In-depth

On 18 June 2024, the former Minister of Trade, Industry and Competition (DTIC), Ebrahim Patel, published the draft block exemption for ports and rail for public comment. The Regulations effectively relax the competition law rules that typically regulate companies' market conduct. This occurs in limited circumstances and when it is absolutely necessary. The aim is that by permitting companies in the rail and port industries to engage in certain conduct that would otherwise fall foul of the Competition Act, the Regulations will serve as a lifeline for South Africa’s failing port and rail network.

South Africa has the most extensive rail infrastructure in Africa. However, rail (freight and passenger) and port capacity declines remain a severe constraint on domestic and regional trade. Following the collapse of Transnet, which is estimated to have cost the country ZAR 1 billion a day in economic output, the National Logistics Crisis Committee was established to address the country’s transport and logistics crisis, emphasising the need for private sector involvement to drive and control the rehabilitation of South Africa’s ports and rail infrastructure.

The Regulations are aimed at lessening the hindrances that the private sector encounters when operating within the ports and rail industry by allowing companies in these industries to collaborate and coordinate activities, without fear of falling foul of the Competition Act. This is to reduce costs, improve services and minimise losses caused by operational inefficiencies and infrastructure capacity shortages in a concerted effort to mitigate the challenges faced by the rail and port industries.

In particular, the Regulations exempt categories of agreements and/or practices amongst firms in the ports and rail industry from the application of sections 4(1) and 5(1) of the Competition Act, which deal with conduct between competitors and parties in a vertical relationship that has a substantial net anti-competitive effect in a market . Crucially, the Regulations do not allow for companies to engage in cartel conduct (i.e., price fixing, collusive tendering and market allocation) or the practice of minimum resale price maintenance (which are respectively automatically prohibited).
In the context of the port industry, the Regulations exempt conduct relating to:

• Ports and the capacity of a port to accept new cargo and divert cargo between ports.
• The flow of traffic into the ports, including weather forecasts, stack levels, equipment breakdowns and productivity shifts.
• Night runs to ease congestion during peak hours.
• Management, maintenance and upgrades of port facilities and equipment.

With respect to the rail industry, the following conduct (including agreements) is exempt:

• Coordination on the repair and maintenance of rail lines identified by the rail industry.
• Coordination on volumes to support a dedicated rail service.
• Coordination on sharing capacity on locomotives.

Given that the Regulations do not exempt cartel conduct, engagements that necessitate discussions between actual or potential competitors in relation to prices (including price components), customers, products, markets / territories as well as tenders / joint bidding should be approached with extreme caution to avoid falling foul of the cartel provisions in the Competition Act. Legal advice should be sought prior to embarking on such engagements.

Companies in the rail and port industries that wish to enter into agreements or engage in practices covered by the exemption must first seek written confirmation from the Competition Commission to ascertain whether the agreement or practice falls within the scope of the Regulations. The Commission must revert within 30 business days of receiving the request for confirmation.

It is also prudent for companies that engage in the exempted conduct to keep minutes of meetings held, keep written records of any agreements or practices entered into, maintain all correspondence pertaining to the conduct or agreement and keep records of all exchanges of competitively sensitive information that align with the exempted conduct or agreements.

For now, the public is invited to submit comments in writing on the proposed regulations within a period of 15 days of the publication of the notice (i.e., 18 June 2024). Once public comments have been considered by the DTIC in consultation with the Competition Commission, it is expected that the Regulations will come into force within a reasonable period thereafter.