A wave of mergers and acquisitions has swept through the container liner industry over the past 20 years and the major East-West trade lanes are now dominated by the three major carrier alliances — the 2M, Ocean Allliance and THE Alliance.
Hunter, who was stripped of his committee memberships in August shortly after being indicted and accused of misusing campaign funds, called the legislation “a good bipartisan bill.”
At the same hearing, Rep. Peter DeFazio, D-Ore., said the bill would “better protect our domestic maritime industry.” He said the changes were needed because the Shipping Act is “not keeping up with the massive changes in the shipping industry, the so-called alliances, these new giant conglomerates have the potential for inordinate bargaining power which could diminish our domestic industry even further.”
Rep. John Garamendi, D-Calif., also expressed strong support for the bill, saying it would “monitor the ongoing turbulence in the marketplace.” He said the 2016 bankruptcy of the Korean carrier Hanjin Shipping and following consolidation of carriers created “a strong potential for an anti-competitive marketplace.”
John Butler, the president of the World Shipping Council, the main trade association for the container liner trade association, said, “The amendments to the Shipping Act were designed to make sure that the FMC had clear authority to address potential concerns surrounding joint purchasing of certain terminal services.
The law grants the FMC authority to investigate any ocean carrier alliances that engage in anti-competitive action during negotiations with other maritime industry players such as stevedores and marine terminal operators, tug boat companies that berth ships and bunkering companies.
Holland & Knight highlighted these provisions:
• The FMC must review the effects of alliances on an annual basis and include this information in its report to Congress.
• Carrier alliances are prohibited from engaging in collective negotiation that would result in excessive anti-competitive impacts (i.e. unsustainable rates, reductions in capacity).
• Carriers cannot participate in both a rate discussion and vessel sharing agreement operating in the same trade if such participation results in a reduction in service or increase in transportation cost.
• The DOJ will continue to have authority to prosecute anti-competitive behavior in violation of U.S. antitrust laws.
Holland & Knight said the law “grants the FMC authority to seek injunctive relief against actions of regulated entities that ‘substantially lessen competition in the purchasing of certain covered services.’” It also expands the scope of factors the FMC must consider when seeking injunctive relief to include the aggregate effect of agreements on competition, rather than reviewing the agreements’ isolated impacts.
It also “preserves the authority of the Department of Justice's to prosecute anti-competitive behavior that violates U.S. antitrust laws.”
A provision that prohibits a common carrier from continuing “to participate simultaneously in a rate discussion agreement and an agreement to share vessels, in the same trade, if the interplay of the authorities exercised by the specified agreements is likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost” is thought to have contributed to the decision to dissolve the Transpacific Stabilization Agreement, a rate discussion agreement that included most of the major transpacific carriers.
The law also requires the U.S. Comptroller General to conduct a study of recent bankruptcies of ocean carriers in the wake of the collapse of Hanjin Shipping.
Another provision prohibits a person from acting as an ocean transportation intermediary OTI (that is, an NVOCC or ocean freight forwarder) “unless the person holds a valid license.” Holland & Knight said “coupled with recent FMC rulemaking that extends a ‘registration’ requirement to foreign-based NVOCCs handing U.S. inbound trade, these changes give the FMC more comprehensive oversight on OTIs while simultaneously reducing administrative compliance burdens on the industry.”
It also clarifies the Shipping Act and FMC regulatory requirements upon MTOs to file periodic reports with the FMC and “strengthens the the authority of the FMC to investigate persons subject to the agency’s regulation.”
The new law was crafted to have provisions specifically designed to protect the tug industry. He said those were needed because the FMC had allowed ocean carrier alliance agreements that included provisions for collective negotiation of rates with tugboat owners.
“Our initial approach was not to go to Congress, but to go to the FMC and ask them to not approve the particular provisions that contemplated this collective negotiation, and they were unwilling, frankly, to do it,” he said. “It left us with no choice but to go to Congress.”