Advertisement

Probe Finds Little Competition Among Transpacific Cargo Lines

Share via
TIMES STAFF WRITER

Price competition among foreign and domestic shipping lines has been virtually eliminated for importers seeking space aboard cargo ships bound for the United States from Asia, a new federal report concludes.

The report, based on a six-month investigation by the Federal Maritime Commission, verifies a host of complaints from U.S. companies in 1998, when a glut of Asian cargo jammed freighters and left many businesses desperate to get their holiday shipments. Meanwhile, shipping charges rose sharply and are expected to jump again this year.

“Competition has been all but eliminated in eastbound transpacific trade, and there is no sign that it is likely to rear its head any time soon,” said Commissioner Delmond J.H. Won, who heads the agency’s ongoing probe into shipping industry prices.

Advertisement

The Federal Maritime Commission, which has regulated the maritime industry since 1961, investigates allegations of unfair, unreasonable or discriminatory rate-setting by shipping lines.

Released Friday in summary form, the commission’s report provides a glimpse into the hectic peak of the 1998 shipping season, which lasted from July to November. At the time, the Asian economic crisis and a strong dollar triggered a dramatic surge in exports to the U.S., causing a shortage of space aboard cargo ships. The situation was so bad that goods waited for weeks on Asian docks.

According to commission investigators, shippers sought to exploit the situation by undermining contracts with customers, attempting to fix prices and extorting huge rate increases of at least $300 or more per 40-cubic-foot shipping container.

Advertisement

An “auction-like atmosphere” developed, the report states, in which cargo containers went to the highest bidders and some shippers refused to carry cargo even under existing contracts.

“The existence of a valid service contract was no obstacle to most carriers’ desire for greater revenue during this peak season,” investigators said.

The commission, which named no individual companies in the report, blamed part of the problem on an international shipping cartel, the Transpacific Stabilization Agreement, which has 13 member lines.

Advertisement

The agreement is a federally sanctioned “discussion” pact in which shippers are allowed to meet and set broad policy guidelines but not rates. Such groups account for more than 80% of the cargo traded with Asia.

Members of the group shared price information among themselves in an effort to boost rates during the cargo crunch, the report states. Shipping documents reviewed by the commission contained suggestions for members to adjust their rates “per formula” or “to follow suit” when a price hike was proposed.

The report noted that one member of the group talked about the organization’s desire to “wring as much money as we can from this situation.”

The Transpacific Stabilization Agreement includes Sea-Land Service Inc.; a division of CSX Corp. that is the largest U.S. shipping line; and APL Ltd., a unit of Neptune Orient Lines Ltd. of Singapore.

The organization recently announced plans to raise rates about 30% this spring for more than $200 billion in cargo bound for the U.S. from Asia.

Commission officials say the rate increase will be a key test for new U.S. shipping laws designed to reduce the power of shipping cartels to enforce rates.

Advertisement

Representatives of the agreement, which operates under special antitrust immunity, could not be reached for comment Monday.

But Clint Eisenhauer, vice president of marketing and communications for Sea-Land, said company attorneys are reviewing the commission’s findings. He noted that Sea-Land was not named specifically in the report.

Ray T. Tsuneyoshi, a maritime commission attorney, said Monday that the agency will proceed with enforcement actions, fines and penalties for many of the practices uncovered by the investigation. Tsuneyoshi declined to discuss which shipping lines would be targeted for enforcement actions.

“The new shipping season promises to be even worse than the last one,” Tsuneyoshi said. “Something needs to be done. We expect many of these pricing practices to continue.”

*

Times staff writer Evelyn Iritani contributed to this report.

Advertisement