FMC Report Chronicles Illegal Practices in Pacific

By Staff -- Logistics Management, 5/1/1999

Desperate times call for desperate measures, goes the old maxim, and no one disputes that these are indeed desperate times for ocean carriers in the trans-Pacific trade. But a recent report issued by the U.S. Federal Maritime Commission (FMC) says the desperate measures some ocean carriers allegedly took last year to counteract the effects of Asia's financial crisis were illegal and may be subject to prosecution.

Last summer, shippers, consignees, freight forwarders, and ocean consolidators (NVOCCs) told the maritime watchdog agency that ocean carriers in Asia were engaging in discriminatory and unfair practices. These allegedly included charging rates higher than those stated in service contracts, demanding additional payments in exchange for space on vessels, and rejecting shipments of consolidated and low-revenue cargoes.

The FMC launched an investigation headed by Commissioner Delmond J.H. Won. Won submitted his report and more than 40,000 pages of supporting evidence in January; several months later, the commission released a summary of the investigation's findings.

What Won discovered was enough to give any shipper nightmares. First, in order to increase revenues during the peak shipping season, the investigation found, many carriers refused to accept lower-rated cargoes and actively sought to replace them with more profitable shipments. (The report summary does not name the carriers involved.)

Investigators also obtained documents confirming that carriers were demanding "premiums" in return for space guarantees. Even shippers with valid service contracts were hit with such demands, Won reported. "Many carrier documents indicate the auction-like atmosphere under which space was sold during the height of peak season, including one [that] actually says, 'Box goes to the highest bidder,'" he noted.

Other possible transgressions noted in the report summary include:

* Some carriers imposed rate increases on all NVOCCs in September, and nearly all carriers rejected shipments tendered by NVOCCs later on.

* A few carriers used new language in service contracts that allowed them to "opt out" of contract rates. This practice essentially amounted to bribery, with carriers accepting contract cargo only at a higher rate.

* Shippers were assessed surcharges that carriers did not file with the FMC.

* Some carriers refused to honor service-contract space commitments, forcing at least two members of a shippers association to individually seek space, which they obtained by paying significantly higher rates.

Of equal concern was the apparent collusion between members of the Transpacific Stabilization Agreement (TSA), a "discussion agreement" that includes conference and nonconference carriers. Won's report cites "numerous examples" of TSA members sharing information about specific service contracts, notifying each other of planned rate changes, coordinating tariff wording, and agreeing to raise or adjust rates and surcharges uniformly. Won found it particularly troubling that many of those activities occurred in informal meetings that did not provide minutes to the commission.

The report summary does not specifically recommend that the commission take legal action against the carriers involved. Given that the document details which sections of the law may have been violated and referred to carriers' actions as a "significant level of abuse of the shipping public," fines and/or prosecution appear to be all but certain. The agency is expected to announce its course of action before summer.