S.C.H. Munn LLM Dissertation

Name : Simon C.H. Munn Date : August 14, 2011
Student ID : 03035864
Supervisor : Dr. Simon Norton, Cardiff Business School
LLM in Maritime Law LP0050 – A dissertation submitted in partial requirement for the
LLM (LLPP0IN)
Word Count : 14,948 (including Research Trail, excluding Footnotes and Bibliography)
Title : To what extent can the conflicting regulations applying to container shipping in the
EU and the U.S.A., specifically in relation to antitrust immunity for liner conferences and
liner consortia, continue to co-exist or is there a need for further review and reform ?
Contents :
I. Introduction – Pages 2-8
II. The road to 1419/2006 – Pages 9-25
III. Conferences are not dead yet : “voluntary guidelines” replace “uniform or common
freight rates.” – Pages 26-41
IV. Liner consortia : where capacity is controlled – Pages 42-50
V. A self-regulatory ‘island’ in a sea of collusion – Pages 51-53
VI Conclusion and Recommendations – Pages 54-59
Bibliography – Pages 60-66
Appendix
Research Trail – 67-69
Acknowledgements : Susan Hawker, for her guidance and advice in selecting my topic
and developing my specific question. Dr. Simon Norton for his commentary on my draft
dissertation and suggestion of additional sources of material on the wider economic
themes underlying the regulatory debate.
1

I. Introduction
An impartial observer seeking to know more about the liner shipping industry might be
intrigued to learn that it is dominated by a small number of European-based companies
and that the majority of container shipping companies are either privately held, family,
enterprises or are supported, in whole or in part, by foreign governments or their
sovereign wealth funds. He might be surprised to hear that many of these major
companies’ true financial performance is either opaque or simply unknown, but that all
weathered the historic recession of 2008-2009 intact, suffering historic losses in 2009 but
posting equally historic profits in 2010. Nor did the trauma of the recession induce any
consolidation in the industry via mergers and acquisitions, as we saw occur in other
industries. In part, this was a result of the financial support that was forthcoming to the
industry from various governments, banks and private investors during the recession; but
of equal importance was the existence of liner consortia and the legal framework that
supports their existence. Without these vehicles of operational cooperation, it is difficult
to envisage how the container shipping companies could have orchestrated such a swift
and orderly contraction in the supply of ship capacity to meet the much-reduced levels of
cargo demand in 2009, nor how they could have organized its gradual re-activation in
2010 as global freight markets rebounded. Even our impartial observer will have seen
stories of the five hundred or more ships laid up in the Singapore roads or in various
estuaries and fjords around the world at the height of the trade crisis, as these were
publicized in the mainstream media as well as in the shipping press. Nothing more starkly
portrayed how sudden a slowdown had been inflicted on global supply chains as those
2

aerial photographs of the fleets of empty ships lying idle for months on end. What might
be more difficult for our impartial observer to comprehend, however, is how participants
in this rather odd, but clearly financially resilient, industry were legally permitted to
engage in price-fixing cartels in the EU until late 2008 and continue to enjoy this
privileged legal status elsewhere around the world still today. More to the point, what
interests this particular observer is how effective the changes in the regulatory
environment in the EU can be, specifically the outlawing of liner conferences in
Regulation 1419/2006 and the constraints placed on liner consortia in Regulation
906/2009, in restraining an industry which is accustomed to ‘serial collusion’, which has
always existed under an umbrella of antitrust immunity and which continues to enjoy
these privileges to the full outside the EU’s jurisdiction.
Our review of the available literature on the subject contained one common theme, that
price in container shipping is primarily a function of available capacity. In addition, the
Maritime Guidelines1
make clear in clause 19 that container cargo is considered a captive
market, subject to one-way substitutability :
“Once cargo becomes regularly containerized it is unlikely ever to be transported again as
non-containerised cargo.”
As nearly two-thirds of global container ship capacity rests in the hands of three
independent carriers (Maersk Line, Mediterranean Shipping Company and CMA-CGM)
1
Guidelines on the application of Article 81 of the EC Treaty to maritime transport services, OJ 2008
C245/2
3

and the three major liner consortia (the Grand Alliance, the New World Alliance and the
C/K/Y/H alliance.)2
, we will argue that the conditions exist for a collusive oligopoly to
operate quite freely outside of the EU’s jurisdiction or, in a more restrained way, within
the EU; but in either case, with ramifications which will most definitely affect the EU
market and EU shippers. A relatively small group of carriers coordinating their behaviour
can manipulate capacity, which in turn can affect prices for their services which their
customers are forced to accept, as they have no readily available alternative means of
transport for their cargo. Such coordinated market behaviour, whether parallel behaviour
or outright collusion, was exemplified in the rapid and coordinated removal and lay-up of
vessels during late 2008 and 2009, as market rate levels plummeted below carriers’
marginal costs, and again with the more gradual reintroduction of vessels during 2010 as
global freight volumes rebounded, forcing market rate levels up to supra-competitive
levels. From the shippers’ perspective, the carriers’ actions during 2010 were viewed as
“unacceptable shipping practices”3
, actions which breached rate and contractual
agreements by the imposition of new and opportunistic rate increases and surcharges or
which artificially constrained capacity and container equipment supply so as to force up
prices.
It has proven quite difficult for the ocean carriers materially to affect the structure of their
industry, which is sometimes skewed by national strategic interests (the desire for export
reliant countries to own the means of transporting their products to market, for example)
the egos of independent shipowners who fiercely protect their companies’ independence,
2
Alphaliner – Top 100 : Operated fleets as per 27 March 2011
3
‘Global Shippers’ Forum calls for more regulatory reform of liner shipping’, The Shippers’ Voice,
September 10, 2010 (www.shippersvoice.com)
4

and which remains fragmented despite the consolidation which has taken place over the
last twenty or so years. Christa Sys’ analysis4
demonstrates that the liner industry has
seen increased levels of concentration during the period 1999 to 2009, but is still rather
fragmented in comparison with other sectors of industry. Sys characterizes the liner
industry as a ‘loose’ oligopoly with pockets of ‘tight’ oligopoly in certain trades, with no
single dominant carrier, but moving from “a formal collusively oriented market towards a
tacitly collusive market” (especially in the EU where liner conferences have been
eliminated.) We might have expected the precipitate decline in trade volumes and freight
rates during late 2008 and 2009 to have contributed to further consolidation in the
industry, by means of carriers going out of business or being absorbed by their
competitors in mergers or acquisitions, but there were no such developments of any
significance. If we accept that the ‘natural’ state of the liner shipping industry is
oligopoly then the legal framework has to recognize this fact and be designed in such a
way as to deter the less savoury, anti-competitive, aspects of oligopolistic behaviour
We will argue that an industry which has existed, and which continues to exist, in a cosy
collusive cocoon requires something far more rigourous and globally accepted than self-
regulatory mechanisms like the Maritime Guidelines and Regulation 1/2003 to restrain its
propensity for anticompetitive behaviour. In reviewing the activities of the European
Commission during the sixteen years following the promulgation of Regulation 4056/86,
we will see a regulatory body aggressively seeking to restrain the carriers from expanding
the antitrust immunity they enjoyed for price-fixing into almost every aspect of their
4
‘Is the container shipping industry an oligopoly ?’ Transport Policy, Volume 16, Issue 5, September
2009, Pages 259-270
5

commercial behaviour. During this time, the Commission displayed a progressively more
questioning attitude towards the industry’s unique status in relation to the application of
competition law, which attitude transformed into the reforming zeal that led to
Regulation 1419/2006. The Commission progressed from a tacit acceptance of the
‘special’ nature of the industry, implicit in the UNCTAD Code of Conduct for Liner
Conferences and Regulation 4056/86, to the conclusion that all that made the industry
unique was the block exemption itself. However, having arrived at this conclusion,
having enacted Regulation 1419/2006 and despite the cautionary words of the Council
regarding the need to eliminate the disparity between the EU’s and other regulatory
regimes, the reforming zeal of the Commission appeared to evaporate. The tumultuous
economic situation that developed in 2010, that caused global trade volumes to soar once
more, threw into sharp relief the fact that Regulation 1419/2006 was not the end of a
reforming process but could only be a step in a much larger process of modernizing the
global regulatory regime for ocean carriers. As long ago as 19915
, Franck and Bunel
noted that there were, broadly speaking, three main systems of regulation then existing :
that in the U.S.A., that in the EU (or European Economic Community as it was then) and
the United Nations Liner Code. Franck and Bunel foresaw the gradual demise of
traditional liner conferences in the face of the growth of independent operators and
regulatory reform, but believed the liner market would remain an oligopoly and that,
“In a conference-free world, some cooperation would still be necessary between the
oligopolists [to avoid duplication of services], many of which should be consortia since
5
‘Contestability, competition and regulation. The case of liner shipping’, Bernard Franck and Jean-Claude
Bunel, International Journal of Industrial Organization 9 (1991), 141-159 North-Holland
6

the use of large modern ships as a competitive frequency is beyond the resources of most
single lines”.
Our review of the activities of the Federal Maritime Commission in the USA, in relation
to the three major global liner consortia and the most powerful discussion agreement, the
‘Transpacific Stabilisation Agreement’ (‘TSA’), along with the stalled reform of the U.S.
Shipping Act in Congress, will help to demonstrate the severity of the challenge facing
the global regulatory authorities in harmonizing their conflicting regulatory regimes and
the difficulties the carriers face in compliance.
We hope to demonstrate, through this study, that an industry as oligopolistic as today’s
liner shipping industry and which has become accustomed to habitual collusion on price-
fixing and capacity management over many decades, operating highly sophisticated
networks of interlinked global services, many of these being operated by liner consortia,
requires a consistent global regulatory framework in which to operate. The traditional
conference system was, in the opinion of Professor Haralambides, a “low cost solution to
allow an international industry to self-regulate.”6
One of its merits was that it was a
universally accepted framework and one which the carriers were very comfortable with.
Reforming this framework unilaterally, to eliminate collective rate-making but retain
collective capacity management in liner consortia, as the EU has tried to do, has created a
dysfunctional global regulatory environment which presents compliance issues to the
6
‘Determinants of Price and Price Stability in Liner Shipping’, Professor Hercules E. Haralambides,
Center for Maritime Economics and Logistics (MEL), Erasmus University Rotterdam, Workshop on The
Industrial Organization of Shipping and Ports, National University of Singapore, 5-6 March 2004,
Singapore
7

carriers and facilitates the use of capacity management in and between the major liner
consortia and the major independent carriers (whether via parallel marketing behaviour,
tacit or outright collusion) to manipulate freight rates. What is required now is a new set
of globally accepted standards for the industry, a new UNCTAD Code as it were, which
would provide the carriers with ease of compliance and re-assure the shipping public that
the carriers’ scope for collective action is strictly limited to the operational sphere only.
8

