Certain provisions of the merger agreement would have “jumped the gun” by allowing NYK, MOL and “K” Line to share competitively sensitive information or prematurely combine, according to the Federal Maritime Commission.
The Federal Maritime Commission (FMC) is rejecting on jurisdictional grounds the “Tripartite Agreement” (FMC Agreement No. 012475), a proposed agreement between Japan’s three largest shipping companies – Nippon Yusen Kaisha (NYK), Mitsui O.S.K. Lines (MOL) and Kawasaki Kisen Kaisha, Ltd (K Line) – to form a joint container carrier, the commission said Tuesday.
The decision seems to be less about the merger itself, however, and more about provisions therein that would have allowed the carriers to engage in what the FMC would consider anti-competitive behavior prior to the completion of the merger.
“The Shipping Act does not provide the Federal Maritime Commission with authority to review and approve mergers,” the agency said in a press release. “After careful consideration, the commission determined that parties to the Tripartite Agreement were ultimately establishing a merged, new business entity and that action is among the type of agreements excluded from FMC review.”
“In order to receive the benefits of a merger, you need to first merge,” explained FMC Commissioner William P. Doyle. “The commission has continuing regulatory oversight over agreements between established ocean common carriers and marine terminal operators. Much of what the Tripartite parties were asking for revolved around pre-merger or pre-consolidation coordination.
“For instance, the parties were seeking authority to share information and conduct joint negotiations with third-party businesses in the United States for as much as year in advance of any potential merger,” he said. “These provisions would violate ‘gun jumping’ laws that forbid the sharing of competitively sensitive information or the premature combining of the parties.”
“In addition, the proposed Tripartite Agreement sought authority to transfer shares or ownership interests in U.S.-based marine terminals owned and/or operated by the Japanese lines,” he added. “Inasmuch as the pre-coordination activity of the liners is beyond the scope of FMC’s jurisdiction, this same rationale applies to marine terminal assets in the U.S.”
“There are at least five joint service agreements currently on file with the FMC,” said Doyle. But he noted, “These agreements are all geographically restricted to specific trade routes and ports. This means the that the joint service parties in those agreements still compete with each other in the container trade outside the joint service’s trade.
“Further, the joint ventures do not treat the joint service as a merger of the parties’ specific lines and retain their own separate corporate identities,” he added. “Here, the Japanese Tripartite parties envision a complete merger of the liner trades into a single company and the entities do not intend to keep their separate corporate identities in the container trade attached once up and running. The joint service agreements on file with the FMC include: Somers Isle Shipping Agreement, Greater Bali Hai Service, BBC Chartering and Logistics – Caytrans Project Services (Americas) Joint Service Agreement, Evergreen Line Joint Service Agreement, and the SCM Lines Transportes/CCNI Agreement.”
Doyle also noted the FMC’s rejection of the agreement “in no way precludes the Japanese carriers from merging their container trade business units into a single stand-alone company.”
“To be clear, the industry has been going through a period of consolidation including mergers and acquisitions. CMA CGM has acquired APL and China’s COSCO and CSCL have merged,” he said. “Maersk Line is taking over Hamburg Süd and Hapag Lloyd is in the process of acquiring United Arab Shipping Company (UASC). None of these liner companies sought FMC authority under joint service agreement regulations to share information and conduct joint negotiations prior to actually merging.”
It was not immediately clear if Tuesday’s vote by the FMC could delay the merger, which is not scheduled to go into effect until next April, nor if the carriers will need approval from the U.S. Department of Justice in order to proceed. But one attorney familiar with the agreement, thought any antitrust objection was unlikely, saying the combined container shipping operations of the Japanese carriers would still be smaller than several other companies.
In an email to American Shipper, “K” Line said, “Although it is still under further clarification, the project recognizes that the announcement of FMC does not deny the integration of the three companies itself but denies the jurisdiction of the approval to the integration.”
NYK, MOL and “K” Line did begin operating together last month as part of THE Alliance, a vessel sharing agreement that also includes Taiwan-based Yang Ming and Hapag-Lloyd of Germany, but alliance agreements prohibit joint negotiations with shippers or third-party service providers.
Under the Tripartite Agreement, filed at the FMC on March 24, 2017, the three carriers were seeking authority to share information with each other in advance of a the business entity being formed under the agreement next year. Absent today’s vote, or a request for additional information, the agreement would have gone into effect on May 8.
The agreement seems a likely topic for discussion during Wednesday morning’s hearing of the Subcommittee on Coast Guard and Maritime Transportation of the House of Representatives Committee on Transportation and Infrastructure, at which FMC Chairman Michael Khouri is scheduled to testify. In a statement previewing the hearing, the subcommittee pointed specifically to concerns that the Tripartite Agreement “would permit ocean carrier alliances to jointly negotiate with maritime service providers.”
“Separate from the jurisdictional question, FMC received public comments concerning the ability of the parties under the agreement to jointly negotiate and contract with U.S. domestic services such as harbor tugs, barges, feeders, equipment lessors and other American based service providers prior to the creation and operation of the new entity,” said Doyle. “Remarkably, similar language has been inserted in a number of recent agreement filings only to be withdrawn. My position is clear: I am opposed to allowing ocean common carriers to team up and use their FMC-granted limited antitrust immunity to collectively negotiate rates with U.S. maritime service providers, that have no counterbalancing FMC-granted authority to collectively bargain in return. The Parties to the Tripartite Agreement, to their credit, ultimately made several attempts to address these concerns with revised language.”
Concerns about joint contracting were raised about an agreement approved by the FMC in January that allowed several roll-on/roll-off carriers to collectively negotiate rates with maritime service providers such as tugboat operators. Doyle was the sole commissioner who voted against that agreement.
FMC rejects Tripartite Agreement of ‘Big 3’ Japanese carriers
