10 October 2023 (Lloyd's List) - THE European Commission has finally brought the axe down on the consortia block exemption regulation that had allowed container lines to avoid elements of antitrust law after carriers failed to persuade the regulator to extend the rule.

“The commission has concluded that the CBER no longer promotes competition in the shipping sector and therefore it will let it expire on April 25, 2024,” it said in a statement.

The decision comes after a long-running review of the regulation, which was last extended for a four-year term in 2020 and has today published its staff working document summarising the findings of its evaluation.

“Overall, the evidence collected from the stakeholders points towards the low or limited effectiveness and efficiency of the CBER throughout the 2020-2023 period,” the commission said.

“Given the small number and profile of consortia falling within the scope of the CBER, the CBER brings limited compliance cost savings to carriers and plays a secondary role in carriers’ decision to co-operate.

“Furthermore, over the evaluation period, the CBER was no longer enabling smaller carriers to co-operate among each other and offer alternative services in competition with larger carriers.”

Carriers will still be able to use vessel-sharing agreements and operate in alliances despite the expiration of the block exemption.

But they will be required to self-assess the compatibility of their agreements under EU anti-trust regulation.

“It will mean that all consortia will now have to be self-assessed regardless of market share,” said Reed Smith partner Marjorie Holmes.

The World Shipping Council, which represents the major global container lines, said it was “carefully reviewing” the basis for the commission's position and looked forward to further dialogue to ensure “regulatory clarity”.

“We appreciate the European Commission’s recognition of the many benefits of vessel sharing to European industry and consumers, even if we disagree with the logic behind the decision to discontinue the CBER,” said WSC chief executive John Butler.

“The shift to general EU antitrust rules will create a period of uncertainty as carriers adjust to the new legal structure. Nevertheless, vessel-sharing agreements will remain a fully legal and supported way for carriers to ensure efficient and sustainable transport for Europe.”

In the past, carriers have said this would be expensive and time-consuming, particularly for smaller carriers and for lower volumes agreements.

Speaking at a conference of European maritime lawyers earlier this year, Hapag-Lloyd in-house counsel Fabian Kolf, warned that consortia were essential for how the industry operated.

“They allow us to offer services and port calls that we could not achieve on our own,” he said.

“This applies especially so for smaller carriers who are in general not in a position to meet a certain minimum capacity on a given route, which would be required on a stand-alone service.”

Smaller carriers appear not to have heeded the call from EU Transport Commission cabinet member Roxana Lescovici, who specifically called on smaller lines to make submissions, saying it was important that the commission hear how much it would cost small lines to self-assess.

Carriers have faced political backlash from the earnings bonanza caused by the pandemic. Shipper groups argued carriers unfairly benefited from the market circumstances that led to phenomenal freight rates and poor service levels from 2020-2022.

Carriers made the case that this was an extraordinary set of circumstances that would have occurred with or without the block exemption, but it was difficult for a sector that made hundreds of billions in profits to plea for special circumstances.

Industry sources warned back in May that carriers’ efforts to maintain the exemption had been half-hearted and that unless they did more to convince competition authorities, lines would lose out to national political interests that wanted an end to the regulation.

Those warning appear to have not been heeded.

“This key sector has undergone significant structural changes, such as carriers’ consolidation, global alliances and vertical integration, resulting in new market conditions, which became apparent during the coronavirus pandemic,” said Didier Reynders, the commissioner in charge of competition policy.

“Our evaluation has shown that a dedicated block exemption for shipping lines is no longer adapted to those new market conditions. This is why we have decided not to extend the current framework.”

But the news has been welcomed by shippers, who have long complained that the exemption gave an unfair advantage to carriers.

“This is welcome news and appears to be a normalisation of competition rules for liner shipping,” said Global Shippers’ Forum director James Hookham.

“They will be required to assess their co-operative actions under same guidance and criteria as applies to every other commercial sector. 

“This needn’t be the end of consortia as we know them, just a bit more transparency and self-discipline expected among the lines, consistent with policies for all other sectors.”

He added that the GSF looked forward to working with other stakeholders in the supply chain to “allow the new normal in liner shipping to work smoothly”.

But Holmes warned that there could be complicating factors in removing the exemption, which has formed the basis for many jurisdictions’ approach to consortia.

“The international influence of the block exemption will no longer exist,” she said.

And while the EU position was now clear, the UK, which has been considering its own block exemption, has yet to reach a decision.

“The UK is important as many shipping agreements have English law incorporated,” Holmes said.