Opinion of the Economic and Social Committee on the 'Commission preliminary draft Regulation on the application of Article 81(3) of the EC Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia) pursuant to Council Regulation (EEC) No 479/92'
Date: 2000-03-01
Institutions: European Economic and Social Committee
Subjects: competition, consortium, economic concentration, maritime law, maritime transport

26.4.2000

EN

Official Journal of the European Communities

C 117/19

Opinion of the Economic and Social Committee on the ‘Commission preliminary draft Regulation
on the application of Article 81(3) of the EC Treaty to certain categories of agreements, decisions
and concerted practices between liner shipping companies (consortia) pursuant to Council
Regulation (EEC) No 479/92’ (1)

(2000/C 117/04)

On 20 December 1999 the Economic and Social Committee decided, under Rules 23 (2) and 25 of its
Rules of Procedure, to draw up an additional opinion on the above-mentioned preliminary draft
Regulation.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for
preparing the Committee’s work on the subject, adopted its opinion on 3 February 2000. The rapporteur
was Dr Bredima-Savopoulou.

At its 370th plenary session on 1 and 2 March 2000 (meeting of 1 March) the Committee adopted the
following opinion by 121 votes for, 1 vote against and 1 abstention.

1.

Introduction

1.1.
At the time of adoption of the four maritime regu-
lations in 1986, constituting stage I of the common shipping
policy of the EC, the Council
invited the Commission to
consider whether it was necessary to submit new proposals
regarding competition, inter alia, in consortia in liner shipping.
The Commission undertook to report to the Council within a
year on whether it was necessary to provide for block
exemption for consortia in liner shipping. The Council noted
at that time that ‘where the object and effect of joint ventures
and consortia is either to achieve technical improvement or
cooperation as provided for in Article 2 of the Regulation or
where close — knit consortia only cover minor market shares
the prohibition laid down in Article 85(1) of the Treaty does
not apply to them’.

1.2.
The need for clarification of the position of consortia
vis-à-vis the competition rules was identified by the Com-
mission in its report on ‘A future for the Community shipping
industry — Measures to improve the conditions of Community
shipping’ (2) as being one of the positive measures to increase
competitiveness of
the Community fleet. The ESC in its
opinion on the above measures noted ‘the importance of
reaching an acceptable and early solution to the (consortia)
issue, similar to that achieved for liner conferences in the first
stage of shipping policy’ (3).

1.3.
After considerable deliberation following the receipt of
further information on consortia, the Commission produced
in June 1990 a ‘report on the possibility of a group exemption

for consortia agreements in liner shipping’ (4), with attached
proposal for ‘Council Regulation on the application of Article
85(3) of
the Treaty to certain categories of agreements,
decisions and concerted practices between shipping com-
panies’.

1.4.
On 25.2.1992 the Council adopted the enabling
Regulation 479/92 (5) which empowered the Commission to
apply article 85(3) of the Treaty by Regulation to exempt the
joint operation of liner consortia from the anti-competitive
prohibition contained in Article 85(1).

The ESC adopted an opinion (6) on the enabling
1.5.
Regulation which endorsed the Commission’s positive evalu-
ation of consortia and emphasized the need to avoid bureauc-
racy. The ESC argued that liner consortia can broadly be
defined as ‘co-operative ventures in the liner sector in which
the lines involved engage in a range of activities on a joint
basis in order to achieve the necessary advantages of economy
of scale and of service rationalization in a particular trade, thus
combining the concepts of vessel cost sharing and cargo
pooling’. It noted that there had been widespread recognition
of the value and usefulness of consortia as tools of rationaliza-
tion in the container age and endorsed the findings of the
Commission that ‘the Community shipping industry needs to
attain the necessary economies of scale to compete on the
world liner shipping market’ and that ‘consortia can help to
provide the necessary means for improving the productivity of
liner shipping services and promoting technical and economic
progress’.

(1) OJ C 379, 31.12.1999, p. 13.
(2) COM(89) 266 final, 3.8.1989.
(3) ESC Opinion — OJ C 56, 7.3.1990, p. 70.

