Until recently, the Shipping Act of 1984 never explicitly addressed the topic of joint negotiation of harbor towing contracts. But in January 2017, when the Federal Maritime Commission (FMC) voted to allow an alliance of four ocean carriers to engage in this practice, alarms sounded among U.S. tugboat operators.
The American Waterways Operators (AWO) voiced its concerns to Congress that year and received bipartisan support. The resulting legislative effort, which also involved organizations representing ports, culminated in passage of the FMC Authorization Act of 2017.
The bill, signed by President Trump in December as part of the Frank LoBiondo Coast Guard Authorization Act, amends the Shipping Act and forbids ocean carriers from collectively negotiating contracts for towing, while preserving the carriers’ limited antitrust immunity.
“We see (collective negotiation) as just incredibly anticompetitive,” said Jennifer Carpenter, executive vice president of the AWO. “These ocean carrier alliances have incredible market power, and so our concern was a fundamental skewing of the competitive playing field in favor of the foreign carrier alliances, some of which are state-owned, against American tugboat companies.”
The AWO’s members in the harbor services sector viewed collective negotiation as an “existential threat,” Carpenter said. In hearings with federal lawmakers, tugboat operators said they had no parallel recourse to collectively negotiate on contracts.
Since the 2008 financial crisis, container shipping has struggled with low freight rates due to a supply-and-demand mismatch, according to independent shipping analyst Ned Molloy. In addition to the spate of shipping line mergers since 2016, “alliances have been a key tactic of container shipping companies to cut costs,” he said.
Molloy added that alliances have come under increased scrutiny for anticompetitive practices, partly because they increase the bargaining power of shipping lines when purchasing services in port.
John Butler, president and CEO of the World Shipping Council, pointed out that alliances have existed for more than 20 years. He said they are “completely operational” and that their members compete with one another. He also cautioned observers against treating an alliance like a single company or economic operator.
Butler said the provision preventing joint negotiation for tugboat services “went a bit too far,” because under existing antitrust legislation, the FMC had authority to deal with contingencies that might arise. He said Congress took a more balanced position with regard to other marine terminal services that shipping lines must purchase. The services mentioned in the legislation, defined as “certain covered services,” include bunkering, cargo handling and the positioning of buoys related to the movement of a vessel.
“There, instead of prohibiting joint purchasing of those services, it’s made clear that any joint purchasing falls under the antitrust laws and would have to comply with those laws if the activity were undertaken,” Butler said.
The AWO’s efforts to prohibit joint purchasing activity in the first place, with regard to towing, eventually won out. Any analysis of an anticompetitive contract after the fact, Carpenter said, would not have adequately limited damages to tugboat operators.
No such analysis was needed after the FMC ruling in early 2017. When tug operators took their concerns to Congress, ocean carrier alliances began to self-police for fear of losing the limited antitrust immunity that the Shipping Act affords them, Carpenter said.
Going forward, the FMC will take additional steps to limit potential anticompetitive behavior. Under the new legislation, the commission must review the effects of carrier alliances on an annual basis and report its findings to Congress.
Although Butler expressed dissatisfaction with some parts of the act, he said it is ultimately something his industry can live with.
“We ended up with something that won’t unreasonably interfere with ocean carriers being able to provide high-quality services to the customers,” he said.
Carpenter said the legislation provides for robust global trade and competition, which benefits ocean carriers and tug operators alike.
“This legislation, I think, is really aimed at preserving that and guarding against abuses, but (also) keeping things moving, and so that’s a benefit to all of us,” she said.
