New Bill Introduced to Give FMC More Power to Halt Carrier Alliances

 In carrier alliances, export, FMC, import, International Shipping, ocean, ocean freight, ocean freight rates, ocean shipping, ocean shipping lines, Supply Chain

Democrat and Republican lawmakers seem to have found something they can agree on: the international shipping industry, and ocean freight sector in particular, needs regulatory change. On Monday, Representative John Garamendi, D-California, introduced another bipartisan bill to the House zeroing in on the industry. This one focuses on the Federal Maritime Commission’s (FMC’s) ability to stop what could be collusive shipping agreements without having to go to the courts to seek injunctions.

If this bill goes through, it could seriously impact the amount of vessel sharing agreements allowed in the industry. Vessel sharing agreements between ocean freight carriers are pervasive. The most prominent such deals form the basis for the three major carrier alliances that dominate worldwide ocean shipping.

Because the supply chain with its ocean shipping sector is one of very few areas where Democrats and Republicans seem able to agree, we’re likely on the verge of the FMC’s authority over shipping agreements increasing.

John Gallagher reports in a FreightWaves article:

The Ocean Shipping Competition Enforcement Act … would allow the Federal Maritime Commission to block any agreements among carriers and marine terminal operators found to be unduly anticompetitive without having to first obtain a federal court order.

The FMC currently cannot on its own block an agreement that it determines to be unreasonably anticompetitive. Instead, it must petition the U.S. District Court for the District of Columbia and persuade the court to do so. If the court disagrees with the FMC’s assessment, the agreement automatically becomes effective.

House of Representatives
Photo of House of Representatives by Ted Eytan

Representative Says Carriers Openly Collude in Alliances

For years, I’ve argued that carrier alliances shrink competition in the ocean freight industry. However, I don’t think I ever used as strong of words as Representative Garamendi did when introducing this bill. On the House floor, He accused carriers of open collusion. In his article, Gallagher quoted the representative:

“The ocean shipping industry was the last transportation sector deregulated by Congress in 1984,” Garamendi said in introducing his bill. “Because of that, today the industry is now dominated by nine foreign-flagged ocean liners that openly collude under three carrier alliances handling some 80% of cargo. After reforming our nation’s ocean shipping laws for the first time in nearly a quarter century, Congress must ensure that the Federal Maritime Commission can do its job and fully enforce the law.

“Americans expect fair, competitive markets with good government, and that is exactly what our bipartisan bill would ensure,” he added.

Under the laws that the carrier alliances came into existence under, carriers are allowed to share vessels but not cooperate when it comes to things like pricing. However, many have worried that the temptation to talk shipping prices would be too great for carriers as they discuss the operations and sharing of their ships. Especially since there have been numerous times carriers have been found guilty and fined over colluding on freight rates.

Adding to suspicion of price collusion is how common it is for carriers to announce things like general rate increases (GRIs) and peak season surcharges (PSSes) practically simultaneously and in similar if not identical amounts and commencement dates.

Even if carriers do manage to resist all collusion temptation on rates, competition still drops with carrier alliances as the carriers are able to work together to reduce capacity (supply) in the industry when demand reduces or they think it is about to decrease.

Will the Bill Ensure Good Government?

The words “good government” stand out to me in Garamendi’s statement about what this bill will ensure. The founding fathers were so convinced that any government could turn tyrannical, they gave us the second amendment. I’m not suggesting the FMC is or would turn tyrannical, but good government is an extremely difficult thing to promise.

We’ve seen in the past, as the government gets more involved in an industry, that industry gets much more expensive for the consumers. And without service getting better. Obvious examples in the U.S. include education and health care. It would not be illogical to worry that the increase of government involvement we’re seeing right now in the international shipping industry could turn out to be detrimental and make importing and exporting more expensive.

For years, I’ve argued that the government should reconsider its allowance of carrier alliances and that it should crack down on unfair detention and demurrage fees shippers face. Now that we’re seeing the government make moves on those issues and more in the supply chain, I’m hoping this doesn’t turn out to be one of those “be careful what you wish for” situations.

The courts do have a valuable place in checking the overreach of government authority. For example, the federal courts just blocked a horrible Californian ban on natural gas appliances. The Golden State already has a severe housing shortage, an enormous homelessness problem, and skyrocketed rents that commonly make it difficult or impossible for even people with incomes over $100,000 a year to be able to afford to live in the same cities where they work. Forcing homeowners and landlords to replace gas appliances, an expensive undertaking, would only exacerbate those problems. Plus, the electric appliances would further tax a power grid that is already unable to meet the state’s needs. And that’s only the beginning of the issues with this particular law.

Removing the courts from the FMC’s process of halting shipping agreements certainly increases the commission’s power and streamlines the process to stop collusive deals. But how well will that power be checked? That’s a question that will likely only be answered for good or naught once the bill and time passes.

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