Commissioner William P. Doyle Votes on P3 Network Vessel Sharing Agreement
March 20, 2014
I am in favor of not taking any further action to delay the implementation of the P3 Network Vessel Sharing Agreement.
The P3 Network Alliance consists of A.P. Moller-Maersk A/S trading under the name of Maersk Line, CMA-CGM S.A. and MSC Mediterranean Shipping Company, S.A.
I have reviewed all the comments submitted by the public, submitted my own questions to the P3 Parties as part of the Commission’s request for additional information (RFAI), and reviewed the P3 Parties’ RFAI responses. I am particularly pleased that the P3 Parties have reconsidered how they would handle negotiations with third parties, suppliers, small businesses, and other service providers. I also appreciate Maersk’s long-standing commitment and support to the United States with respect to jobs, management of U.S.-government owned ships and the commercial ships it has registered under the U.S.-Flag. In addition, the P3 Network Alliance claims it will deliver significant environmental benefits through substantially lower fuel consumption thereby significantly reducing CO2 emissions.
I do want to offer a word of caution, the P3 Parties should be mindful of the antitrust probes that are being conducted in the oceanborne transportation sector – worldwide. To this end, the Federal Maritime Commission is not taking its hands off the wheel and is hereby instituting a monitoring program for the P3 Network Alliance.
Overview of FMC Authority: 6(g) Analysis
The FMC has the responsibility to review all agreements prior to their implementation and to seek to enjoin any agreements that are substantially anticompetitive. Under the Shipping Act of 1984, the Commission evaluates agreements for potential anti-competitive activity under what is known as the 6(g) standard:
Action by commission.— If, at any time after the filing or effective date of an agreement under chapter 403 of this title, the Commission determines that the agreement is likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost, the Commission, after notice to the person filing the agreement, may bring a civil action in the United States District Court for the District of Columbia to enjoin the operation of the agreement. The Commission’s sole remedy with respect to an agreement likely to have such an effect is an action under this subsection.
46 U.S.C. § 41307(b)(1)
The FMC’s Bureau of Trade and Analysis is responsible for competition oversight and market analysis, and is an expert on the economics of international liner shipping and maritime agreements. Through their analysis of the P3 Agreement and subsequent representations, it appears that the P3 Agreement is not likely, at this time, through a reduction in competition, to result in an unreasonable increase in transportation service or an unreasonable increase in transportation costs.
While the three largest carriers will be collaborating operationally, these carriers will continue to compete with each other on pricing and cost. That is, shippers will continue to negotiate with each carrier individually. With regard to transportation service, each P3 carrier will increase its service offerings and overall capacity will increase. With P3, there will be at least three carriers independently marketing and selling space on each P3 voyage rather than just one or two under their existing arrangements.
Terminals, Stevedores and other Services (Suppliers and Small Businesses)
In response to concerns raised, the P3 Parties have revised Article 5.4(b) of their originally-filed P3 Network Vessel Sharing Agreement (file date October 24, 2013) with the Commission. The revised language provides a safeguard for U.S. third-party businesses (including small businesses), such as marine terminal operators, stevedores, tug operators and other providers or suppliers. Based on the new language, the P3 Parties must negotiate independently and enter into separate contracts with the third parties. The previous language for Article 5.4(b) appeared to give the P3 Parties an open hand to negotiate jointly and contract jointly with third parties.
With respect to Article 5.4(b), provided below is the original language, struck-language, and clean new language for Article 5.4(b):
1. Original Language Article 5.4(b): The Parties or any two of them may (where they are legally permitted to do so) negotiate jointly and to contract jointly and/or individually with marine terminal operators, stevedores, tug operators, other providers or suppliers of other vessel-related goods and services and/or inland carriers; provided, however, that any joint negotiations/contracts with an air, rail or motor carrier or group of such carriers with respect to services to be provided within the United States shall be subject to the U.S. antitrust laws.
2. Struck Language Article 5.4(b): The Parties or any two of them may (where they are legally permitted to do so) negotiate jointly and to contract jointly and/or individually with marine terminal operators, stevedores, tug operators, other providers or suppliers of other vessel-related goods and services and/or inland carriers; provided, however, that any joint negotiations/contracts with an air, rail or motor carrier or group of such carriers with respect to services to be provided within the United States shall be subject to the U.S. antitrust laws.