II. The road to 1419/2006
The European Commission was never quite happy with Regulation 4056/86 which had
been foisted upon it by the Council as a rather belated and politically motivated
alignment of EU regulations with the UNCTAD Code of Conduct for Liner Conferences.
Up until the time of its implementation in 1986, the Commission’s ability to regulate the
container shipping sector had been constrained by Regulation 141/62, which had
removed the transport sector from the remit of Regulation 17/62 (which outlined how the
Commission could apply Articles 81 and 82, now Articles 101 and 102 TFEU to
industry). In the words of Mario Monti7
,
“Regulation 4056/86 marked the first step in imposing effective regulatory constraints on
a sector that had previously been largely self-regulated. Although the sector has always
been subject to the competition rules of the Treaty, little, if anything, had previously been
done to curtail anti-competitive practices in the sector.”
With the block exemption conferred upon liner conferences by Regulation 4056/86, the
Commission found itself in the awkward position of having “to adapt the competition
rules to conferences rather than the other way round.”8
This adaptation of the competition
7
Speech/03/294 Prof. Mario Monti, European Commissioner for Competition Policy, ‘A time for change ?
– Maritime competition policy at the crossroads,’ European Shippers’ Council, Antwerp, 12 June, 2003.
8
L.Ortiz Blanco, ‘Personal Reflections on the Development of EC Maritime Competition Policy:Past and
Future’, Competition Law and Shipping, The EMLO Guide to EU Competition Law in the Shipping and
Port Industries’ Philip Wareham (Cameron May,2010.)
9

rules to liner conferences evolved in Commission decisions and EU case law over the
subsequent sixteen years.
An interesting series of decisions unfolded during the 1990’s which pitted the carriers’
quite broad interpretation of the UNCTAD Code and Regulation 4056/86 against the
European Commission’s much more restrictive view. In reviewing three decisions in
particular, we will see that the carriers wanted to extend the boundaries of antitrust
immunity from the maritime portion to the land-side portion of the freight rates; how they
understood “common” to mean “agreed in common” and not necessarily the “same”
when it came to the level of conference freight rates; how they planned to use artificial
capacity adjustments to sustain or increase freight rates and how they perceived
“stability” to mean the preservation of existing operators in a given trade and not just the
stable provision of liner services and pricing for those services. The Commission’s
decisions in these cases led inexorably to the reforms enacted in Regulation 1419/2006.
Perhaps the most controversial conference in recent times, and certainly the one which
evoked the strongest statement of objections from the Commission, was the Trans
Atlantic Agreement or ‘TAA’. The TAA emerged at a time when there had been
significant destructive competition in the Trans Atlantic trades, resulting from too many
carriers and too many ships chasing too little cargo. The previously existing, traditional,
conferences (‘NEUSARA’ and ‘USANERA’) had failed to create in the market the
promised stability that was supposed to be a conference’s raison d’être, so a quite
revolutionary new concept was conceived. This was to create a conference which would
10

have membership rules flexible enough to entice carriers which had previously been
staunchly independent and non-conference minded to join. So, there was one group of
members which was ‘structured’ and which operated collectively much like a traditional
liner conference, and another group of ‘unstructured’ carriers which retained a large
degree of the independence they had exercised as previously non-conference carriers.
Having two different types of membership within a single conference was not unheard of
before, but having differing types of full membership with one set of rates applying to
‘structured’ members and another, lower, set of rates applying to ‘unstructured’ members
was a truly novel feature. In addition, the TAA provided for a Capacity Management Plan
(‘CMP’) which, controversially, permitted the carriers to set limits on the amount of
cargo they could each carry, which in turn limited the maximum market share they might
aspire to, which limitations were not determined by the actual vessel capacity. In short, it
was a mechanism which permitted capacity to be artificially withdrawn from the market
in order to sustain or to increase freight rates, not a temporary or permanent withdrawal
of real capacity in response to falling demand. It was these two aspects of the TAA that
were the real focal point of the Commission’s decision.9
At paragraph (319) of the decision, the Commission states,
“TAA is not a liner conference agreement exempted by Article 3 of Regulation No
4056/86, the main reasons being that:
- it establishes at least two rate levels ,
- it provides for non-utilization of capacity.”
9
Trans-Atlantic Agreement (TAA decision): Commission decision 94/980/EC, OJ [1994] L 376/1
11

The Commission was at pains to make clear that the TAA failed to measure up not only
to the definition of a liner conference given in Regulation 4056/86 but also to the
internationally recognized norm enshrined in the UNCTAD Code of Conduct for Liner
Conferences, noting that the definition in Regulation 4056/86 had been “taken word for
word” from the UNCTAD Code. The Commission was sending a clear message to the
carriers that it considered their agreement was not only objectionable in the EU but also
internationally. What appears to have concerned the Commission most about the TAA
was that it sought to, “disguise as a conference what is really an agreement with
outsiders, independents wishing to maintain price flexibility.”10
The twin-track pricing
permitted to TAA’s ‘structured’ and ‘unstructured’ members, although agreed jointly
between the carriers, did not amount to ‘uniform or common freight rates’ in the meaning
intended by Regulation 4056/86 :
“The phrase ‘uniform or common’ does not admit of the interpretation that, in order to
fall within the block exemption for liner conferences, it is sufficient for a group of
carriers to set freight rates which vary from one member to another, but which are
discussed in a joint structure. In order that shippers might secure the stabilization benefits
envisaged rates must be common, not only established in common.”11
What might, at first glance, appear to be a semantic issue is really a critical insight on the
Commission’s part of just how important orchestrated parallel pricing behaviour is to the
10
TAA decision paragraph (343)
11
12

ocean carriers. From their perspective, it was not essential for all carriers to offer the
same price for their services, provided they could all increase their rate levels by a similar
quantum. Traditional conferences without the market power to implement their pricing
policies were mere talking shops, but a ‘super-conference’ like the TAA could offer the
best of both the ‘conference’ and ‘independent’ worlds : uniform rates for some carriers,
discounted pricing for others, but a common level of rate increase for all. Indeed, in the
TAA’s case, the increased revenues for all extended well beyond the TAA membership;
the Commission noting that a ‘follow my leader’ strategy had seen adjacent markets and
the few remaining independent carriers mimicking TAA’s tariff structures and pricing
strategies, effectively “eliminating competition over a substantial part of the services in
question.”12
Quite how important an insight this was, is demonstrated by the fact that the
carriers in the Trans-Atlantic trade had made previous attempts at orchestrating parallel
pricing behaviour via the ‘Eurocorde’ and ‘Gulfway’ discussion agreements; the former
of which elicited a detailed investigation by the Commission and a letter of warning in
January, 1992 advising the member carriers that their agreement did not warrant an
exemption pursuant to Article 85 (3) and that they proceeded to operate under its terms
“at their own risk.” We will discuss further, in the following chapter, how the power to
orchestrate parallel pricing behaviour via the antitrust protection offered by a discussion
agreement is still wielded by the ocean carriers today in the Trans-Pacific trade.
The CMP was found by the Commission to be incapable of falling within the scope of
Article 3 (d) of Regulation 4056/86 as it was, “a tool intended primarily for suspending
unused capacity so that it can be artificially maintained, and the trade and prices for
12
13

European exports artificially increased.”13
Unfortunately for the carriers, by the time the
case was being considered, volumes in the westbound leg from Europe to the USA were
exceeding the return volumes in the eastbound leg, so the economic justification for the
CMP, which was envisaged to operate in the westbound direction only, had disappeared.
This was another clear ‘line in the sand’ for the carriers established in EU case law, that it
was acknowledged by the Commission that there was a strong correlation between the
supply of container ship capacity in the market and the level of freight rates. While
temporary or permanent adjustments in capacity in response to changes in cargo demand
would be accepted as a natural reaction to changing market dynamics, the TAA’s quite
blatant plan to manipulate the available container ship capacity in order to bolster or
improve its members’ freight rates, would not. One final issue of note was raised in the
TAA case, but finally ruled upon in the Far Eastern Freight Conference (‘FEFC’)
decision14
, this being the extension of conference pricing activities to the inland portion
of the total freight charges. Both the TAA and the FEFC were accustomed to operating
under common inland tariffs. The Commission, however, was of the view that, “the scope
of the block exemption cannot be wider than the scope of Regulation (EEC) No 4056/86
itself.” As Article 1(2) of 4056/86 stated that, “it shall apply only to international
maritime transport services from or to one or more Community ports”, the Commission
was of the opinion that inland transportation could not, by definition, fall under the scope
of the block exemption.
13
14
Far Eastern Freight Conference (FEFC): Commission decision 94/985/EC, OJ [1994] L 378/17
14

