Tug operators who feared that giant container alliances were going to fix prices on contracts can rest easy.
It appears that the big guys have backed down after the tug and barge industry made lots of noise last spring and Congress, sensing possible antitrust problems and unfairness issues, stepped into the fray by drafting legislation.
That was the message that Michael A. Khouri, acting chair of the Federal Maritime Commission, gave lawmakers at a House subcommittee hearing last week that examined federal budgets for maritime programs.
Under questioning from several congressmen, Khouri said, “it’s been interesting that some of the alliances have visibly backed away from even pursuing that activity, so it was heard by everyone in the industry where Congress stands on the issue.”
Carriers must file pricing agreements with the FMC, and Khouri said that five different price agreement terminations have been received, “so that is a positive trend of eliminating price discussion in the trades.”
At issue is a decision last year by the FMC to allow foreign carrier alliances to collectively negotiate with U.S. tugboat and other harbor service operators for their services.
The American Waterways Operators, which represents the domestic tug and barge industry, complained to Congress, which held a hearing last May. AWO argued that collective negotiation of contracts “skew the playing field in favor of massive international shipping conglomerates,” and are unfair, uncompetitive and in violation of the U.S. Shipping Act of 1984.
Congress responded by amending the Act through the Coast Guard Authorization bill that would prohibit such joint negotiations. Lawmakers said they expected the bill to pass Congress by the end of this year.
This issue is a consequence of the broader shakeup in the international container market, which has been rocked by overcapacity and low freight rates over the past few years. The number of major carriers has dropped from 21-12, with a total of 36 serving the U.S. market, including smaller lines. With consolidations and alliances, seven operators could eventually control nearly 90% of world trade, according to some estimates.
Some of the alliances have attempted to gain limited antitrust immunity to collectively negotiate contracts with the U.S. domestic suppliers like tug and barge companies.
This new market reality has many worried that new rules and regulations will be necessary to prevent collusion, price fixing and to protect private information between the allied companies.
Khouri said that generally shipping alliances can be “very beneficial for U.S. exporters, importers, and consumers” as they can lead to efficiencies and cost-savings that are passed on. He said data shows that even with the wave of mergers and acquisitions and alliance groupings, individual ocean carriers within the alliances continue to independently compete on pricing. They are also adding and withdrawing vessels from trades, “demonstrating that competition remains in both vessel capacity decisions and pricing decisions within the alliances.”
“We watch like hawks the pricing activities, and pricing and capacity decisions are regularly filed with the commission,” he said. As a result, the FMC has a good picture of how foreign carriers are pricing contracts, placing ships in and out of trade lanes and adding new vessels to their fleets.
“We feel confident there is still a very competitive marketplace for our exporters, our importers, our consumers and the service providers like the tug companies,” Khouri said.
Jennifer Carpenter, AWO’s executive vice president, told WorkBoat this week that price fixing is not currently a problem with the tug industry but could be in the future if alliances are permitted to have this negotiating power.
“A series of agreements were proposed in late fall 2016 into 2017, which raised the specter for the first time, and this sparked our concern and led to congressional oversight,” she said, adding that there have been many discussions between the parties involved over the past year to reach an understanding.
With the expectation that Congress would act, alliances have not filed requests for such pricing authority, Carpenter said, “and we look at that as a success.”
She added that consolidations in the container trades would likely continue, “so we want to prevent the problem before it starts.”