3. New Language (in italics) Article 5.4(b): The Parties shall negotiate independently with and enter into separate individual contracts with marine terminal operators, stevedores, tug operators, other providers or suppliers of other vessel-related goods and services and/or inland carriers in the United States; provided, however, that the Parties are authorized to discuss, exchange information, and/or coordinate negotiations with marine terminal operators relating to operational matters such as port schedules and berthing windows; availability of port facilities, equipment and services; adequacy of throughput; and the procedures of the interchange of operational data in a legally compliant matter.
U.S-Flag Component of P3 Alliance
A.P. Moller Maersk Line A/S trading as Maersk Line is a core business entity within Maersk Group. Maersk Line, Limited (MLL) is a business unit within the Maersk Group. MLL is headquartered in Norfolk, Virginia, and operates more than fifty vessels under the American-flag. The company provides U.S. flag transportation, ship management and maritime technical services to government and commercial customers.
MLL operates the largest U.S.-flag international fleet in commercial service and is the largest employer of deep-sea American Merchant Mariners. To be clear, MLL provides fully employed U.S.-crews on 21 U.S.-flag container ships, 2 U.S.-flag geared container ships, 4 U.S.-flag Ro/Ro ships, 13 U.S.-flag special mission ships, 7 U.S.-flag maritime prepositioning ships, 2 U.S.-flag tankers, 1 U.S.-flag maritime support vessel, and 2 U.S.-flag ammunition ships.
MLL along with Farrell Lines, Inc. (a subsidiary of MLL) operate 24 ships in the United States’ Maritime Security Program (MSP). MLL is a participant in the Voluntary Intermodal Sealift Agreement (VISA). The MSP maintains a core fleet of U.S.-flag, privately-owned ships operating in international commerce which are also available under agreement to provide capacity needed to meet Department of Defense (DOD) requirements during war and national emergencies. All MSP dry cargo ships are enrolled in VISA. The VISA program is a partnership between the U.S. Government and the maritime industry to provide the DOD with “assured access” to commercial sealift and intermodal capacity to support the emergency deployment and sustainment of U.S. military forces. Intermodal capacity includes dry cargo ships, equipment, terminal facilities and intermodal management services.
MLL (including Farrell Lines) intends to keep their 24 MSP positions in the extended MSP program, which is set to expire on September 30, 2025. With regard to vessels that will be in the P3 trade, MLL and Farrell intend to keep at least the same number of vessels in the MSP. Moreover, Maersk Line contemplates that MLL vessels will be upgraded with newer, larger and more fuel efficient vessels.
One of the advocacy points raised by the P3 Parties has been the proposed efficiencies generated by the P3 Network, which are expected to lead to significant environmental benefits.
Chief Trade and Marketing Officer for Maersk Line, Vincent Clerc, commenting in World Maritime News, July 2013, on the proposed P3 Network stated: “Fuel consumption will also be reduced with significant benefits for the environment, and our operations will get even more efficient and competitive.”
Diego Aponte, Vice President with Mediterranean Shipping Company released a statement through MSC’s website regarding the Alliance in June 2013 that stated in part: “More efficient vessel routing will enhance our service offering to our customers and also deliver significant environmental benefits through substantially lower fuel consumption and therefore much reduced CO2 emissions for the benefit of all.”
P3 Parties intend to update their fleets with new vessels. By bringing in new more fuel efficient vessels, the P3 Network estimates a decrease in CO2 emissions by as much as 33%, and an estimated reduction in fuel consumption of around 9%.
The ocean-going shipping sector has faced scrutiny recently by civil and criminal competition authorities. Should the P3 Alliance move forward, it should do so with the full understanding that practices within the international shipping sector have gained world-wide attention.
On March 18, 2014, the Japan Fair Trade Commission (JFTC) issued cease and desist orders and surcharge payment orders against Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha, Ltd., Wallenius Wilhelmsen Logistics, AS and Nissan Motor Car Carrier Co., Ltd, under its Antimonopoly Act (AMA), finding that they violated the prohibition of unreasonable restraint of trade with regard to international ocean shipping services for automobiles. Collectively, the companies were fined nearly U.S. $224 million and Japanese authorities have given the companies until June 1, 2014 to make payment.