The case against the FEFC was initiated by the Deutsche Seeverladerkomitee (the
German Shippers’ Council or ‘DSVK’) in 1989, which organization objected to the rates
for cargo handling and inland transportation being agreed collectively by the members of
the FEFC. The Commission’s decision was published in December 1994, not long after
its landmark decision against the TAA. Echoing its previously stated position in that case,
the Commission found that the appropriate regulation for examining the DSVK’s
complaint against the FEFC was not 4056/86 but rather 1017/68, since the latter
regulation applied “to certain agreements, decisions and concerted practices as well as to
abuses of a dominant position ‘in the field of transport by rail, road and inland
waterway.’”15
The Commission brought further convincing evidence supporting its
interpretation of the regulations by making reference to the fact that the European
Parliament had, during the consultative phase preceding 4056/86, attempted to include
intermodal transport within the block exemption, but that this had been rejected by the
Council. From the carriers’ perspective, winning the argument to extend the block
exemption granted by 4056/86 to inland price-fixing was almost as important as retaining
it for the maritime portion of the freight rates. With the advent of containerization, ocean
carriers were capable of offering their customers a ‘door to door’ service such as had not
been possible before. What had previously required multiple transactions and bills of
lading, could now be accomplished in a single transaction under a single, multimodal, bill
of lading. Some carriers were even offering a single lump-sum price per container for the
total door-to-door transaction. From the commercial perspective, the extension of
carriers’ services into the hinterlands feeding cargo into the ports at which their vessels
called, via multimodal bills of lading, was a resounding success. In support of this new
15
FEFC decision paragraph (57)
15

reality of through services and bills of lading from inland points, the FEFC argued that
the stabilizing role of liner conferences would be undermined if its members were at
liberty to compete freely on inland pricing, that carriers would use discounted inland
pricing as a means of circumventing the “uniform or common” ocean freight rates in the
FEFC’s ocean tariff. While the Commission did recognize the commercially beneficial
impact of door-to-door services it was rigid in its interpretation of the block exemption,
“while the development of multimodal transport may constitute a means of improving
transport services, collective price fixing for carrier haulage services does not.”16
It was also very clear in reaffirming that the block exemption had limits and in delivering
its decision against the FEFC, that the carriers had infringed Article 85 [now 101] of the
Treaty as well as Article 2 of Regulation 1017/68,
“The fact that the cartelization of one part of the activities of shipping lines is judged to
be compatible with the competition rules is not in itself a justification for the exemption
of all the activities of those companies.”17
With these two important cases, the Commission had taken on the two largest
conferences operating in the EU : one a new, hybrid, type of liner conference consisting
of traditionally conference-minded and traditionally independent-minded carriers in the
TAA, the other one of the oldest established liner conferences in the world, in the FEFC.
16
17
16

In both cases the carriers had tried, unsuccessfully, to re-interpret or extend the meaning
of liner conference as defined in the UNCTAD Code and Regulation 4056/86, in both
cases in an effort to extend their pricing power beyond the confines of a traditional liner
conference. The carriers in both conferences found themselves forced to adjust their
conference activities to conform to the Commission’s interpretations of the regulations,
despite appeals which delayed the implementation process. The third case18
, that against
the Trans-Atlantic Conference Agreement (‘TACA’) was important as much because of
the arguments leading up to the decision as for the decision itself. This case was the
pivotal point beyond which regulation 4056/86 was clearly living on borrowed time. The
Commission had progressed from being a defender of the traditional conference
privileges contained within the UNCTAD Code and the block exemption to a more
questioning attitude towards the very economic foundations of the block exemption, the
supposed unique economic status of the liner industry.
The TACA was a new conference formed in the wake of the TAA, in effect the carriers’
attempt at removing the objectionable elements of that agreement while retaining the
same membership. Gone was the CMP, gone was the two-tier membership structure and
its corresponding two-tier tariff structure; inland price-fixing was retained however and,
following a settlement agreement made between the TACA and the FMC during 1995,
individual service contracting was permitted within certain limitations agreed by the
TACA members. The Commission found the TACA objectionable in three key respects :
price-fixing of inlands, the terms and conditions pertaining to service contracts and the
18
Trans-Atlantic Conference Agreement (TACA decision): Commission decision 1999/243/EC, OJ [1999]
L 95/1, [1999] 4 CMLR 1415.
17

fixing of maximum levels of freight forwarder compensation. Of particular note, also, is
the Commission’s explicit reference to the “appreciability of the effect on competition”
resulting from the fact that “the TACA parties are between them members of some forty
further liner shipping conferences serving ports in the Community.”19
This case was not
just about the TACA, the Commission was sending a message to all liner conferences
operating in the EU at that time. First, the Commission clinically removed the façade of
the TACA to display an agreement that retained certain of the key characteristics that had
conferred such market power as the TAA had briefly enjoyed, these being : the
reservation of certain sectors of the market to the former unstructured members of TAA
(the former structured members of TAA had agreed to refrain from soliciting contracts
from the NVOCC community) and retention of twin-track pricing in service contracts,
ostensibly at the shipper parties’ request. This led the Commission to conclude that the
TACA had made itself an indispensable ‘club’ to be a member of, appealing as it did to
“a much wider number of shipping lines than would otherwise be the case.”20
What is most striking in this lengthy transcript is part XIV. entitled ‘The Notion of
Stability.’ In the space of thirty-eight paragraphs, the Commission attempts to
deconstruct the economic under-pinning of the carriers’ case and rejects their long-held
assumption that Regulation 4056/86 was somehow designed to protect them from their
own worst commercial instincts. Again, we find the Commission speaking to a wider
audience,
19
TACA decision paragraph (383)
20
18

“a thesis frequently put forward by liner shipping companies operating on the main world
trades……….is that the liner shipping market is so different from all other markets for
goods and services that it must be exempt from the normal rules of competition which
apply to those other markets.”21
The carriers’ advocates argued that to avoid the instability inherent in the liner shipping
industry, the strict pricing discipline of agreements like the TACA was indispensable and
this must be extended to the fixing of inland prices, too (the same argument put forward
in the FEFC case.) The Commission’s riposte was withering,
“By implication, the measures to restrict competition have to be extended to any service
provided by even a single member of the conference lest the members of the conference
are tempted to undermine their agreement to fix maritime prices by competing in other
ways.”22
For the carriers’ arguments to succeed, they needed to show that there is a difference
between “fair” and “destructive” competition. That their struggle was an uphill one is
made clear by reference to the example judgements the Commission relies upon in its
arguments, such as the judgement of the Court of First Instance (‘CFI’) in Case T-29/92
SPO v. Commission [1995] ECR II-289, point 294, where the Court considered that no
distinction could be made between normal and destructive competition. In referring to
21
Paragraph (332) TACA decision
22
19

other capital intensive industries, the Commission is now clearly reluctant to accept that
the liner industry is a special case,
“most of the factors relied on in support of the thesis that there is no equilibrium in the
liner shipping market are not peculiar to liner shipping.”23
The Commission provides an assessment of whether or not the core theory and the theory
of contestable markets, which it terms “heterodox theoretical models”, can be applied to
the liner shipping industry and finds both wanting. The former, because it believed the
carriers could use service contracts on their core business to protect it from the spillover
effect of discounted prices being offered to fill reserve capacity. The latter, because it
observed that with the level of concentration in the industry at that time, “the pool of
potential new entrants is very small indeed.” In either case, it acknowledged that the
global liner industry was a complex business that no single economic theory could easily
explain. As if to add insult to injury, in its final remarks on the subject it made reference
to the prospect of monopoly-induced waste, quoting Scherer and Ross,
“Price-fixing agreements, tacit oligopolistic collusion, and monopoly pricing can also
stimulate the wasteful accumulation of excess capacity.”24
This was taking the carriers’ arguments for extensive price-fixing authority across their
total door-to-door freight costs to its logical economic conclusion, that a focus on service
23
24
Industrial Market Structure and Economic Perfomance, Frederic M.Scherer and David Ross (Houghton
Mifflin, 1990) p. 674
20

alone would ultimately be the only means of differentiating one carrier from another,
encouraging carriers to build more and larger ships. However, the “accumulation of
excess capacity” in the industry is not necessarily a result of monopolistic or collusive
activity, it appears to be a natural feature of all shipping markets as the supply of capacity
is ponderously slow in keeping up with the fast-changing dynamics of cargo demand.
Martin Stopford25
illustrates this natural and long-established characteristic of the
industry by quoting a nineteenth century commentator,
“The philanthropy of this great body of traders, the shipowners, is evidently
inexhaustible, for after five years of unprofitable work, their energy is as unflagging as
ever, and the amount of tonnage under construction and on order guarantees a long
continuance of present low freight rates, and an effectual check against increased cost of
overseas carriage.”26
That the demand side of the equation can alter swiftly was starkly demonstrated in the
abrupt slump in cargo volumes in late 2008 and during 2009, as the global financial crisis
led to a global trade crisis. As it can take years to organise the design, financing,
purchase, building and eventual deployment of new ships, there are inevitably periods of
time when supply outstrips demand and freight rates fall, and similarly times when
demand outstrips supply and freight rates soar. The shipowner who gets it right will
secure healthy profits in the space of a few months, whereas the shipowner who gets it
wrong can find himself over-extended at the bank, with a fleet of ships which he can not
25
Maritime Economics, Martin Stopford, (Routledge, 1997.)
26
J.C.Gould, Angier and Co., 31st
December, 1894
21

find employment for. The existence of antitrust immunity for conferences, discussion
agreements and liner consortia, provides the carriers with the tools to orchestrate their
commercial and operational behaviour so as to maximize the revenue potential from
market upswings; that is, those periods of time where demand outstrips available supply
or even where supply can be artificially constrained to create a ‘peak demand’ situation.
While the Commission may have pushed their argument a little too far into the theoretical
realm, their position was clear in that the container shipping industry was not structurally
different than any other capital intensive industry, where the supply of available capacity
is not as agile and flexible as the existing or potential demand for that capacity. The
Commission had, with the support of the Court of First Instance over the course of these
three key cases, laid bare the fact that what made the industry ‘special’ was the block
exemption. The EU authorities no longer accepted there was anything inherently ‘special’
about the industry that automatically justified broad antitrust immunity. That this
immunity was a unique privilege, indeed the only one which exempted price-fixing, and
one to be strictly interpreted at that, was made clear by the Court of First Instance (‘CFI’)
in its TAA judgement,
“the block exemption provided for by Article 3 of Regulation No 4056/86 cannot be
interpreted broadly and progressively so as to cover all the agreements which shipping
companies deem it useful, or even necessary, to adopt in order to adapt to market
conditions.”27
27
Judgement of the Court of First Instance of 28 February, 2002 in Case T-395/94 Atlantic Container Line
and Others v Commission [2002] ECR II-0000, Paragraph 146
22

