New Zealand Inquiry into International Freight Transport Markets and Competition

 

Introduction

The New Zealand Productivity Commission, an economic and regulatory policy-making agency, is conducting a major inquiry into international freight transport services supplied into New Zealand.  This includes reviewing international shipping and air cargo markets, and the present competition law immunity allowed for shipping liner “conferences” or consortia.

The review is a wide-ranging look at all aspects of the sea and air freight logistics chain, and whether regulatory settings are delivering services efficiently and accessibly for New Zealand consumers.  Like a number of countries, New Zealand currently retains an exemption from competition/antitrust law for some aspects of international carriage by sea.

The Commission released an Issues Paper in July 2011 inviting initial submissions on all components of international freight services.

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Competition immunity and exemptions

New Zealand’s competition statute, the Commerce Act 1986, continues to exempt contracts for international carriage of goods by sea from the rigours of anti-cartel and anti-competitive behavior rules.  Those services are instead subject to special governmental regulatory regimes under the Shipping Act 1987 and, for air transport, the Civil Aviation Act 1990.

Several jurisdictions have in recent years considered the continuing relevance of an immunity or ‘block exemption’ for shipping liner conferences.  In 2009, a new regulation adopted in Europe meant liner conferences would be no longer generally exempt from competition law (although limited consortia remain exempt).  By contrast, Singapore and Japan have granted further 5-year extensions to the exemption.

New Zealand has not reviewed its exemption and regulatory system for many years, although, equally, there have been few incidents in the maritime sector to suggest particular competition law problems exist.  There has been ongoing discussion of potential rationalisation in the sea-port sector, and issues with alleged cartel behaviour, and with code-share arrangements, in aviation.

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Scope of Inquiry

The Productivity Commission is a recently established government advisory agency or ‘think-tank’.  It considers policy reforms and advises Parliament on them; it is not a competition enforcement agency like the New Zealand Commerce Commission.

The Commission has been asked to evaluate the factors influencing the accessibility and efficiency of international freight transport services available to New Zealand businesses and how that accessibility and efficiency might be improved.  In particular, the Commission is to: 

• identify and analyse the cost of all components of the international freight transport supply chain for New Zealand importers and exporters; 


• identify any impediments to the accessibility of international freight transport services, and to competition within and between the components of the freight transport supply chain:


• identify mechanisms available to improve the accessibility and efficiency of the transport supply chain. 

In its assessment, the Commission must pay particular attention to: 

• the nature of New Zealand’s international trade, including the effects of long distance from overseas markets and reliance on overseas providers of international freight services; 


• factors influencing the accessibility, cost and efficiency of New Zealand’s international freight transport supply chain, with international comparisons; 


• the level and growth of productivity in all components of New Zealand’s international freight transport supply chain, with international comparisons; and 


• the effectiveness of current regulatory regimes (including the interplay of the Commerce Act, the Civil Aviation Act and Shipping Act) affecting freight transport services, and the potential costs/benefits of alternative regulatory or competition law arrangements.

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Highlighted issues

The Issues Paper just released by the Commission considers efficiency of all individual components of the transport chain (including seaports, sea transport, stevedoring, airports, air transport, freight-forwarding, and bio-security and customs) as well as the efficiency of the interfaces between those components and the logistics chain as a whole.  

It poses 79 wide-ranging questions related to the components considered, including questions regarding the appropriateness of current government regulation of those components, and which of a number of international comparators might best-suit New Zealand’s small, distant economy.  

Significant areas shaping up for discussion and scrutiny include:

• what room exists for efficiency improvements in the operations and ownership structure of New Zealand ports;


• whether sea freight and air freight should be subject to different competition regimes;


• whether recent Commerce Commission cases against air-cargo supplying airlines and freight forwarding firms suggests that aviation regulation is sub-optimal or, at least, insufficiently transparent in its mechanisms.

It is impossible to detect, at this early stage, which way the Commission is leaning on possible reforms of the shipping conference immunity.  Given the close economic relations this country enjoys with Australia, the system now operated there will come in for some examination (in essence, liner conferences there are exempt but must be registered with an Australian government agency and are subject to challenge, analysis and monitoring to ensure that conference freight rates are not excessive).

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Next steps

Submissions on the Productivity Commission’s Issues Paper closed on 31 August 2011.  The Commission is now preparing a draft report to enable further consultation with key interest groups and affected parties, before publishing a final report in early 2012.  That report will go to government with perhaps far-reaching policy reform suggestions for the sea and air transport sectors.

 

To download a PDF version of this article, click here.

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