First signal from European Commission regarding signalling

On 16 February, the European Commission published commitments offered by container liner shipping companies and is currently seeking feedback from stakeholders to see if these commitments are sufficient to alleviate competition concerns. The Russian FAS has already concluded its investigation into the matter. While these commitments are limited to the case at hand, they can be seen as an indication of the Commission’s appraisal vis-à-vis so called “signalling”, i.e. the practice of notifying a competitor about current and future pricing without direct contact.

Container liner shipping investigation.

In May 2011, the Commission dawn raided several container liner shipping companies and in November 2013 opened formal proceedings. The Commission investigated the companies, because they regularly published changes to their prices prior to putting these into effect. However, they did not announce their final price for any given route, but merely a percentage increase to the prior price (so called “General Rate Increase”) which also did not specify any applicable surcharges. These general rate increases have sometimes been postponed or modified by some carriers, possibly aligning them with the announcements made by the other carriers. It is important to note that no evidence was established that the shippers had an agreement to announce these increases.

The commitment procedure.

The commitment procedure enables the Commission to close a case with commitments offered by the parties, without finding an illegal behaviour. The Commission publishes the commitments offered and seeks feedback from stakeholders, i.e. it allows interested parties to make their views known to support the Commission in its analysis if the commitment are sufficient to alleviate competition concerns. In case the feedback deems them sufficient, the Commission can render them binding on the parties.

Parallel investigation in Russia.

The Russian Competition Authority FAS has also investigated the carriers conduct. It concluded its investigation in December 2015 by finding that the carriers had violated competition law by publishing the General Rate Increase announcements. Such conduct would constitute a concerted action. Under Russian law such actions do not require contacts between competitors but an aggregation of the following conditions:

1. the result of such concerted actions meets the interests of each of the involved economic entities;
2. the actions are known in advance to each of the involved economic entities due to a public statement made by one of them about exercising such actions;
3. the actions of each of the involved economic entities are caused by actions of other economic entities, participating in concerted actions, and are not due to the circumstances equally affecting all economic entities on the relevant goods market.

The FAS found that the totality of the evidence gathered indicates that the carriers’ General Rate Increases actions were caused by each other’s actions, rather than by objective market changes.

Commitments offered to alleviate concerns

In the on-going EU-investigation, the shipping companies offered the following commitments:

• the carriers will stop publishing and communicating General Rate Increase announcements, i.e. changes to prices expressed solely as an amount or percentage of the change;
• in order for customers to be able to understand and rely on price announcements, the price figures that the carriers announce will benefit from further transparency and include at least base rate, bunker charges, security charges, terminal handling charges and peak season charges if applicable; 
•  any such future announcement will be binding on the carriers as maximum prices for the announced period of validity (but carriers will remain free to offer prices below these ceilings);
• price announcements will not be made more than 31 days before their entry into force, which is usually when customers start booking in significant volumes.

Price transparency is beneficial, but announced prices should be binding maximum prices.

While some of the commitments seem rather specific to the shipping industry, they are useful indicators of the Commission’s thought process. In essence, the Commission seems to see a certain benefit for consumers in transparent prices. These benefits can outweigh the competitive concerns. However, these prices should not be announced too far in advance and should be binding on the companies to prevent the companies from increasing their pricing after reviewing the other published prices.