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EC Extends Block Exemption On Liner Consortia

by Ulrika Lomas,, Brussels

09 October 2009

The European Commission has adopted a new Block Exemption Regulation, which will extend and revise the existing consortia block exemption Regulation 823/2000, which is due to expire on April 2010. The regulation allows shipping lines to enter into cooperation for the purpose of providing a joint service in transporting cargo, or so-called ‘consortia’.

The revised legislation will bring about a reduction of the market share threshold, above which companies do not qualify for automatic exemption under the Regulation, and an extension of the scope of the exemption to all cargo liner shipping services.

Competition Commissioner Neelie Kroes said: "Since 1995 liner carriers have been granted conditional exemption from the competition rules when operating joint services. As markets change, this exemption has to be reviewed. After careful examination the Commission has decided to amend and prolong the consortia Block Exemption Regulation for five more years. I am confident that this Regulation strikes the right balance between the interests of the liner carriers and those of transport users."

A consortium is a co-operation of shipping lines to provide joint maritime cargo transport services. Such agreements usually allow shipping lines to rationalise their activities and achieve economies of scale. If consortia are faced with sufficient competition, the users of the transport services provided by consortia (such as shippers) usually benefit from improvements in productivity and quality of service. The consortia Block Exemption Regulation, first adopted in 1995 and subsequently renewed in 2000 and 2005, exempts liner shipping consortia which meet the conditions of the Regulation.

Under both the new and the current Commission Block Exemption Regulation, all consortia agreements (except notably those on price-fixing) whose objective is the joint operation of liner shipping services are exempted from the EC Treaty’s ban on restrictive business practices (Article 81) provided they fulfil the conditions and obligations set out in the Regulation.

The new Regulation incorporates amendments made necessary by the repeal of the liner conference Block Exemption Regulation in 2006. It also aims at better reflecting current market practices and bringing the consortia block exemption in line with other block exemption regulations for horizontal cooperation between companies. The scope of application of the new Regulation has been extended to all liner shipping cargo services, whether containerised or not. The list of exempted activities has been revised in order to better reflect current market practices. The market share threshold has been reduced from 35% to 30% and the method of its calculation clarified. Finally, the exit-clauses and lock-in periods, in case a member wants to withdraw from the consortium, have been prolonged to better reflect current market practice but still safeguard the carriers' flexibility.

The Commission's market investigation revealed the existence of a pattern of links between consortia and/or their members. The new Regulation clarifies that the Commission may withdraw the benefit of the block exemption, where such links have a negative effect on competition.

According to the Commission, if a consortium does not fulfil the conditions of the Regulation, for example due to the market shares of its members exceeding the threshold, this does not mean that such cooperation is automatically unlawful, but that the parties have to assess its compatibility with the competition rules on an individual basis.

The new Regulation will come into force once the current Block Exemption Regulation expires on April 25, 2010, giving the liner shipping industry sufficient time to adapt their arrangements to the revised rules.

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