The broad affirmations by the Court of First Instance of the principle decisions of the
Commission against the TAA, FEFC and TACA in early 2002 coincided with the
publication of the OECD Secretariat’s report on Competition Policy in Liner Shipping.
This Report was part of a general review of regulatory reform in OECD countries driven
by the tendency towards “greater reliance on competitive markets” to promote economic
well-being in those countries. It was both an affirmation of the direction the Commission
had been taking and a catalyst for further action, to follow the course they had embarked
upon to its logical conclusion,
“it is recommended that Member countries, when reviewing the application of
competition policy in the liner shipping sector, should seriously consider removing anti-
trust exemptions for price fixing and rate discussions.”28
Thus, it was no surprise to hear Joos Stragier, the then Head of the Transport Unit of the
Commission’s Directorate General for Competition (‘DG Comp’), questioning the future
of Regulation 4056/86 during his speech to the 10th
Annual EMLO Conference in London
in 2004. Following the consultative phase of its review process DG Comp had come to
the ‘provisional conclusion’ that,
28
Competition Policy in Liner Shipping, Directorate for Science, Technology and Industry, Division of
Transport, Organisation for Economic Co-operation and Development, 16th
April 2002
23

“the cumulative conditions of Article 81 (3) [now Article 101 (3) TFEU] would not (any
longer) appear to be fulfilled with respect to the specific activities referred to in Article 3
of [Regulation 4056/86.]”29
Stragier outlined how the Commission’s review of 4056/86 had found liner conferences
coming up short on all four of the requirements for exemption contained in Article 101
(3) : firstly, in relation to economic benefits or efficiencies, he saw no firm causal link
between price-fixing and the maintenance of reliable liner services; secondly, he saw no
evidence of consumer benefits resulting from conference price-fixing activity; thirdly, he
saw no evidence that price-fixing was an indispensable element in providing reliable
services, especially with the advent of individual service contracts and the emergence of
liner consortia; finally, in relation to the non-elimination of competition, he noted that
this was a “very complex exercise” that could only be undertaken on a trade by trade (or
conference by conference basis.) The Commission’s perspective on the future of the
block exemption was consistent with the prevailing economic analysis which, in looking
into the question of whether or not it had caused higher costs or higher benefits for the
economy as a whole, had come to the conclusion that, “the social cost of exemptions is
growing over time.”30
Two trends, in particular, were causing the demand for liner
services to become increasingly inelastic over time, these being the growth in
globalization of production (which meant that goods were less likely to be produced
locally again) and the reduction of transportation costs through innovation (which was
29
‘The Review of the EU Competition Regulation for Maritime Transport. State of Play and Next Steps.’,
Joos Stragier, Head of Transport Unit, DG Competition, EC Commission, 10th
Annual EMLO Conference,
London, Friday 18 June, 2004.
30
‘The liner shipping industry and EU competition rules.’, Marco Benacchio, Claudio Ferrari and Enrico
Musso, Transport Policy, Volume 14, Issue 1, January 2007, Pages 1-10
24

decreasing the impact of transportation costs on the final value of the goods.) These
trends, combined with the anti-competitive privileges conferred upon the carriers by the
block exemption, would lead to an increasing risk of abuse of a dominant position in the
opinion of Benacchio, Ferrari and Musso, who supported the removal of the block
exemption. The momentum was building inexorably towards removal of the block
exemption, which ultimately was enacted in Regulation 1419/2006 and liner conferences
ceased to be a feature in EU liner shipping markets as of October 2008.
25

III. Conferences are not dead yet : “voluntary guidelines” replace “uniform or common
freight rates.”
As Dr. Anna Bredima neatly summarises, outside the EU,
“despite its flaws, imperfections and obsolescence, the liner conference system still
remains the basis of the regulation of liner shipping worldwide.”31
The repeal of Regulation 4056/86 has left the EU regulatory regime at odds with that
applying elsewhere in the world, which remains broadly in line with the UNCTAD Liner
Code.32
The European Commission appears not to consider the conflict of laws that
important, or even a conflict of laws at all,
“Although conferences are tolerated in other jurisdictions, no conflict of law arises. This
would only be the case if one jurisdiction were to require carriers to participate in
conferences, whereas another was to prohibit it. This is not the case.”33
31
“Shoot First, Ask Questions Later…”:International Implications Resulting from the Unilateral
Abolition
of Liner Conferences in the EU,The EMLO Guide to EU Competition Law in the Shipping and Port
Industries’ , Philip Wareham (Cameron May ,2010.)
32
Convention on the Code of Conduct for Liner Conferences , United Nations Conference on Trade and
Development (UNCTAD) , Geneva, 6 April, 1974
33
Europa Press Release MEMO/07/355 “Antitrust: Draft Guidelines for maritime transport - frequently
asked questions”, Brussels, 13th
September, 2007.
26

This rather self-serving, blinkered, viewpoint seeks to ignore the reality that in those
jurisdictions which still tolerate conferences, if not actually requiring carriers to
participate in them, the very same carriers which must carefully resist their collusive
habits in the EU may give them free rein. It also ignores the explicit direction given by
the Council to the Commission in paragraph (11) of Regulation 1419/2006,
“Liner conferences are tolerated in several jurisdictions. In this, as in other sectors,
competition law is not applied in the same way worldwide. In light of the global nature of
the liner shipping industry, the Commission should take the appropriate steps to advance
the removal of the price fixing exemption for liner conferences that exist elsewhere……”
One of the unforeseen effects of the implementation of the Single European Act (‘SEA’)
in late 1992 was the liberalization of the EU’s external trade policy. Many of the
protectionist measures which individual nations previously had in place were eliminated
and,
“contrary to those who expected integration to lead to a fortress Europe, regional
integration in Europe has led to trade policy liberalization.”34
Whether by design or by accident, the EU has been on a trajectory of trade liberalization
since the SEA and, as Daniel Marx remarked35
as long ago as 1967, multinational
regulation has the great advantage of,
34
‘What Happened to Fortress Europe ? External Trade Policy Liberalization in the European Union’,
Brian T. Hanson, International Organization 52. 1, Winter 1998, pages 55-85
35
‘Regulation of International Liner Shipping and ‘Freedom of the Seas’’, Daniel Marx, Jr., The Journal of
Industrial Economics, Vol. 16, No. 1 (Nov., 1967), pages 46-62
27

“preserving freedom of entry for merchant shipping and the attendant advantage of
helping preserve competition from the most efficient operators”
whereas unilateral or bilateral regulation is,
“very apt to seriously impair this aspect of ‘freedom of the seas’, which would be directly
contrary to current efforts to liberalize world trade.”
The Council obviously had this wider policy perspective in mind in giving its direction to
the Commission but, sadly, the latter considered its work complete with the promulgation
of Regulation 1419/2006.
The nature of conferences had been affected by regulatory actions outside of the EU as
well as by the Commission’s robust interventions against the TAA, the FEFC and the
TACA; indeed, the Commission’s decision on the Revised TACA36
was heavily informed
by legislative developments in the U.S. The U.S. Ocean Shipping Reform Act of 1998
(‘OSRA’) introduced confidential service contracts in the trades regulated by the Federal
Maritime Commission (‘FMC’), by which individual shippers could enter into direct
contractual relationships with individual carriers, regardless of their liner conference
affiliation. This dramatic legislative initiative, affecting as it did all trades to and from the
single largest consumer market in the world, undermined the traditional cornerstone of all
36
Revised TACA: Commission decision 2003/68/EC, OJ [2003] L26/53
28

liner conferences in the U.S. since the promulgation of the UNCTAD Liner Code, their
operation under ‘uniform or common freight rates.’ Quite rapidly, the traditional and
often quite complicated conference tariff pricing structures, which were prime exemplars
of price discrimination, based upon what price the cargo could be expected to bear (in
effect, the cargo’s price elasticity of demand) devolved into much simpler, customer-
specific, lump-sum pricing based on container size and total container volume. In the
words of Professor Haralambides,37
“The introduction of the container and freight all kinds (‘FAK’) virtually eliminated
carriers’ ability to charge ‘what the traffic can bear’, or differentiate prices according to
the stowage characteristics of the goods.”
Coinciding with the legislative and confidential contracting developments in the U.S.A.
was a gradual proliferation of vessel sharing agreements (‘VSA’s’), alliances and liner
consortia throughout the 1990’s and early 2000’s. In the early years in which conferences
operated, most carriers operated independent services. The theory was that conference
carriers would compete on aspects of their service provision, given that their prices were
the ‘uniform or common’ freight rates of their respective conference’s tariff. However,
the more carriers shared vessels and the more they operated joint services, the less
differentiated their services became. The proliferation of confidential service contracting
and the intensification of alliance activity inevitably led to the ‘commoditisation’ of the
container shipping industry, at least in the major east/west trades, where price is
37
‘Determinants of Price and Price Stability in Liner Shipping’, Professor Hercules E. Haralambides,
Center for Maritime Economics and Logistics (MEL), Erasmus University Rotterdam, Workshop on The
Industrial Organization of Shipping and Ports, National University of Singapore, 5-6 March 2004,
Singapore
29

