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A New Storm Brewing? Ports and Competition Law




by:
Ian Giles
Norton Rose Canada LLP - Montreal Office

 
June 1, 2012

Previously published on May 2012

All ship operators must navigate the relationship with the port authorities at the ports at which they call. Where the port in question is the only realistic port of call, then the port authority has significant leverage in negotiations on port charges, while port users may have little choice in finding suppliers of the various port services, such as stevedoring, warehousing, pilotage and tugs.

A recent trend has also been toward shipping companies themselves investing in ports, meaning that other port users may be dealing with a port authority who is on the one hand a supplier, but on the other a competitor. These companies will want competitive rates, but also have to recognise the investment the port operator (their competitor) may have made in developing port infrastructure.

Both of these scenarios give rise to potential competition law issues. This article briefly explores how these can affect both ship operators and port owners, and the views of the regulatory authorities.

Is there behaviour in breach of competition law?
In disputes between shipping companies and port owners or operators, the relevant competition law provisions will typically be those relating to abuse of a dominant position. This will be the case in most situations where the port user is alleging that prices are too high (excessive pricing), that it is paying higher rates than other port users (discriminatory pricing), or that it is being refused access to the port (refusal to supply).

EU competition law also prohibits illegal arrangements between companies (or “undertakings”) which will be relevant where there is a suggestion of anti-competitive contacts between ports or between port service providers. For example, if two stevedoring service providers within a port are alleged to be colluding in their offers to customers, this could be an illegal arrangement between undertakings.

But is the port dominant?
Actions by a port operator or authority will only be capable of amounting to an abuse of dominance if the port itself is in a “dominant position”. This is essentially a question of geography - are there other ports in the vicinity which are suitable substitutes and which have available capacity to meet the demands of the vessels in question? In relation to deep sea container vessels, for example, the European Commission has previously found that ports in the Hamburg-Le Havre range constitute a single market in relation to hinterland container traffic, making a dominance finding more difficult.

However, where a port has no obvious substitutes due to its geographic location, or where an operator is tied to using a particular port by virtue of a long-term contract, then it may be easier to establish the dominance of the port operator.

And how to you demonstrate or refute the suggestion of an “abuse”?
Abuse of dominance is a complex legal area and parties considering asserting an abuse need to think carefully about the arena in which they wish to do so - competition authorities have more expertise in dealing with such allegations, and costs may be lower than in litigation, but there is no guarantee the authorities will prioritise investigation of the allegation. National courts and arbitrators on the other hand are in many cases still only developing their expertise in this area and this can often influence the approach of the parties in presenting their arguments, and make outcomes less predictable.

As regards the various types of abuse which can arise in the context of port/port-user relations, price discrimination is a relatively common claim (notably where the port-operator/owner is also active as a downstream port-user, but also where this is not the case), while excessive pricing has been found very hard to establish - largely due to the difficulty for a court or competition authority determining the level at which a price becomes “excessive”. The uncertainties and long-term nature of investments in port infrastructure make this calculation particularly complex. Termination of an existing port-user’s access rights can also lead to competition law disputes, usually centred on whether the “objective justification” for the termination cited by the port authority was in fact justified.

In all cases, factual and economic evidence are critical to establishing both the dominant position and the existence of abuse, and the incentive for the port to act anti-competitively will need to be considered (meaning cases where the port-owner is also active downstream as a port-user will be far more likely to raise concerns).

What about port services?
An area the European Commission has had a keen focus upon for years, but been frustrated, is in trying to increase the level of competition within ports for the various services required by port-users (such as stevedoring, warehousing, pilotage, tugs, etc). The European Commission has just announced a further consultation in this area with a view to making new proposals by Spring 2013 on how to increase competition, transparency and growth in EU ports.

In the absence of competing ports (or regulation) port services can effectively be charged at monopoly prices, and the European Commission had previously sought to require ports wherever possible to ensure there were at least two providers for each type of service. Although these efforts failed with the abandonment of the Ports Services Directive a few years ago, what is increasingly common is for port users to use the threat of litigation on competition law grounds to challenge the behaviour of port services providers.

Final thoughts
The backdrop to port operator/user relations in Europe remains one of a long-term trend toward far higher volumes of activity and increasingly capacity constraints on aging infrastructure with inevitable delays and difficulties with establishing further infrastructure. In this context, parties on both sides need to be aware of the role of competition law in these relationships.

The European Commission and governments, recognising the limited resource of competition authorities to take forward complaints, are actively advocating increased use of the courts in competition law matters. This is leading to a growth in both the number of cases heard and awards made, but also in the use of competition law arguments in disputes which are settled outside court. As the long history of competition cases in relation to ports shows, a port in an isolated position may be exposed to more than just the weather.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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