Introduction

Recent significant freight increases by the major liner operators have reversed the steady decline in freight rates over the last 5 years. However, when rates uniformly rise as significantly as they have done in the last few months, not surprisingly, focus falls on the liner conferences. The additional NZ$720 charge for a 20 foot container for southbound cargo on the US/Australian route, introduced in April this year by a number of major liner operators, shows the magnitude of the increases that have been experienced. Such increases have drawn allegations from shippers of rate rigging and collusion.

In New Zealand over the last 15 years, the attitude of successive governments to liner conferences has been to adopt a laissez faire approach. This is reflected in the Shipping Act 1987, which recognises that commercial relations between shippers and carriers should be self-regulating while there is a satisfactory balance of advantage between the parties. The competition law rules in the Commerce Act 1986 (Parts II and IV) do not apply to outwards shipping. In its place, the Shipping Act 1987 provides for ministerial intervention when unfair practices limit, prevent, or reduce competition.

The Government review of shipping commences this month. This short article looks at recent international developments regarding regulation of liner conferences and considers New Zealand's place in that international context. In particular, consideration is given to the enforcement provisions available in New Zealand in respect of carriers who engage in unfair practices -essentially the Minister of Transport's statutory powers under the Shipping Act 1987.

International regimes and developments
Internationally, it is clear that the competition law exclusions enjoyed by liner conferences under many legislative regimes are coming under scrutiny. However, there is some disparity of approach between nations in this area. In particular, the US appears to be moving on a slightly different path to its major trading partners while the European Shippers Council and the Japan Shippers Council have called for governments to reform current rules protecting carriers from ordinary modern competition laws. It is difficult to discern whether the political pendulum is swinging internationally in favour of carriers or in favour of shippers.
Australia

Australia provides an example of how governments are focusing on this area. On 12 March 1999, the Productivity Commission was given the task of enquiring into international liner conference shipping with a view to amending Part X Trade Practices Act 1974 ("TPA"). The TPA is the Australian equivalent of New Zealand's Commerce Act and Part X performs broadly the same function as the New Zealand Shipping Act 1987. It exempts liner conferences from the restrictive practice provisions of the TPA, and substitutes alternative lesser safeguards against abuse of position by carriers.

On 15 September 1999, the Productivity Commission reported back to the Government recommending that Part X should be retained and also recommending, among other things, that the range of sanctions available to the Minister to enforce undertakings by liner conferences be extended. It recommended that the situation be re-examined in 2005.
The report commented favourably on four case studies of trade on Australia-Europe, Australia-North America, Australia-Southeast Asia and Australia-North/East Asia routes.

On 23 December 1999, the Australian Government accepted the recommendations of the Productivity Commission and subsequently introduced a Bill into Parliament in June 2000. However, almost before the ink was dry on the Government's statement, on 7 January 2000 the Government announced that the Australian Competition and Consumer Commission ("ACCC") had been given authority to investigate liner conferences for unreasonable rates and services on the Australia Northbound trades to South East Asia. The investigation was provoked by complaints about rate rises. The inquiry of the ACCC is underway. The date for submissions has passed. A report is expected mid to late 2000.

Europe
In Europe, large fines against liner operators have recently been handed out by the European Commission - most recently in May this year when 15 liner operators were fined a total of 7 million Euro (approximately NZ$14 million). Cases have been brought by liner operators in respect of adverse decisions by the European Commission ("EC"). The European Shippers' Council has also brought cases in the EC's Court of First Instance in Luxembourg. In Europe, the swords are clearly drawn in the legal battlefield. The European Commission is proposing to recommend new legislation in this area late in 2000.

USA
In the US, the anniversary of the coming into force of the Ocean Shipping Reform Act 1998 ("OSRA") has recently passed. The general thrust of OSRA was to focus on "discussion agreements" rather than liner conferences, with carriers no longer being allowed to prohibit other carriers by agreement from negotiating directly with individual shippers. This was intended to allow carriers to contract on a confidential basis with individual shippers outside of any conference arrangements. By some reports, the new reform has led to a decline in the role of traditional conferences as collective pricing fora.

