Hue and cry

Hue and cry

   With international trade plummeting and freight rates dropping, 14 container carriers in the transpacific trade want to use their antitrust immunity available under the Shipping Act to discuss and agree on supply and rationalization of ship capacity.
   But the proposal – made in December through an amendment to the Transpacific Stabilization Agreement (TSA) on file at the Federal Maritime Commission – sparked an outcry from shippers and intermediaries.
   The steamship lines proposed a change to their agreement that would give them authority to discuss, exchange information and reach agreement about 'cost savings and more efficient use of vessel and equipment assets and networks through coordination of the members' capacity plans, lay-up, dry docking, or other off-hiring of vessels, rationalization of vessels and/or vessel capacity' now or in the future.
   TSA said any agreement reached by its members would not be implemented unless it has been filed with the FMC.
   Originally the TSA had asked for an expedited review, but the FMC on Jan. 14 denied that request. But unless the FMC issues an injunction, the amendment will go into effect Feb. 1. The FMC was scheduled to meet on Jan. 28 where it would likely decide what action to take after hearing recommendations by its staff.
   It seems likely the FMC will examine the request carefully.

Brennan

   In proposing to discuss any possible limit on capacity, TSA members are seeking to regain an authority which they had given up temporarily back in 2003 for three years. That was one of several powers the carriers ceded in a settlement reached by the carriers with the FMC under a fact-finding investigation led by Commissioner Joseph E. Brennan which centered on a complaint by the National Customs Brokers and Forwarders Association of America that the TSA was discriminating against non-vessel-operating common carriers.
   Brennan, a Democrat who was formerly governor of Maine, told the Antitrust Modernization Commission for Congress in 2006 that Congress should repeal antitrust immunity with respect to rate-setting and rate discussions by ocean common carriers.
   The discussion about the TSA bid for expanded powers may also act as a spur to a continuation of the wide-ranging discussion about the future of the FMC that was begun by the House Subcommittee on Coast Guard and Maritime Transportation last year, and calls by groups like the National Industrial Transportation League for a fresh look at ocean shipping regulation.
   'This is going completely in the wrong direction,' said Peter Friedmann, counsel for the Agriculture Transportation Council. 'Europe is eliminating antitrust immunity and here these guys are trying to expand the scope of their activities. There is no question that the law allows them to do this, but the FMC is also allowed by law to prevent them from doing it because it would constitute an unreasonable reduction in competition and service or an unreasonable increase in freight rates.'
   He said not only is the TSA moving in a direction 'contrary to the direction that all our trading partners are going in,' the carriers involved are foreign owned and the action does not help U.S. exports.
   'An agreement such as this destroys the free market concept for only the U.S.,' said Brad Bowman, director of international logistics for pork producer Farmland Foods, in a letter to the FMC. 'The amendment blocks our ability to compete. The carrier monopoly now determines whether we can sell and distribute our product.'

Michael Berzon owner, MarLog Inc.
'What's so special about this industry?'

   'What's so special about this industry?' asked Michael Berzon, chairman of the NIT League's Ocean Transportation Committee, noting that collusion about production by a couple of the major automobile producers or any other group of manufacturers would bring an immediate response by the Justice Department.
   But Niels Erich, a spokesman for the TSA, said it is 'very premature to say what is being talked about is some sort of comprehensive program to reduce capacity in the trade.'
   Currently TSA 'monitors capacity – there is sort of a reporting procedure,' he said, 'but there is no follow-up discussion.
   'Given the downturn in the market and the cost issues involved with potentially redundant sailings – and also in preparation for a quick response in event of a turnaround – the sense was members needed from a cost standpoint to discuss a little bit more in depth capacity deployment in the market,' he said.

Peter Friedmann counsel, Agriculture Transportation Concil
'There is no question that the law allows them to do this, but the FMC is also allowed by law to prevent them from doing it because it would constitute an unreasonable reduction in competition and service or an unreasonable increase in freight rates.'

   PIERS Maritime Research forecasts that containerized transpacific imports fell 7.8 percent in 2008 and will fall another 1.4 percent in 2009, while containerized transpacific exports climbed 12.2 percent in 2008 and will grow 7 percent in 2009.
   'What TSA has in mind is a two-step process,' said Chris Koch, president of the World Shipping Council. 'The first step is to have the authority for the members to sit and talk about whether they could design or come up with something dealing with capacity reductions. The second step would then be if they are able to reach agreement, then taking that to the FMC and going through the process of reviewing it and passing muster. So it seems to me the agitation over the issue before it is clear whether or not the group could even reach agreement on the issue seems a little bit of overkill to me.'
   But the NCBFAA said, 'The potentially pernicious effects of the TSA proposal is not ameliorated by the fact that the carriers only now seek immunity to discuss rationalization of capacity ' The potential damage to competition is already substantially accomplished if the carriers are able to collectively discuss these issues and provide each other with detailed data concerning objective and goals.'
   The NIT League said the TSA proposal 'has the strong potential to significantly distort the market for ocean transportation services in the eastbound Far East trade,' and 'has the potential to be harmful to shippers.'

Chris Koch president, World Shipping Council
'The agitation over the issue before it is clear whether or not the group could even reach agreement on the issue seems a little bit of overkill to me.'

   The league, which represents more than 600 U.S. shippers, said the proposal 'may be in violation of the prohibition in the statute against 'substantially anticompetitive agreements' in U.S. law and inconsistent with policies adopted in the Ocean Shipping Reform Act of 1998.'
   While the league said it was 'sympathetic to the economic difficulties that the ocean carriers are facing,' it noted their plights are 'not unique to their industry. Businesses of many forms are suffering.'
   And it noted 'the problem of overcapacity is also not entirely due to the economic recession, but rather has also been created by the carriers' own decision to purchase increasing large containerships.'
   'These are decisions that can be made by the individual lines,' said Peter Gatti, NIT League's executive vice president. 'From our standpoint, we believe that is a decision best left to the members based on the marketplace that determines to what extent individual carriers need to take capacity out of the system in order to sustain themselves.'