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Commissioner William P. Doyle Votes on CKYHE

December 8, 2014

Commissioner William P. Doyle Votes on COSCON/KL/YMUK/Hanjin/ELSA Slot Allocation and Sailing Agreement (CKYHE), FMC Agreement No. 012300

I am in favor of not taking any further action to delay the implementation of this agreement, popularly known as CKYHE.

The top row from left to right: James Chan, Sebastian Tamaki, Kevin Chen, Benjamin Tsai, Brian JH You, Frank Grossi, and Max Peng. Bottom row: Jewel Jennings-Wright, Commissioner Wiliam P. Doyle, and David Tubman. Photo was taken October 15, 2014

CKYHE consists of COSCO, K Line, Yang Ming, Hanjin, and Evergreen. Each of the ocean carriers sent representatives to the Federal Maritime Commission’s headquarters and met with me personally. I appreciate the briefing and subsequent availability to discuss some of my initial concerns. While the CKYHE Parties will be collaborating operationally, these carriers will continue to compete with each other on pricing and cost. That is, shippers will continue to negotiate with each carrier individually. With regard to transportation service, each carrier will have available more service offerings and overall capacity will increase.

I have reviewed all the comments submitted by the public, posed my own questions to the Parties, and reviewed the Parties’ responses. The Parties answered all my questions over the past forty-five days.

With the recent advent of "mega alliances" I have consistently raised concern over possible anticompetitive harms through disproportionate negotiating power of carriers with respect to small businesses and third party suppliers of goods and services such as bunker fuel, ship stores, equipment, etc. With regard to CKYHE, I shared my concerns that CKYHE could command a sizable concentration of buying power which could have an impact on suppliers. The CKYHE Parties responded by submitting substitute language pertaining to sections of the proposed agreement as identified below. In addition, I notified the Parties that the Commission will be specifically monitoring their interactions and activities related to suppliers and other third-parties.

Addressing Small Business and Third Party Supplier Concerns

CKYHE Parties responded to my concerns regarding third party suppliers and small businesses by submitting substitute language:

Original 5.4.3: The Parties may discuss and agree on the procurement of other goods and services used by a Party, including but not limited to, environmental services, bunker fuel, other fuels, equipment and equipment services, and other goods.

Substitute 5.4.3: The Parties may discuss and agree on the procurement of environmental services, bunker fuel, other fuels, and equipment or equipment services to the extent permitted by law.

Original 5.6.1: The Parties may obtain, compile, maintain, and exchange among themselves any information related to any aspect of operations in the Trade, including but not limited to forecasts/projections, records, statistics, studies, compilations, third party costs, cargo carryings, and other data, whether prepared by a Party or Parties or obtained from outside sources. The Parties may use any such information to make jointly projections and plans relating to future vessel capacity and service structure to be offered in the Trade under this Agreement. The Parties shall not exchange commercially sensitive information regarding customers (except as may be requested by a customer or necessary to prepare for or defend a claim of lost or damaged cargo) and may share other commercially sensitive information, including about each other, only as needed for proper and efficient functioning of the Agreement, and in full compliance with any agreements concerning confidentiality.

Substitute 5.6.1: The Parties may obtain, compile, maintain, and exchange among themselves any information related to any aspect of operations in the Trade, related to operational matters. The Parties may use any such information to make jointly projections and plans relating to future vessel capacity and service structure to be offered in the Trade under this Agreement. The Parties shall not exchange commercially sensitive information regarding customers (except as may be requested by a customer or necessary to prepare for or defend a claim of lost or damaged cargo) or supplier, unless pursuant to authority contained in this Agreement.

Monitoring

The Commission will implement a monitoring program of CKYHE that specifically takes into account my concerns related to small businesses and third party supplier interests. Specifically this will include updates on discussions the Parties may have with respect to common or individual use of marine terminals and other container-handling facilities at particular ports (including on particular services); and principles and procedures for selecting/changing terminals. Furthermore, monitoring updates will be sought on activities related to contracting and/or coordination of securing services related to stevedoring, providers of tugs, suppliers of equipment, land or other services. I have requested regularly scheduled briefings from Commission staff on this matter with a focus on possible anticompetitive practices that reduce competition.

Potential Remedies for Third Party Suppliers and Small Businesses

In addition to FMC monitoring, those third party suppliers and small businesses that believe they have been affected by the concentration of alliances potentially have recourse for anticompetitive harms through the Shipping Act pursuant to 46 U.S.C. § 41301. The Shipping Act addresses common carriers and concerted action including prohibitions such as: a common carrier, either alone or in conjunction with any other person, directly or indirectly, many not unreasonably refuse to deal or negotiate; a group of two or more common carriers are prohibited from boycotting or taking any other concerted action resulting in an unreasonable refusal to deal; and, a group of two or more common carriers are prohibited from engaging in conduct that unreasonably restricts the use of intermodal services or technological innovations. 46 USC §§ 41104, 41105.

In conclusion, it appears that the CKYHE Agreement is not likely, through a reduction in competition, to result in an unreasonable increase in transportation service or an unreasonable increase in transportation costs.