another’s pricing intentions, making it possible for them to coordinate their behavior.
   “Announcing future price increases may signal the intended market conduct of carriers, and by reducing the level of uncertainty about their pricing behavior, decrease their incentives to compete against each other. Because the announcements provide only partial information to customers, and may not be binding on the carriers, customers may not be able to rely on them and therefore carriers may be able to adjust prices without the risk of losing customers,” the EC said.
   “This practice may lead to higher prices for container liner shipping services and harm competition and customers, in breach of EU and European Economic Area (EEA) competition rules’ ban on concerted practices between companies.”
   Unlike Europe, conference ratemaking or rate discussion is permitted under agreements filed with the Federal Maritime Commission.
   The 14 carriers covered by the agreement are: CMA CGM, COSCO, Evergreen Line, Hamburg Süd, Hanjin , Hapag Lloyd, Hyundai Merchant Marine, Maersk Line, MOL, MSC, NYK, OOCL, United Arab Shipping Co. and ZIM.