determined predominantly by the relationship between the supply of carrying capacity
and the cargo demand for it. Today, as is the case with other commodity markets, there
are nascent indexes of freight rates in the major trades (such as that maintained by the
Shanghai Shipping Exchange) and even container derivatives markets based on these
indexes.
Economic and regulatory factors have combined to transform the industry dramatically
since the days when the UNCTAD Liner Code was agreed upon in 1972 and Regulation
4056/86 was enacted in 1986, perhaps fatally undermining the cornerstone of liner
conferences forever, yet still the carriers persist in clinging to the antitrust privileges they
confer wherever a jurisdiction permits them to. Whilst it may have been lost on some
regulators, or even ignored by others like the European Commission, it has not gone
unnoticed by the carriers that while their days of overt price-fixing may have been
undermined by confidential contracting, liner conferences and discussion agreements
working in conjunction with liner consortia permit them to exchange valuable
information and to influence capacity (supply), which in a commodity market is a key
determinant of prices.
We will turn now to a brief review of one such powerful discussion agreement still
operating in one of the world’s largest trades, measured in terms of container volume and
cargo value, that from Asia to the U.S. The Transpacific Stabilization Agreement38
(‘TSA’) consists of fifteen members39
, which together comprise over ninety per cent of
38
FMC Agreement No. 011223-028
39
American President Lines, Cosco, Evergreen, Hanjin, Hapag Lloyd, Hyundai Merchant Marine, ‘K’ Line,
Maersk Line, NYK Line, OOCL, CMA-CGM, China Shipping, MSC, Yang Ming and Zim.
30

the available capacity in the trans-Pacific trade (and seventy-four per cent of global
container ship capacity.) The TSA is, arguably, the most powerful and influential
discussion agreement still operating in the world today. Although not a traditional liner
conference, as its members do not operate under a single tariff containing “uniform or
common freight rates”, nor do they contract with shippers collectively, but rather
individually in confidential service contracts (the content of which are filed with the
Federal Maritime Commission), the TSA provides a forum in which information is
exchanged and voluntary pricing guidelines are agreed which heavily influences the
carriers’ market behaviour. Finally, in its current form, the TSA is not subject to any
significant competitive pressure from non-member (independent) carriers, a market
feature which both Regulation 4056/86 and the UNCTAD Liner Code both considered a
prerequisite for granting antitrust immunity.
The authority the carriers allow themselves under the Agreement is quite wide-ranging,
especially in relation to information exchange. They may “collect, exchange and
disseminate statistics, data, reports, documents and other information relevant to the
Trade” and such information may be “past, present or expected future conditions in all or
any portion of the Trade” including “past, current, or expected containership capacity”
and “carrier revenues, profits and losses; the Parties’ round-trip economics in the
Transpacific trades”. In addition, the members may “establish, implement and maintain,
jointly or individually, transportation rate policies, practices and guidelines, including
those relating to all aspects of the separate tariffs and service contracts of each of the
Parties” and may even “seek clarification or explanation of, a Party’s actual or apparent
31

fulfillment or lack of fulfillment of an Agreement guideline or objective.” We will
contrast this wide-ranging authority with regard to information exchange enjoyed by the
members of the TSA with the much narrower scope permitted to the same carriers when
operating in the EU by the EU’s Maritime Guidelines at a later stage of our discussion.
Economic theory would have us believe that companies adjust their behaviour to the most
restrictive regulatory regime applying in the various markets in which they do business.
When it comes to merger and acquisition activity, the Maersk absorptions of
P&ONedlloyd and Sea-Land for example, and liner conference activity as it relates to the
European trades, this is also true for the liner industry. What the TSA example
demonstrates, however, is that when the regulatory regime provides a licence to collude,
the carriers will exploit it to the utmost even today. The TSA has simply substituted
voluntarily agreed “uniform or common” freight rate guidelines for the “uniform or
common freight rates” of a traditional liner conference. We would venture to say that
these rate guidelines are a no less effective form of concerted action, given the right
market conditions, than a common tariff. The so-called “rate restoration” guidelines for
the 2010 service contracting season, which customarily takes place during May and June
of each year, were published six months in advance in October 2009, comprising of a
General Rate Increase (‘GRI’) of USD 800-1000 per 40 foot container and a Peak Season
Surcharge (‘PSS’) of USD 400 per 40 foot container. Considering the overall market
volume in the trade, these proposed increases translated into an approximate total revenue
increase for the carriers of USD 8.3 billion.
32

Shortly after the announcement of these not insignificant freight rate increases, Maersk
Line (the largest provider of capacity in the trade and, generally, either the number one or
number two carrier in terms of cargo volume) re-joined the TSA, becoming its fifteenth
member line.40
With the additional market power that this development endowed the TSA
with, the members were emboldened to go for an “emergency revenue program” effective
in January, 2010 of USD 400 per 40 foot container, or approximately USD 4.1 billion on
an annualized basis. The apparent success of this ‘Emergency Revenue Charge’ and
rebounding cargo volumes in early 2010 encouraged the TSA members in March to
reaffirm their commitment to the 2010-2011 revenue programme published initially the
previous October.41
As a result of the proliferation of confidential contracting, we can not
know for certain whether these various programmes to increase freight rates were
universally successful, but we can be sure in saying that the implementation of these
guidelines is a far more insidious process than that of a traditional liner conference’s
general rate increase (‘GRI’.) The latter is collectively agreed, published and applied in
the conference members’ collective tariff, service contracts or loyalty contracts with the
conference’s customers. In contrast, the TSA implements its guidelines via the medium
of its fifteen members which, in turn, implement them in their many hundreds of
individual service contracts, each individual customer believing he has a contract unique
to him but which is, effectively, little more than a contract of adhesion when market
conditions permit TSA members to apply rigidly the voluntarily agreed freight rate
increase guidelines to each service contract. Ironically, the confidentiality of service
contract terms enshrined in OSRA works more in favour of the carriers than their
40
TSA Press Release “ Maersk Line to Rejoin TSA”, Oakland CA, November 9, 2009
41
TSA Press Release “Asia-US Container Lines Reaffirm Commitment to 2010-2011 Revenue Program”,
Oakland CA, March 22, 2010
33

customers during those times where cargo demand is equal to or greater than the supply
of ship capacity, as Professor Haralambides noted, “to attempt to enhance competition by
concealing (price) information is a contradiction in terms.”42
We would contend that the
various TSA revenue improvement plans referred to above were indeed a resounding
success, otherwise the furore in the U.S. shipping community would not have been
triggered, which in turn triggered a response from Washington.
The actions of the TSA, and ocean carriers generally, during 2010 elicited a response
both from the regulators and legislators in the USA. The regulatory response took the
form of Fact Finding Investigation No. 26 initiated by the FMC on March 17, 2010. The
FMC “received a growing number of reports that importers and exporters have had
difficulty obtaining vessel space, particularly in the U.S.-Asia trades”43
, also that
exporters were “experiencing problems with the distribution and availability of shipping
containers for their goods on those same Asian trades.” The fact-finding officer was
ordered to investigate general conditions in the Trans-pacific trade for imports and
exports, the carriers’ practices in supplying container equipment for U.S. exports, the
carriers’ plans regarding deployment of vessel capacity and the behaviour of carriers with
respect to cargo bookings. After conducting more than one hundred and seventy
interviews with various market participants, the final report delivered in December 2010
was not very illuminating in terms of explaining whether or not the vessel capacity and
container equipment supply issues occurred by design or by chance. This lack of detail
frustrated some, such as the National Industrial Transportation League (‘NIT League’),
42
See note 6
43
Fact Finding Investigation No. 26, Vessel Capacity and Equipment Availability in the United States
Export and Import Liner Trade, Federal Maritime Commission, March 17, 2010 (www.fmc.gov)
34

an organization representing U.S. shippers, which expressed its “profound
disappointment”44
at the final report. The NIT League’s President, Bruce Carlton, saying
“we were expecting that a ‘fact finding investigation’ conducted over a nine month
period would have yielded some facts about what happened – or did not happen – during
this protracted disruption of the shipping market in the Pacific.” Still, we can perhaps
sympathise with Rebecca Dye, the leader of the FMC’s fact finding investigation who
noted that with some ninety-nine per cent of liner cargo volume moving under
confidential service contracts the investigating team “quickly ran right into the provision
that under the Shipping Act, the exclusive remedy for breach of contract is in the
courts.”45
Thus, while the carrier members of the TSA could act in concert in voluntarily
agreeing upon their freight rate guidelines and implementing these in their individual
service contracts with their customers, their customers’ only recourse to address their
grievances with the carriers’ behaviour was, ultimately, the courts.
Two of the actions which resulted from this FMC investigation do, however, provide a
clear indication of where the FMC fact finders believed the primary source of the
shippers’ grievances lay : the first was increased oversight of the TSA (along with its
sister organization, the ‘WTSA’ or Westbound Transpacific Stabilisation Agreement) via
an Order46
that both discussion agreements file verbatim transcripts of their meetings so
as to “provide the [FMC] with critical information relating to whether member carriers
are improperly discussing capacity”; the second was increased carrier alliance oversight,
44
NITL News, December 10,2010
45
American Shipper Newswire, December 15th
, 2010
46
Special Reporting Requirements For The Transpacific Stabilization Agreement And The
Westbound Transpacific Stabilisation Agreement , September 3rd
, 2010
35

which subject received an Order of its own on January 12th
, 201147
which we will discuss
at a later stage. At this point in our discussion, it is enough to say that the FMC Order
relates to the three global liner consortia mentioned in our Introduction. The Order
directed at the TSA and WTSA openly makes reference to a failed attempt by the TSA in
December 2008 to expand its authority to include “discussion and agreement on capacity
deployed by the membership”, notes that with the “addition of Maersk, TSA members
now control approximately 94 % of the Transpacific trade”, that the TSA carriers
“imposed similar or identical successions of incremental price increases” and, finally,
that “shippers expressed the opinion that the ocean carriers continued to withhold vessel
capacity from the market in a collective effort to raise prices by leveraging access to
scarce capacity and equipment.”
What the TSA example clearly shows is that conferences and discussion agreements still
can be incredibly powerful forces of concerted carrier activity in the container trades
outside of the EU. Moreover, many of their prime movers are EU-based companies and
all TSA members are also actively involved in the trades to and from the EU member
states. The advance notices of price increases (up to six months ahead of their
application), the wide scope of information exchange permitted (especially in relation to
present and future capacity deployment intentions), the almost complete domination of a
trade by a single discussion agreement (94 per cent of capacity being in TSA members’
control) and the collective application of common rate guidelines to individual customer
contracts, are all at odds with EU regulations. The obvious concern raised by the
existence of organizations like the TSA that, based on the apparently remarkable success
47
Special Monitoring Requirements For Certain Global Alliance Agreements, January 11th
, 2011
36

