The Commission has now decided that the CBER should expire on 25 April 2024. However, the market situation has not changed and confusingly, the basis behind this decision is inconsistent with the logic of the Commission’s previous statements. Evidence shows that the quality and reliability of services have remained steady since 2014. Nevertheless, the Commission concluded that it was unclear whether consortia deliver sufficient consumer benefits to justify renewal. It also queried the indispensability of consortia for achieving the standards required by Article 101(3) of the Treaty on the Functioning of the European Union (TFEU), given market developments and the operational choices of carriers. The situation has not drastically changed since the previous consultation and yet a new Commission has come to the opposite decision, making it puzzling why the CBER is being allowed to expire.

The Commission’s viewpoint merits further exploration for several reasons.

• The Commission has inconsistently looked at the effects of the COVID 19 pandemic. During the pandemic, freight rates increased although evidence since suggests that these are now falling. Accordingly, in its 2021 review of the SBER, the Commission concluded that adverse effects during the pandemic were temporary and therefore did not cause reason for concern. Conversely, a year later during its CBER review, the Commission focused on the adverse effects of the pandemic on freight rates as one justification for deeming the CBER no longer fit for purpose. This inconsistent approach is a cause for concern.
• The Commission underestimated the legal uncertainty and compliance costs that the expiry of the CBER would entail for carriers despite these being highlighted in previous consultations. Carriers will now have to self-assess their cooperation agreements using the SBER. Shipping experts consider this problematic as carriers must now familiarise themselves with complex new regulations without any sector-specific guidance.¹
• The Commission failed to properly consider the negative impacts of the expiry of the CBER on competition, innovation and sustainability in the liner shipping sector. Instead, its evaluation focused on the fact that there was no conclusive evidence that consortia were delivering notable benefits. However, consortia may be replaced by less efficient and environmentally friendly stand-alone services or by more integrated forms of cooperation, such as mergers, which could harm competition by making the market highly concentrated. This may result in competitors outside these mergers and other concentrated markets struggling to compete, thereby having the knock-on effect of slowing technology innovation, etc. With that in mind, the Commission’s failure to consider or anticipate the potential impacts of the removal of the CBER is a point of notable concern.

Is the SBER a suitable replacement?

The SBER is not sector specific; rather, it exempts certain horizontal agreements from the prohibition of cartels under EU competition law. Following consultation from the Commission, it is claimed that the SBER provides a suitable alternative for the expiring CBER.² This is questionable.

• The Commission’s assertion that the SBER can apply to services lacks clarity in practice. Currently, the SBER is predominantly utilised in areas such as agriculture and construction, with no precedent regarding its application to the transport industry.³ Despite expecting consortia to adapt to and rely on the SBER, the Commission has not provided additional guidance. Unlike the CBER, which outlines specific activities necessary for consortium operation, the SBER remains silent on such details. This silence raises complexities for carriers, requiring them to justify previously accepted conduct without explicit guidance. Whilst it can be assumed that previously accepted activities will still be allowed, the lack of Commission guidance on the application of the SBER to service providers is concerning.
• The SBER does not consider the specific characteristics and challenges of the liner shipping sector, such as the high fixed costs, volatility of demand, need for frequent adjustments to capacity and routes, and environmental impacts. Conversely, the CBER was designed to reflect the particularities of the liner shipping sector and to allow for a certain degree of operational cooperation that could lead to economies of scale, better use of vessel capacity, improved service quality and environmental efficiencies.
• The Commission has helpfully recognised that container transport services can be considered as joint production agreements, even though its guidance on the concept of ‘preparation of services’ was not entirely clear. However, the UK CMA has not provided any specific guidance on how to apply this concept to container transport services, instead referring to its general guidance, which is unclear.

What about the UK? Evaluating the CMA position

Considering the Commission’s decision to allow the CBER to expire is contentious, many had hoped the CMA would make its own independent decision. In January 2023, the CMA provisionally concluded that it would recommend renewal of the CBER. However, following further consultation (and importantly after the Commission’s decision was announced) it backtracked, supporting the expiry of the CBER. This U-turn is disappointing, especially since the CMA proclaimed that it was looking forward to “become more active at being a robust champion for competition” post Brexit.⁴

The situation becomes even more concerning when comparing the divergent approaches of the UK and the EU in terms of horizontal guidance. Both the UK SABEO and EU SBER define ‘product’ as encompassing goods and services, excluding distribution or rental services. However, a significant discrepancy exists in the CMA’s Guidance issued in August 2023 on the application of the Chapter I prohibition in the Competition Act 1998 to horizontal agreements issued in August 2023. This explicitly states that “the provision of services is outside the scope of the SABEO, except in the context of joint distribution”.⁵ The departure from the Commission’s guidance, which allows for ‘joint production’ in the context of services and limits the mention of ‘joint distribution’ to hardcore restrictions like fixing prices and sales targets, necessitates urgent clarification on the UK’s interpretation of the term ‘joint distribution’. The lack of explicit guidance raises uncertainty regarding whether consortia can effectively rely on the SABEO without clarification. This disparity in interpretation adds complexity and potential risks for businesses navigating the regulatory landscape.

Final thoughts

The expiry of the CBER on 25 April will result in a significant change to the landscape of the liner shipping industry. Despite the shortcomings of the SBER, shipping consortia will be forced to adapt to its requirements, which may lead to greater unpredictability in the functioning of the industry. The Commission’s assurances that consortia are considered joint production is helpful, but the SBER requires self-assessments, which are lengthy, costly and less certain than under the CBER. Therefore, ambiguity about the future remains, which may discourage investment and innovation within the sector, especially in the case of small and medium sized carriers. This would certainly be a backward step for the liner shipping industry.

References

• 2023 EU Commission Staff Working Document Evaluation of the CBER
• 2019 EU Commission Staff Working Document Evaluation of the CBER
• 2021 EU Commission Staff Working Document Evaluation of Horizontal Guidelines
• CMA CBER Consultations (including provisional decision and staff working papers)
• EU Commission Horizontal Guidance on Specialisation Agreements
• CMA Horizontal Guidance for Specialisation Agreements
• Reed Smith’s Submission to the CMA Consultation on behalf of the Alliance

1. Lars Jensen, Abolishing the CBER
2. European Commission, Question and Answers: Consortia Block Exemption Regulation
3. See the EU Commission’s 2021 review of the Horizontal Guidelines.
4. The UK’s withdrawal from the EU – The CMA’s role post Brexit
5. See 5.39 and 5.42 of the CMA Horizontal Guidance on Specialisation Agreements. Paragraph 201 of the European Commission’s Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements sets out that “the provision of services to customers falls outside the scope of the Specialisation BER, except where the parties agree to jointly provide services prepared under the specialisation agreement.” It is clear from the European guidance that the exception for services does not apply to joint distribution only. Therefore, the positions in the EU and UK guidance are different with the CMA having a more limited exception.

In-depth 2024-069