The Tramp Shipping Sector

Philip Wareham, Partner

The London Shipping Law Centre

COMPETITION LAWS AND SHIPPING

The Tramp Shipping Sector

Philip Wareham, Partner

Holman Fenwick & Willan, London

Four questions

(1) What chance exemption for pools?

(2) What are the pros & cons of FFJVs?

(3) What are the other options?

(4) Will the promised Commission guidelines help?

What is causing the splash?

Pools.jpg

(1) What chance exemption?

• Role of self-assessment– Precautionary– Identify the major risks– Paper trails– Expert advice– Involving customers

• Guidelines: solution or problem?– General guidelines on Article 81(3)– Highly theoretical approach– Horizontal guidelines strict about joint commercialisation

What chance exemption?

• Is the price fixing etc. justified?

• Not unless "it is indispensable for the integration of other marketing functions, and this integration will generate substantial efficiencies."

• More likely for consumer than industrial goods

• Not savings only from elimination of costs "that are inherently part of competition", but from integration

What chance exemption?

• What is "joint production"?– Cf. Specialisation Bloc Exemption (Regulation 2658/2000)– What does a pool manager do?– Functional integration essential

• Contrast liners– More obviously price fixing – Effect on the market– Supply-demand balance of power

• Member vs. administration-controlled– Different models?– Same analysis?– Multiple pools

What chance exemption?

• Consumer pass-on– Perhaps not a given– But buyer power a factor

• Indispensability– Non-compete and other problematic clauses

• Foreclosure– Market definition issues– Demand-side substitution said to be key– Distinction by type of vessel– Importance of supply-side substitution– Global geographical markets

(2) The pros & cons of FFJVs

• Regulation 139/2004 (EC Merger Regulation)– Applies to full-function joint ventures– Focus on substantially impeding effective competition– But prior filing and clearance

• Must satisfy two criteria:– Autonomous undertaking operating on the market on a lasting basis– Jointly controlled– NYKLauritzenCool model

• Permanent loss of commercial control– Risk of commercial fallout– Out of the frying pan….?

(3) What are the options?

• Go for a minimalist option– e.g. remove non-compete clauses

• Find a safe harbour and defend– No impact on competition at all?– De minimis market share– Analogy with liner consortia– Specialisation or other possible harbours

• Restructure– Other options apart from FFJVs include ad hoc chartering– M&A

• Disband

(4) Will the Commission guidelines help?

• When?

• More than a broad statement of principles?

• How safe a "safe harbour" anyway?

• Risk of Commission action?

• Who is for a test case?

• Conclusions

The London Shipping Law Centre 29 May 2007The Tramp Shipping Sector

Philip Wareham, Partner

Marlow House, Lloyds Avenue London EC3N 3AL, UK

Philip.Wareham@hfw.co.uk

Tel: +44 20 7264 8403

hfw.com

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