of the TSA in manipulating the trans-Pacific market in its favour during 2010, the
temptation to extend the boundaries of collusion beyond that trade might be difficult for
the carriers to resist, seemed not to trouble the European Commission. Some might argue
that this is none of the Commission’s business, but Council Regulation 1419/2006
explicitly makes it the Commission’s business to advance the removal of antitrust
immunity for price-fixing wherever it may persist outside of the EU. Perhaps the
Commission did not feel the need to enter the fray in part because of the involvement of
the U.S. authorities.
As a result of the acknowledged limitations of the FMC’s scope of action in addressing
the ire of the shipping public with the ocean carriers’ actions during 2010, legislative
wheels were set in motion by Senator Oberstar, to overhaul the Shipping Act of 1984.
House Resolution 6167, otherwise known as the “Shipping Act of 2010”, drew its
inspiration in part from the report of the Antitrust Modernization Commission of 200748
.
The Commission asserted that, “no immunity should be granted to stabilize prices in
order to provide an industry with certainty and predictability for purposes of investment
or solvency” and made specific reference to the container shipping industry, saying,
“there does not appear to be anything unique about ocean carriers that would merit
holding them to a lesser standard” [than the full force of U.S. antitrust law.] Senator
Oberstar’s Bill did not propose to withdraw antitrust immunity in its entirety, but broadly
reflected what the EU had accomplished with Regulations 1419/2006 and 906/2009. It
would have eliminated antitrust immunity for liner conferences and discussion
agreements such as the TSA. It did, however, propose to retain antitrust immunity for
48
Antitrust Modernization Commission, Report and Recommendations, April 2nd
, 2007 (www.amc.gov)
37

liner consortia, taking the EU’s thirty per cent maximum market share for consortium
members as a “reasonable place to begin.”49
In addition, the Bill would have addressed
the issue of dispute resolution. The Shipping Act of 1984 provides only one recourse to
those seeking redress of grievances in a dispute over a service contract and that is to go to
court. The new Bill would have empowered the FMC to act as a mediator and arbitrator
of service contract disputes between carriers and their customers. Unfortunately, the Bill
fell victim to the November congressional election, as did its proponent, Senator
Oberstar, who lost his seat. The momentum which had been building behind the
legislative initiative was lost by the time the new session of Congress commenced early
in 2011, which has a very different political complexion and very different policy
priorities than its predecessor. Despite this interruption of the legislative process, which
promised broadly to harmonize the U.S. and EU regulatory environments, the FMC
proceeded with its own Notice of Inquiry (‘NOI’) into the impact of Regulation
1419/2006 in November 2010.50
The publicly available responses to the various questions
raised in the NOI ranged from the predictable, like those of the Japanese Shipowners’
Association (‘JSA’) and the Asian Shipowners’ Forum (‘ASF’) which were in favour of
retaining antitrust immunity for liner conferences to the more politically-correct but
equivocal, like those of the two major European carriers CMA-CGM and Maersk Line,
both of which claimed that the removal of antitrust immunity in the EU had had little or
no effect on their business. It is interesting to contrast these individual positions of two of
the largest carriers in the world with that of the World Shipping Council (‘WSC’), a trade
49
‘Oberstar Calls for Broad Ocean Shipping Reform’, The Journal of Commerce Online, June 11th
, 2010
50
An Analysis of the European Union Repeal of the Liner Conference Block Exemption
(www.fmc.gov/noi-eu_study/)
38

association of which they are both members (indeed, both are in fact board members of
the Council !), in response to H.R.6167,
“WSC does not believe, however, that elimination [of antitrust immunity for liner
conferences] would be beneficial to U.S. international commerce. We therefore do not
recommend this change.”51
It is somewhat odd that these two carriers could subscribe to this public statement by the
WSC in October 2010 yet take the complete opposite position a matter of weeks later in
their responses to the FMC’s NOI. If the removal of antitrust immunity in the EU two
years previously had had no appreciable impact on their business, why fight for its
retention in the U.S. ? This nicely illustrates the carriers’ somewhat ambivalent attitude
towards conferences, defending them vigourously through the medium of trade
associations like the WSC, JSA and ASF but being rather less enthusiastic about doing so
in individual public pronouncements. If we are truly to believe CMA-CGM’s assertion
that, “the TSA has no real impact on our business in this trade [i.e. the trans-Pacific], as
TSA actions are non-binding recommendations”52
then the foregoing analysis of the
TSA’s actions during 2010 and the response to them from the regulatory and legislative
bodies in the U.S. is all make believe. On the contrary, we believe it is safe to say that
liner conferences and discussion agreements continue to provide an effective means for
the carriers to influence markets in their favour and, as a corollary, to their customers’
disadvantage. We would also say that the persistence of antitrust immunity for liner
51
Analysis and Comments on H.R. 6167, World Shipping Council, October, 2010
52
Response to FMC NOI-EU Study by CMA-CGM, Marseilles, January 17th
, 2011 (www.fmc.gov/noi-
eu_study/)
39

conferences in almost every major trading nation outside of the EU presents an obvious
threat of parallel marketing behaviour (if not outright collusion) by the major ocean
carriers and should, therefore, have elicited a much more vociferous defence, and even
outright promotion, of Regulation 1419/2006. Instead, the European Commission opted
to console itself that there was no conflict of laws between the EU and other jurisdictions
around the world, while the carriers used their antitrust immunity to the fullest extent
possible in those jurisdictions, notwithstanding the fledgling efforts of the U.S.
authorities to intervene in restraining the worst effects of the carriers’ collective, albeit
innocuously termed, “voluntarily agreed” activities. Quite why the reforming zeal
displayed by the European Commission in the years prior to 1419/2006 has waned is
something of a mystery. They clearly were aware of discussion agreements like the TSA
and considered their commercial activities a ‘hard-core’ restriction of competition that
would not be compatible with EU law, stating this in their decision in the Revised TACA
case53
and in the words of Joos Stragier,
“discussion agreements could in competition policy terms be even worse than
conferences, since they are liable to eliminate effective external competition to
conferences.”54
The current size of the membership of the TSA, its members’ control of a large majority
of the available capacity in the Trans-Pacific trade and the undoubted success of the
53
Revised TACA: Commission decision 2003/68/EC, OJ [2003] L26/53
54
10th
Annual EMLO Conference, International Maritime Competition Law Facing Up To Regulatory
Change, London, Friday 18th
June, 2004 , The Review of the EU Competition Regulation for Maritime
Transport, State of Play and Next Steps, Joos Stragier
40

TSA’s various revenue programmes during late 2009 and 2010, under the guise of its
‘voluntary guidelines’, perhaps go to show just how prophetic Stroogier’s warning was.
Still, we find the European Commission’s apparent lack of interest in promoting the
global alignment of regulatory regimes to conform with its own very concerning.
41

IV. Liner consortia : where capacity is controlled
We noted that the FMC implemented two initiatives as a result of its fact finding
investigations in 2010. The first related to the ‘price-fixing’ part of the equation, the
Order requiring increased oversight of the TSA and WTSA, whereas the second related to
the ‘capacity fixing’ part of the equation, the Order requiring special monitoring of the
three major global consortia. The latter stated that,
“Each of these three ‘alliance’ agreements gives their members authority, in multiple
U.S. trade lanes, to discuss and collectively implement ‘capacity rationalization,’ which
is defined as ‘concerted reduction, stabilization, withholding, or other limitation…….on
the size or number of vessels or available space offered…..to shippers in any trade or
service.”55
The Order goes on to say that,
“Last year’s ‘severe disruptions in the ocean leg of the global supply chain experienced
by U.S. exporters and importers’, have led the Commission and staff to conclude that
more timely notice and reporting are needed for global alliances, which have the potential
to be ‘complex and anticompetitive operational agreements with capacity rationalization
authority’ in multiple trade lanes.”
55
‘Special Monitoring Requirements for Certain Global Alliance Agreements’, Federal Maritime
Commission, January 11th
, 2011
42

