US Ocean Shipping Antitrust Enforcement Act Takes Aim At Container Carriers

by Laura Curtis (Bloomberg) Container carriers are facing new measures in the US Congress that would strip away a long-standing antitrust exemption and require them to load more exports, even as the first shipping reform law in two decades is still being implemented.

As consumer demand surged during the pandemic and logistics networks clogged up, the liner companies were accused of operating like cartels, driving up freight rates for US imports and other busy routes while refusing to take lower-fare exports.

President Joe Biden even took credit in his State of the Union address in February for cracking down on soaring shipping costs, adding “let’s finish the job” by strengthening antitrust enforcement.

Now, a wave of legislation is coming just as the carriers navigate a market that’s turned sharply in their customers’ favor, with rock-bottom freight rates sure to slash profits that reached all-time highs through much of the past 18 months.

One bill would scrap the exemption for the predominately foreign-owned ocean carriers from federal antitrust laws.

The Ocean Shipping Antitrust Enforcement Act would also “address unfair practices that harm American businesses, producers, and consumers,” such as unjustified container rate increases and refusing cargo bookings for American exports. The bill was introduced last week by California Democrats Jim Costa, John Garamendi, Josh Harder and Jimmy Panetta, and South Dakota Republican Dusty Johnson.

The World Shipping Council rejected the bill’s premise that carrier agreements are uncompetitive, and in a statement Monday the group said it would work with the bill’s sponsors to understand their policy objectives.

Also Read: FMC Fact Finding Investigation Finds ‘Vigorous’ Competition in Container Shipping

Different Tack

There is a larger conversation unfolding about whether keep antitrust immunity for ocean carriers — with increased oversight by the Federal Maritime Commission — or do away with the exemption entirely, which would eliminate the FMC’s oversight of the competitive impact of carrier and marine terminal agreements.

The biggest carriers are aligned into three vessel-sharing alliances formed to maximize the use of available capacity and thus keep rates down — similar to code-sharing arrangements among commercial airlines.

“The alliances perform a very important role in the overall market and the FMC does a good job of monitoring them,” according to Lauren Beagen, a former FMC attorney and founder of maritime legal consultancy Squall Strategies.

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But critics argue that nearly 80% of capacity is controlled by the trio of alliances, and that competition is further stymied by concentrated ownership of other logistics assets like port terminals and other modes like air cargo.

Two FMC commissioners are seeking authority to reject or block carrier and marine terminal operator agreements if the agency determines the agreements are overly anti-competitive. Currently, the agency has to file an action in U.S. District Court in order to stop an agreement from going into effect or block an agreement that is already in effect.

“Experience has shown that this process is cumbersome and time-consuming, and some would even argue that it is designed to impede the Commission’s oversight of agreements,” FMC Commissioners Carl Bentzel and Max Vekich said in a December letter to Congress.

In a hearing last week Rep. Garamendi told FMC Chairman Daniel Maffei he was working on a measure that would address the commissioners’ concerns. Maffei said he supports the effort.

Reform 2.0

Today, Rep. Johnson is set to introduce a follow-up to last summer’s Ocean Shipping Reform Act that he said will address some of the “damage” done by the Senate after OSRA left the house last year.

OSRA 2.0 would establish reciprocal trade as part of FMC’s mission in enforcing the Shipping Act; clarify the agency’s role in service contracts by ocean common carriers; and block the FMC from requiring ocean carriers to report information already reported to other federal agencies.

These and other maritime supply-chain issues will get more congressional attention today at the House Coast Guard and Maritime Transportation panel’s 2pm hearing in Washington.

The subcommittee will hear from Bud Darr, the executive VP of MSC — the biggest global carrier — as he represents the World Shipping Council, in addition to Buddy Allen, CEO of the American Cotton Shippers Association, and Mario Cordero, the Port of Long Beach’s executive director, and Ports America CEO Matt Leech.

Still, the marketplace often changes faster than the legislative process. Already this year, MSC and Maersk — the industry’s two biggest players that together control about a third of total capacity — said they’ll ditch their so-called 2M alliance when it expires in 2025. But Hapag-Lloyd CEO Rolf Habben Jansen indicated recently that its partnership in THE Alliance is “stable” and last until 2030.  

by Laura Curtis Bloomberg Supply Lines © 2023 Bloomberg L.P.