Served December 29, 1999

FEDERAL MARITIME COMMISSION

FACT FINDING INVESTIGATION NO. 23-
OCEAN COMMON CARRIER PRACTICES IN
THE TRANSPACIFIC TRADES

ORDER DISCONTINUING PROCEEDING

On September 21, 1998, pursuant to the Shipping Act of 1984, 46 U.S.C. app. 1701 et seq. ("Act"), the Federal Maritime Commission ("Commission") commenced this nonadjudicatory fact finding proceeding to investigate allegations that ocean common carriers in the eastbound Transpacific trades were engaging in activities that may be in violation of certain provisions of the Act. Commissioner Delmond J.H. Won was appointed as Investigative Officer and was authorized to hold hearings and to utilize compulsory processes, including subpoenas, to obtain relevant testimony and documents. Commissioner Won conducted an expedited investigation and submitted a confidential Report and Recommendations ("Report") to the Commission on January 5, 1999.

A summary of Commissioner Won's Report was released to the public on March 12, 1999. Generally, as indicated by the summary, the Investigative Officer concluded that evidence cited in the Report corroborates allegations that carriers in the eastbound Transpacific trades, faced with shortages of space during the peak 1998 holiday shipping season, refused to carry low rated cargo at applicable contract rates, targeted the cargo of non-vessel-operating common carriers ("NVOCCs") for rate and space discrimination, and imposed significant and sudden increases in rates and charges. Among other things, the Report concludes that space was allocated in many instances on the basis of profit to the carrier without regard to existing service contracts; and that bookings were often rejected unless the shipper agreed to significantly increased rates or charges. Large, reliable contract shippers were said generally to have received preferential space allocations.

By order dated April 14, 1999, the Commission determined to pursue certain of the Report's findings through further investigation and enforcement action under sections 8, 10 and 11 of the Act, as appropriate. Accordingly, the Commission instituted a show cause proceeding in Docket No. 99-05, ANERA and Its Members, Opting Out of Service Contracts. That proceeding has now been completed with an Order being issued today which finds the opt out practice reflected in the Asia North America Eastbound Rate Agreement's ("ANERA") 1998 service contracts and tariff publication in violation of section 8 of the 1984 Act and section 514.17(c)(2) of the Commission's regulations, 46 C.F.R. 514.17(c)(2).

In addition, certain issues were referred to the Commission's Bureau of Enforcement ("BOE") for further investigation. To facilitate such further investigation, the Commission continued this fact finding proceeding to assist in developing additional evidence concerning the activities of specified ocean common carriers during the period July 1, 1998 to November 1, 1998 in the eastbound Transpacific trades. The Commission directed that the continued investigation focus on carrier activities involving refusal to provide vessel space or equipment to shippers at rates in existing service contracts; demanding or charging rates higher than those in applicable tariffs or service contracts; subjecting any particular NVOCC or NVOCC traffic generally to an unreasonable refusal to deal, or to undue or unreasonable prejudice or disadvantage, or unjustly discriminatory rates or charges; and transporting cargo for, or soliciting service contracts from, individual members of shippers' associations at rates higher than those found in existing contracts of the applicable associations. The Commission designated Vern W. Hill, Director, BOE, as the Investigative Officer for the continued phase of this proceeding.

Among the matters the Commission referred to BOE for further enforcement action as appropriate was the failure of ANERA to file minutes of certain important meetings at which issues of importance to this fact finding investigation were discussed. On September 9, 1999, BOE entered into a compromise agreement with ANERA and its members under which a civil penalty of $55,000 was collected for failure to file three such minutes of conference meetings, including the meetings at which ANERA discussed and agreed to adopt the opt out procedure for service contracts.

On October 18, 1999, the Investigative Officer submitted a confidential Second Report and Recommendations to the Commission, a summary of which is being released simultaneously with this Order. Among other things, the Investigative Officer recommended that this fact finding proceeding be terminated. He expressed confidence that any further need for compulsory process to support BOE's continuing investigations could be provided by other means.

