After nearly two years of waiting, the Hong Kong Competition Commission finally decided on Aug 8 to grant a block exemption to shipping lines - a conditional one to the vessel-sharing agreements between shipping lines for a five-year term.

However, to the industry's disappointment, the commission refuses to exempt voluntary discussion agreements.

Vessel-sharing agreements are operational agreements between two or more liners who own similar types of vessels on a particular route to share vessel space, thereby reducing competition among them by cutting surplus transport capacity on a particular route. Voluntary discussion agreements refer to discussion of certain commercial matters regarding a particular route.

Both forms of agreement are common in the international shipping market. They are widely adopted to avoid vicious competition, especially when a long-term downturn hits the industry. As a result many economies - such as the United States, Chinese mainland, European Union, Japan and Singapore - generally take a more relaxed approach toward such agreements within the scope of competition laws.

Admittedly, the EU has adopted a relatively conservative stance in relation to voluntary discussion agreements, while both agreement types are excluded from the scope of exemptions in Australia and New Zealand.

In detail, the Competition Commission's decision stipulates that activities undertaken pursuant to voluntary sharing agreements are excluded from application of the Competition Ordinance, subject to conditions that the sharing agreement parties do not collectively exceed a market share limit of 40 percent and the agreement does not authorize or require shipping lines to engage in cartel conduct.

This was anticipated since the commission has discussed such arrangements in the public consultation proposal. From the commission's view, voluntary sharing agreements are in line with international shipping practice and will bring economic benefits.

However, the commission failed to agree that exchange of market information between shipping lines, which voluntary discussion agreements govern, can enhance market efficiency and bring economic benefits. The commission also refuses to accept the assertion that Hong Kong will be placed in a disadvantageous position in terms of regional shipping competition if no exemptions are available.

Evidently, the commission wishes to strike a balance between the interests of shipping lines and shippers. Yet will the results be as good as what the commission wishes?

It is well known that container port throughput in Hong Kong has suffered a continuous decline for five consecutive years since 2011. One cannot deny that Hong Kong's own shortcomings are the root cause, such as inadequate supply of land for terminals, aging port facilities, exorbitant port expenses and a serious shortage of manpower and resources.

Refusal to grant voluntary discussion agreement exemptions might aggravate the scenario as exchange of market information may lead to high fines. This will doubtless further erode the competitive edge of Hong Kong's port in attracting more shipping lines to settle here.

Meanwhile, there have been repeated rumors that the mainland would relax the right of transport in coastal areas, such that vessels owned by Chinese-funded shipping enterprises which fly non-Chinese flags can carry goods from ports within mainland's free trade zone to other mainland ports. This would weaken Hong Kong's status as a transshipment port.

If the Hong Kong port fails to adopt positive remedial measures to stem the decline immediately, shipping companies will eventually withdraw their operating agencies from Hong Kong. In the long run, Hong Kong will not only lose its status as a shipping hub but will also face setbacks in playing the "super-connector" role in shipping links with countries connected to the Belt and Road Initiative.

Chief Executive Carrie Lam Cheng Yuet-ngor proposed during her election campaign that the government should shift its role from being a passive regulator to an active facilitator and promoter. In the face of ever-fiercer competition in the global shipping industry, especially in light of the increasing input by regional competitors to the shipping industry, whether the Hong Kong government can take more proactive leadership is of utmost importance.

Considering the particularity and professionalism of the shipping industry, the Competition Commission can apparently liaise with the Maritime and Port Board as well as the shipping business societies over the issue. This would not affect the independence of the commission and, simultaneously, provide sound and timely feedback to the commission. This means a decision more in line with international common practice and actual market needs can be made when reviewing this decision in the future.

At the same time, coordinated development of the port, shipping and marine services industries is the top priority for Hong Kong to consolidate its shipping hub status. Since 2014, the Hong Kong government started to promote high value-added shipping services, hoping to form a thriving shipping services industry for both local and global shipping companies.

However, it is worthwhile noting that maintaining the competitiveness of the Hong Kong port would be the most effective way to attract global shipping talents to converge in Hong Kong. Therefore, it is urgent to formulate a comprehensive range of development strategies for the shipping industry, not only to focus on development of the high-end shipping industry but also to focus on strengthening Hong Kong's status as a transshipment port, enlarging the strength of shipping services.

(HK Edition 08/31/2017 page8)