The new law includes provisions aimed at protecting suppliers such as U.S. marine terminal operators, tug boat operators and bunkering companies.
A law signed by President Donald Trump this week has provisions designed to protect U.S.-based marine terminal operators and other domestic
businesses such as harbor pilots, tug operators and equipment suppliers “from being forced to accept pricing from the ocean carriers in
concerted action that will threaten their long-term sustainability and
impede future investment in infrastructure and technology,” says the law
firm Holland & Knight.
The legislation was drafted in reaction to consolidation in the global shipping industry and is contained in the Federal Maritime Commission Authorization Act of 2017, which was incorporated into the Frank LoBiondo Coast Guard Authorization Act of 2018 that the president signed on Tuesday.
In a commentary, Holland & Knight says the law contains “the first substantive revision” to the Shipping Act of 1984 since the Ocean Shipping Reform Act was enacted in 1998.
A wave of mergers and acquisitions has swept through the container liner industry over the past 20 years and the major East-West trade lanes are now dominated by the three major carrier alliances — the 2M, Ocean Allliance and THE Alliance.
Speaking in May 2017 during a mark-up of the bill, the then-chairman of the House Coast Guard and Maritime Transportation Committee, Rep. Duncan D. Hunter, R-Calif., said the bill would “eliminate any opportunities for port service providers to be disadvantaged in any negotiations with ocean carriers.”
Hunter, who was stripped of his committee memberships in August shortly after being indicted and accused of misusing campaign funds, called the legislation “a good bipartisan bill.”
At the same hearing, Rep. Peter DeFazio, D-Ore., said the bill would “better protect our domestic maritime industry.” He said the changes were needed because the Shipping Act is “not keeping up with the massive changes in the shipping industry, the so-called alliances, these new giant conglomerates have the potential for inordinate bargaining power which could diminish our domestic industry even further.”
Rep. John Garamendi, D-Calif., also expressed strong support for the bill, saying it would “monitor the ongoing turbulence in the marketplace.” He said the 2016 bankruptcy of the Korean carrier Hanjin Shipping and following consolidation of carriers created “a strong potential for an anti-competitive marketplace.”
John Butler, the president of the World Shipping Council, the main trade association for the container liner trade association, said, “The amendments to the Shipping Act were designed to make sure that the FMC had clear authority to address potential concerns surrounding joint purchasing of certain terminal services.
“There was no indication that there were current problems in that regard, but this is an example of the Congress legislating proactively to make sure the commission has the power it needs if such issues were to arise,” said Butler. “The amendments were fashioned through extensive discussions by Republicans and Democrats in both chambers of Congress, and all industry parties had an opportunity to weigh in. This is a carefully crafted bill that modernizes the Shipping Act and ensures that it will remain fit for purpose as the industry continues to evolve.”
The law grants the FMC authority to investigate any ocean carrier alliances that engage in anti-competitive action during negotiations with other maritime industry players such as stevedores and marine terminal operators, tug boat companies that berth ships and bunkering companies.
Holland & Knight highlighted these provisions:
• The FMC must review the effects of alliances on an annual basis and include this information in its report to Congress.
• Carrier alliances are prohibited from engaging in collective negotiation that would result in excessive anti-competitive impacts (i.e. unsustainable rates, reductions in capacity).
• The FMC will consider the aggregate effect of carrier alliance agreements on competition when determining whether to seek injunctive relief against certain activities.
• Carriers cannot participate in both a rate discussion and vessel sharing agreement operating in the same trade if such participation results in a reduction in service or increase in transportation cost.
• The DOJ will continue to have authority to prosecute anti-competitive behavior in violation of U.S. antitrust laws.
Holland & Knight said the law “grants the FMC authority to seek injunctive relief against actions of regulated entities that ‘substantially lessen competition in the purchasing of certain covered services.’” It also expands the scope of factors the FMC must consider when seeking injunctive relief to include the aggregate effect of agreements on competition, rather than reviewing the agreements’ isolated impacts.
It also “preserves the authority of the Department of Justice’s to prosecute anti-competitive behavior that violates U.S. antitrust laws.”
In a statement issued by President Trump when he signed the law, he pointed to sections where he said the new legislation “should not be interpreted to give the Federal Maritime Commission the authority to construe the antitrust laws in the first instance, which is a responsibility traditionally within the province of the Antitrust Division of the Department of Justice” and that he would interpret another section “to indicate that the FMC should defer to the Department of Justice regarding interpretations of the federal antitrust laws.”
A provision that prohibits a common carrier from continuing “to participate simultaneously in a rate discussion agreement and an agreement to share vessels, in the same trade, if the interplay of the authorities exercised by the specified agreements is likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost” is thought to have contributed to the decision to dissolve the Transpacific Stabilization Agreement, a rate discussion agreement that included most of the major transpacific carriers.
The law also requires the U.S. Comptroller General to conduct a study of recent bankruptcies of ocean carriers in the wake of the collapse of Hanjin Shipping.
Another provision prohibits a person from acting as an ocean transportation intermediary OTI (that is, an NVOCC or ocean freight forwarder) “unless the person holds a valid license.” Holland & Knight said “coupled with recent FMC rulemaking that extends a ‘registration’ requirement to foreign-based NVOCCs handing U.S. inbound trade, these changes give the FMC more comprehensive oversight on OTIs while simultaneously reducing administrative compliance burdens on the industry.”
It also clarifies the Shipping Act and FMC regulatory requirements upon MTOs to file periodic reports with the FMC and “strengthens the the authority of the FMC to investigate persons subject to the agency’s regulation.”
Thomas Allegretti, the president and chief executive officer of the American Waterways Operators, the main trade association that represents tug and towing industry including those that dock ships, said the new law “is very important to us. It provides a protection that was lacking under the previous regulatory regime.”
The new law was crafted to have provisions specifically designed to protect the tug industry. He said those were needed because the FMC had allowed ocean carrier alliance agreements that included provisions for collective negotiation of rates with tugboat owners.
“Our initial approach was not to go to Congress, but to go to the FMC and ask them to not approve the particular provisions that contemplated this collective negotiation, and they were unwilling, frankly, to do it,” he said. “It left us with no choice but to go to Congress.”
President enacts bill that revises Shipping Act