The Federal Maritime Commission is studying the situation and is due to report in detail in the middle of 2001. It released an interim status report on the short-term effect of OSRA in June 2000.

Canada
In Canada, Transport Canada reported back to the Government in June 1999. While shippers had lobbied for an abolition of all exemptions for carriers, the majority view appeared to support amendment of the Shipping Conferences' Exemption Act 1987 so as to reflect the provisions of OSRA and maintain a level playing field with Canada's major trading partner, the US. A Bill reflecting this shift was due to be introduced into Parliament before Easter. The timetable has slipped to at least September 2000 and may be delayed until 2001 if an election is called.

Asia
In Asian countries, block exemptions in favour of liner conferences are generally in place protecting liner conferences from competition laws and rules. Japan reviewed its exemption regime in 1998 and, while keeping exemption for liner conferences with certain safeguards, strengthened the enforcement measures available to enforce compliance by the liner conferences.

New Zealand
In contrast to its major trading partners, New Zealand has not had any major review of its legal framework in this area for many years. The Shipping Act 1987 has never been reviewed. Its operation and effect has never been publicly studied. As outlined above, the USA, Canada, Australia, and the European Union together with a number of Asian countries have both recently completed reviews and enacted legislation or are in the process of doing so. New Zealand has much in common with its trading partners in that its legislation extends protection to carriers from the full effect of its competition laws. However, compared to its trading neighbours (with the exception of a few of the Asian countries such as Singapore), New Zealand has perhaps the most laissez faire approach of all.

It is notable that the Shipping Act 1987 has never been invoked. There has been no investigation under its provisions. The reason for this lack of intervention is not clear. One answer may be that there has been nothing worthwhile for the Minister of Transport to investigate. Another answer may be because the Minister has no effective means of forcing compliance by carriers who engage in unfair practices.

In other countries, fines can be and have been imposed (eg the EU) with supporting powers of detention of ships (Canada) or enforceable liens (US). Offending agreements can be deregistered so that the parties are fully exposed to domestic competition laws (eg Australia). Offending agreements can be amended or suspended (eg Japan and Korea). None of these remedies are available to the Minister of Transport under the Shipping Act 1987.

In the area of enforcement New Zealand stands out on its own. The enforcement provisions of the Shipping Act 1987 are limited. While the Minister of Transport has the full powers of a Commission of Inquiry in undertaking any investigation of unfair practices under the Shipping Act 1987, the Minister has no power to impose any direct penalty, or take any direct remedial action, against any carrier found to be engaging in unfair practice. The Minister is limited to:
(a) Requiring a carrier to release to the Secretary of Transport details of the offending agreement;
(b) Directing the carrier to give shippers reasonable notice of changes in terms and conditions of carriage; and
(c) Requiring the carrier to produce evidence that it has entered into reasonable negotiations with a shipper where the shipper has so requested in writing.
Fines of up to $50,000 can be imposed if a person fails to comply with a Minister's direction.

Government review
Until very recently, there has been no real public call for any review of the provisions of the Shipping Act 1987 and the exemption from competition law extended to carriers. In the Government shipping review due to commence this month under the direction of the Ministry of Transport, there will be consideration of the current position. In addition, the Ministry of Economic Development has been given the specific task of reviewing the shipping exemption in the Commerce Act 1986. The Ministry of Economic Development is due to report in March 2001.

In the Ministry of Transport review, New Zealand will no doubt have regard to development overseas. It may be that New Zealand's small and isolated situation requires a more light-handed approach than its neighbours do. However, the recent protests by New Zealand shippers may not be so easy to silence. Countries appear to be strengthening the enforcement provisions in their legislation. The hearings in the review may well be of interest to all involved in shipping. It will be interesting to see a full review of New Zealand's law and practice in this area. In the current climate, opposing interests will no doubt have strong views on whether or not New Zealand should observe the status quo or update its regime.

This is a general summary only and should not be taken as a substitute for specific advice

Russell McVeagh, law firm
Web site: Russell McVeagh

March 2001