Clearly, the U.S. authorities suspected that the carrier members of these liner consortia,
all of which are also members of the TSA, had helped to manipulate capacity supply in
order to ensure the successful implementation of the TSA’s “voluntary guidelines” during
2010. Putting it another way, had it not been for the antitrust immunity enjoyed by the
carriers in their discussion agreements and liner consortia, the market situation might
have been entirely different during 2010.
It is illuminating to review some of the key characteristics of these liner consortia
agreements, not all of which are restricted to purely operational cooperation. The least
complex of the three is that pertaining to Cosco, K Line, Yang Ming and Hanjin
(‘CKYH’)56
, which is worldwide in scope and allows these carriers to “consult and agree
upon the deployment and utilization of container ships” as well as, “the addition or
withdrawal of capacity from the Trade.” In addition to complying with U.S. law, Article
2.2 specifically states that the “Parties intend this Agreement to be in conformity with
Article 101 of the TFEU Treaty as implemented by Regulation 1/2003 and Commission
Regulation (EC) No 906/2009”.
The ‘Grand Alliance Agreement II’57
is comprised of three members, Hapag Lloyd, NYK
and OOCL and is a little more sophisticated. Although the Grand Alliance operates
services on the three major east-west trades, the publicly available version of their
agreement relates only to trades between the U.S. ports and seventy-two other countries,
56
FMC Agreement No.011794 The COSCON/KL/YMUK/Hanjin Worldwide Slot Allocation and Sailing
Agreement
57
FMC Agreement No. 203-011602-012 (3rd
Edition)
43

including the nineteen maritime members of the EU (that is, those with ports) and every
maritime nation in Asia, North Africa, the Mediterranean and Middle East. In addition to
permitting the carriers to coordinate their ocean services, this Agreement goes much
further. The carriers may also engage in joint purchasing or leasing of “equipment,
facilities or inland transportation services (land, water, or rail)” and joint contracting for
“port terminal facilities, terminal services and stevedoring services”. In the originally
filed Agreement in 1997, and applicable until late 2004 (although not to trades covering
routes to and from countries belonging to the EU), there was also extensive authority
conferred upon the members to enter into joint service contracts with customers and to
“discuss and agree on a voluntary adherence basis as to common positions with respect to
ocean, inland and intermodal rates”. Article 16 states that the “aspiration of the parties to
pursue individual growth in excess of the natural market growth must not be irresponsible
and should be discussed frankly.” Finally, Article 17.G. permits the carriers to “obtain,
compile, maintain and exchange among themselves, information related to any aspect of
operations in the Trade………whether past, current, or anticipated.” As initially
conceived, we might say that this Agreement was little more than a mini liner conference
agreement between the three carriers, enabling them to co-ordinate not only their ocean
services, but also their pricing policy (via the same, rather innocuously phrased,
“voluntary adherence” methods that we have seen the TSA members put to such good
use) and market share aspirations.
The ‘New World Alliance’ Agreement (‘TNWA’)58
is comprised of three members, APL,
Mitsui OSK Lines and Hyundai Merchant Marine. Similar to the Grand Alliance
58
FMC Agreement No. 011960 A Space Charter and Sailing Agreement
44

Agreement II, this Agreement’s geographical scope is limited to trades governed by the
U.S. Shipping Act of 1984 even though the New World Alliance carriers operate joint
services in non-U.S. trades as well. It also permits the carriers to “exchange forecasts and
other data, and may make projections and plans relating to future capacity under this
agreement.” What is, perhaps, most interesting in the TNWA is how it demonstrates the
interwoven nature of the ocean carriers’ services, as it details the co-operative agreements
between other carriers and alliances. Article 6.B. lists in quite some detail the following
subcharters in the trade from Asia to the USA : APL to CMA-CGM, Hyundai to
Evergreen, MOL to Evergreen, APL to Hapag Lloyd, APL to Hanjin & Hyundai to
Hanjin. Of the three consortia agreements, TNWA is the one which has the most detailed
language regarding compliance with EU competition law. Firstly, it commits the carriers
to undertake a “self-assessment to ensure that their activities are compliant with the
exemption criteria of Article 81(3) of the [EU] Treaty” (which is now Article 101(3)
TFEU.) Secondly, it states that the carriers will, “take all reasonable steps to ensure:
1. that any exercise of the authority in Article 5.A.2. (b) that involves a change in
capacity [in trades including ports in the EU] is effected in such a manner as to
amount……to a “temporary capacity adjustment” within the meaning of Article 3(2) (b)
of Regulation 823/2000 [now Article 3. (2) Of Regulation 906/2009]
2. that consents referenced in Article 6.B.1. (c) [relating to sub-charter of TNWA space to
third parties] are not unreasonably withheld; and
3.that each Party is permitted to offer, on the basis of an individual contract, its own
“Service Arrangements” (as defined in European Commission Regulation (EC) No
823/2000.”
45

On the one hand, the fact that the C/K/Y/H and TNWA members felt the need to state
again what is already quite clear in EU law shows us how difficult it is for the carriers to
navigate their way through the differing regulatory regimes in the many different
jurisdictions that their consortia agreements touch. They are obviously concerned to be
seen to be abiding by the letter of the law, so as not to invite the attention of the European
Commission or the FMC. On the other, the fact that these statements are there clearly
implies that the carriers intend, just as we saw in the case of the TSA, to take full
advantage of antitrust immunity wherever possible and are not adjusting their behaviour
to the most stringent regulatory regime, that of the EU.
There are well in excess of a hundred such ‘vessel sharing’ or ‘alliance’ agreements
published on the FMC’s website, but these three are of most interest to our discussion,
given that they relate to the three major global consortia which control approximately
thirty per cent of global container ship capacity. From our review of their key
characteristics above, we see that they may be limited to operational co-operation on
maritime services only or may extend to land-side operational co-operation too; may have
aspirations to co-ordinate pricing activity and market behaviour (to be, in effect, a ‘mini
liner conference’); may be interwoven with other carriers or consortia via multiple sub-
charter agreements; and may be so self-conscious about complying with EU regulations
that they have to state clearly how their collective behaviour will differ in trades
including ports in the EU. What they do all have in common, however, is a core principle
which is to manage their capacity collectively. According to the traditional viewpoint,
46

both in the EU and the U.S., it is the efficiencies gained from the collective use of these
consortia fleets that justify the antitrust exemption of liner consortia activities. As the
European Commission says in Regulation (EC) No 906/2009, “consortia……generally
help to improve the productivity and quality of available liner shipping services by reason
of the rationalization they bring to the activities of member companies and through the
economies of scale they allow in the operation of vessels and utilization of port
facilities.”
This sentiment echoes that of the OECD report from 2002, the ‘third freedom’
recommended by the report being that,
“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 parties involved.”
The problem with this statement is how we define ‘undue market power’. In Regulation
906/2009 the Commission defines this as anything in excess of a thirty per cent market
share in a relevant market for any single liner consortium. Their reasoning being that a
market share below this threshold ensures that any single liner consortium is “subject to
effective actual or potential competition from carriers that are not members of that
consortium.” In this way, the shipping public will obtain a share of the efficiencies which
the liner consortium creates, which none of its members individually can provide.
However, as we have seen from our analysis above, these liner consortia’s services are
not tied exclusively to the ‘relevant market’ as the EU might view it, but are global in
47

character; moreover, it can not be said with any certainty that each consortium’s services
are discrete, quite the contrary in fact as, in many instances, there is significant overlap
(in the form of sub-chartering agreements) between them. While it may be a relatively
straightforward exercise to calculate each consortium’s market share in the EU, what this
tells us about that consortium’s ‘market power’ is, perhaps, less significant than its share
of available capacity and its ability to manipulate this capacity. According to the
Commission’s own analysis59
, these three liner consortia control over one third of global
container ship capacity which percentage increases to over seventy per cent when the
fleets of the top three independent European-based carriers are added. Given the
Commission’s intimate knowledge of the industry, gained through its case history in the
sixteen years following 4056/86, and its inherent propensity to interpret antitrust
regulations in the broadest possible way, and given its clear understanding that the supply
of available capacity is what primarily influences price in the container shipping markets,
one wonders why there are not more stringent stipulations in regard to manipulation of
capacity in Regulation 906/2009. It states that,
“an essential feature inherent in consortia is the ability to make capacity adjustments in
response to fluctuations in supply and demand”
yet it leaves these adjustments solely in the hands of the carriers. That the Commission
recognizes that capacity is a key influencer of price is clear from paragraph 53 of the
Maritime Guidelines,
59
Technical Paper on the Revision of Commission Regulation (EC) No 823/2000 on the Application of
Article 81 (3) of the Treaty to Certain Categories of Agreements, Decisions and Concerted Practices
Between Liner Shipping Companies (Consortia) as last amended by Commission Regulation (EC) No
611/2005 of 20 April, 2005, Commission Services document, October 2008.
48

“In liner markets, capacity data is the key parameter to coordinate competitive conduct
and it has a direct effect on prices.”
The impressive way in which the liner industry orchestrated the rationalization of its
global services as trade volumes plummeted, laying-up over five hundred container ships
during 2009 in the process, and the equally orderly and impressive re-introduction of
tonnage during 2010 as trade volumes rebounded was either a remarkable example of
parallel marketing behaviour or, as the FMC clearly suspected from its own
investigations, the result of the ‘invisible hand’ of collusion at work between the
members of the three major liner consortia and the three major independent operators, all
of which were, coincidentally, members of the TSA. Indeed, the cautionary words of
paragraph 53 may describe precisely what occurred during late 2009 and throughout
2010,
“Exchanges of aggregated capacity forecasts indicating in which trades capacity will be
deployed may be anticompetitive to the extent that they may lead to the adoption of a
common policy by several or all carriers and result in the provision of services at above
competitive prices.”
The FMC Order now places a monthly, rather than quarterly, reporting requirement on
these three consortia, which reports must contain details of their sailings, TEU and
deadweight capacities and utilization levels by service string and by carrier. In addition,
49

all three consortia are mandated to advise the FMC of any planned increases or decreases
in capacity amounting to five per cent or more. We would venture to say that the FMC is
focusing upon the correct facet of potential anti-competitive activity, the exchange of
information about and the manipulation of available capacity by the carriers, rather than
relying upon some arbitrary market share benchmark to protect against abuse as the
European Commission appears content to do. Not one of the three consortia has a market
share in excess of thirty per cent in the EU, yet European shippers were as vociferous in
their complaints about the carriers ‘unacceptable shipping practices’ in 2010, which
included the restriction of capacity and equipment supply in order to drive up prices, as
were their U.S. counterparts, leading one to conclude that the anti-competitive practices
suspected of being at play by the FMC were at play globally and not solely in the U.S.
markets. Finally, given the carriers’ extensive history of testing the boundaries of legal
definitions, exemplified in the case history of the TAA, FEFC and TACA, one finds it
quite surprising to find the following statement appearing in paragraph (3) of the
preamble to Regulation 906/2009 in referring to the definition of liner consortia,
“The legal form of the arrangements is less important than the underlying economic
reality that the parties provide a joint service.”
Surely the last thing this industry needs is the latitude to operate under unwritten
agreements, when their written ones raise such cause for concern.
50

