Hong Kong grants block exemption to vessel sharing arrangements

After months of speculation, the Competition Commission of Hong Kong finally issued its decision on whether a block exemption should be granted to liner shipping vessels on 8 August 2017.

The answer – a five year block exemption has been granted for vessel sharing agreements (VSAs) between liner shipping companies, but a block exemption has not been granted for voluntary discussion agreements (VDAs). The decision not to grant an exemption for VDAs was made on the basis that it was not demonstrated that the relevant VDA activities meet the terms of the efficiency exclusion.

The block exemption order excludes from the application of the First Conduct Rule all activities usually carried out under VSAs subject to certain conditions, including the following:

– The parties to the VSAs do not collectively exceed a market share limit of 40%.

– The VSA does not authorise or require shipping lines to engage in cartel conduct.

– The member shipping lines are allowed to withdraw from the VSA without incurring a penal on giving reasonable notice.

Although VDAs are excluded from the block exemption order, the Competition Commission has provided guidance on which VDA activities may give rise to competition concerns, and which would be unlikely to contravene the Competition Ordinance. Examples include the exchange, discussion and/or reaching of voluntary agreements in respect of:

– general industry issues;

– general economic issues/ trades;

– regulatory developments and compliance issues; and

– industry outreach and best practices.

The block exemption order takes effect from today. However, since the Competition Ordinance requires parties to self-assess, the Hong Kong Competition Commission has provided for transitional arrangements, in the form of a six month grace period which will end on 8 February 2018, for parties to (i) VDAs, and (ii) any VSAs which do not benefit from the Order, to allow such parties to make any changes to their commercial arrangements which are necessary to ensure compliance with the Competition Ordinance.

The block exemption order is valid for an initial period of five years. The Hong Kong Competition Commission will review the block exemption order four years from its commencement date.

Practical implications for alliances and vessels involved in liner shipping

Parties involved in VSAs needs to assess their commercial arrangements to determine whether the VSA falls within the scope of the block exemption order. Parties involved in VDAs need to assess the nature of the VDAs carefully to ascertain whether the nature and content of discussions fall within what could be considered acceptable by the Competition Commission.

The Regulatory and Compliance team at Ince & Co has a wealth of experience advising parties on anti-trust issues. Should you have any questions in relation to the new block exemption order, or if you require any assistance, please contact Rory Macfarlane or Su Yin Anand.