News / Shippers and carriers on a collision course over looming Hong Kong competition law

© Vichaya Kiatying-angsulee

Shipping lines operating in Hong Kong could soon fall foul of new competition laws, unless their application for a block exemption is accepted.

In a statement last month to the newly formed Hong Kong Competition Commission, the Hong Kong Liner Shipping Association (HKLSA) argued that vessel-sharing agreements (VSAs) and vessel discussion agreements (VDAs) were integral to Hong Kong’s status in the shipping world.

It said the agreements – which form the basis of commonly used container shipping alliances – played “a critical role in enabling trade and are a key driver behind Hong Kong’s status as a leading port and international maritime centre”.

Concerned that shipping lines without an exemption could be fined up to 10% of their revenue, the HKLSA cited Singapore’s decision to continue granting carriers exemption from its competition laws as a pressing reason for Hong Kong to follow suit.

“The Singapore Competition Commission last month recommended an extension of Singapore’s existing block exemption for liner shipping agreements for another five years, until the end of 2020, citing the significant economic benefits that stem from these important agreements.”

The HKLSA hoped “the commission will recognise the need to keep Hong Kong consistent with its trading partners in this important area”.

The commission is expected to give serious consideration to the exemption, given that a large majority of Hong Kong’s container port business relies on carriers which are part of VSAs. Furthermore, since around 70% of its annual container throughput is transhipment cargo, a scenario in which profit-challenged carriers shift business to neighbouring Shenzhen is not unfeasible.

However, shippers  in Hong Kong are welcoming what they see as overdue regulations, and are vehemently opposed to granting carriers any special privileges.

The Hong Kong Shippers’ Council (HKSC) has issued an official objection to any block exemption, arguing that liner shipping is no different from other industries and should be subject to the same competition laws.

A statement by HKSC chairman Willy Lin cited a 2002 OECD report which rejected the liner industry’s claim of uniqueness. Mr Lin said the report helped lead to the demise of shipping conferences in Europe and Asia.

Mr Lin took particular exception to carrier demands for exemption for both VSAs and VDAs. He said the HKSC did see some rationale for VSAs, since they allow liners to rationalise their fleets and offer better services. However, VDAs deal with commercial affairs and so “there is no benefit for shippers for lines to collude on price and charges”.

But there appears little chance of an amended application that omits exemption for VDAs. The HKLSA argues that VDAs bring about rate and service stability, and that “VDAs and VSAs are complementary” – both types of discussions “necessary to achieve the efficiencies identified”.

When The Loadstar asked Mr Lin for his response to carrier threats to quit Hong Kong should an exemption not be granted, he said: “Hong Kong shippers resent this kind of threat very much. I believe that the HK government should look at this threat very seriously.

“In a democratic world and free economy such as Hong Kong, is it correct for a sector of the transport industry to make such a threat? Is it correct for one transport sector to hold all HK import and exporters and livelihood to ransom?” he demanded.

Mr Lin added that around 35,000 factories in the Pearl River Delta were owned and managed by Hong Kong shippers.

The saga is another worry for Hong Kong’s port sector. The port has recorded monthly declines in throughput since July 2014, and ended 2015 down 9.5% for the year at 20.1m teu.