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Commissioner Brennan Votes Against Addendum to 2003 Settlement Agreement with Transpacific Stabilization Agreement Member Lines

May 25, 2007

I vote to reject the proposed addendum to the Settlement Agreement on the basis that the Transpacific Stabilization Agreement (“TSA”) has failed to provide sufficient justification for it. Specifically, I base my vote on the following considerations.

The standard by which I evaluate TSA’s request is not § 6(g)– whether returning the Indian Subcontinent to TSA would make the carriers’ discussion agreement “substantially anticompetitive”– but rather, more broadly, whether the change would promote “fairness and efficiency in the U.S. maritime commerce,” consistent with the FMC’s Vision Statement. Will, for example, the possibility of future service contract guidelines, general rate increases, peak season surcharges, and other collusive conduct among TSA carriers in the Indian Subcontinent promote fairness and efficiency? I believe that TSA has not made the case.

TSA’s April 25th letter to the Bureau of Trade Analysis seeks to justify the modification, in part, on “wild rate fluctuations.” Yet, rather than elaborate upon rate levels that have continually varied in an irregular way (the usual understanding of “fluctuation”), TSA merely states that “many” rates have fallen by “up to” a third in the past six months as a result of overcapacity. The foreseeable risks and consequences of ordinary business judgment relating to capacity should not be a reason for the Commission to relinquish a bargained-for term of its 2003 Settlement with TSA.

TSA also cites its decline in market share, both overall and in the Indian Subcontinent. According to TSA, its market share in the Subcontinent trade is now 56.5% (down from 90% in 2003). Potential control over roughly half of the market is still substantial. Furthermore, TSA fails to mention that TSA’s market share figures for the Indian-Subcontinent-to-U.S.-Pacific market were a high 82% in 2006.

TSA also states that, “in the past four years, a number of carriers have introduced new services in the trade” (which carriers and which services remain unspecified). The implication is that the market has become less concentrated. According to BTA, the opposite is true. For 2006, if one adds TSA’s market share in the Indian-Subcontinent-to-U.S.-Atlantic market (52%) to that of Maersk Line (37%), the total is 89%. The figure was 75% in 2002. In the Indian-Subcontinent-to-U.S.- Pacific market, TSA’s market share of 82% plus that of Maersk Line (12%) totals 94%. It was 92% in 2002. Clearly the market is concentrated and has become more so since the Settlement.

In sum, the TSA carriers gave the Commission an unconvincing argument for expanding their voluntary rate-setting authority into this highly concentrated market. Regardless of whether that expanded authority would make the agreement “substantially anticompetitive” under §6(g), the market power of TSA is still considerable and would seem to weigh against accepting the addendum. Significantly, the Commission’s Bureau of Trade Analysis finds “no indication that modifying the Settlement would result in positive benefits to the shipping public.” In light of that finding, and the fact that TSA itself offered a very weak justification for the requested change, the Commission should vote to reject the addendum.