As the report summary indicates, the response of the shipping public to requests for cooperation in the ongoing investigation was generally disappointing. BOE, in coordination with the Investigative Officer, sent numerous letters soliciting further information from shippers and members of shippers' associations which were identified in carrier documents as having had problems obtaining space, or as being pressured to pay higher rates during last year's peak season. BOE contacts with numerous proprietary shippers and consignees, NVOCCs, and shippers' associations produced few responses and little further evidence. Nevertheless, the wealth of information and carrier documents produced in the course of the initial phase of this Fact Finding Investigation continue to be examined for additional leads.

Despite the failure of many shippers and other industry participants to respond to the Investigating Officers' invitations to participate in the various stages of this proceeding, the Commission nevertheless is convinced that the effort as a whole has had salutary effects. By identifying and investigating carrier behavior of concern to the numerous parties who complained informally to the Commission, the Fact Finding brought public focus and attention to these activities. The most egregious behavior may have been abated during the early stages of this proceeding. In addition, ANERA and the Transpacific Westbound Rate Agreement have suspended all operations under their agreements, including rate-setting activities and the use of collective service contracts. The Commission actions completed thus far, including the civil penalty settlement and the decision in Docket No. 99-05, have addressed some of the concerns that activities engaged in during the 1998 peak shipping season contravened carrier duties under the Shipping Act of 1984 and may be expected to deter similar future activities. The suspension of ANERA as well as changes in service contract practices already occurring as a result of the Ocean Shipping Reform Act of 1998 also render it unlikely that similar abuses will recur.

The Commission has determined to adopt the Investigative Officer's recommendations. BOE will continue to pursue the possibility of enforcement action against certain ocean common carriers which have been identified by their own documents, as well as by a limited number of shippers, as refusing space or service or demanding rates higher than those set forth in existing service contracts. If compulsory process becomes necessary to support such further investigations, it can be provided by section 15 orders or in the context of a formal adjudicatory proceeding.

THEREFORE, IT IS ORDERED, That the Investigative Officer's Second Report and Recommendations is accepted by the Commission;

IT IS FURTHER ORDERED, That the record developed in this proceeding shall continue to be available to the Commission's Bureau of Enforcement. To the extent that documents and information comprising this record were obtained under assurances of confidentiality, such documents and information will continue to be held confidential unless and until their use becomes necessary in an adjudicatory proceeding or other Commission action. BOE shall obtain authority from the Commission before utilizing any such document or information in a public proceeding or in any other manner which would disclose such documents or information to persons other than the person who produced it or Commission employees.

IT IS FURTHER ORDERED, That this nonadjudicatory investigation into practices of ocean common carriers in the Transpacific trades is discontinued; and

IT IS FURTHER ORDERED, That notice of this Order be published in the Federal Register.

By the Commission.*/

Ronald D. Murphy
Assistant Secretary

*/ Commissioner Joseph E. Brennan did not participate in this proceeding. Commissioner Delmond J.H. Won's concurring statement attached.

CONCURRING STATEMENT OF COMMISSIONER DELMOND J.H. WON

While I agree generally that the Commission's efforts in this proceeding has had some salutary effects, I do not share the same degree of confidence that my colleagues feel that our actions and changes wrought by OSRA will deter similar abuses from recurring.

I had earlier expressed publicly my preference for the Commission to have initiated enforcement action against the carriers in their collective capacity rather than against individual lines only. This preference was based on indications that much of the behavior identified in the investigation - such as refusals to provide space under existing service contracts and discriminatory behavior directed toward NVOCCs - may have resulted from concerted actions taken by parties to agreements filed with the Commission.

It is my opinion that the Commission's early decision to limit the scope of those enforcement efforts to individual, rather than concerted carrier activity fell short in addressing the more substantive issue raised in this proceeding - that being the possibility of discussion agreements engaging in market distorting behavior.

I fully understand the reluctance of shipper complainants to come forward on the record in such enforcement proceedings, and that this reluctance hampers our enforcement bureau's ability to identify and prosecute violations. In this case, I believe enforcement was made more difficult because the Commission's chosen course of action may have inadvertently created an impression of taking a "hands off" approach to the complaints of unreasonable, collective carrier behavior, further discouraging shippers from undertaking the expenses and commercial risks attendant to the Commission's processes.

I continue to believe that given the impact on the flow of commerce caused by TSA's collective behavior, more aggressive enforcement action on the part of the Commission would have been more appropriate.