Carriers continue to collude

It's difficult for carriers to give up the long held practice of colluding on rates.   In the past
it was legal, but no longer.

From The Journal of Commerce

Antitrust investigation also includes car carriers

CSAV said it and some of its employees have received subpoenas from U.S. government authorities and the Competition Office of Canada in connection with an investigation under antitrust law that includes it and a group of car carriers.

Although the Chilean carrier did not identify the car carriers that are also being investigated, they may be among the 10 Japanese, South Korean and Norwegian shipping lines being investigated by the Japan Fair Trade Commission.

CSAV said it notified the Chilean Securities and Insurance Supervisor of the investigation and that its management “has dedicated itself to gather information.” It said its board of directors has instructed the company management to provide maximum cooperation in connection with the investigation.

“The investigation seeks to inquire into the existence of antitrust law violations related to cooperation agreements on prices and allocation of clients between car carriers,” CSAV said.

They just don't get it....

Ocean carriers lost their anti-trust immunity a few years ago.

But, I guess they didn't think the U.S. Government would bother checking
into their activities.

Guess the executives aren't aware that the U.S. Government sent people
to jail a few years ago for collusion.
Anyone remember this?

Tuesday, February 3, 2009
Pleading Stupidity

Back in October, I posted about some people going to jail for anti-trust violations.

This week the first one was sentenced to jail time. In his defense, he pleaded he was only following orders.

Former Sea Star Line executive Peter Baci, the first person sentenced in a federal antitrust investigation of Puerto Rico carriers, claims that he participated in a price-fixing scheme under orders from an official at Saltchuk Resources, a part-owner of Sea Star.

Baci was senior vice president, yield management, at Sea Star until he was fired last year after the federal investigation became public. He was sentenced today to four years in prison, a $20,000 fine and two years of supervised release after pleading guilty to antitrust conspiracy.

The FMC is warning folks...

From The Journal of Commerce

Federal Maritime Commission Chairman Richard Lidinksy says the container shipping industry's trans-Pacific discussion groups are showing "near outright defiance” of a commission's oversight order and warned he'll take action unless he gets timely responses to questions.

Lidinsky's broadside Thursday against the Transpacific Stabilization Agreement and the Westbound Transpacific Stabilization Agreement came after they have “stiff-armed” the commission with “shockingly tardy” responses.

The FMC in September 2010 ordered transcripts of all TSA and WTSA meetings following an investigation of charges the carriers manipulated container and vessel capacity to raise rates in late 2009 and early 2010. The order stands until April 2012.

“We have a situation where a group of shipping lines have been given antitrust immunity to collude to raise the rates that American shippers and consumers pay. ... All we ask in return are some transcripts and minutes – something just about any lawyer gets for simple depositions or proceedings as a routine matter,” Lidinsky said

The groups were given 21 days after a meeting to file a transcript, but FMC General Counsel Rebecca Fenneman said some groups didn’t file transcripts until as much as 28 days after the meeting. Out of 83 transcripts of live TSA meetings or conference calls, 18 were late. Out of 121 meetings by the WTSA, 24 transcripts were late.

The commission also required copies of email exchanges among TSA and WTSA members, and one was a year late. The discussion agreements notified the FMC only once that a transcript would be late.

Fenneman said the late filings appeared to be due to clerical difficulties. Lidinsky agreed, noting some carriers in the agreements individually were “excellent regulatory citizens.”

Ha Ha.

Pleading Stupidity

Back in October, I posted about some people going to jail for anti-trust violations.

This week the first one was sentenced to jail time. In his defense, he pleaded he was only following orders.

Former Sea Star Line executive Peter Baci, the first person sentenced in a federal antitrust investigation of Puerto Rico carriers, claims that he participated in a price-fixing scheme under orders from an official at Saltchuk Resources, a part-owner of Sea Star.

Baci was senior vice president, yield management, at Sea Star until he was fired last year after the federal investigation became public. He was sentenced today to four years in prison, a $20,000 fine and two years of supervised release after pleading guilty to antitrust conspiracy.

As we know all too well, lots of people do things they shouldn't, in order to keep their job.