According to JFTC, for more than 4 ½ years the companies kept the freight rates from falling by agreeing to “mutually refrain from contending for customers by not offering lower freight rates and to raise or maintain freight rates, and thereby, contrary to the public interest, substantially restrained competition in the fields of particular international ocean shipping services for automobiles in ocean routes.”
The trade routes impacted by the carriers include the North American route between Japan and ports in the United States (including Puerto Rico), Canada and Mexico; the European route between Japan and ports in European countries; the Middle and Near Eastern route between Japan and ports in/on Sri Lanka, the west coast of India, Pakistan, Iran, Iraq, Kuwait, Saudi Arabia, the UAE, Bahrain, Qatar, Oman, Yemen, Jordan, Djibouti or Sudan; and the Oceania route between Japan and ports in Australia (excluding Darwin and Fremantle ports), New Zealand or Papua New Guinea.
On February 27, 2014, the United States Department of Justice announced that Compania Sud Americana de Vapores (CSAV) pled guilty and agreed to pay an $8.9 million criminal fine for its involvement in a conspiracy to fix prices, allocate customers and rig bids of international ocean shipping services for roll-on, roll-off cargo, such as cars and trucks, to and from the United States and elsewhere.
In announcing the plea agreement, Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division stated, “Today’s charges are the first to be filed in the Antitrust Division’s investigation into bid rigging and price fixing of ocean shipping services.” He continued, “Prosecuting international price-fixing conspiracies remains a top priority for the division.”
Since 2012, United States, Canadian, Japanese, and European antitrust authorities have been engaged in a global, coordinated price-fixing investigation regarding an alleged unlawful conspiracy.
On November 21, 2013, the European Commission (EC) opened formal antitrust proceedings against several container liner shipping companies to investigate whether they engaged in concerted practices, in breach of EU antitrust rules.
According to the EC, “Since 2009, these container companies have been making regular public announcements of price increase intentions through press releases on their websites and in the specialized trade press. These announcements are made several times a year and contain the amount of increase and the date of implementation, which is generally similar for all announcing companies. The announcements are usually made by the companies successively a few weeks before the announced implementation date.
“The [European] Commission has concerns that this practice may allow the companies to signal future price intentions to each other and may harm competition and customers by raising prices on the market for container liner shipping transport services on routes to and from Europe. The Commission will now investigate whether this behavior amounts to a concerted practice in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU) and of Article 53 of the European Economic Area (EEA) Agreement.”
If the P3 Alliance moves forward, it will be doing so as a new Alliance with a clean slate—whether the slate remains clean from then on is up to the P3 Parties. That said, the Commission has put forward a monitoring program to give a measure of assurance to the public, common carriers, shippers, consumers, marine terminal operators, ocean transportation intermediaries and exporters and importers that the P3 Parties are playing by the rules.
FMC Monitoring Program
The P3 agreement activities will be monitored by the Federal Maritime Commission throughout the life of the P3 Network Vessel Sharing Agreement (and as it may be amended from time to time). The monitoring system is intended to provide an early warning system to detect capacity issues and market problems. FMC’s monitoring activities include:
- Regular communication between Commission staff and Network Center to discuss operations, schedules, processes, and business rules.
- Submission of certain actions by P3 members ensuring independence of individual lines’ and autonomy of the Network Center.
- Ensuring adherence to the Agreement and autonomy of the Network Center irrespective of individual carrier interests.
- Advance notification of cancelled sailings and any service modification resulting in changes in average weekly capacity.
- Monitoring of rates in connection with actions altering capacity.
- Monitoring of activities in connection with third parties that might demonstrate prohibited acts or other behavior that might threaten competition.
In conclusion, it appears that the P3 Agreement is not likely, through a reduction in competition, to result in an unreasonable increase in transportation service or an unreasonable increase in transportation costs. However, the Commission is instituting a monitoring program to help ensure that the P3 Parties play by the rules. In addition, safeguards have been drafted into the Agreement to ensure that the P3 Parties negotiate independently and enter into separate contracts with the third parties.