V. A self-regulatory ‘island’ in a sea of collusion
That the European Commission was aware how radical a step it was taking in breaking
ranks with the other major regulatory regimes around the world in outlawing conferences
is demonstrated by the publication of the Maritime Guidelines. As Olivier Guersent60
stated in his address to the European Maritime Law Organisation in October 2008, “No
other sector of the economy currently enjoys specific guidelines from DG Comp” and,
“by adopting guidelines, the Commission effectively restricts its own margin of
discretion in future cases” as “guidelines are binding on the Commission.” What the
Guidelines are most at pains to address in the container shipping sector is the issue of
information exchange, specifically its effects when it “reduces or removes the degree of
uncertainty as to the operation of the market in question with the result that competition
between undertakings is restricted.”61
The characteristics of the information exchanged
that might give rise to such effects are its frequency, along with its age and the period to
which it refers, the most problematic being,
“the exchange of future data…………especially when it relates to prices or output.”62
However, the Guidelines do not deal with information exchanges by members of liner
consortia “to the extent that they are ancillary to the joint operation of liner transport
60
The Guidelines on Maritime Transport Services, Oliver Guersent, Acting Director, Transport, Post and
other services, DG Competition, European Commission, Speech to the European Maritime Law
Organisation, Copenhagen, 24 October 2008
61
Maritime Guidelines, paragraph 43.
62
51

services and the other forms of co-operation covered by the block exemption.”63
That the
kind of ‘problematic’ exchanges of information identified in the Guidelines were taking
place during 2010 in the U.S. and, by implication, in other trading blocs around the
world, has been established by the FMC’s investigations into the matter in response to the
general uproar from the shipping public about the carriers’ collective activities.
One has to question why the European Commission adopted such a passive position
during 2010 in the face of an equally vociferous shipping public in the EU. Having taken
the extraordinary step of drafting the Guidelines, in conjunction with carrier and shipper
lobbyists; acknowledging how ‘privileged’ the maritime sector was to be given such
unique guidance; knowing that the carriers would retain many of the price-fixing
privileges elsewhere in the world which were being outlawed by Regulation 1419/2006,
and witnessing the intense investigatory activity of the FMC in the U.S. maritime trades,
surely the Commission should have acted sooner. It is almost as if the Commission
considered Regulation 1419/2006 its final objective, rather than the first step in the
radical revision of the long-established, global, ‘rules of the game’ that it actually was. Its
unwillingness to acknowledge that any conflict of laws would arise as a result of its
unilateral action supports this view. Strictly speaking, again in the words of Mario
Monti64
, the Commission was correct in asserting that, “ a conflict of laws arises only
when one jurisdiction requires something that another jurisdiction prohibits”. From the
practical viewpoint, however, the carriers were, almost overnight, given the unenviable
task of navigating their way through a ‘Dr.Jekyll and Mr. Hyde’ regulatory framework.
63
64
See note 4 above.
52

To expect carriers, which had grown accustomed over decades to price-fixing as a natural
and legitimate feature of their business culture, to adjust their behaviour so as to be
‘Dr.Jekyll’ in the EU , whilst continuing their ‘Mr. Hyde’ behaviour to the fullest extent
permissible by the law elsewhere in the world, is naïve in the extreme. Acknowledging
that the carriers would continue behaving outside of the EU as if nothing had changed, as
exemplified by the carriers’ activities in organizations like the TSA, the failure of the
Commission actively to promote the removal of price-fixing outside the EU, as directed
by the Council in Regulation 1419/2006, is almost inexcusable and certainly short-
sighted. It is difficult to believe quite how the carriers might not, inadvertently if not
deliberately, exchange the types of information of such concern in the Guidelines or
indulge in outright collusion permissible in their agreements outside the EU, when their
services and relationships are so global and intertwined in nature. Perhaps a certain
degree of paranoia on this point is what motivates consortia agreements like that of the
C/K/Y/H and TNWA to make specific reference to compliance with EU regulations
above all others. A major alteration in the ‘rules of the game’ like Regulation 1419/2006
merited far more than a set of Guidelines, it deserved active lobbying by the Commission
for adoption by their fellow competition authorities around the world so as to create a
new global standard for the industry. Such a major transition also warranted, perhaps,
much closer oversight of carriers’ behaviour in the new regulatory environment as
opposed to the complete ‘hands-off’ approach the Commission adopted.
53

VI Conclusion and Recommendations
The world is broadly divided into two regulatory regimes : the EU, in which liner
conferences and their price-fixing privileges are now outlawed by Regulation 1419/2006,
and the rest of the world, in which the UNCTAD Code of Conduct for Liner Conferences
permits both conferences and discussion agreements to continue operating; liner
consortia, on the other hand, enjoy antitrust immunity both in the EU and elsewhere in
the world. We have shown in our discussion of the activities of the TSA that collusion on
price-fixing in discussion agreements is very much alive and well, also that the
management of capacity on a global scale is relatively easy to orchestrate, requiring only
that six entities have the collective will. Moreover, the impact of the carriers’ collective
activities in the parts of the world where they do operate under a wider umbrella of
antitrust immunity than they enjoy in the EU, is certainly capable of affecting the EU
countries and EU customers. The current conflicting regulatory regimes also place
unrealistic expectations and an unfair burden of compliance on the industry, with the
carriers, perhaps understandably, being unable to restrain their collusive habits where
permitted outside of the EU but paranoid about the spillover effects of that collusive
activity in the EU markets (as exemplified in the CKYH and TNWA alliance agreements’
references to the more stringent EU regulations.) We have shown that the modern-day
TSA is little different in its effects than the TAA was in the early 1990’s, which only
goes to show how little the carriers’ behaviour has changed in the last twenty years or so.
The key to both these agreements’ success being a pliable enough membership structure
54

to facilitate the inclusion of nearly all of the carriers operating liner services in a trade
combined with the ability of the members collectively to agree upon and implement
common levels of rate increases. In addition, the link between available capacity and
price is common to both agreements, the TAA having its CMP and the TSA making its
own abortive attempt in late 2008 to extend its authority to include the discussion of
capacity. The FMC has been laudably active in its oversight of the discussion
agreements, but perhaps needs to take more heed of the cautionary words of Joos Stragier
in relation to their more pernicious effects, specifically the elimination of effective
external competition. The FMC has not yet arrived, conceptually, at the conclusion the
European Commission arrived at in 2002. The sooner it does so, the sooner the next step
can occur.
We believe that the reforms enacted in Regulation 1419/2006 must be seen as the start of
a process of global regulatory reform rather than as the end result of the Commission’s
zeal in pursuing liner conferences to their extinction in 2008. The logical next step for the
Commission would be to look towards the U.S. for a potential ally in adopting the
reforms enacted in Regulation 1419/2006 into U.S. law. That there are willing ears in
Washington is demonstrated by the FMC’s Notice of Inquiry into the impact of the EU
reforms and the stalled ‘Shipping Act of 2010’ in Congress. Furthermore, the European
Commission has a vested interest in having the same, or similar, regulations applying at
the U.S. end of the Trans-Atlantic trades, indeed in all U.S. maritime trades, given the
significant role played in these trades by European carriers. That the Commission can
collaborate effectively with its counterparts in Washington is exemplified in the joint
55

report it published with the U.S. Department of Transportation in November 2010 on
‘TransAtlantic Airline Alliances: Competitive Issues and Regulatory Approaches’ which
aimed “to build compatible regulatory approaches to competition issues in the airline
sector.” We believe our analysis supports the need for a similar combined research
project being initiated in the container shipping sector, with a view to aligning the
regulatory regimes of two of the world’s largest trading blocs and eliminating liner
conferences and discussion agreements in the USA. Any such collaborative study in
container shipping must also include representatives from the carriers and shippers, as
both of these constituencies must live with the outcome. At the same time, given that the
EU has, effectively, repudiated the UNCTAD Code of Conduct for Liner Conferences it
would also be advisable to initiate a parallel discussion within that forum to adopt a
replacement set of guidelines for carriers’ operational co-operation more suited to the
modern liner shipping industry and to advocate the removal, once and for all, of
UNCTAD’s approval of liner conferences.
That liner consortia are an invaluable, indeed critical, element in the efficient operation of
modern liner shipping services is difficult to argue against. However, given the
unanimous agreement that available capacity is a primary influencer of price in container
shipping markets and given that liner consortia control a majority of global container ship
capacity, aside from the ‘big three’ European-based independent carriers, the propensity
of these agreements to be a source of significant anticompetitive activity must be guarded
against. Unlike liner conferences, which could be swept away almost at the stroke of a
pen in Regulation 1419/2006, liner consortia present a far greater regulatory challenge.
56

As we have shown, the market share threshold commonly used in the EU may not be a
sufficient guard against the exercise of ‘undue market power’ by one or more liner
consortia acting together. The collective removal of hundreds of vessels from global liner
trades during 2009 and their gradual re-introduction in 2010 was clearly no accident,
clearly had an impact on freight rates (judging by the shippers’ outcry in 2010)
everywhere and affected the EU markets as much as those of any other region. However,
detecting the worst anti-competitive instincts of the carriers at work during a global
economic crisis is much easier than detecting the same instincts at work during less trying
economic times. Then it becomes quite difficult to discern between a temporary
adjustment of capacity supply in response to a change in demand, as opposed to a
deliberate withholding of capacity supply to simulate a situation of artificial peak
demand. This difficulty is exemplified in the FMC’s latest Notice of Inquiry into the
issue of slow steaming, seeking to understand if the practice is a means of reducing costs
by burning less bunker fuel, an environmentally friendly initiative, another means of
managing capacity (effectively ‘hiding’ excess capacity in existing service loops by
adding vessels and running them at lower speeds) or a combination of all three.
We would not go so far as to advocate sweeping liner consortia away, but we would
advocate greater standardization of consortia agreements and greater oversight of the
larger and more complex consortia agreements. If the international community had the
political will to create the UNCTAD Code of Conduct for Liner Conferences, to help
standardize the behaviour of liner conferences around the world, it should now have the
will to produce similar guidance for liner consortia, which have, arguably, replaced liner
57

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