Global container carriers want rate pacts exempted from anti-trust law

Global container carriers are lobbying the government to get a so-called voluntary discussion agreements (VDAs) among themselves exempted from the purview of India’s anti-trust law.
VDAs allow carriers to share market information, adopt common service standards and offer a single point of contact in discussions with government bodies and shipper organizations. VDAs recommend common guidelines to members for rates and other charges without actually setting them. All members of VDAs act independently and on a voluntary, non-binding basis.

The demand to exempt VDAs from the Competition Act comes after India renewed such an exemption granted to a so-called vessel sharing agreements (VSAs) among container lines from the anti-trust law for another year beginning 5 February 2015.

VSAs allow carriers to share space on each other’s vessels, consolidate duplicative services and share port terminals to improve productivity and lower costs. These agreements are operational only; member lines market services under their own brands, competing on price, reliability, specialized services, equipment and commodity expertise using VSAs to scale their overall operations to market demand.

The demand to exempt VDAs also gained traction after the World Trade Organization (WTO) sought India’s response on the issue, pointing out that other member countries have already granted relief to such pacts from their respective anti-trust laws.

“The matter is under examination; no view has been taken on this,” said Deepak Shetty, director general of shipping, the country’s maritime regulator.
In October 2014, DGS told India’s shipping ministry that it was not in favour of granting exemption to VDAs from the anti-trust law. “We have not changed our stand. We are consulting all the stakeholders in the industry in the light of a fresh proposal submitted by the container shipping industry on the issue,” Shetty added.
Shipper (exporters and importers) groups in India say that it is too early to examine the issue of granting exemption to VDAs. “We don’t want VDAs to be exempted,” a spokesman for the Western India Shippers Association (WISA) said.

“Having regard to various complexities involved in the issue of exemption to anti-trust law and also the fact that India was yet to put in place an effective oversight mechanism to regulate and monitor such agreements, we feel that the time is not ripe to even consider the question of granting exemption to VDAs,” said the spokesman for WISA, a body representing exporters and importers in western India.

“A proper regulatory and monitoring mechanism is a must before the issue can be considered,” the WISA spokesman said, adding that even well-established competition/regulatory authorities in the US, European Union and China had felt the need to review the global trend in container shipping alliances.

On 18 June, representatives from the maritime regulatory authorities of the US, the EU and China met in Brussels to discuss antitrust and regulatory issues in maritime transport.
“The discussions focused on the global trend towards increased cooperation in the liner shipping market, as well as on regulatory and policy issues related to ports. With the continued growth in scope of carriers’ cooperation, the authorities considered that monitoring of the sector warrants ever closer contact and better communication between competition and regulatory authorities,” said a joint statement issued by the European Commission, the US Federal Maritime Commission and the Chinese ministry of transport after the meeting.
Shipper groups fear that VDAs would be a throw back on the ocean carrier rate conference system that prevailed globally until a few years ago, operating as a price cartel.

Rate conferences, now unlawful globally, engaged in joint pricing and service contract negotiation. Rates were adopted by majority vote but were binding on all the member carriers. The conference maintained a joint tariff and negotiated service contracts on behalf of members.

India’s competition commission prohibits shipping rate conferences because it considers price fixing and market sharing as cartelization.

Container carriers say that shippers’ concerns are unfounded.
“In the conference system, rates were binding on member carriers,” a spokesman for the Container Shipping Lines Association (CSLA), said. “In VDAs, rates are not binding on member lines. Individual members are free to set their own rates”.

“Nobody is going to create a price cartel through VDAs; because the penalties are so huge that no one will dare create a cartel,” the CSLA spokesman said. “Besides, there is oversight mechanism for VDAs. The discussions are minuted and the minutes are submitted to a statutory authority,” he added.
Source: LiveMint