Status of U.S. shipping conference exemption

Source: Lexology

Reed Smith LLP
Marjorie Holmes, Jonathan Benner, Daniel I. Booker, Stephen P. Murphy and Matthew J. Thomas

European Union, USA
March 2 2010
The U.S. regulatory agency charged with policing competition in the international liner shipping sector is undertaking a major study of the effects of abolishing liner conference competition exemptions by the European Union. The move does not, however, signal a serious legislative effort in the United States to repeal antitrust immunity for liner shipping in the near term, but rather marks the beginning of a multi-year process of policy review.

The U.S. Federal Maritime Commission ("FMC") in November 2009 announced a "comprehensive" study of the impact on U.S. trades as a result of the EU's elimination of its shipping conference exemption. The study will review the two years prior to and the two years since the EU's announcement in October 2008 of the repeal of its block exemption. The study will include analyses of changes in competition, services, vessel capacity, carrier market structures, rates and surcharges.

In a release dated November 23, 2009, the FMC expanded on comments by FMC Chairman Richard Lidinsky at the Intermodal Association of North America, announcing details of the forthcoming study. In fall 2009, the FMC began a consultation process with key stakeholders to establish the parameters of the study, including methodologies and study milestones. Data collection will not begin until late 2010 and the FMC will publish a "Notice of Inquiry" soliciting voluntary industry submissions during the second half of 2010. There is no time limit on the length of the FMC study, although similar studies after the passage of the Shipping Act of 1984 and the Ocean Shipping Reform Act of 1998 were two- to three-year efforts.

The FMC presented its plans for the study to Congress in its annual budget authorization process, and congressional overseers appear to be supportive of the study. Currently, there is no legislation pending in Congress to effect Shipping Act reform or to remove liner shipping immunity. The congressional committees with responsibility for transport are facing several major challenges in the near term, not least of which is the reauthorization of the nation's multi-year framework for transportation infrastructure development. Accordingly, Congress appears disposed to keep the shipping regulatory reform debate to the side while the FMC conducts its review.

There is little consensus regarding the merits of application of the U.S. antitrust laws to the shipping sector, even within the FMC. One FMC Commissioner, Joseph Brennan, called for abolition of immunity for price-fixing in his 2006 testimony before the Antitrust Modernization Commission, which ultimately endorsed such a view. However, another FMC Commissioner, Rebecca Dye, noted in an April 2009 speech the international shipping industry's concerns with unique aspects of U.S. antitrust laws, in particular, the treble damage, the private action and criminal prosecution provisions. Commissioner Dye went on to note concerns that shipping executives may even avoid potential partnering opportunities involving U.S. trades because of the "severity of U.S. antitrust law." Structural trends in international shipping over the past two decades have been decidedly away from the traditional rate-fixing conference structures that gave rise to the U.S. system of antitrust exemptions. Nonetheless, the Federal Maritime Commission is not likely to be a prime mover for a change in the current system, as it is a central component of a regulatory mission that has been substantially diminished over the past two decades.

From the lack of direct activity by the U.S. Congress, the open-ended nature of the FMC study, and the lack of a strong domestic consensus or lobbying effort pressing for reform, it is fair to conclude that the U.S. shipping conference block exemption will not be subject to change in the near future. More likely is a continuation of incremental steps to modernize and streamline the U.S. shipping regulatory regime to pare back costs and burdens on trade. For example, on February 18, 2010, the FMC voted to initiate a rulemaking to do away with cumbersome requirement that rate-tariffs be published and adhered to by non-vessel-operating common carriers.

On the European front, the EU, taking a much more aggressive stand than the U.S., repealed Council Regulation 4056/86 effective October 2008 thereby abolishing block exemptions for shipping conferences. One consequence of the repeal has been a wide spread increase in terminal handling charges in the EU.