“Mr. Shapiro was powerful; he threatened and directed the termination of employment at others at Sea Star and he significantly intimidated Mr. Baci,” the memo said. “Mr. Baci believes Mr. Shapiro hatched the idea of collusion with the other carriers. Later, Shapiro ordered him to collude with his counterpart at Horizon…”

“Peter Baci did not originate the idea, create the concept or hatch the plan,” Houlihan wrote.

Houlihan’s memo, which sought leniency in Baci’s sentencing, said Baci did not profit from the price-fixing scheme, but participated only to keep his job.

While I certainly don't condone what he did, it does appear the government has done this to set an example, but 4 years is really a bit nuts. Furthermore, think about how many tax payer dollars will have to go to pay for this jail time. Don't we have better things to do with our tax dollars?

“To the extent there was any financial gain, it would have been realized by corporations who are likely to be charged in subsequent indictments,” the memo stated.

The Justice Department said Baci's jail sentence was the longest ever imposed for a single antitrust charge.

I think our government should be pleading stupidity as well.

Conference System Doesn't Work for Carriers

I have always been amazed that even when carriers have anti-trust immunity, they don't really know how to use it.

This report from Lloyds List says the carriers agreed to one thing, and then did something else.

What a surprise.

Only Maersk adhered to the agreement.

My guess is they were the one to propose it in the first place, and everyone else just took advantage of them.



"... a reported decision by lines at a Far Eastern Freight Conference meeting earlier this year to target ship utilisations of around 85% to keep rates stable as new capacity comes on stream.

Lloyd’s List was told by a third party that Maersk Line was one of the very few major carriers to adhere to that agreement, only to find other carriers snatching away its accounts by cutting rates.

Maersk Line, which has adjusted capacity in line with a slowdown in volume growth, then abandoned its policy of restraint to protect its customer base and ensure market share was not eroded, according to market sources.

But the result has been a bloodbath, with spot freight rates plummeting to record lows just as lines begin negotiating 2009 contracts with their big customers. "

Click here for complete article.

Ocean Shipping Market Downturn... duh!

Maybe I am just too old. Someone is SHOCKED that the shipping industry is seeing a dramatic downturn. SHOCKED I tell you.

I remember when I worked for a carrier, there was a proposal to do a big marketing campaign. After all, the guys on Madison Ave. know advertising increases business.

I laughed, and reminding folks that we were in the shipping business. We didn't make the cargo move. All we could do was try to be in the right position when trade patterns changed.

Now I don't want to pick on this guy at APL, but if he knows how to push back market forces, maybe he can help out some of those folks on Wall Street.

This from the article in American Shipper, 24 Sept. (click here for complete article)

"A senior executive of APL has called on individual container lines to take decisive action to reverse the current market downturn.

Dan Ryan, APL’s Greater China president, speaking at the second Containerization and Liner Shipping China conference in Tianjin, said that a negative scenario of financial market turmoil, low consumer confidence as well as rising inflation and commodity prices, compounded by historically high fuel prices, requires lines’ urgent attention.

Suggested solutions included carriers moderating growth aspirations, returning excess tonnage to the charter market, rationalizing and even suspending some services, and having stronger resolve to pass along bunker costs to customers.

“If we fail to take action, the industry could see a more significant downturn than we have seen in many years,” he said."

Now, some of what he says is valid. Individual carriers can reduce supply. But the days of shipping cartels are fast disappearing, so carriers doing a lot collectively will be a problem.

And that bit about returning excess tonnage to the charter market? What then? You just gave someone cheaper ships to go after your cargo.

Each carrier must make these decisions on their own, and may the best one survive.

I will put in my 2 cents.

The carriers can slow down their vessels, thereby reducing bunker consumption. Assuming they wish to maintain the same frequency, this would also require additional ships, which would absorb some of the excess capacity.

They can use this time to put their ships in dry-dock for maintenance.

They can take out piracy insurance and start sailing past Somalia.
(this is a joke)

Anyway, this will be the shake out time in the industry.

As I use to say "it's kinda like K-Mart complaining about Wal-Mart".

Oops. I am old.