Fact Finding No. 23 - Summary of Second Report and Recommendations of Investigation Officer

December 29, 1999

FEDERAL MARITIME COMMISSION

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

SUMMARY OF
SECOND REPORT AND RECOMMENDATIONS
OF INVESTIGATIVE OFFICER

I. BACKGROUND

The Commission instituted the subject proceeding on September 21, 1998, to inquire into various practices allegedly engaged in by ocean common carriers, either individually or collectively, in the inbound trades from the Far East to the United States during the 1998 peak holiday shipping season. Those alleged practices generally included refusals to carry low rated cargo at applicable rates, prejudicial treatment of non-vessel-operating common carriers ("NVOCCs"), and the imposition of significant and sudden increases in rates and charges. On January 5, 1999, the former Investigative Officer, Commissioner Delmond J.H. Won, issued a confidential Report and Recommendations to the Commission. A public summary of that Report was released by the Commission on March 12, 1999.

The Commission took several actions as a result of Commissioner Won's Report, among which was the continuation of this fact finding investigation pursuant to an Amended Order of Investigation published in the Federal Register on April 20, 1999, 64 Fed. Reg. 19359. That amended order designated Vern W. Hill as Investigative Officer and directed that a report of findings and recommendations be issued within 180 days.

II. DISCUSSION

The Amended Order explained that the Commission had determined to pursue certain of the findings in Commissioner Won's Report through further investigation and enforcement action under sections 8, 10 and 11 of the Shipping Act of 1984 ("1984 Act") 46 U.S.C. app. §§ 1707, 1709 and 1710, as appropriate, and that the Commission was continuing this proceeding to facilitate such further investigation. Specifically, the Commission determined to continue this proceeding to assist in developing additional evidence concerning the activities of certain ocean common carriers during the period July 1, 1998 to November 1, 1998, in the eastbound Transpacific trades and related to the following issues:

1. refusing to provide vessel space or equipment to shippers under existing service contract rates;

2. demanding or charging rates higher than those set forth in applicable tariffs or service contracts;

3. subjecting any particular non-vessel-operating common carrier ("NVOCC") or NVOCC traffic generally, to any unreasonable refusal to deal, to any undue or unreasonable prejudice or disadvantage, or to unjustly discriminatory rates or charges; and

4. 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.

64 Fed. Reg. 19360

In attempting to develop further evidence on these issues, the Bureau of Enforcement, in coordination with the Investigative Officer, reviewed many of the documents obtained by Commissioner Won, and contacted numerous shippers (which included proprietary shippers/consignees, NVOCCs, and shippers' associations). Generally, the response to these contacts was disappointing. In addition to other, less formal efforts, sixty-four letters soliciting further information were sent to shippers and to 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. Most of these shippers failed to respond to the letters. Of the sixty-four written inquiries, only four responses initially provided any further evidence of carrier refusals to provide space, demands for rates higher than those set forth in applicable service contracts, or attempts to entice members of shippers' associations to sign individual contracts at higher rates. The Bureau of Enforcement ("BOE") has been following up on those responses and on other leads to determine whether sufficient evidence is available to warrant enforcement action.

The subpoena power conveyed to the Investigative Officer was used to pursue an issue raised in documents provided to Commissioner Won which raised the possibility of an unlawful service contract between a member of a shippers' association and a member of a conference of ocean common carriers, at rates different than those contained in the contract between the association and the conference. The response to the subpoena does not establish the existence of such an individual service contract, but does appear to establish that the carrier charged higher tariff rates to this shipper for shipments moving under the association's contract with the conference, pursuant to a side agreement with the shipper's supplier in Asia. However, the carrier subsequently refunded the difference in rates to this shipper.

Another shipper testified before the House Judiciary Committee in May 1999, that two carriers had refused to carry that shipper's cargo under existing service contracts during the 1998 peak season. In a written response, one of these carriers did not deny that it refused to carry cargo for this shipper and other members of the same shippers' association under the terms of the association's service contract, but attempted to justify its actions on the basis of contract language which indicates that any cargo tendered by the shipper beyond the minimum quantity specified in the contract would be carried at the option of the conference. That carrier also acknowledged that it did charge rates for the carriage of goods above this contract rate once the minimum quantity commitment was fulfilled.

The service contract in question is governed by another provision in the conference's rules which requires thirty days' notice to the conference and to the shippers' association should a carrier wish to terminate its participation after fulfillment of the minimum quantity commitment. Apparently, no such notice was given, and additional cargo was carried under the contract by this carrier and other conference members through April 1999.

Two other issues arising from Commissioner Won's Report have been addressed by BOE as part of its further investigation. The first is the matter of the failure of the Asia North America Eastbound Rate Agreement ("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 was collected for failure to file three such minutes of conference meetings, including the meetings at which ANERA discussed and agreed to adopt the so-called "opt out" procedure for service contracts.

The second issue relates to the "opt out" procedure itself. At the same time that the Commission determined to extend this fact finding investigation to assist BOE in pursuing the issues set forth above, the Commission commenced a separate show cause proceeding in Docket No. 99-05, ANERA and Its Members, Opting Out of Service Contracts. In addressing the issues in Docket No.99-05, BOE discovered that ANERA had failed to file the opt out provisions of numerous service contracts in its essential terms publication. The Investigative Officer recommends that BOE pursue this issue separately from Docket No. 99-05.

Vern W. Hill
Investigative Officer