Expiry of Block Exemption Regulation for Liner Shipping Consortia – Background and outlook

However, there was much controversy as to whether the CBER was justified already prior to its most recent extension in 2020.

The shipowners’ associations still consider the special treatment under antitrust law to be justified and necessary. They argue that the CBER brings legal certainty to shipping companies, assuring them that they will be able to continue to provide their services. They claim that the CBER leads to an improved offer of transport services and lower prices, as intended, and that it also brings significant environmental efficiencies. In addition, they hold that the CBER is important for trade routes where the continued existence of several competitors wouldn’t be possible if it wasn’t for the pooling of freight volumes.

The majority of loaders’, forwarding companies’ and port companies’ associations, on the other hand, have been strongly criticising the CBER and its market impact. They claim to be benefitting less and less from the promised advantages. In their opinion, the situation is just the opposite: the exemption is believed to give shipping companies above all significant negotiating and market power and to lead to higher prices; the quality of the services has in their opinion rather declined; they hold that due to of ever bigger vessels, not all ports are (directly) served anymore and that there is a lack of transparency for customers. They further take the view that the consortia coordinate their actions also beyond the specified core area (which is operational agreements aimed at better utilising the capacity of vessels), for example, with regard to the operation of port terminals and hinterland traffic.

In a statement dated 10 October 2023, the EU Commission summarised the findings of the public consultation carried out in 2022 and its evaluation, ultimately siding with those criticising the regulation, according to which another extension of the CBER would not be justified. The EU Commission has based its conclusion in particular on the following considerations:

• The evaluation period from 2020 to 2023 has been characterised by dramatic changes in market circumstances, compared to when the CBER was first adopted in 2009. In particular, there has been a transitory and exceptional phase of excess demand for effective capacity and of record profits for shipping companies. The previous conditions of oversupply and low profitability in the liner shipping sector have thus ceased to exist.
• The data collected for the evaluation period show that the CBER is no longer very effective or efficient. No relevant savings appear to have been achieved, nor has the CBER fulfilled its goal of promoting competition by enabling smaller carriers to cooperate between themselves and offer alternative services in competition with larger carriers. This is because each consortium includes a carrier from among the largest shipping companies worldwide.
• In addition, the submissions made during the consultation have shown that the CBER does not normally play an important role for a company’s decision as to whether or not to enter into a consortium; instead, this decision is guided first and foremost by commercial considerations.
• Furthermore, the CBER is not necessary to achieve environmental efficiencies, given that the sector is subject to binding international requirements and EU measures to reduce environmental pollution.

Even after the expiry of the CBER on 25 April 2024, the existence and formation of consortia will continue to be permitted. However, their admissibility will then no longer be determined by the less strict requirements stipulated in the CBER but by the general EU antitrust rules.

This is why companies will first have to examine, with the assistance of their lawyers, by means of a so-called self-assessment whether the specific co-operation that is being practiced or envisaged for the future has as its object, or brings about, an (appreciable) restriction of competition. If so, the next question to be examined will be whether the requirements for an individual exemption are met. There are four requirements that need to be fulfilled for an exemption:

• The specific co-operation must generate demonstrable efficiencies (“consumer benefits”), such as cost savings which also lead to reduced prices, a wider range of freight routes or more frequent departures or – more recently and only to a certain extent – sustainability benefits.
• These benefits/efficiencies must, at least in part, be passed on to customers.
• The restrictions must be limited to what is indispensable. The relevant question in each individual case will be whether there are other, less restrictive agreements/types of co-operation that achieve the same efficiency gains.
• Finally, consortium agreements may not eliminate competition entirely, or a substantial part of competition. Where large companies participate in consortia, this latter issue will be an important aspect to be taken into consideration when assessing an individual exemption. The question will be whether the consortia still face sufficient competition.

In an overall assessment, the positive effects on competition will have to outweigh the negative effects. Unlike under the CBER, it will no longer be assumed that the four criteria are fulfilled under the co-operation agreements; instead, their fulfilment will have to be analysed in each individual case and will have to be demonstrable. The new Guidelines on horizontal co-operation agreements, issued by the EU Commission on 1 June 2023 (see https://competition-policy.ec.europa.eu/system/files/2023-07/2023_revised_horizontal_guidelines_en.pdf), provide guidance to companies and also to competition authorities. and national courts on how to assess whether an appreciable restriction of competition exists in any particular case and if so, whether the criteria for an individual exemption are met.

Consequently, the formation of consortia will continue to be permitted, but will require such a case-by-case assessment. Companies that are currently operating in a consortium of the described type should examine timely before the CBER expires whether their consortium can be continued unchanged or whether the co-operation has to be modified or even terminated.