Agents in post conference era

After 133 years, the Regulation 4056/86 which allowed shipping companies to apply common and uniform rates in return for providing reliable services came to an end on 18 October 2008 in Europe. The regulation was based on the UNCTAD Code - an international convention in place in many countries around the world.

The markets in every trade have plummeted since the end of conferences system, but few disagree that this is because of the massive drop in demand across the world following the global financial crisis.

For European trades, shipowners may no longer jointly try to minimise the disruption caused by discussing solutions with past conference members. Consortium and alliance members are however allowed to adjust capacity to reflect supply and demand.

Agents and shipowners are viewed as part of the same undertaking as the principals for the purposes of competition rules. For this reason, prudent shipowners have been putting in place extensive training programmes for their agents to help them work in the new post conference era.

It is important to respond in a measured way to the changed environment. Agents who do not change any of their practices expose themselves and their principals to fines, but those who overreact will also put their principals at a tremendous commercial disadvantage.

Examples of the most frequently asked questions by agents are:

1. As an agent, can I act for more than one carrier?

As agent, you can act for more than one carrier. However, structures need to be in place so that your contractual obligation to one carrier is not compromised by your duty to another. These structures include having designated teams and fire walls in place.

2. As an agent, am I still allowed to collect competitive information?

The European Commission considers gathering information to be pro-competitive, whether directly or via an agent. If the information is in the public domain, it is easier to collect and use this information than information collected from a private source where there may be issues in relation to confidentiality and trade secrets.

Agents can continue to collect information on:

• ocean freights;
• schedule of vessels;
• documents required by their principal for various port authorities; and
• Information from shippers and consignees which may affect their principal.

A carrier cannot use an agent to exchange information with its competitors or put in place an exchange mechanism with competitors through an agent.

3. What can I do at trade association meetings?

A trade association is an incorporated or informal entity which, in principle, brings together a large number, if not all, of the competitors within a specific industry at a meeting to discuss general issues.

According to European Commission Guidelines, practices which cannot be undertaken by trade associations include the following:

(i) discussing current and future pricing to customers in meetings;

(ii) identifying individual customers (actual or potential) and discussing their commercial relationship with those customers;

(iii) discussing current and future costs (for example personnel, vessel and stevedore costs) which could influence the final price charged to customers;

(iv) discussing and exchanging information relating to commercial relationships with suppliers;

(v) entering into discussions which could lead to members of the trade association taking coordinated action against non members.

Trade associations, on the other hand, can:

(i) exchange information on volume, costs and pricing provided it is historic and aggregated (so that particular companies cannot be identified) and in the public domain. The Maritime Guidelines (which took effect on 1 July 2008) state that individual information needs to be at least 3 months' old (i.e. historical). In relation to highly sensitive information, such as cost and price, the European Commission advises a longer time period than 3 months is prudent, depending on the concentration of the market;

(ii) discuss commercial information which is in the public domain;

(iii) discuss industry standards and codes of conduct (see below);

(iv) discuss industry views and representations in relation to government/public authorities such as the European Commission;

(v) discuss relations with regulatory bodies such as the IMO.

There is limited risk of infringement of EU competition law provided the trade association has transparent membership (so as not to exclude competition from non members), ensures active and effective competition compliance programmes and complies with the above requirements,

N.B. It is very important for trade associations, and their members, to be aware of the restrictions/conditions imposed on them to ensure compatibility with EU competition law. This is especially important since infringing Articles 81 and 82 can lead to fines being imposed on the trade association, its members individually, or both, of 10% worldwide turnover in the previous financial year.

4. If I meet an agent of another shipping company at a social event, do I have to ignore him?

This would be an overreaction. Agents do not have to stop all social interactions – you can talk to competitors but you cannot discuss rates, volumes or any information which would reveal your principal’s commercial strategy at any time when in the presence of competitors.

Notes do not need to be kept if you stick to non-business matters but remember there is no such thing as an "off the record discussion." If there are any inappropriate discussions, these need to be reported to your compliance officer and a record needs to be made.

5. A competitor to my principals asks to buy some slots on my principal’s ship. Can I sell them?

It is important to distinguish between shipper rates and charges to a competitor. This would be viewed as a vertical arrangement between your principal and the competitor. Your principal is chartering space specifically to allow him to fulfil his obligation to his customer because the competitor has a lack of space/capacity on his own vessels. Therefore it is unlikely that the parties would be found to have an objective of price fixing since the competitor providing the service is acting, in this arrangement, at a different position in the supply/distribution chain to your principal (who is collecting the money from the customer).

The European Commission finds these types of arrangements acceptable in terms of competition law as long as done on an ad hoc basis when there is a lack of space.

Competition issues arise where these types of arrangements become regular and are used in a more permanent manner to get round joint cooperation between the two competitors. Joint cooperation by those two parties for the purpose of providing a service would require a self-assessment to make sure they are compliant with competition rules.

MHolmes@ReedSmith.com