Fall out from illegal price fixing U.S./Puerto Rico

In general, I have a problem with this whole idea that only U.S. Flag carriers can offer service between the mainland and Puerto Rico. That also applies to Hawaii and Alaska.

To add insult to injury, the carriers operating between the mainland and Puerto Rico got together to illegally fix their rates. Some people went to jail for this action.

This is the outcome for Horizon Lines, one of the carriers.

Horizon Lines was facing multiple class action lawsuits from customers who claimed financial damage because of the company’s allegedly unlawful conduct, after the US Department of Justice antitrust division’s investigation into price fixing between Horizon Lines and its trade rivals became known.

HORIZON Lines has agreed to pay $20m and freeze freight rates in its Puerto Rico trade lane for two years to settle a class action lawsuit brought by disgruntled customers.

Customers with Puerto Rico contracts with the Jones Act container line would have the option, in lieu of receiving cash, of a freeze on their base rates for two years beyond the expiration the contracts.

If I were a customer of Horizon, I would do 2 things.

1) Take the money, not the freeze on rates

2) Start looking for services from Europe and South America to Puerto Rico. Start shopping the rates from those origins, and use these to negotiate new rates with your carrier.

Who knows, maybe in the end it will be cheaper to source products from someplace other than the mainland U.S.

More Jones Act Carriers to be charged

Peter Baci of Sea Star Lines was the first to be sentenced.

If one believes a report from Fairplay, there will be many more folks going to jail, as well as customers lining up to file suit (as they paid more for ocean freight because of the collusion).

US-flag container lines, not just their management, also face the strong possibility of criminal prosecution. On the civil liability front, shippers have already filed class actions against carriers in the four main Jones Act trades: Puerto Rico, Hawaii, Alaska and Guam.

Potential civil settlements to compensate for over a half-decade of alleged collusion – plus a thinning of executive ranks due to imprisonments – could transform the Jones Act container industry.

The "Jones Act" is actually the Merchant Marine Act of 1920.

The cabotage provisions restrict the carriage of goods or passengers between United States ports to U.S. built and flagged vessels. In addition, at least 75 percent of the crewmembers must be U.S. citizens. Moreover foreign repair work of U.S.-flagged vessels' hull and superstructure is limited to 10 percent foreign-built steel weight.[1] This restriction largely prevents American shipowners from refurbishing their ships at overseas shipyards.

The Jones Act is the reason you can't board a cruise ship in Miami and get off in Long Beach.

Horizon Lines is the carrier who will be hard hit by this, and they are a public company and trade in all of the Jones Act trades. I wouldn't be recommending their stock.