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“The Shipping Act of 2010”: the Evolution Continues …

by Steve Block (Foster Pepper PLLC)

At the forefront of transportation law news in 1997-1999 was the culmination of years, some would say decades, of industry and legal wrangling over the most suitable economic-regulatory environment for America’s ocean shipping industry. Remember the retirement party for the fiscally and politically obsolete era of mandatory common carriage, thrown simultaneously with the coming out party of government deregulation’s hottest debutante, ocean transportation service contracting?

It was touch and go there a while, with so much bickering back and forth between shippers, carriers, intermediaries, interest groups, government concerns and, yes, lawyers, that we were never really sure the Ocean Shipping Reform Act of 1998 (OSRA) would ever get signed. Congress just doesn’t like enacting shipping legislation unless all concerned bless it. First, getting even tentative accord between shipper and carrier groups was a long and complex undertaking. Second, getting Congress to understand and approve it was a lengthy ordeal. Then, our libidinous president was impeached, delaying the process until, finally, pen met paper.

But finally, effective May 1, 1999, OSRA became law. Parties to ocean shipping transactions were freed to negotiate their own deals confidentially and without risk that similarly situated shippers could demand identical terms based on “me-too rights.” Tariff-based common carriage was left to onesy-and-twosy shippers who didn’t have enough volume to obtain a service contract’s advantages. Shippers were now in control, so it seemed. Their volumes, strategic alignments through shippers associations or through intermediaries, and the world’s generally healthy economy at the time empowered transportation consumers to negotiate favorable freight rates and services with carriers.

So why on earth did carriers agree to this? What’s in it for them? Varying answers have been offered in response to that question. Certainly, mandatory common carriage forced carrier to waste resources on services that made little economic sense. But one thing’s for certain: preservation of carriers’ sacred antitrust immunity was the freight charge shippers had to pay to get OSRA passed. No ongoing immunity from anticompetitive behavior, carrier groups proclaimed, no carrier support for OSRA. Did that ever make sense in an era when market-driven forces were supposed to be the new regime’s primary objective? Only if you can make sense out of the quirky politics governing ocean shipping.

Part of those politics involved protection of U.S.-flagged liners, i.e., avoiding legislation that would thwart their ability to compete with foreign carriers. But shortly after OSRA’s passage, the remaining three major American steamship lines were sold to foreign concerns, and there wasn’t much of a home-team liner industry for Uncle Sam to protect. Carriers from around the globe organized well to protect their stateside interests over the past decade, but on a number of occasions, shippers, export trade groups, politicos, economists and lawyers have challenged why ocean carrier antitrust immunity to protect foreign companies makes any sense under U.S. law designed to foster market-driven competition.

With the September 22, 2010 submission by representatives Jim Oberstar (D-MN) and Elijah Cummings (D-MD) of the “Shipping Act of 2010” (H.R. 6167), this last vestige of a common carriage compromise reached over a century ago is the subject of potential legislation that would impact the ocean carriage industry tremendously. To describe the new bill’s intention as just subjecting steamship lines to the Sherman Act would be a gross understatement. This bill would turn carriers’ entire approach to shipping economics on its head. It would indeed outlaw any attempt by ocean carriers to discuss, fix or negotiate any kind of service or rate they would collectively charge shippers. Yes, carriers allocating customers or markets also would be verboten. Would divvying up cargo traffic, and profits derived from them, be off limits? Sure. And what about carrier conferences and discussion agreements? Don’t even think about it.

But this bill would go way beyond those finance-oriented aspects of the shipping business that has operated under the cloak of antitrust immunity since the stars guided vessel direction. Outlawed would be any unreasonable effort by a carrier to limit a shipper’s access to its services, such as refusing available space; requiring usage of the carrier’s own equipment over that from other sources; retaliation for a shipper’s use of another carrier; refusing to release freight based on freight charges owing from another entity; and a litany of other misdeeds shippers claim carriers do.

What’s more, the bill seeks to broaden the powers and activities of the U.S. Federal Maritime Commission (FMC) to include dispute resolution and mediation forums; mechanisms to report and publicize complaints against carriers; and a requirement that FMC keep Congress posted as to “ocean transportation practices, including delay of cargo, surcharges, penalties, demurrage, accessorial charges and availability of containers for exports from the United States.” In other words, FMC’s role would be larger, stronger, and focused on protecting shippers. And to think FMC was condemned in the later 1990s as an obsolete agency that soon would go the way of the dinosaur, and Interstate Commerce Commission.

Needless to say, the response from all concerned has been swift and loud. Shipper and carrier groups have expressed their support/enthusiasm and condemnation/disappointment respectively in various ways calculated to influence what’s sure to be a hotly contested piece of legislation. The National Industrial transportation League, manufacturing trade consortia, exporter associations, and other shippers’ groups hail the Shipping Act of 2010 as mandatory common carriage’s long-needed, long-awaited swansong that, finally, will remove the last obstacle to truly market-driven transportation relationships. In their view, the bill seeks to remove the foot of inequitable ocean carrier control over shipping economics from the neck of international trade industries that depend on international water carriage. How can we expect to enjoy the benefits of a supply-and-demand economy in that most essential of services, transportation, as long as carriers can conspire to keep rates artificially high?

Carrier groups, represented largely by the World Shipping Council and certain international shipping organizations, denounce the bill as a shortsighted and oppressive measure that would unfairly undermine the shipping industry. Beset with peculiar economic damages and already subject to rigid and inconsistent regulatory controls they must satisfy amongst the various countries they service, carriers must undertake a constant balancing act to maintain stable and reliable operations. Barring their century-old economic practices and putting them at the mercy of a stronger and more imposing U.S. government agency would force liners to reduce their service options to shippers, which would have severe repercussions in the current recession. Nothing suggests the current regime places too much power in carrier hands, leaving them free to reap inappropriate profits. How can we possibly hope to improve shipping transactions, from both the cost and service option perspectives, by treating one of the most complex transnational economies like it were just another widget manufacturer? At a minimum, a thorough economic study should be undertaken before we go anywhere near there.

It’s a bit early to tell, but as compared with previous legislative suggestions since OSRA that carrier antitrust immunity should be abolished, this one seems to be gaining steam and attention within an administration that may be fertile ground for its passage. Let’s see what the House Transportation & Infrastructure Committee does with it in coming months, but don’t expect to watch the world’s steamship lines watch their antitrust immunity sail into the sunset without a fight.

Ref: H.R. 6167, “The Shipping Act of 2010,” the complete text of which is available at:
http://www.govtrack.us/congress/billtext.xpd?bill=h111-6167.

October 1, 2010

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