HONG KONG: Container shipping lines in Hong Kong are holding their breath over a new competition law, which if it goes into effect the way it is written now, will render most of them violators with a liability of 10 per cent of their annual turnover.
The Hong Kong Competition Ordinance provides little certainty for the legality of joint operational agreements among container carriers, which are the backbone of an industry that moves industrial and consumer goods around the world.
The government is yet to determine the date when the new law, enacted in 2012, becomes effective. It has been widely expected that it will go live early next year.
“The way the law is written now makes no allowance for the way the industry works. If we carry on doing what we do today, we’ll be in technical breach of the law from January 1st,” said Tim Smith, chairman of the Hong Kong Liner Shipping Association (HKLSA) and a regional executive at Maersk Line, the world’s largest container shipping line.
“We are trying hard to persuade the government to grant exemptions to us, or at least give more time to discuss it with us, so we won’t have regulations that hold back trade and businesses in Hong Kong,” he said.
To counter market volatility and gain economies of scale, shipping lines have a long history of working with their foes and co-operate via a variety of agreements, such as vessel space sharing and joint sailings.
Given a market downturn brought on by the 2008 financial crisis, container carriers have in recent years huddled more tightly, with the majority of the world’s top 20 players grouped into four major alliances that serve the bulk of east-west trades.
Those co-operations enjoy antitrust immunity to various degrees in major jurisdictions including the US, EU, China, Japan and Singapore.
“Historically shipping has been seen as a high-risk industry, and has been given special treatment,” said Ernest Yang, a partner at law firm DLA Piper.
In both EU and US, shipping lines’ cooperation are allowed within their respective jurisdictions.
Competition authorities in Singapore have been more lenient to shipping lines. A block exemption for all joint service agreements has been given for five years and regulators are in public consultation over an extension of the exemption.
“The competition authority in Singapore ruled that in a small, open economy, the presence of an extensive liner shipping network has contributed significantly to the local economy. Ultimately, authorities need to weigh economic benefits of giving shipping lines block exemption over consumer benefits. If the findings are there will be limited impact on consumers in Hong Kong, there is no reason why a block exemption shouldn’t be given,” said Yang.
Carriers have threatened to pull out of Hong Kong if they fail to secure antitrust immunity. The withdrawal could be another blow to the port, where terminals are fighting to hold on to waning business.
The world’s fourth-largest container port, Hong Kong is a lynchpin in a plethora of shipping networks, but its status is not irreplaceable.
Roughly 70 per cent of the throughput comes from transhipment, when a container is discharged from one ship and loaded to another. Some 20 per cent represents goods imported from mainland China and re-exported from Hong Kong, with only 10 per cent for local distribution and consumption.
“The transhipment business is very portable and prone to competition. It doesn’t have to be done in Hong Kong. We could tranship in Shenzhen, for example,” said Roberto Giannetta, secretary general at the HKLSA, which represents the local branches of 18 shipping lines around the world.
In fact, the retreat has been happening.
The throughput in Hong Kong port dived 9.4 per cent in the first five months this year. As of May, Ningbo had displaced Hong Kong for the fourth spot. The sharp decline was a result of shipping lines re-routing traffic away from Hong Kong, which suffered severe congestion last year due to limited quayside space.
The threat to pull out, however, is “a blunt declaration of selfishness,” said Sunny Ho, executive director at Hong Kong Shippers’ Council, which represents local exporters and importers.
“Shipping lines have the responsibility to provide the needed evidences to authorities that they have not abused their dominating position and have not engaged in activities that violate competition concept and requirements, like what they have offered to EU and US authorities. This is not in the form of demanding an unconditional block exemption like what they are doing with the threat to withdraw. Indeed, the threat itself entails that they never care about their clients,” Ho said.
