The European Commission recently published draft Guidelines on the application of Article 81 of the EC Treaty to maritime transport services (the “Draft Guidelines”). Interested parties have until 9 November 2007 to comment. The main conclusions that can be drawn from the Draft Guidelines with respect to tramp shipping are:

• A typical tramp shipping pool between competitors who cannot individually provide the service covered by the pool will at the outset be seen by the Commission as restricting competition in violation of Article 81(1) of the EC Treaty since a typical pool will involve joint price fixing and joint marketing. 

• There is scope for exemption under Article 81(3) and the pool members must carry out self-assessment of their pool in order to determine if the exemption is applicable. The Draft Guidelines, however, offer little assistance with respect to this self-assessment.

Below we will briefly discuss the application of Article 81(1), touch upon relevant issues in the self assessment under Article 81(3) and indicate alternative solutions.

Introduction
Regulation (EC) No 1419/2006 of 25 September 2006 extended the enforcement powers of the Commission to cover tramp shipping and cabotage services. Further, the block exemption for liner conferences, i.e. price and capacity fixing between competing liner operators, was repealed with effect from 18 October 2008. The shipping market has since been awaiting further guidelines from the Commission as to how it will apply competition law to the shipping sector, especially with respect to tramp pool agreements. The Draft Guidelines also include guidance on information exchange between competitors within liner shipping. Our focus here will be tramp shipping.

Do tramp shipping pools restrict competition?
The Draft Guidelines emphasise that each pool must be analysed on a case-by-case basis, but offer the following general guidance on the application of Article 81(1):

• If the pool members are not actual or potential competitors or cannot individually by any means provide the service covered by the agreement, then there is no restriction on competition and the pool is not caught. In many cases this, however, is not a realistic safe haven for pools. Firstly, participants in tramp shipping pools are likely to be competitors. Secondly, many pool members might be able to individually carry out the services covered by the pool.  As an example of pools which might not restrict competition, the Draft Guidelines refer to a pool which has as its “sole purpose” the tendering for and providing CoAs which the members could not carry out on their own. In our experience, most pools do not have such a limited purpose.

• Unless the above exception applies, the agreement will according to the Draft Guidelines always be caught by 81(1) if it contains “provisions regarding joint price fixing and joint marketing”. This is prohibited even if the parties’ market share is below 10%, where the cooperation would otherwise have been allowed. Since a common element of shipping pools is joint marketing of the participating vessels whereby the freight rates are obtained jointly through the marketing efforts of the pool manager, it seems based on the Draft Guidelines that most pools will be caught by Article 81(1), although the Guidelines are not entirely clear in this respect.

Self assessment under article 81(3) 
Even if the pool is caught by Article 81(1), it may be exempted under Article 81(3) if the pool improves the transport services or promotes technical or economic progress and the economic efficiencies benefit not only the members of the pool but also consumers. Furthermore, there must be no less restrictive ways of achieving similar benefits and the pool must not be afforded the possibility of eliminating competition in respect of a substantial part of the services in question. Unfortunately, the Draft Guidelines do not offer much guidance in relation to this exemption. Also, it is up to the shipping companies involved in the pool to demonstrate that the pool falls within the exemption.

We think increased capacity utilisation, better availability and flexibility of services, reduction of trading risks, better integrated distribution functions,  creation of economies of scale and other efficiency gains are some potential consequences of pooling which should lead to customer benefits, e.g. by way of increased service and lower rates. It will also be relevant in the assessment whether the pool agreement contains restrictive clauses, e.g. prohibiting the owners from competing outside the pool. Further, the lower the market share held by the pool in the relevant product and geographic market, the better the case would be for exemption.

Hopefully, the Commission will be encouraged to provide more detailed guidance for the assessment under Article 81(3) in the final guidelines.

Alternatives for the shipping pools
If, following an assessment in accordance with the above, shipping companies participating in a pool are concerned that the pool is not acceptable under Article 81, the question is whether there are any alternative ways to structure the pool in order to comply with EC competition law. The following could be considered:

• Adjustment of the pool’s activities, members or terms of the pool agreement.

• Making the necessary structural changes in order to establish the pool manager as a full-function joint venture and thereafter seeking approval of the joint venture under the EC Merger Regulation (Council Regulation (EC) No 139/2004) or national merger control rules. In a full-function joint venture the parents must have joint control over the JV’s strategic decisions and the JV must perform on a lasting basis all the functions of an autonomous economic entity, i.a. by a management dedicated to day-to-day operations, sufficient financial means, staff and assets. The participating companies thereby obtain certainty as to the pool’s compliance with EC and/or national competition law. On the other hand, a full-function joint venture may be less flexible than a traditional pool, for example as entry of a new JV partner may require new notification. The parties must also consider tax and financial consequences of establishing such a joint venture.

• Dissolution of the pool. This may be the consequence if the parties do not think that the pool is likely to be allowed under Article 81 and are not able to find alternatives or do not see any commercial benefit of implementing changes in order to comply.

Going forward

We would be pleased to assist shipping companies in assessing whether their current or proposed pool agreements comply with EC competition law and if necessary propose alternative structures. We can also offer to do one-to-one presentations of these issues to shipping companies.
The Guidelines are still only in draft form and until 9 November 2007 it is possible for all interested parties to share their views with the Commission directly at COMP-MARITIME-GUIDELINES@ec.europa.eu or through other appropriate channels.  We would be pleased to assist shipping companies in preparing such consultative statements.  The Draft Guidelines can be found by clicking here.