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Will Supply Chain Delays and Skyrocketing Prices Lead to the End of Ocean Carriers’ Antitrust Exemption?

Posted  January 7, 2022
By Seth D. Greenstein

One of the oldest antitrust exemptions may yet fall victim to the pandemic as the global supply chain crisis causes federal policymakers to reevaluate the statutory immunity currently enjoyed by ocean carriers.

Despite a year of turmoil in the ocean carriage supply chain, American consumers appear to have weathered the holiday shopping season with most of their gift giving intact.  Many consumers did their part by shopping early.  But government also played a significant role.  President Biden issued an Executive Order promoting competition and took other actions designed to remedy price gouging and backlogs.

Last month the House of Representatives passed by a 364-60 bipartisan vote the Ocean Shipping Reform Act, which would grant the Federal Maritime Commission additional remedial authority, including a mandate to adopt rules prohibiting the imposition of unjust and unreasonable fees by ocean carriers and terminal operators.  The bill now goes to the Senate for consideration.

Curiously, none of these efforts has addressed a more fundamental competition issue —  the immunity granted under the Shipping Act for agreements among ocean carriers.  For example, ocean carriers can reach agreements with competitors concerning price and capacity that otherwise could be per se unlawful under Sherman Act section 1.

With shippers facing unprecedented price increases for container carriage—as much as a tenfold increase in the price to ship containers—is it time to revisit the statutory antitrust exemption under the Shipping Act ?

The History of the Shipping Act Antitrust Exemption

The Shipping Act of 1916 includes the oldest surviving statutory immunity from the antitrust laws. See ABA Section of Antitrust Law, Federal Statutory Exemptions from Antitrust Law (2007), at 36.  A 1914 report to Congress found rampant collusion in the shipping industry, inter alia, as to price and route allocation.  Congress sought to remedy these abuses in the 1916 Act by adopting one of the report’s alternative recommendations—the creation of a federal board (now known as the Federal Maritime Commission) to regulate, rather than to prohibit, these collusive agreements.

Over time, Congress watered down even this limited oversight through deregulation. Under revisions to the Shipping Act in 1984 and 1998, if an ​inter-firm agreement filed with the Federal Maritime Commission meets procedural requirements, the Commission must let it take effect—subject to the right of the Commission (and only the Commission) to seek to enjoin it in court as anticompetitive by proving that it is “likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost.”  Further, ocean carriers may “adopt ‘voluntary’ guidelines regarding individual service contracts, which members to an agreement can use to signal expected behavior.”[1]

Past Efforts to Eliminate the Shipping Act Antitrust Exemption

In successive sessions in 1999 and 2001, then House Judiciary Committee chairs Henry Hyde and James Sensenbrenner introduced the “Free Market Antitrust Immunity Reform (“FAIR”) Act to eliminate the antitrust immunity for ocean carriers, while retaining the exemption for certain agreements among marine terminal operators.  Each of these bills received strong support from the U.S. Department of Justice:  “We do not believe that the ocean shipping industry has extraordinary characteristics that warrant departure from normal competition policy. … In the current era of expanding globalization of trade, in which we are ever more dependent upon an efficient transportation system, it is all the more important that our public policy promote full and open competition.”[2]

Modern ocean carriage of freight containers continues to present multiple opportunities for supracompetitive price agreements among ocean carriers, marine terminal operators, and others in the shipping supply chain.  Given the focus of President Biden’s Executive Order on reducing unfair overcharges in the ocean shipping industry, one may rightly presume that the Department of Justice’s antipathy toward the Shipping Act antitrust exemption remains unchanged, or is perhaps more urgent.

What Revisiting the Shipping Act Antitrust Immunity Could Look Like

The House-passed Ocean Shipping Reform Act would eliminate certain types of overcharges known as “detention” and demurrage” that have increased shipping costs, particularly during the pandemic.  But the bill does not address the more basic concerns created by an antitrust exemption that permits cartel participants to set prices.  After all, even a “reasonable” price set by a cartel can exceed prices that would be offered in a competitive market.

With the House bill moving to the Senate, Congress again has the opportunity to revisit whether the Shipping Act exemption makes sense in the current environment, or at all.  At least one trade association, the Consumer Technology Association (“CTA”), thinks it’s time to revisit and eliminate this exemption.[3]  Even while praising House passage of a bill designed to eliminate shipping overcharges (known as “detention” and “demurrage”), CTA urged Congress “to remove the outdated and unjustifiable antitrust exemption, which gives foreign shippers a free pass to collude and raise prices to the detriment of U.S. consumers.”[4]

The FAIR Act of 1999-2001 proposed an all-in approach that eliminated the antitrust exemption for ocean carriers in toto.  More granular approaches could be adopted as well.

For example, if Congress wishes to target a solution during the pandemic, it could eliminate the exemption for as long as Covid-19 disrupts container transportation, rather than adopt a permanent repeal.  Or Congress could focus on more pernicious types of agreements such as price-fixing agreements, while permitting ocean carriers to continue entering into vessel-sharing agreements that at least in theory promote efficiency by combining containers from multiple carriers onto a single ship—similar to airline codesharing arrangements.

As Senator Amy Klobuchar wrote in her recent book, “even a cursory review of the legislative and judicial history of America’s antitrust exemptions—one peppered with backroom deals in the halls of Congress—demonstrates that this area of the law is, at best, incoherent and confusing, and, at its worst, corrupt and unfair.”[5]  With the House bill moving to the Senate, Congress has the opportunity to revisit whether the Shipping Act exemption makes sense in the current environment, or at all.

Thanks to Richard Levine for his insights on the shipping industry and antitrust exemption.  CTA is a client of Constantine Cannon LLP.

Written by Seth D. Greenstein

Edited by Gary J. Malone

[1] United States, Working Paper No.2 on Competition Issues in Liner Shipping at 3-4 (June 19, 2015) (U.S. Submission to the Organization for Economic Cooperation and Development).

[2] See Statement of Charles A. James, Assistant Attorney General of the Antitrust Division, before the House Judiciary Committee (June 5, 2002).

[3] Gary Shapiro, “Put the brakes on the shipping antitrust exemption,” Washington Examiner, Oct. 18, 2021.

[4] CTA Press Release, “CTA Applauds House Passage of Ocean Shipping Reform Act,” (Dec. 8, 2021).

[5] Amy Klobuchar, Antitrust:  Taking on Monopoly Power from the Gilded Age to the Digital Age, p.130 (Knopf 2020).

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