Introduction

In 2012, India’s Ministry of Corporate Affairs (“MCA”) granted a blanket exemption for Vessel Sharing Agreements (“VSAs”) from Section 3 of the Competition Act, 2002. Section 3 prohibits any agreement that causes or is likely to cause an appreciable adverse effect on competition (“AAEC”) in the market. A VSA is a collaborative legal arrangement between shipping companies that allows them to share space on a cargo vessel. VSAs constitute a specific form of partnership, distinct from mergers or acquisitions, that allows each participating carrier to maintain its commercial independence while pooling resources.

The rationale behind this initial policy was the belief that these agreements would improve the efficiency of India’s relatively small shipping sector and help lower the costs for shippers. This decision reflected a global consensus at the time, where many jurisdictions, including the EU and the US (Shipping Act of 1916), also provided exemptions or immunities for such cooperative agreements. The only express caveat to the exemption in the Indian policy was that it would not apply to concerted practices involving price-fixing, limitation of capacity or sales, or the allocation of markets or customers. The latest iteration of this blanket exemption expired in July 2021 after a three-year run, prompting a fundamental re-evaluation of its effectiveness.

The New Policy

The Government concluded, after evaluating the long-term exemption, that such a blanket exemption had resulted in “no reduction in freight for the exporter or importer” and that foreign carriers continued to impose various surcharges. This finding directly contradicted the central efficiency-based argument for the exemption, necessitating a new approach that would better serve India's economic interests.

In response to these findings, the government introduced a new conditional exemption for VSAs, valid for a period of three years. The most pivotal condition of this new policy is the mandate prescribing that at least 5% of the total capacity (in TEUs) within a VSA on a specific route must be provided by Indian-flagged vessels.

The government's stated objective for this new policy is to “facilitate local fleet owners enter the highly exclusive mainline container shipping trade, now dominated by a few global container carriers”. By creating this regulatory incentive, the government aims to encourage foreign carriers to form partnerships with Indian operators, thereby providing an “opportunity for Indian fleet owners to buy container ships” and boost India's presence in global shipping. Regulatory oversight of these agreements will now be handled by the Directorate General of Shipping (“DG Shipping”), which will monitor compliance and submit inquiry reports to the Competition Commission of India (“CCI”) for a final determination on whether the agreements have an appreciable adverse effect on competition.

Critical Analysis: Weighing Efficiency vs. Competition Risks

Despite its well-intentioned objectives, the new conditional exemption is not without significant risks, particularly regarding market concentration and anti-competitive practices. The experience in the EU has shown that even with block exemptions, consortia tend to be dominated by a few large carriers, with minimal meaningful participation from the smaller entities the policy was intended to support. The 5% Indian-flagged vessel mandate may prove to be a token requirement that does not genuinely empower Indian players. Instead, it could be used by global alliances as a simple compliance mechanism to maintain their exemptions, allowing them to operate with relative impunity while eschewing smaller, non-aligned Indian competitors.

The contemporary shipping landscape reveals troubling concentration levels that validate these concerns. According to UNCTAD’s analysis of the maritime transport sector, the mega alliances – Ocean Alliance, 2M, and THE Alliance – own more than 90% of the worldwide shipping industry, suggesting an oligopolistic market structure and possible collective dominance. Even though alliances do not expressly forbid price competition among members, the U.S. Department of Justice has noted that members nevertheless share competitively sensitive information. Alliances also control crucial competitive factors, including routes, frequency, reliability, and the number of vessels deployed, positioning them to effectively control output and service quality. This dominant position creates opportunities for abuse against both shippers and providers of bunkering and other services procured by liner shipping companies.

The maritime sector has experienced significant consolidation that has become an industry-defining feature. Notable developments in 2016 included CMA-CGM's acquisition of American President Lines, the combination of China Shipping Container Lines and COSCO, Maersk's purchase of Hamburg Sud, and Hanjin Shipping's market exit. The following year witnessed further consolidation with fourteen Korean liner shipping companies, including Hyundai Merchant Marine, forming partnerships, while Hapag-Lloyd merged with United Arab Shipping Company. Additionally, three major Japanese carriers – Nippon Yusen KK, Mitsui Osaka Shosen Lines (MOL), and Kawasaki Kisen (K Line) – consolidated to form Ocean Network Express. These consolidations may render the shipping liner services market even less competitive while creating vertically integrated corporations capable of employing exclusionary practices through their roles as port operators or positions in adjacent markets.

