The Biden administration recently announced a renewed enforcement focus on consolidation and alliances in the maritime industry that may hinder competition and increase prices. While federal agencies historically have worked together to target anti-competitive conduct and shipping companies have been targeted in cases alleging cartel activity (e.g., price fixing, market allocation, and bid rigging), companies should heed the recent warnings and must be vigilant in ensuring compliance with competition laws now more than ever.
Regulation of Competition within the Maritime Industry
The Federal Maritime Commission (“FMC”) and the U.S. Department of Justice’s (“DOJ”) Antitrust Division (the “Division”) share enforcement duties over the maritime transport market.
The FMC monitors the effects of ocean carrier alliances on competition. Under U.S. law, international carriers enjoy a limited exception to some antitrust laws, as they are permitted to meet to discuss and agree on voluntary rate guidelines and can file agreements with the FMC establishing such guidelines. However, the FMC is not required to approve such agreements and can bring civil actions in court to enjoin any agreements likely to reduce competition such that it leads to unreasonable price increases or service reductions, or to substantially lessen competition in purchasing covered services. The FMC also has a Bureau of Enforcement, which investigates potential violations and can impose civil penalties or engage in formal proceedings.
The Division is responsible for enforcing antitrust laws beyond the scope of FMC’s jurisdiction and has an array of tools to uncover anticompetitive conduct. It relies heavily on a leniency program to encourage self-reporting of antitrust violations,[i] but also uses investigative resources such as the grand jury, search warrants, and subpoenas, etc. By coordinating with local U.S. Attorney’s Offices (“USAOs”) throughout the country, the Division can file cases anywhere in the United States that unlawful conduct may have occurred. The Division also coordinates with other federal agencies and its international counterparts. Cooperation with international antitrust enforcers includes tactics such as coordinated searches or dawn raids, information and evidence sharing, and extradition agreements.
The Biden Administration’s Renewed Focus on Antitrust Enforcement
Actions taken by the Biden administration in the last 6–8 months signal increased attention on ocean carriers’ pricing practices.[ii]
In July 2021, the Biden administration issued a broad Executive Order[iii] aimed at protecting and enhancing competition across various industries. The order identified the transportation sector (air, ocean, and rail) as an industry likely to see heightened antitrust scrutiny. It also specifically encouraged the FMC to cooperate with the DOJ on enforcement efforts and emphasized the fees imposed upon U.S. exporters by foreign shipping conglomerates.
After the order was issued, the FMC and DOJ signed a Memorandum of Understanding (“MOU”) to enhance collaboration and the review of shipping industry practices for potential anticompetitive conduct.[iv] Shortly thereafter, the then-Acting Assistant Attorney General Richard Powers emphasized the Division’s increasing criminal enforcement trends in a public address[v] and President Biden’s appointment to lead the Division, Jonathan Kanter, a known advocate for vigorous antitrust enforcement, was confirmed by the U.S. Senate.
More recently, on February 28, 2022, the DOJ and FMC “reaffirmed” their commitment to enforcing antitrust laws and strengthening cooperation between the agencies.[vi] U.S. Attorney General Merrick Garland and FMC Chairman Daniel Maffei announced two steps that the agencies would take to build upon their MOU:
- DOJ committed to providing attorneys and economists from the Division to assist the FMC in enforcing violations of the Shipping Act and FMC regulations; and
- FMC committed to providing the Division with support and industry expertise in civil and criminal antitrust investigations.
As part of this recommitment, Attorney General Garland stressed that “[c]ompetition in the maritime industry is integral to lower prices, improving quality of service, and strengthening supply chain resistance” and warned that “[l]awbreakers should know that [DOJ] will provide the [FMC] all necessary litigation support as it pursues its mission of promoting competition in ocean shipping.”
Recent Enforcement Actions in the U.S. and Europe Serve as Cautionary Tales
In the United States, antitrust violations can result in high corporate criminal fines or imprisonment for individual executives and employees, including foreign nationals. Firms also can face enormous civil litigation exposure, as civil cases often are filed within days of a criminal investigation being announced. Plus, the same conduct that gives rise to an enforcement action in the United States may also be the subject of investigation abroad. Recent antitrust cases exemplify the exposure faced by shipping companies[vii] that fail to comply with competition laws.
