On June 18, 2024, the former Minister of Trade, Industry, and Competition (DTIC), Ebrahim Patel, released draft block exemption regulations for the ports and rail industries for public comment. These regulations aim to ease competition law rules that govern market conduct under specific and necessary circumstances. By allowing companies in these sectors to engage in conduct typically restricted by the Competition Act, the regulations are intended to support South Africa’s struggling port and rail network.
South Africa boasts the largest rail infrastructure in Africa. Despite this, declining rail (both freight and passenger) and port capacities have severely constrained domestic and regional trade.
Background
The collapse of Transnet, which has been estimated to cost the country R1 billion a day in economic output, led to the formation of the National Logistics Crisis Committee. This committee aims to address the country’s transport and logistics issues, highlighting the crucial role of private sector involvement in rehabilitating South Africa’s ports and rail infrastructure.
The regulations aim to reduce the operational hurdles faced by the private sector within the ports and rail industries. By allowing companies to collaborate and coordinate activities without violating the Competition Act, the regulations seek to lower costs, enhance services, and reduce losses caused by inefficiencies and capacity shortages.
Specifically, the regulations exempt certain categories of agreements and practices among firms in the ports and rail industry from sections 4(1) and 5(1) of the Competition Act, which address anti-competitive conduct between competitors and parties in a vertical relationship.
However, the regulations do not permit cartel conduct, such as price fixing, collusive tendering, market allocation, or minimum resale price maintenance, which remain prohibit
Port Industry Exemptions
In the port industry, the regulations exempt conduct related to:
– Port capacity to accept new cargo and divert cargo between ports.
– Traffic flow into ports, including weather forecasts, stack levels, equipment breakdowns, and productivity shifts.
– Night runs to reduce congestion during peak hours.
– Management, maintenance, and upgrades of port facilities and equipment.
Rail Industry Exemptions
For the rail industry, the following conduct, including agreements, is exempt:
– Coordination on the repair and maintenance of identified rail lines.
– Coordination on volumes to support dedicated rail services.
– Coordination on sharing locomotive capacity.
While the regulations do not exempt cartel conduct, any engagements involving discussions between competitors regarding prices, customers, products, markets, or tenders should be approached with caution. Legal advice is recommended to avoid violating the Competition Act.
Commission Confirmation Required
Companies in the rail and port industries must seek written confirmation from the Competition Commission to determine whether their agreements or practices fall within the regulations’ scope. The Commission is required to respond within 30 business days of receiving the request.
Companies engaging in exempted conduct should maintain detailed records, including meeting minutes, written agreements, correspondence, and any exchange of competitively sensitive information related to the exempted conduct.
Public Comment
The public is invited to submit written comments on the proposed regulations by July 10, 2024. After considering public feedback in consultation with the Competition Commission, the DTIC is expected to enforce the regulations within a reasonable period.
