Maritime antitrust shield gets renewed scrutiny

The House Judiciary Committee hears arguments over maintaining carriers' antitrust immunity under the new Ocean Shipping Reform Act.

By Staff -- Logistics Management, 6/1/1999

On May 5--just five days after the Ocean Shipping Reform Act of 1998 (OSRA) took effect--the new legislation came under scrutiny by the House Judiciary Committee. Committee Chairman Henry J. Hyde (R-Ill.) opened the oversight hearing on the law's antitrust provisions by stating his concern that OSRA did not treat the ocean-freight consolidators known as NVOCCs fairly. "I promised publicly last year that this committee would conduct vigorous oversight of the [act's] implementation," he said. "Today represents a down payment on that commitment."

The hearing addressed four specific questions regarding OSRA, which for the first time allows ocean carriers to sign confidential service contracts with shippers individually:

- Did OSRA treat carriers and NVOCCs fairly in allowing carriers but not consolidators to sign confidential contracts with their customers?

- Is antitrust immunity still justified in light of the new regulatory environment and findings of anti-competitive activity in the Pacific trade by a Federal Maritime Commission (FMC) fact-finding investigation?

- Does it make sense to continue antitrust immunity when it largely benefits foreign carriers at the expense of American shippers?

- Does the FMC have adequate authority to deal with the kinds of practices detailed in its report and what, if any, role can the U.S. Department of Justice play?

The committee heard testimony from representatives of the FMC, the Justice Department, customs brokers and foreign freight forwarders, shippers' associations, U.S.-flag ocean carriers, port authorities, importers, and a consultant hired by carriers to prepare an analysis of economic conditions in the liner trades. Conspicuously absent were NVOCCs; Hyde said two consolidators who had been invited to testify withdrew out of fear of retaliation by ocean carriers.

Predictably, the ocean carriers' views were at odds with those of their customers. In a joint statement, Timothy Rhein, president and CEO of APL Ltd., and John Clancey, president and CEO of Sea-Land Service, defended antitrust immunity as being necessary to carriers' survival. Ocean carriers lost an estimated $3.4 billion in the major trade lanes last year, they said. "Absent our ability to discuss commercial issues of common interest ... we believe that the results would be much worse. Specifically, absent some ability to dampen the most drastic market swings, bankruptcies, consolidations, and mergers--by no means unknown in the industry--would be far more frequent. ...[B]ecause of the unique nature of the industry, the antitrust exemption mitigates inherently destructive market forces that, left unchecked, would lead to destructive competition and reduced shipper choice."

The hearing also focused heavily on allegations contained in a report by FMC Commissioner Delmond Won that discriminatory practices against shippers and NVOCCs in the eastbound trans-Pacific trade resulted from carriers' collective anti-competitive actions. Though Won stood by his report, Rhein and Clancey disagreed with his conclusion. Any such activities that did occur were driven by extraordinary market conditions, not by antitrust immunity, they insisted.

Opposing views

Witness after witness disagreed with the carrier executives. Ronald Jacobsen, representing the Customs Brokers and Foreign Freight Forwarders Association of Chicago, detailed what he called carriers' discriminatory practices against NVOCCs and slammed the Transpacific Stabilization Agreement (TSA) discussion agreement for allegedly controlling rates and the content of service contracts affecting 90 percent of trans-Pacific shipments. Antitrust immunity is allowing TSA members to skirt the intent of the new law, he charged. "Coupling confidential 'secret' contracts with carrier antitrust immunity will only further enable steamship lines to discriminate against NVOCCs, smaller shippers, and shippers' associations, all under the pretext of a so-called 'discussion agreement' and 'voluntary guidelines,'" he said.

Jacobsen called on Congress to amend OSRA to enhance the ability of shippers and the FMC to address carriers' anti-competitive behavior and to allow NVOCCs to sign service contracts with their shipper customers. Failing that, he said, "[W]e strongly encourage the complete repeal of carriers' antitrust immunity."

Andrew Danas of the American Institute of Shippers' Associations charged that allowing discussion agreements to establish "voluntary guidelines" for the terms and conditions of individual carrier service contracts was "fundamentally inconsistent" with OSRA's intent that marketplace conditions dictate the contents of those contracts. He also called for further restrictions on carriers' collective business activities and the repeal of ocean carriers' antitrust exemption.

Hyde said that although testimony did identify some potential problems in the law's application, he had no immediate plans to propose changes to the law and was prepared to give OSRA time to work.