U.S. Importer Files Carrier Collusion Complaint with FMC
While shippers have been complaining and accusing ocean freight carriers of profiteering and unfair practices since the pandemic hit (and for years before that as well), there have not been major complaint filings from shippers to the Federal Maritime Commission (FMC) of actual carrier collusion during the pandemic… until now.
On July 30th, a U.S. shipper filed a formal complaint of carrier collusion against Cosco Shipping and Mediterranean Shipping Company (MSC). The shipper is a pretty large one too. Mark Szakonyi reports in a Journal of Commerce (JOC) article that the complaint was filed by MCS Industries and, according to Wayfair, is the market leader in wall and poster frames.
Details of the Complaint
Yes, this could get confusing as MCS is accusing MSC of collusion, but the complaint itself appears pretty straightforward.
The formal complaint, as reported by Szakonyi, accuses Cosco and MSC “of working together to violate service contracts to further take advantage of record trans-Pacific container spot rates and premiums.” Here are details Szakonyi gives about MCS’s claim:
MCS Industries accuses Cosco and MSC of working in “parallel and seemingly coordinated fashion” in failing to honor service contracts at agreed upon rates and then selling the space “to the highest bidder.”
MCS Industries says Cosco and MSC continue to fail to honor service-contract allocations, inflicting more than $600,000 in damages.
At the heart of MCS’s grievance is its accusation that MSC only honored approximately one-third of the volumes contracted through service contracts, and Cosco delivered just 1.6 percent of contracted capacity.
“In negotiations for the current shipping year, (Cosco and MSC) and other global ocean carriers collectively refused to provide MCS sufficient commitments in their advance service contracts, instead providing only a fraction of the space MCS needed at substantially higher prices, which MCS accepted in order to secure such space, believing that such higher prices would fully compensate (Cosco and MSC) for current market disruptions,” MCS wrote in the complaint.
Have Carriers Finally Pushed Rates Too Far?
Often in Universal Cargo’s blog, I write predictions for how freight rates will behave in the future. Over the last several months, I questioned on more than one occasion how much higher carriers could push freight rates without serious blowback from shippers and even regulators. We may have reached the breaking point.
Szakonyi says in his article that “fears of retaliation have long held shippers back from filing formal complaints [against ocean freight carriers] with the [FMC].” I have often heard this vocalized or seen it written. It’s not hard to think shippers would avoid filing a public complaint against carriers for fear of not being able to negotiate favorable contracts with them. However, there’s nothing favorable about the freight rates shippers are currently able to negotiate. At least, not from shippers’ perspective. Freight rates are so high, importing goods is no longer worth the cost for many shippers, their profits completely eaten up by the costs. Carriers, on the other hand, are raking in the profits by the billions while their reliability in reserving space for cargo on voyages and delivering on schedule has been terrible.
Paying sky-high rates while receiving poor service could very well push shippers past the fear of retaliation to filing complaints like MCS has. It also turns out, the complaints shippers have made to President Biden and Congress may be having some effect. Not only is there pressure to rewrite the Shipping Act, but Szakonyi writes, “The FMC has come under intense pressure from Congress and the Biden administration to crack down on shipping law violations.”
That pressure, including an executive order, is worth a blog unto itself. You’ll get that next time.