(4) COM(90) 260 final.
(5) OJ L 55, 29.2.1992, p. 3.
(6) OJ C 69, 18.3.1991, p. 16.

C 117/20

EN

Official Journal of the European Communities

26.4.2000

1.6.
Having noted that a block exemption from competition
rules had already been granted in respect of liner conferences
by Council Regulation 4056/86 (1),
the ESC reached the
conclusion that a regulatory regime for liner consortia was
necessary and that a new independent Regulation granting
block exemption was required because consortia are funda-
mentally different from conferences both in structure and in
operation. However, it expressed the view that the Commission
should spell out more clearly the lines along which it intended
to proceed concerning the terms and conditions of
the
exemption. Such conditions should safeguard transparency
and free competition at three levels: within the consortium,
within the conference, and within the trade. The ESC argued
for a legal treatment of consortia, subject to checks, and
balances without granting a blank cheque either to the
Commission or to consortia. The principle objection of the
ESC was the inclusion of the multimodal transport within the
scope of the consortia regulation. In its view such a complex
area required to be dealt with by a separate regulation. The
enabling Regulation 479/92 accorded with the conclusions of
the ESC’s above Opinion.

1.7.
On 20.4.1995 the Commission adopted Regulation
870/95 (2) on the application of Article 85(3) of the Treaty to
liner consortia. This Regulation exempted all agreements
whose objective is the joint operation of liner shipping services
provided that they fulfilled the conditions and obligations set
out in the Regulation. Moreover, it provided that a consortium
should have a maximum trade share to benefit of
the
block exemption. Namely, three levels of trade share were
distinguished:

The ESC adopted an opinion (3) on Regulation 870/95
1.9.
concluding that a balance between the interests of shippers
and consortia must be achieved and that the competitive
position of non consortia members must be safeguarded.
Moreover, flexibility must be retained for consortia to respond
to the needs of their users. Finally, the ESC argued that the
draft Regulation needed clarification of certain terms and
re-examination of certain points.

2. The proposed Commission Regulation

In its

2.1.
report on the application of Regulation
870/95 (4), the Commission found that the Regulation has
worked well and examined various policy options for the legal
regime following its expiry on 20.4.2000. The Commission
concluded that in light of experience acquired so far and in the
interests of legal certainty the best course of action would be
a renewal of Regulation 870/95 with modifications until
21.4.2005.

The basic changes provided in the proposed Regulation

2.2.
are as follows:

— Change from trade share to market share (of each market

in which the consortium operates)

— Exclusivity clauses on space chartering exempted

— Ten consortia exempted under the opposition procedure

continue to be exempted

— a trade share of 30 % or 35 % which would mean a

consortium was automatically exempt

— Notifications in process under Regulation 870/95 to be

automatically treated under the new Regulation

— a trade share of between 30/35 % and 50 % which would
allow a consortium to apply for exemption under a
simplified opposition procedure

— a trade share in excess of 50 % which would require a

consortium to seek individual exemption.

1.8.
The Regulation contained additional conditions and
obligations such as not to discriminate between ports in the
EU and to have consultations with the transport users.
Finally, it included ‘grandfather’ provisions relating to consortia
agreements existing on the date of its coming into force.

(1) OJ L 378, 31.12.1986, p. 4.
(2) OJ L 89, 21.4.1995, p. 7.

— Previous grandfathering clauses evidently deleted

— Wording simplified where appropriate.

3. General Comments

3.1.
Eight years after adoption of the first consortia Regu-
lation (5) the ESC notes the vast and rapid changes occurring
in the international liner market. The consortia Regulations
apply to consortia in the ‘international liner shipping for the
carriage of cargo chiefly by container’, Containerisation is
increasingly being introduced into liner shipping. Transpor-
tation by container vessels doubled in the period between

(3) OJ C 195, 18.7.1994, p. 20.
(4) 20 January 1999.
(5) H.Kreis:

‘European Community Competition Policy and Inter-
national Shipping’ Fordham International Law Journal (1989-90),
411; J.Temple Lang: European Transport Law Review (1993), 405;
P. Ruttley: European Competition Law Review (1991), 9; EMLO
Report 1993.