The most recent high-profile U.S. maritime antitrust case involved an investigation into a worldwide conspiracy amongst Ro-Ro carriers from as early as 2006 through 2012, which affected hundreds of millions of dollars in commerce. Between 2014 and 2018, the Division, together with the USAO in Baltimore, Maryland, filed several court cases against five carriers based in Japan, Norway, and Chile, and 13 individuals for price fixing, bid rigging, and allocation of customers and routes. The court ordered the carriers to pay a total of more than $255 million in criminal fines. To date, four individuals of those charged have pleaded guilty and been sentenced to prison terms ranging from 14 to 18 months plus a $20,000 fine.
The Division also pursued a price-fixing scheme between carriers engaged in the continental U.S.-Puerto Rico trade, which is not covered by the limited exception discussed above. The Division’s investigation found that, over a period of about six years, domestic carriers conspired to allocate customers, rig bids, and fix rates and surcharges levied on freight transportation. As a result, between 2008 and 2013, several companies received fines ranging from $14-17 million each, and executives received prison sentences ranging from 7–60 months plus fines of $20,000 each.
The deep-sea container shipping industry also was the subject of an investigation by both the Division and the European Commission. In 2017, the Division raided the biannual “Box Club” meeting in 2017, serving subpoenas on CEOs of the major lines concerning potential price fixing. According to several carriers, the investigation concluded in 2019 without any charges or fines. This followed an earlier investigation by the European Commission’s Directorate-General for Competition (“DG Comp”), which opened formal proceedings in 2013 against several container shipping companies relating to their practice of publicly announcing intended price increases. DC Comp’s theory was that this practice allowed companies to exchange information on future pricing intentions. In 2016, the Commission accepted, and made legally binding, commitments by the companies to alter their pricing announcements to ensure transparency to customers and avoid competition concerns.
What Shipping Companies Can Do to Reduce Risk
In the current antitrust enforcement climate, ocean carriers can expect increased scrutiny on shipping rates, fees, and surcharges, as well as on any action or conduct that reduces competition among carriers. Given this, as well as the cooperation between the Division and FMC and between the Division and its international counterparts, shipping companies must ensure compliance with the antitrust regimes of multiple jurisdictions.
It is therefore imperative that companies implement a robust, effective antitrust compliance program to educate both executives and employees about common antitrust traps and risky competitor interactions. Companies are strongly encouraged to consult with experienced antitrust counsel before pursuing any strategy or course of action that could raise a red flag, as well as if there is any sign that an investigation could be underway.
This article is updated and abridged from its original publication in Marine Link (January 24, 2022). Reprinted with permission.
[ii] In addition to executive action by the administration, the U.S. Congress also is focused on antitrust and supply chain issues within the industry. Earlier this year, a representative from California introduced a bill (H.R. 6864) entitled, “Ocean Shipping Antitrust Enforcement Act,” which would, among other things, remove certain antitrust exemptions enjoyed by foreign carriers. And, on March 2, 2022, the Select Subcommittee on the Coronavirus Crisis, and the Subcommittee on Economic and Consumer Policy of the House Oversight Committee, sent letters to three large ocean freight carriers—A.P. Møller Maersk, CMA CGM, and Hapag-Lloyd AG—requesting information about shipping contain price increases and other fees and surcharges. Additional proceedings relating to these requests are expected later this year.
[iii] See Executive Order on Promoting Competition in the American Economy (The White House).
[v] See Acting Assistant Attorney General Richard A. Powers Delivers Remarks at the Symposium on Corporate Enforcement and Individual Accountability Hosted by the University of Southern California Gould School of Law (July 21, 2021) (noting that, the Division had “17 indicted cases across 14 different investigations, against 9 companies and 31 individuals—the largest number in the modern era of antitrust enforcement,” which “includes pending charges against eight current or former CEOs or company presidents, demonstrating [the Division’s] ongoing commitment to individual accountability at the highest levels”).
[vi] See DOJ and FMC press releases at Justice Department and Federal Maritime Commission Reaffirm and Strengthen Partnership to Promote Fair Competition in the Shipping Industry and Justice Department and Federal Maritime Commission Reaffirm and Strengthen Partnership to Promote Fair Competition in the Shipping Industry, respectively.
[vii] Freight forwarding services also have been subject to antitrust investigations. The Division investigated and charged a nationwide conspiracy to fix prices for international ocean freight forwarding services during 2010–2015, resulting in guilty pleas in 2018 and 2019.