OECD CONFIRMS RECOMMENDATION TO REMOVE ANTITRUST IMMUNITY OF CARRIERS
The transport division of the Organization for Economic Cooperation and Development has recommended in a final report on competition policy in liner shipping that governments remove the antitrust immunity of conferences and discussion agreements.
“It is recommended that (OECD) member countries, when reviewing the application of competition policy in the liner shipping sector, should seriously consider removing antitrust exemptions for price fixing and rate discussions,” the Paris-based organization said in its final report. “Exemptions for other operational arrangements may be retained so long as these do not result in excessive market power,” it added.
The OECD confirmed in its final report earlier controversial recommendations that it announced last November. The recommendations have been strongly opposed by carriers, but they were endorsed by groups representing shippers, such as the European Shippers’ Council and the National Industrial Transportation League.
The report prepared by the OECD is based on a review of current regulatory regimes and market practices. It incorporates information provided by shippers’ and carriers’ representative organizations.
The review “has not found convincing evidence that the practice of discussing and/or fixing rates and surcharges among competing carriers offers more benefits than costs to shippers and consumers,” the report said.
However, the OECD endorsed the antitrust exemption of ocean carriers for global alliances, consortia, vessel-sharing and other operational agreements that do not involve joint pricing.
The OECD report rejected the ocean carriers’ argument that their industry is “unique” and needs special treatment under competition law.
The OECD report said the recent fall in freight rates “can be seen to have occurred precisely because conference power has weakened.” Traditional conferences are probably weaker today than they have ever been, but residual price-fixing practices still continue, the OECD said.
“Conference and suggested discussion agreement tariffs and ancillary surcharges now serve principally as ‘benchmark’ values for rate negotiations,” it said. “Final negotiated rates often make reference to, and are influenced by, these fixed rates rather than set in relation to the costs of the most efficient operators.”
The OECD report noted that confidential contracts have made pricing more opaque, but it has not changed the fact that the price is set in relation to conference or discussion agreement prices and not solely in relation to carriers’ own costs.
The remnants of price-fixing, even in an environment of greater competition, introduces “a potentially distorting element in the liner rate-setting exercise that can impact shipper costs,” the OECD said.
The report also criticized discussion agreements — carrier groups that discuss rates and issue “voluntary guidelines” on rates without having the authority to set binding prices. “This type of organization bears a striking resemblance to a soft cartel, where key messages can be communicated and acted upon by erstwhile competitors,” the report said. “The ability among carriers to discuss, in aggregate, rate levels emerging from negotiated agreements can still be seen as prejudicial to shippers.”
Saying that an agreement between supporters and opponents of carriers’ antitrust immunity is unlikely, the OECD reiterated its proposal for a “second best” compromise on the issue.
It said that OECD governments should consider three principles, which are partly contained in the 1998 Ocean Shipping Reform Act of the U.S. The principles are:
(1) Shippers and carriers should always have the option of freely negotiating rates, surcharges and others terms of carriage on an individual and confidential basis;
(2) Carriers and shippers should always be able to contractually protect key terms of negotiated service contracts, including information regarding rates, and this confidentiality should be given maximum protection; and
(3) Carriers should be able to pursue operational and/or capacity agreements with other carriers as long as these do not confer undue market power to the carriers involved.