US Government Considering Legislation To Make Carriers Choose Between Alliances or Discussion Groups

Posted on: May 17, 2017

Congress is considering legislation that would force carriers to choose between membership in rate discussions and ocean carrier alliances, while also giving maritime regulators more power to protect domestic third-party service providers from potential alliance collusion. Legislators' recent interest in rewriting the Shipping Act of 1984, which was last amended in 1998, has been sparked by third-party suppliers' fears of alliances having too much power, and antitrust investigators' serving of subpoenas to major carriers at a March 15 Box Club meeting. The Wall Street Journal has cited unidentified sources saying the raid was centered on third-party contracting.

Carriers have scoffed at the idea they are colluding on rates offered to beneficial cargo owners (BCOs) and non-vessel-operating common carriers (NVOs), pointing to historically low rates and deep losses. Carriers have also argued that by preventing alliance members from jointly contracting with a tugboat operator that's the sole provider of that service, competition is restrained. A rival tugboat provider, for example, wouldn't be able to gain a volume commitment from an alliance, which they would need to enter a port market.

Under the House legislation, carriers would have to choose between being involved in discussion agreements, such as the Transpacific Stabilization Agreement (TSA), or engaging in slot-sharing agreements - whether they were small ones or highly, integrated vessel-sharing agreements known as alliances. The bill authorizing Federal Maritime Commission (FMC) funding would allow the FMC to make exceptions on dual memberships, for example, if a carrier wanted to engage in a trans-Pacific discussion group and share slots on the trans-Atlantic.

If passed, the legislation could diminish or end rate discussion groups, which have become less active in recent years and have even seen members leave. There are a handful of rate discussion agreements, covering north-south, Oceania and Caribbean trades, but the most well-known is the TSA.

That discussion group consists of APL, CMA CGM, Cosco, Evergreen Line, Hyundai Merchant Marine, Hapag-Lloyd, Mediterranean Shipping Co., Maersk Line, Orient Overseas Container Line, and Yang Ming. All 10 members are also in alliances. Since 2008, TSA member Hanjin Shipping has collapsed, and China Shipping merged with Cosco. MOL left TSA in 2008. NYK Line left in November 2016, "K" Line quit the group in August 2016, and Zim Integrated Shipping Services left on Dec. 31. On a panel in March at a Jacksonville industry event, Richard Craig, president and CEO of the US division of MOL, said the carrier has made a strategic effort to avoid scenarios where it could discuss rates with other carriers.

Under the limited US antitrust immunity granted by the FMC, container lines that belong to discussion agreements can meet to discuss and agree on voluntary rate guidelines, but they are subject to Department of Justice antitrust prosecution if they exceed this authority by jointly fixing rates.

The new legislation, H.R. 2593, would require alliances wanting to jointly contract with marine terminals, truckers, and other third-party service providers, excluding tugboat operators, to get FMC approval. The proposed language outright forbids carriers and tugboat operators from joint contracting. Importantly, the legislation would also require the FMC to consider whether a discussion agreement or vessel-sharing agreement is likely to "substantially lessen competition in the purchasing of port services." Via the current Shipping Act, the FMC determines whether to allow an agreement by deciding whether it's likely to cause an unreasonable decrease in transport service, an unreasonable increase in costs, or both.

The Senate version of the bill would allow carriers to jointly contract with tugboat service providers, but like contracting with truckers and railroads, the carriers wouldn't have antitrust immunity. The legislation, S. 1129, wouldn't require carriers to choose between rate discussion agreements and slot-sharing. Both bills have been passed in their respective committees and require chamber-wide votes before leaders from each can conference to create a final version to send to the White House for signing.
Source: Journal of Commerce