Congress is eyeing changes to the Shipping Act in an effort to support domestic service providers in rate negotiations with carrier alliances. The tugboat industry has led the charge in protesting the alliances’ plan to jointly negotiate for contracts, which they maintain would foster an anti-competitive environment and force them to accept non-compensatory rates for their services. Congress seems to agree, and members of both parties have said that the Shipping Act, which hasn’t been updated since 1998, needs to be rewritten to reflect the increasingly consolidated and multinational industry.
As we discussed recently, the shipping crackdown began with a DOJ raid on the Box Club, with subpoenas being issued to the CEOs of several carrier lines, and the head of the FMC being chastised for his commission’s failure to do more to protect US business interests. Since then, Congress has moved forward with legislation to curtail collusion, either through the elimination of intra-carrier discussion agreements, or the closure of a loophole exempting carriers from antitrust prosecution.
The laws governing what carriers can and can’t do in rate negotiations are somewhat nebulous. One issue under examination is the existence of “discussion agreements,” which are separate from alliances, but allow carriers to trade rate information which compounds the opportunity for collusion. According to JOC, under current law, “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 line between “voluntary guidelines” and “jointly fixed rates” is fuzzy, and neither Congress nor industry insiders are convinced it is being perfectly adhered to. Rep. Peter DeFazio (one of the most outspoken advocates for updating the Shipping Act) called it “pollyannaish” to believe that carriers were not “getting into the room and colluding over pricing.”
The carrier alliances strongly dispute the notion that they are colluding, and maintain that cooperation is simply a survival strategy for their struggling industry. Up until now, US regulatory bodies have been sympathetic to that plight, and maintained the increased efficiency offered by the alliances would benefit consumers and the economy as a whole. But tugboat operators have caught the ear of Congress by arguing that the needs of domestic companies take priority over those of the multinational carriers. Thomas Allegretti, President of the American Waterways Association (AWO) called the alliances’ behavior “an existential threat to the health and viability of the domestic harbor services industry.”
The debate over whose interests to favor appears to be raging within the FMC itself. Acting FMC Chairman Michael Khouri was taken to task by members of Congress for his perceived laissez faire regulatory philosophy towards the alliances. Khouri has publicly maintained that there is no evidence of collusion, but has been reluctant to release FMC reports that he claims would back up that assertion.
Meanwhile, FMC Commissioner William P. Doyle, in a speech to the Marine Log Tugs and Barges Conference, said that he does support the elimination of the antitrust exemption, a stance he said was supported by “the Intermodal Motor Carriers Conference of the American Trucking Association, the Institute for International Container Lessors and the American Waterways Operators.” Doyle went on to say that, while he has no objection to the principal of carrier alliances, they “should not be allowed to use their collective market power to disrupt and disadvantage stable functioning suppliers and service providers in the United States,” especially when service providers lack the same collective bargaining ability. Though Doyle cautioned that his remarks did not represent the FMC’s official position, they nevertheless seem to be evidence of a schism within the Commission.
It seems increasingly clear that Congress is coming down on Doyle’s side, and both the House and Senate are floating bills aiming at curbing this behavior. The House bill would force carriers to choose between belonging to vehicle-sharing alliances or rate discussion groups, and specifically forbids joint bargaining with the tugboat industry. The Senate’s legislation would allow for carriers to maintain membership in both alliances and discussion groups, but would eliminate antitrust immunity for carriers who are seen to be colluding. Both bills have garnered bipartisan support in their respective houses, so some version seems likely to make it to the President’s desk in the near future. Whichever form the legislation takes, it’s clear that Congress will expect the FMC to be more rigorous with oversight of carriers, to the relief of the domestic companies that must do business with them.