Shipping Act revisions and new commissioners revitalise FMC
Pressure on Congress by terminal and tug operators has given the Washington agency a clear mandate to keep a close watch on carrier alliances
The first amendments to US maritime antitrust laws for 20 years are regarded as evolutionary rather than revolutionary, but nevertheless send a strong message to the big three ocean carrier vessel-sharing agreements that they must not abuse their dominant position during collective bargaining negotiations
WITH just two commissioners remaining and under considerable budgetary constraint, the Federal Maritime Commission appeared to be facing an uncertain future last year as shipping dropped down the political agenda in the chaos of the Trump administration.
Yet fast forward to 2019, and the agency has been reinvigorated, thanks to two additional commissioners, and new laws enacted late last year. The latter was in response to pressure from terminal and tug operators that lobbied Congress over their concerns about the bargaining power of the global alliances.
In December, President Donald Trump signed into law the Federal Maritime Commission Authorization Act of 2017, as part of the Frank LoBiondo Coast Guard Authorization Act of 2018.
This represents the first meaningful revision to US maritime competition legislation since 1998, when the Ocean Shipping Reform Act was passed, and includes several significant changes to the Shipping Act that became law in 1984, according to law firm Holland & Knight.
Others, though, say the latest amendments are not in the same league as those made on the two previous occasions.
“This was not a major rewrite of the Shipping Act,” says former FMC chairman Richard Lidinsky. Rather, the 2018 amendments provide protection for marine terminals and tug operators, “and send a signal to the alliances that they are being watched”.
The FMC now has clear direction from Congress to investigate any action by carriers that appears to put terminal or tug operators at a disadvantage, according to Mr Lidinsky.
With the number of global box lines now down to fewer than 10, and the industry dominated by three giant groupings, regulators around the world are considering how best to supervise these huge vessel-sharing agreements that cover the east-west trades and straddle numerous jurisdictions, in order to ensure that customers and business partners are treated fairly.
In Europe, where shipping falls under the remit of the competition directorate, Brussels is reviewing the consortia block exemption that comes up for renewal in 2020 as it decides whether the shipping industry should still be treated separately from other sectors on antitrust matters.
The US takes a different oversight approach, with shipping monitored by a specialist agency, the FMC, although the Department of Justice also has powers to investigate suspected antitrust abuses. This was demonstrated in 2017 when the DoJ served subpoenas on some of the top names in the industry as they attended a meeting of the Box Club in San Francisco.
That case, which is still open, had raised speculation of a turf war between the two departments. Questions were asked about the relevancy of the FMC, which was established in 1961 and empowered by the Shipping Act to foster “fair, efficient, and reliable” ocean transport services for the benefit of US importers, exporters, and consumers.
The revised powers it has gained appear to answer part of that question, although there are still calls for some of the FMC’s activities to be reformed. The DoJ retains its right to conduct antitrust probes.
Andrew Abbott, chief executive of Atlantic Container Line, is among those who have long criticised the FMC’s service agreement filing requirement, which, he asserts, “has become a total waste of time and money for everyone”.
The FMC has already eliminated the obligation for non-vessel operating common carriers and forwarders to file this documentation and is now considering whether to implement the same for ocean carriers. That is in response to a petition from the World Shipping Council, which represents the interests of the liner shipping industry. Tariffs, though, would continue to be published.
“We have applauded the FMC’s efforts in this area. Once [service contract filing] is eliminated, lots of costs go away for shippers, carriers and the FMC itself,” Mr Abbott tells Lloyd’s List.
As head of one of the few shipping lines still headquartered in the US, albeit a carrier now owned by Italy’s Grimaldi group, he also fully supports efforts to expand the FMC’s investigatory role.
“Once the FMC unloads the administrative burden of contract filing from its plate, they have the golden opportunity to become much more relevant as a regulatory agency that investigates unfairness in the behaviour of carriers, terminals and intermediaries,” says Mr Abbott. “That job is definitely required, especially with the virtual disappearance of US carriers. The FMC is in the ideal place to do the job without distractions.”
Another to welcome the FMC’s extended powers is Professor Mary Brooks of Canada’s Dalhousie University. In a lecture last year in London after being awarded one of the Onassis Prizes for Shipping, she described the US’s shipping competition regime as very outdated.
Prof Brooks cited the “bizarre” situation in which all an alliance had to do in the US was to submit paperwork covering its agreement as a price-setting conference — even though this form of co-operation barely existed any more, as she called for the legislation to be refreshed.
Now it has, Prof Brooks says the revisions are for the better.
She supports the fact that the FMC is now required to conduct “an analysis of the impacts on competition for the purchase of certain covered services by alliances of ocean common carriers” on an annual basis.
The purpose is to raise the bar on FMC oversight of the ocean carrier alliances to ensure that US port interests are not disadvantaged by unfair competition.
The amendments, which followed lobbying from both terminal and tug operators, are in response to the shake-up of the container shipping industry in recent years.
For example, the Act recognises that alliances now have significant bargaining power with both terminals and tug companies. One section prohibits the carriers from engaging in excessively anti-competitive strategies when collectively negotiating with such providers.
“This recognition that collective alliance bargaining is happening will, I hope, strengthen both [vendors] and the FMC’s hand in dealing with what is now almost a global oligopoly, and for many terminals may be a monopoly or duopoly in effect,” says Prof Brooks. “This legislation will, I expect, bring some balance to terminal-carrier relations in US trades.”
But the WSC is not anticipating any negative impact on its members, with the Washington organisation’s president and chief executive John Butler describing the amendments contained in the new Act as bringing clarity to certain areas of the law.
As well as the new legislation, the FMC is also almost back to full strength in terms of commissioners.
There should be five, but last year the number fell to two following the departure of former FMC chairman Mario Cordero and the resignation of William Doyle. Then, the newest commissioner, Daniel Maffei, had to step down after his re-nomination process had not been completed by the end of June when his term of office ended.
That left just acting chairman Michael Khouri and fellow republican Rebecca Dye in a commission that is meant to have political balance.
Now, though, Mr Maffei has returned and was sworn in, along with newcomer Louis Sola, last month.
After the US government shutdown, which included the FMC, the four commissioners now face not just a backlog of work but a new set of challenges as they supervise a container shipping industry that looks so very different from even a few years ago, and with power concentrated in the hands of just a few players — none of which is a US company.
The Act also requires the Comptroller General of the US to conduct a study of a “major ocean carrier bankruptcy” for purposes of mitigating the effect of any future bankruptcy event on supply chains in the US.
The follows the collapse of South Korean line Hanjin Shipping in 2017, creating supply chain chaos around the world, but particularly in the US where the carrier had a large market share.
The purpose of this provision is to bolster the industry’s response to future such bankruptcies potentially involving alliance member lines.
“The overall effect of the Act will prove to be significant and should provide strong support to the long-term viability of US maritime commerce,” says Holland & Knight.
The law firm notes that multiple sections in the Shipping Act are amended with the aim of prohibiting anti-competitive behaviour that would have a material adverse effect on US-based maritime infrastructure and marine services and equipment providers.
But these changes are basically clarifying antitrust laws concerning certain areas such as joint purchasing that were not expressly addressed previously, according to Mr Butler, who describes the amendments as more evolutionary than revolutionary.
“It had been quite some time since Congress had looked at the Shipping Act,” he says, with politicians keen to provide the FMC with the proper authority to address any concerns that arise. “So this is a bit of a tune-up to make sure the Act is fit for purpose.”