26.4.2000

EN

Official Journal of the European Communities

C 117/21

1989-1998 from 249 million tonnes to 509 million tonnes.
This corresponds to an annual increase of 11 %. According to
the latest rough estimates prospects are for an even more rapid
expansion of the container transport. This is mainly due to an
increase of transports of manufactured and semi-manufactured
goods. It is also expected that in the years to come there will
be a shift of transportation of some bulk cargoes (e.g. grains,
fertilisers, sugar) towards container transport. A reversal of the
above trend is most unlikely. More particularly, since adoption
the first consortia Regulation in the period 1993-1997 the
increase in container transport by sea has been dramatic
amounting to 44 % (1)
(expressed in tonnes). The above
changes have ‘led to the replacement of a labour intensive
intensive’ (2).
industry by one which is now highly capital
These changes, on the one hand, have provided benefits
regarding the level of services to shippers; on the other hand,
they have led to re-organization of employment at sea and
ashore. Indeed the container has become a key agent in the
globalisation process, which is bringing wholesale economic
and social changes to developing and developed countries
alike (3).

3.4.
For the above reasons whilst acknowledging ‘the value
of consortia to the economic and technological progress of
the shipping industry’ (2), the ESC — in line with its past
opinions (4) — reiterates the necessity of safeguarding trans-
parency and competition vis-à-vis other consortia members as
well as non consortia members — outsiders in the liner trades
in question as has been done in art. 5 and art. 8 of the draft
Regulation. Moreover, safeguarding the interests of users and
ports should also be included in the armoury of future legal
yardsticks. The above caveats should be translated into legal
parameters under the EU competition rules for consortia in
the future.

3.5.
Bearing in mind the above considerations, for the time
being, the ESC maintains that the renewal of Regulation
870/95 up to the year 2005 subject to the proposed modifi-
cations is the best possible course of action. It, therefore, fully
endorses the Commission’s proposal.

The above market trend coincided in time with other
3.2.
changes in liner shipping having competition law implications,
namely: the diminishing role of conferences, the increasing
importance of consortia and concentration/consolidation into
larger units. Liner shipping is characterised recently by continu-
ous mergers and acquisitions resulting in the creation of
maritime giants operating hundreds of ships each and having
world-wide distribution networks. This development of the
so-called mega carriers contrasts with the situation prevailing
in the bulk carrier market where the small company size is not
the exception but the rule. While consortia are a welcome
phenomenon facilitating the survival of small and medium
size undertakings it is evident that the interests of small and
medium size members versus the mega carriers members in
the consortium should be safeguarded. Otherwise, consortia
may become one of the vehicles exacerbating the trend towards
concentration.

3.3.
From the point of view of future policy making and
rule making the above developments will have to be monitored
and assessed according to their implications upon shipowners,
users (shippers/receivers) and ports. The ESC invites the
Commission to take into consideration ‘the changing and
dynamic nature of consortia’ (2) in its future policy making
regarding the consortia phenomenon.

4. Specific Comments

4.1. Definitions (Article 1)

The ESC is broadly in agreement to provide in the
4.1.1.
consortia definition for ‘multi-trade consortia’ in order to take
into account recent market trends whereby consortia operate
in more than one trades. This is a welcome clarification of the
text.

4.2. Exempted Agreements (Article 3)

4.2.1.
The Regulation provides among exempted activities
(Article 3(2)g) ancillary activities to consortia operations. There
is clarification of applicability of the block exemption to
exclusivity clauses (obligation of consortium members to use
vessels allocated to the consortium and refrain from chartering
space on vessels belonging to third parties) and third party
clauses (obligation of consortium members not to assign or
charter space to other carriers on the trade except with the
prior consent of consortium members). This is a helpful
clarification in light of experience from application of Regu-
lation 870/95. It is expected to increase legal certainty.

