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UPDATES AND ARTICLES
     
  8th August 2011 - STAR MARITIME
 

Competition Act to make Malaysia a dynamic place to do business

THE introduction of Competition Act in Malaysia has been enthusiastically awaited and long overdue and is poised to make Malaysia a more competitive nation and a dynamic place to do business.

Taking 15 years in the making, the Act will be enforced on Jan 1, 2012. It contains several provisions including prohibition against anti-competitive agreements and abuses by dominant players, and power to conduct market reviews.

The Act complements the Price Control and Anti-Profiteering Act 2010, which came into enforcement on April 1, 2011 that oversees the determination of maximum, minimum or fixed price-controlled goods or charge-controlled services.

When fully implemented, Malaysia will be in alignment with over 100 jurisdictions globally – mainly in developed countries – that have anti-trust laws. The Act will create a business environment conducive to greater competition that will reshape the behaviors of businesses in the country for the better.

While having such an Act by itself is not a guarantee for more business and trade, it certainly helps enhance confidence among investors, businesses and traders in Malaysia as a country that promotes healthy competition and innovation, supports entrepreneurship and advocates fairness in business.

In the maritime sector, shipping activities and port operations will no doubt be influenced by the introduction of the Act.

Shippers will be pleased to know that cut-throat freight charges imposed by liner shipping companies and the collusion among companies to influence certain market conditions will be curbed by the Act.

Certain arrangements between ports and their users favouring the latter (based on volume of business), for example giving priority to empty over laden boxes, may also be under the scrutiny of the Act. Likewise, preferential berthing or other special treatments given by port operators to their users, some of which hold shares in the terminals where they call, may also be subjected to the Act.

New kind of market force

Resulting from the Act, a new kind of market force will be unleashed and will make its mark on the maritime sector.

It is foreseen that the fulfillment of objectives of the Act will lead to a streamlining of ports in the country and better allocation of scarce and huge amount of resources. This will curtail “competition of attrition” among our ports and will lead to greater specialisation of services that can generate higher revenues and margins for port operators.

A business environment without “guided competition” that regulates anti-competition activities leads to haphazard distribution of cargos and inefficiency along the supply chains; something which Malaysia can ill-afford at a time when competition among nations to attract cargos and shipping lines is getting keener.

To this end, the recent announcement by the Joint Global Shippers Forum to promote anti-trust laws in Asia should make governments sit up and take note. Similar laws have been enacted in Europe, for example regulating liner shipping, and in the United States to regulate arrangements among carriers but Asian countries have not taken the cue to bring their practice into line with Europe and US to protect shippers from shipping lines’ anti-competition practices.

Since October 2008, liner shipping companies have lost their privileged status under European Union (EU) competition law arising from the abolishment of the liner conference block exemption. The exemption allowed “horizontal price-fixing” and similar agreements between liner shipping companies. In areas where the liner consortia block exemption does not apply, all cooperative arrangements are carefully and individually vetted under the competition provisions of the European Council Treaty.

The EU situation

The competition regime, while lauded by shippers, in the EU liner shipping context is not without problems, though.

Liner shipping companies have had to reconfigure their discussion agreements and business strategies to accommodate the abolishment of the block exemption so generously accorded to them before the enactment of the EU competition law. This has led to greater competition among them in the EU trade, which in turn is lauded by shippers.

It was reported that Hong Kong’s OOCL, a powerful player in the liner shipping trade, cautioned against implementing anti-trust laws that act as an impediment to shipping lines from developing solutions and rationalisation exercises to deal with capacity overhang. While stopping short at endorsing price-fixing conferences, the company lamented that anti-trust laws have restricted liner companies from collectively discussing issues affecting the liner trade.

That coming from the world’s 11th largest container shipping operator (based on 2010 ranking) is noteworthy. OOCL’s grouse echoes that of many other liner companies which fear that the onslaught of open competition will adversely affect their business.

This anxiety is echoed by the recent recommendation of Singapore Competition Commission for the Singapore government to extend the block exemption to allow liner conferences to continue their trade until December 2015, with minor changes. This was made on grounds that anti-trust exemptions remain the norm for the global liner trade and most of Singapore’s trading partners. Getting into the act are Australia and Japan, which are also looking to apply competition rules on liner shipping.

Major leap forward

With the Act coming into play, companies operating in the maritime sector are expected to make a major leap forward and be at their “best business behaviors”. Operating in a borderless theatre, Malaysia’s maritime sector, which facilitates 95% of the nation’s trade, is expected to lead from the front in realising the targets of the Act, in line with the aspiration to make Malaysia a regional shipping and logistics hub and a globally competitive maritime nation.

Being an open but small economy, Malaysia must put in place an institutional framework that will not only lure investors and businesses but also to align local companies with international best practices to enable them to compete globally.

Even skeptics of anything good introduced by the Government would be hard-pressed to argue against the virtues of the Act. However, those who will be affected by the Act must keep to the letter and the spirit of the Act, which must be strictly enforced without fear or favour, to ensure its optimal effectiveness and the attainment of its objectives.

The dynamism generated in the marketplace by the injection of greater competition and innovation through the Act can only be good for a country that is racing against time to become a fully developed nation by 2020. Sharp focus will be trained on the maritime sector to help fulfill this lofty ambition.

* Nazery Khalid is a senior fellow at Maritime Institute of Malaysia.

   
 

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