Cooperative agreements among liner shipping companies have existed in most trades for more than 100 years. Most major trading nations in Asia and the Pacific Rim have recognized the importance of these agreements to both the shipping industry and national economies. To the extent that these countries have competition laws that could restrict such agreements, many have found after careful study that these agreements should be afforded an exemption from those competition laws for economic, public policy and international comity reasons.
On July 7, 2014, the Malaysia Competition Commission (MyCC) published a Block Exemption Order for liner shipping agreements (BEO) in its Federal Government Gazette. This decision was based on an application by local carrier and port operator associations on behalf of the liner shipping industry serving Malaysia. Cozen O’Connor acted as a foreign law advisor to those associations while working with local legal counsel.
The BEO is valid and in force for three years, unless cancelled earlier by the MyCC. It broadly exempts liner Vessel Sharing Agreements (VSAs) and (to a more limited extent) Voluntary Discussion Agreements (VDAs) from certain prohibitions set forth in the Malaysia Competition Act of 2010.
The publication of the BEO is significant as it provides broad protection for VSAs. Of note, the liner industry is the first and thus far only industry to be formally exempted from provisions of Malaysia’s Competition Act, which was adopted in 2010. While this is positive news for the shipping industry, to the extent that a company participates in any VSA or VDA operating in the Malaysian ocean trades, there are certain compliance issues associated with the publication of the BEO. Some key points in the BEO and related compliance issues are summarized below.
The BEO exempts VSAs and VDAs from certain prohibitions in the Act against anti-competitive horizontal agreements, such as those involving market allocation. The BEO does not exempt entities from engaging in monopolistic conduct.
The BEO only applies to ocean transport services provided by liner operators. It does not apply to any inland carriage of goods that is part of through transport.
Provisions Relating to VSAs
The BEO defines Vessel Sharing Agreement broadly to include all operational agreements between ocean carriers involving direct calls to Malaysia (e.g., alliances, consortia/vessel sharing agreements, joint service agreements, space/slot charter agreements, and cooperative working agreements).
Copies of all VSAs and any amendments thereto must be filed with the MyCC within two weeks from the date of signing such agreement or amendment. All VSAs currently in effect are required to file their agreements with the MyCC by September 6, 2014.
There are other conditions placed on VSAs in the BEO, such as: (1) the VSA may not contain any element of price fixing or price recommendation, (2) the VSA may not require the disclosure of any confidential information, and (3) the VSA must allow lines to enter into any confidential contracts with their customers.
Provisions Relating to VDAs
VDAs are subject to similar conditions and the same filing requirements as VSAs, including the requirement to file all existing VDAs with the MyCC by September 6, 2014.
There is one important aspect of the BEO relating to VDAs that is more narrow than other countries’ VDA exemptions. The BEO permits “the sharing of information relating to the shipping industry,” including “market data, supply and demand forecasts, international trade flows, and industry trends.” It does not, however, exempt actions of VDAs “containing any element of price fixing, price recommendation, or tariff imposition.” VDAs serving the Malaysia trades should therefore consider whether changes to the VDA’s structure and/or activities are necessary in order to comply with the terms of the BEO.
The Malaysia action is an important one for members of VSAs and VDAs serving the Malaysia trades, but it will be important for carriers to review those agreements to ensure that they meet all of the conditions contained in the BEO. In addition, carriers should be mindful of the need to file their existing agreements with the MyCC by the deadline set forth in the BEO (September 6, 2014).