1.1 Research question and legal context
Liner shipping companies (hereinafter “carriers”)(1) Liner shipping companies operate scheduled international maritime transport services for carriage of cargo on pre-determined geographic routes, see Pozdnakova (2008) p.3. have historically enjoyed an atypical application of European Union (EU) competition law, where cartel-like agreements to fix prices and regulate capacities (“conferences”) for long were exempted from the general rules.(2) OECD (2015a). Such was tolerated since it was claimed that shipping conferences were necessary to avoid aggressive price wars amongst carriers that would stem from the industry’s fixed-cost nature and the existence of excess capacity.(3) OECD (2015b) p.2.
Today, competition law has changed the liner shipping industry, making carriers dependent on alliances and other capacity-sharing agreements, meanwhile freight rates may not be fixed. The industry continues to be characterised as capital-intensive with global concentration on the supply side, significant barriers of entry, and multiple links between competing carriers.(4)For capital-intensive container ships and barriers of entry, see Harambles (2019) pp.18-19 and 48-49; For market concentration, see El Kalla et al. (2017) pp.128 and 133-134; Luo et al. (2014) pp.171-172; For operational and structural links, see Notice 2008/C245/02 para.49 and footnote 47; Generally, see Pozdnakova (2008) pp.70-71. Consequently, competing carriers must be attentive to how information is exchanged amongst them to avoid infringements of Article 101 (Art. 101) of the Treaty on the Functioning of the European Union (TFEU). Art. 101 governs horizontal competition and prohibits “agreements, decisions by associations or concerted practices” (hereinafter “cooperation”) between undertakings which have as their “object or effect” the prevention, restriction, or distortion of competition between Member States.(5) TFEU art. 101 (1). Generally, sharing of information between competing carriers may restrict competition by enabling them to coordinate prices, qualities, or quantities of their services, to the detriment of customers (hereinafter “shippers”) and consumers.
This thesis examines how various forms of information sharing between liner shipping companies potentially can be viewed as pursuing anti-competitive objects under Article 101 (1) TFEU. Competition law within the maritime sector is no longer regulated specifically, and thus the general rules in principle apply in full.(6) Power (2019) p.603.
The question addressed is two-fold circulating Art. 101: when do exchanges of information constitute “agreements, decisions by associations, or concerted practices”? and furthermore, in which situations do such exchanges restrict competition “by object or effect”?
The topic’s relevance was illustrated in the 2016 commitment decision by the European Commission (Commission) in case AT.39 850 (hereinafter “Container Shipping”), which concerned unilateral public announcements of future price increases by competing carriers.(7) Case AT.39850 Container Shipping. The decision exemplifies and assists in answering when information exchanged between competing carriers can constitute a “concerted practice” restricting competition “by object.”
Furthermore, the research question is highly relevant for several reasons. Firstly, digital development and modernization of communication allow for increased information shared through webpages, social media, digital clouds, and algorithms, potentially being deemed “concerted practices.” For example, developments since the Covid-19 pandemic has seen container freight rates increase substantially, thus increasing the revenues for liner shipping companies to offset i.e. inflation and increased energy costs.(8) Statistia (2022). Rate increases are normally commented by carriers in their quarterly reports, for instance when Maersk after record results in Q3 of 2022 announced that “freight rates have peaked and started to normalize.”(9) Maersk (2022). Such public announcements can be deemed “hints” which reduce competitors’ uncertainty regarding Maersk’s future rate settings, potentially falling under the scope of Art. 101.
Secondly, the Commission has drafted a set of New Horizontal Guidelines (2020) and launched a consultation in March 2022.(10) Communication 2022/C164 (New Horizontal Guidelines Draft). Although not formally adopted, the draft express how the Commission will enforce information exchange cases going forward, providing interpretive guidance to companies and competition authorities applying Art. 101. The updated guidelines explicitly address information exchanges and price signalling, confirming that the EU recognises this field as particularly challenging.
Thirdly, in 2020 the Commission extended the currently applicable block exemption regulation (BER) which provides a group exemption from Art. 101 for certain agreements on joint operation (Consortia BER) between competing carriers.(11) Regulation 2020/436 art. 1. Upon its expiry in 2024, the Commission has initiated an evaluation and invited feedback from affected parties.(12) European Commission (2022a). Several voices have pointed to the increasing margins of carriers, concentrated supply, and increased transport prices as reasons not to extend the Consortia BER beyond 2024.(13) European Commission (2022b). Other parties point to improved predictability and transport frequency as reasons to prolong the exemption further.(14) Ibid.
The liner shipping sector has been, and continues to be, characterised by extensive cooperation between competitors and non-competitors alike. Such cooperation assists in securing efficient import and export of necessary and desirable products from around the globe. Moreover, much industrial development and production is geographically specialised and rely on importing various components. Such considerations add more nuances to the complex choices behind international competition policies and highlight the importance of a balanced legal framework.