Local import/export firms are upset that last month’s congressional hearings did not yield the expected dismantling of the antitrust immunity that shipping lines have enjoyed for decades.

Shipping lines constitute the only remaining legal U.S. cartel besides Major League Baseball. Because they are allowed to meet and privately discuss rates and capacity on transpacific routes, local import/export firms and the freight forwarders that facilitate their shipments end up having to pay a lot more than they would if market forces were allowed to determine the rates.

“We’re talking about hundreds of millions of dollars,” said Bob Coleman, president of the Pacific Coast Council of Customs Brokers and Freight Forwarders Association. “Not only can they (shipping lines) set prices collectively, they can and will control the capacity on board vessels to create artificial peak periods. It’s a form of extortion, because many of our clients will work with just-in-time inventories and are out of business if we can’t get their cargo here on time.”

Coleman was one of the industry experts who testified before the House Judiciary Committee late last month in favor of the Free Market Antitrust Reform Act of 1999, which is sponsored by Rep. Henry Hyde, R-Illinois. Although an earlier bill, the Ocean Shipping Reform Act of 1998, went a long way toward deregulating the ocean shipping industry, it did not go far enough, according to many of the smaller players in international trade.

In particular, local exporters and importers claim that they have seen very little benefit from the increased number of ocean carriers that entered the transpacific trade since deregulation went into effect in May of last year.

Many had anticipated that the new shipping lines entering a deregulated market would charge lower rates to capture market share from the established lines. But that’s apparently not happening.

Carrier collusion

“My suspicion is that the newcomers agreed not to cut prices,” said Michael Doram, chairman of the Export Managers Association of California. “Even westbound rates (for L.A. shipments to Asia) are going up, although the ships are still 40 percent empty. That doesn’t make any sense in economic terms, and it hurts, for example, the local machinery equipment manufacturers who rely on ocean cargo to ship their products overseas.”

Indeed, in February, the Westbound Transpacific Stabilization Agreement an informal group of the major ocean carriers announced increased rates for most goods shipped from U.S. ports to Asia. The ocean carriers’ group sets non-binding price guidelines for its members, a practice that is considered illegal in most other industries.

In addition, the group last month announced fuel surcharges on all transpacific routes.

Of course, some players do seem to be benefiting from last year’s deregulation act namely, the largest import/export operations. These companies are now allowed to negotiate their own confidential contracts with the shipping lines. (Only large shippers have enough clout to negotiate favorable deals.)

Meanwhile, left out of such deals are the so-called Non Vessel Operating Common Carriers (NVOCCs), which are freight forwarders that contract for space on carriers and consolidate shipments of smaller importers and exporters.

NVOCCs are still required to disclose the rates they charge their clients. As such, NVOCCs believe that they and their clients are at a competitive disadvantage.

“NVOCCs are automatically charged $250 more per container than shippers who contract directly with a carrier,” said Coleman. “That means that small-business owners end up paying more to ship their goods overseas than the large retail chains.”

No relief in sight

While Coleman and others continue to push for further deregulation of the shipping industry, some industry observers insist that would not provide any relief to small shippers and freight forwarders.

“The majority of the cargo that comes in already falls under confidential agreements between the carriers and the shippers,” said one local trade observer. “It would be a mistake to think that further deregulation would mean that the small guy will be getting a better deal. The big shippers and the big NVOCCs are getting the good rates, not the small ones.”

At this point, virtually no one in the industry expects Congress to move fast to pass the antitrust immunity reform act, particularly since the previous ocean shipping reform act was signed into law fairly recently.

So the antitrust immunity that ocean carriers have enjoyed since 1916 will likely remain intact, even though the U.S. flag-carrying fleet that it was meant to protect no longer exists. With American President Lines having been acquired by Singapore’s Neptune Orient Lines and Sea-Land by Denmark’s Maersk, all major transpacific carries are now foreign-owned.