4.3. Market Share (Article 6)

The ESC notes that one of the conditions to be
4.3.1.
fulfilled,
if exemption is to apply, provides for specific
limitations on market share depending on the particular nature

(1) Data taken from Howe Robinson Research Paper Nr 9, January

1999, ‘Containerization and Dry Bulk Trades’.

(2) OJ C 195, 18.7.1994.
(3) ‘Container Market Outlook’, Drewry, October 1999.

(4) OJ C 69, 18.3.1991.

C 117/22

EN

Official Journal of the European Communities

26.4.2000

of
the consortium of 30 %-35 % or 50 % calculated by
reference to the volume of goods carried. This is a most
welcome change and, indeed, the major change from Regu-
lation 870/95 which referred to ‘the trade share in respect of
the range of ports the consortium serves in the direct trade’.
The notion of ‘trade share’ proved very difficult to calculate in
practice. By and large, a market share criterion is more
appropriate, although there could still be some difficulties in
its implementation. Clarification should be sought on the
description of the specific market involved.

4.3.2.
The experience with the Regulation since 1995 has
told that the trade share approach on the basis of port pairs is
not workable. Statistics on the basis of port pairs were
often not available or, if available, incorrect and/or outdated.
Moreover, most statistics are based on imports/exports out of
a port/country to a country at the other end and not to a port.
For the reasons mentioned above and since ports are often
chosen for pure operational reasons information on the basis
of trade shares/port pairs has often given a misleading and/or
distorted picture. The scope of competition on most shipping
lanes takes place between a variety of port permutations. A
market share approach is more or less the general rule in the
application of competition policy. The trade share approach
was the exception. Thus, the proposed change would bring the
consortia regulation into line with other block exemption
regulations.

4.3.3.
The ESC had already criticised the imprecise use of
the phrases ‘ranges of ports’ and ‘direct trade’. The adoption of
the term ‘market share’ already removes a source of ambiguity
concerning relevant calculations. However,
the ESC still
believes that the Commission should clarify ‘whether it intends
to consider transhipment within the market share equation’ (1).

4.4. Opposition Procedure (Article 7)

4.4.1.
The same observations, as under 4.3.1 relating to the
substitution of the ‘trade share criterion’ by ‘market share’,
apply regarding the opposition procedure. It is noteworthy

(1) OJ C 195, 18.7.1994.

Brussels, 1 March 2000.

that ten consortia exempted under the Opposition Procedure
of Regulation 870/95 continue to be exempted. Moreover,
notifications in process under Regulation 870/95 will be
automatically treated under the proposed Regulation. How-
ever, continuous compliance of consortia with the level of
thresholds should be monitored from time to time.

4.5. Other Conditions — Notice Periods (Article 8)

4.5.1.
Article 8 provides for a maximum initial period of
18 months from the signing of any agreement before member
lines can give notice of withdrawal from the consortium or an
initial period (during which lines are locked into the alliance)
of 30 months for highly integrated consortia.

The ESC invites the Commission to reconsider the
4.5.2.
length of period with a view of rendering it longer taking into
account, on the one hand, the need for investment to be
recuperated and, on the other, the need for flexibility to leave
the consortium.

4.6. Final Provisions (Article 13)

The ‘grandfathering’clause of Regulation 870/95 refer-
4.6.1.
ring to consortia already ‘existing’ in 1995 is evidently deleted.

5. Conclusions

5.1.
The ESC believes that Regulation 870/95 has worked
well in practice and that it has struck the correct balance
between the interests of shipowners and the interests of their
customers. It, therefore, welcomes the proposed renewal of
Regulation 870/95 until 20.4.2005 subject to the modifi-
cations proposed.

Nevertheless,

5.2.
in view of rapid changes in the liner
sector, the issue of consortia has to be studied and monitored
in a wider perspective. Further developments and experience
should be taken into consideration in assessing the legal regime
of competition rules for consortia in the future.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI