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Hong Kong shipping and logistics

Hong Kong could lose out to regional rivals, shipping firms warn as antitrust watchdog bars them from sharing sensitive information

Competition Commission refuses to grant block exemption to companies wanting to exchange market information, citing ‘competitive concerns’

PUBLISHED : Wednesday, 09 August, 2017, 2:16pm
UPDATED : Wednesday, 09 August, 2017, 7:39pm

Hong Kong could lose out to regional rivals due to the city’s antitrust watchdog refusing to allow shipping liners to exchange sensitive market information, industry players have warned.

The Competition Commission on Tuesday refused to grant block exemption to the decades-old practice among Hong Kong shipping liners due to “competitive concerns”, which means they are barred from sharing any market information related to trade flows, supply and demand forecasts and pricing regarding particular trade routes.

Disappointed, shipping chambers warned that the ruling would put Hong Kong at a disadvantage in regional competition as authorities such as those in Singapore and mainland China are adopting the practice to stabilise market prices.

However, the commission has given the green light to firms to jointly operate vessel services and exchange vessel spaces – if their market share does not exceed 40 per cent – citing the benefits of improving economic efficiencies.

“The sharing of competitively sensitive pricing information between competitors and the agreement of recommending pricing guidelines may give rise to competition concerns,” the commission said in a statement explaining its ruling, adding that carriers are more likely to raise prices high above the market level under such agreements.

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“While we are glad to see [the commission] recognise the value of operational agreements to Hong Kong’s economy, we are indeed disappointed that commercial agreements were not given the same level of recognition and included in the ruling,” said Roberto Giannetta, secretary general of the Hong Kong Liner Shipping Association. The business body, whose 16 corporate members own 90 per cent of the city’s containerised liner market, filed the application for exemption in 2015, when the city’s Competition Ordinance came into effect.

Under the antitrust law forbidding practices such as price-fixing and bid-rigging, offenders could face fines of up to 10 per cent of their Hong Kong turnover, and directors could be disqualified for up to five years.

However, shipping lines have a long history of working with their rivals and cooperating via a variety of agreements, such as vessel space sharing and joint sailings to counter market volatility and gain economies of scale. Those arrangements enjoy antitrust immunity to various degrees in major jurisdictions including the US, EU, China, Japan and Singapore.

Giannetta said retaining such agreements was necessary for Hong Kong to stay attractive for transhipment traffic, and misalignment from the common industry practices would affect its reputation as a major international hub. The ban would also make it harder for the city to play a role on the “maritime Silk Road” under China’s “Belt and Road Initiative”, under which Hong Kong aims to serve as a “super connector”.

“We will not be able to share [information on] what happens in Hong Kong. I am not sure what shipping liners would do,” he said, adding that international operators might have to shift their business away from the city to avoid legal risks.

The commission will give operators a grace period of six months ending on February 8, 2018 for them to make changes to their business arrangements.

In its statement, the commission said the association had failed to prove that the exchange of market information would create efficiencies that outweighed the possible harm on the competition front. It also determined that the argument of Hong Kong losing out to regional rivals was not a sufficient basis for it to grant such an exemption.

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But the commission regarded the practice of vessel sharing as being beneficial to the industry as it offered customers broader service coverage and higher service frequency. This is despite the possibility that the practice might reduce competition among operators.

“Vessel sharing agreements are internationally recognised as having benefits to the economy. In this respect the commission is in line with international best practice,” said Clara Ingen-Housz, head of Linklaters’ Asia competition practice .

“Today’s order confirms that the commission is prepared to grant block exemptions, and this process may benefit any industry,” she added.

But Ingen-Housz also reminded organisations considering applying for block exemption orders of the heavy burden of evidence needed to convince the commission that relevant efficiencies exist.

“Other industries should take note of the fact it is a lengthy and resource intensive process, and it’s evidence-based, with significant volumes of economic analysis required,” she said.