The Future of the EU Consortia Block Exemption Regulation – Pros, Cons & Market Impacts
The current maritime Consortia Block Exemption Regulation (BER) came into force in 2010 (BER, © European Union, https://eur-lex.europa.eu, 1998-2019). It will expire on April 25, 2020 unless the European Commission decides to renew it. The BER regulates the cooperation agreements in the liner shipping sector from and to Europe.
Alliances that restrict competition are generally banned by EU law. Under certain conditions the BER allows cooperation agreements of shipping lines aiming at providing joint cargo transport services. Their combined market share should not exceed 30%. The alliance should still have sufficient competition and should not be used to fix prices or share the market. Finally the alliance should have the aim to realize improvements in productivity and service quality.
If these preconditions are fulfilled, the alliances are exempted from the prohibition of anticompetitive agreements as laid down in Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).
At present the European Commission is working on an assessment of the BER’s future relevance and market participants are lively discussing the pros and cons. Until April next year it has to be decided whether the BER should expire or should be prolonged and under which conditions.
TIM CONSULT’s ocean freight experts evaluate BER’s pros and cons
As it is our aim to provide our customers with current market knowledge our experts from the Market Intelligence Initiative Global Ocean Transport have prepared a short evaluation of the current BER situation. We present a summary of their findings in this article.
The BER allows carriers to rationalize their activities and to achieve economies of scale by forming alliances. Joint cargo transport services are more efficient for the service providers as they enable overcapacity, reduce the number of destinations and limit service differentiations. In addition BER fosters competition by lowering barriers to entry and by enabling carriers to compete on more routes. Alliances therefore are supposed to permit shippers to benefit from higher productivity, better service quality and attractive freight rates.
The BER has also organizational advantages for carriers. It helps them to ensure legal conformity with the EU law. Without BER, shipping alliances might still be exempted from antitrust rules in the EU but self-assessment would be less certain and could lead to antitrust-related investigations.
Finally, removing BER might bring competitive disadvantages for carriers focused on European trades.
On the other hand the increased bargaining power of carriers in alliances has put pressure on rates for ports and port service providers. Terminals or service operators that are called by the major alliances are frequently over utilized, while others that do not get these calls are underutilized.
Furthermore while pure freight rates have halved over the last two decades, other price increases – e.g. carrier surcharges such as demurrage and detention, have partly offset these gains. In addition alliances often provoke a deterioration of service through lower frequencies, less direct port connections and lack of service differentiation. This causes further costs.
In case of BER’s expiry authorities would have greater opportunity to investigate individual agreements between shipping companies. Unjustified restrictive effects could be uncovered and anticompetitive conduct avoided.
We are very curious to see what the Commission will decide until April next year. Our global ocean transport experts will continue to monitor developments and will keep you updated.
If you are interested in the detailed report, please contact us. We will be pleased to inform you.