Ocean Transport: Antitrust turf (surf?) war

The U.S. Department of Justice and members of Congress are putting pressure on the Federal Maritime Commission to more closely examine ocean carrier antitrust immunity as it relates to joint contracting provisions in vessel sharing alliance agreements.

   The U.S. Department of Justice in March served top executives of leading liner shipping companies with information subpoenas during meetings of the World International Council of Containership Operators, an 18-member group informally known as the “Box Club,” and the World Shipping Council in California.
   It’s not exactly clear why DOJ issued the subpoenas, but the department raised red flags last year as ocean carriers belonging to the G6, CKYHE and Ocean3 alliances were finalizing plans to consolidate themselves into just two vessel sharing agreements—the OCEAN and THE Alliance agreements that began operations in April.
   In a September 2016 letter to the Federal Maritime Commission, then-Acting Assistant Attorney General at Justice Renata Hesse urged the commission “to seek to enjoin” the OCEAN Alliance “or, at least, to ensure the agreement is narrowly tailored to achieve pro-competitive benefits while limiting the risk of anti-competitive harm.”
   She noted DOJ “has long taken the position that the general antitrust exemption for international ocean shipping carrier agreements is no longer justified.”
   Hesse sent a second letter expressing concern about THE Alliance in November, warning the agreement “would allow carriers to exchange a number of categories of competitively sensitive information, which may facilitate collusion around aspects of competition (e.g. rates) that would otherwise fall outside of the agreement.”
   In addition, she said the joint contracting provisions of the VSA “appear to allow the carriers to coordinate their domestic land- based operations.”
   Thomas Allegretti, president and chief executive officer of American Waterways Operators, a trade association that represents tugboat companies, expressed similar concerns in a letter to the FMC in March, warning his group was “deeply concerned about provisions in agreements filed with the FMC that permit foreign ocean carrier alliances to jointly negotiate with domestic harbor service providers that have no counterbalancing ability to take collective action.”
   In recent years, DOJ has targeted shipping in other investigations. In an investigation of price fixing by companies involved in the container shipping business between Puerto Rico and the U.S. mainland, for example, three companies and six individuals either pleaded guilty or were convicted at trial, and were ordered to pay more than $46 million in criminal fines. Unlike the global liner firms, domestic shipping companies are not protected by the limited antitrust immunity afforded under the Shipping Act.
   A probe into the roll-on/roll-off shipping industry resulted in the ro-ro arms of companies that are also now part of THE Alliance—NYK, “K” Line and CSAV, which merged with Hapag-Lloyd in 2014—and eight executives being fined more than $230 million for violations of the ShermanAct for conspiring to “allocate customers, rig bids, and to fix, stabilize, and maintain prices.”
   These antitrust concerns have not escaped the attention of Congress.
   During a hearing of the Coast Guard and Maritime Transportation Subcommittee of the House Transportation and Infrastructure Committee last month, however, Acting FMC Chairman Michael Khouri said the Herfindahl-Hirschman Index, a metric used by the Justice Department to measure market concentration, would indicate the transpacific trade is not overly concentrated.
   “Carrier and marine terminal alliances can be very beneficial for U.S. exporters, importers and consumers,” he told the subcommittee. “Such alliances allow participants to obtain efficiencies and cost-savings that can be passed on to domestic consumers, especially when healthy competition exists among vessel operators.
   “One needs to understand the nature of these alliances,” he added. “They are purely operational. They do not have any price setting agreement or discussion in any shape, form or fashion.”
   But Rep. Peter DeFazio, D-Ore., the ranking member of the House T&I Committee, was skeptical to say the least.
   “The Box Club, who were all just subpoenaed, what were they doing?” he asked. “There is no one in the industry who thinks these people aren’t getting together in the room and colluding over pricing and who is going to control what harbors and what marine facilities, what they are going to do.
   “It’s Pollyannaish to think these alliances are just going to just help make the industry more efficient. Twenty years ago, that might have been true. It’s not true today, and they are foreign controlled.”
   Attorneys working for K&L Gates, counsel for the Box Club, noted in an article published on the website Law360 in March, “The Shipping Act expressly exempts agreements between vessel-operating common carriers in the U.S. foreign trade from the federal antitrust laws, if they are filed with the FMC and become effective under the Shipping Act or are exempt from filing under the Act.
   “Conduct pursuant to such a filed and effective agreement, or with a reasonable belief that it is undertaken pursuant to such an agreement, is fully exempt and cannot be the subject of either civil or criminal enforcement,” the firm said, arguing that Congress created the FMC to “put in place a regulator familiar with complex foreign commerce issues confronting ocean common carriers.”
   But according to DeFazio, “We need to revisit the Act, we need to revisit the assumptions that we are creating efficiencies and market forces here in these modern times, where we know state-owned enterprises and governments that are acting in a mercantilist way are not really interested in competition and they are interested in driving down their costs and dominating our markets and put- ting our people at disadvantage.”
   Rep. Duncan Hunter, R-Calif., chairman of the subcommittee, had a suggestion.
   “An idea would be to maybe strip out the limited antitrust exemption that FMC can grant these consortiums totally, so they are not allowed to join together to put pressure on the ports, collude on price,” he said.