FMC, Transpacific Carriers Settle

Federal Maritime Commission Chairman Steven R. Blust announced yesterday that the Commission has entered into a settlement agreement with the major ocean carrier agreements and their members who serve the inbound waterborne U.S. trades with Asia, including the Transpacific Stabilization Agreement (TSA), and two TSA-related bridging agreements. The settlement addresses carrier practices investigated in the Commission's Fact Finding Investigation No. 25 - Practices of Transpacific Stabilization Agreement Members Covering the 2002-2003 Service Contract Season, initiated in response to a joint petition filed by the National Customs Brokers and Forwarders Association of America, Inc. (NCBFAA) and the International Association of NVOCCs (IANVOCC). Chairman Blust noted that "the settlement agreement resolves the concerns unearthed in that Fact Finding Investigation in an efficient manner with the greatest possible benefit to the trade." Chairman Blust further expressed his expectation that the Settlement Agreement will improve the competitive environment in the Transpacific trades through immediate structural changes in the TSA agreement which end problematic carrier practices in these trades. These changes otherwise could have been achieved only through lengthy Commission-initiated FMC proceedings or litigation before the U.S. District Court for the District of Columbia. Under the terms of the settlement, the carriers shall refrain from certain practices involving the discussion and agreement on rates and negotiation of service contract terms particularly affecting non-vessel operating common carriers (NVOCCs). These include practices alleged by the NVOCC petitioners of unequal timing of negotiations and unequal application of general rate increases and surcharges. Accordingly, the carriers will:

•not establish any committee whose purpose is to discuss or agree upon rates or terms to apply solely or separately to NVOCC cargo;

•not establish any voluntary guideline or otherwise reach any agreement pertaining to the timing of service contract negotiations with NVOCCs which differs from the timing of service contract negotiations with other shippers; and

•not establish any voluntary guideline or otherwise reach any agreement pertaining to the application of general rate increases or peak season surcharges that distinguishes between shippers based upon their status as NVOCCs or beneficial cargo owners.

The settlement addresses issues broader than those raised by the original NVOCC petition, including a wider range of concerns under section 6(g) of the Shipping Act of 1984. These issues were described by the Commission when it determined on May 30, 2003 to extend and expand its investigation. This decision was based on consideration of the Report of the Investigative Officer, Commissioner Joseph E. Brennan. The Commission decided to further consider issues involving information sharing among TSA members, TSA's exercise of formidable market power through its ability to agree on rates as well as capacity, and the extension of that power through related agreements. The settlement secures important structural changes in TSA by:

•removing authority to discuss or agree on capacity rationalization, and providing that TSA members will refrain from filing any other agreement to discuss or agree upon capacity rationalization for three years;

•prohibiting the exchange of shipper-specific information relating to individual service contracts; and

•limiting discussions of rates or capacity to meetings for which minutes are filed with the Commission.

Additional changes will result in increased carrier competition in the largest U.S. trade lane, as well as significantly increasing shipper options in the Indian subcontinent/U.S. trade lane. The settlement limits TSA's overall market power by removing the Indian subcontinent from TSA's geographic scope and eliminating TSA's bridging agreements with the Indamex carriers in that trade and with the Evergreen-related carriers.

The settlement includes a payment of $1,350,000 in lieu of civil penalties which could have been sought through litigation in agency proceedings. The penalty settlement addresses practices involving alleged Shipping Act section 10 and regulatory violations. There is no penalty provided under section 6(g), which contains only injunctive relief. The payment reflects both sides' assessment of the considerable costs and burdens involved in those proceedings. "Moreover," said Chairman Blust, "as a matter of deterrence, I believe the structural changes in TSA achieved through the settlement are a more immediate and effective means than penalties or enforcement proceedings to assure that such practices will not recur." The settlement's provision for semi-annual meetings of TSA and Commission representatives establishes an additional mechanism through which the Commission can carry out ongoing oversight of agreement activities.