The “contract stability” argument advanced to justify price coordination proves particularly contentious. While proponents claim that consistent terms and conditions benefit the market, this argument merely highlights the inherently anti-competitive nature of such agreements, as stability necessarily implies price stabilisation. Customers typically prefer variable, competitive pricing over consistently higher stabilised prices. If stability refers to continuous service availability without major disruptions like bankruptcy, it provides support for destructive competition theory, though such arguments remain subject to valid criticism regarding their applicability to modern market conditions. This raises a critical question about the new policy: will the efficiency gains from VSAs truly benefit the broader Indian economy, or will they continue to be captured by the large foreign carriers in the form of higher profits, as has been the case historically?

Perhaps the most significant risk lies in the regulatory oversight mechanism. The new policy places the primary monitoring responsibility with the DG Shipping, with the CCI acting in a reactive capacity, dependent on reports from the former. The DG Shipping is a sectoral regulator with a mandate focused on maritime safety, licensing, and compliance with international conventions. In contrast, the CCI is a specialized competition authority with extensive legal and economic expertise and a proven track record of investigating and penalising cartels, even in the maritime sector. This division of labour creates a structural vulnerability. The entity responsible for day-to-day oversight (DG Shipping) lacks the specialised tools and mandate to detect and analyse subtle anti-competitive behaviours like price coordination or market allocation. This could lead to delayed or even missed investigations, allowing cartels to operate under the guise of the VSA exemption with minimal risk of a timely intervention.

The European Union: From Block Exemption to Stricter Scrutiny

For years, the EU operated under the Consortia Block Exemption Regulation (“CBER”), which provided a blanket exemption for shipping alliances with a combined market share below 30%. However, the European Commission chose not to renew the CBER upon its expiration in April 2024. This decision was based on a comprehensive review that found the regulation was no longer delivering its intended benefits. The Commission’s review concluded that the consortia were “dominated by large carriers, with minimal participation from the smaller entities the regulation was intended to support”, and that efficiency gains did not outweigh the competitive advantages granted to these large carriers. The EU’s decision to end its block exemption highlights a fundamental divergence in regulatory philosophy. While India is introducing a new conditional exemption aimed at promoting small carriers, the EU has concluded, after years of experience, that such a mechanism has failed to achieve this very goal.

The United States: Proactive, Case-by-Case Monitoring

The US operates under the Shipping Act of 1984, which provides conditional antitrust immunity rather than blanket exemptions. Under this framework, parties must file agreements with the Federal Maritime Commission (“FMC”), which conducts proactive review during a 45-day period before agreements become effective. This system fundamentally differs from India's reactive approach, as the FMC scrutinises each agreement individually through economic analysis, public comment periods, and ongoing monitoring.

However, significant opposition is mounting against these exemptions. The Ocean Shipping Antitrust Enforcement Act of 2023 represents bipartisan Congressional efforts to eliminate carrier antitrust immunity entirely, reflecting concerns about unchecked market power. Industry critics argue that vessel sharing agreements can operate effectively without antitrust protection, while carriers contend that eliminating immunity would reduce efficiency and increase costs. The Department of Justice has intensified pressure on the FMC to examine carrier practices more closely, indicating inter-agency tensions over competition enforcement.

The primary justification for maintaining immunity centres on allowing carriers to share vessels for increased efficiency across geographic areas, with almost all US-serving carriers participating in such arrangements. This approach represents a middle ground between blanket exemptions and complete prohibition, though growing political momentum suggests potential elimination of these longstanding protections.

Conclusion: The Balance India Must Strike

India’s conditional exemption for VSAs represents a well-intentioned but potentially flawed attempt to balance competition policy with maritime development objectives. The policy’s central weakness lies in its assumption that token Indian participation will meaningfully challenge the dominance of mega-alliances controlling over 90% of global capacity. The EU's abandonment of similar block exemptions after concluding they failed to support smaller carriers demonstrates the inherent limitations of such approaches.

The regulatory structure between DG Shipping and the CCI creates oversight gaps, potentially allowing anti-competitive coordination to persist undetected. While the government’s strategic goal of building domestic shipping capacity is commendable, the 5% mandate risks becoming a mere compliance exercise that legitimises continued foreign dominance rather than genuinely empowering Indian operators.

The global regulatory trend toward stricter scrutiny of shipping alliances, evidenced by US Congressional efforts to eliminate antitrust immunity and the EU’s policy reversal, suggests that India’s conditional exemption may be swimming against the tide of international best practices. A more robust framework combining proactive competition oversight with targeted industrial policy measures may better serve India's long-term maritime interests while protecting market competition.