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March 18 2019

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26 The Journal of Commerce | March 18 2019 Government TWO YEARS AFTER US antitrust in- vestigators raided the biannual Box Club meeting, two of the three top container lines say the Department of Justice (DOJ) has closed its inves- tigation into the container shipping industry and released the carriers from related obligations. Maersk Line on Feb. 26 said it had been released from any obligation under the grand jury subpoenas issued during the March 2017 meeting of the International Council of Containership Operators, commonly known as the "Box Club." In a separate statement, Mediterra- nean Shipping Co. said it had been informed of the same by the DOJ and that no charges or penalties had been imposed. The Box Club includes the CEOs of all the major container lines and allows only the heads of each compa- ny to participate at its twice-yearly meetings. It makes no announce- ment of its plans to meet, meeting locations, or what was discussed. The meeting provided antitrust regulators a rare window to exercise their power over non-US-based companies. US antitrust attorneys sit in on the meetings, even when held outside the United States, to ensure discussions don't veer into legally precarious territory such as pricing. Typically, the group also invites economists or industry analysts to address it on current topics of interest. Under limited US antitrust au- thority granted by federal maritime regulators, container lines that belong to discussion agreements are permitted to meet to discuss and agree on voluntary rate guidelines. If the carriers exceed this authority by jointly fixing rates, however, they are subject to antitrust prosecution by the DOJ. Carriers retained this limited antitrust immunity in the last major revision of US shipping law, the Ocean Shipping Reform Act (OSRA) of 1998. Before OSRA, carriers jointly set rates through legalized cartels known as conferences, and shippers and carriers were prohibited from negotiating confidential contracts with each other. OSRA undercut conferences by legalizing confiden- tial contracts, which quickly became the norm. Carriers then established discussion agreements that, when approved by the Federal Maritime Commission (FMC), are permitted to establish voluntary guidelines but prohibited from fixing rates. The most recent example of a major DOJ antitrust prosecution of carriers came in a Baltimore-based case, in which roll-on, roll-off carriers Wallenius Wilhelmsen Logistics, "K" Line Japan, NYK Line Japan, and CSAV pleaded guilty to price-fixing charges and were fined a total of more than $230 million, and several former carrier executives pleaded guilty and received prison terms. Several of the carriers were also penalized by regulators in the European Union, Japan, Australia, and South Africa. Another DOJ prosecution of carrier price-fixing came several years earlier in the US mainland-Puerto Rico trade, which as a domestic service is not covered by the limited antitrust immunity that interna- tional carriers enjoy under OSRA. In that case, Horizon Lines, Sea Star Line, and Crowley Maritime pleaded guilty to price-fixing charges and paid multimillion-dollar criminal and civil penalties, and six former Horizon and Sea Star officials were sentenced to prison for their parts in the scheme. Antitrust investigators believe that because of a history of legally having the ability to discuss pricing under antitrust immunity, the industry lacks a disciplined culture and is therefore susceptible to illegal activity. For example, the DOJ regularly issues a statement raising concerns after the FMC allows a shipping alliance or major vessel-sharing agreement (VSA) to take effect. The carriers' rejoinder is that rates fluctuate wildly and are deter- mined solely on the basis of supply and demand. Overcapacity in recent years has driven rates down, and in- dustry profitability has swung from billion-dollar losses to a $1.5 billion profit in 2017, according to Drewry. The maritime analyst said the indus- try ended 2018 with a $500 million profit, and it expects the sector to report $4 billion in earnings before interest, taxes, and amortization (EBITA) this year. Regulators in the US and else- where investigate the container shipping industry on a fairly regular basis, but the vast majority of inves- tigations do not result in any further action. One carrier told The Journal of Commerce, "Container carriers have been cleared every time an investigation was ever launched in other countries around the globe, not only in the US." JOC Probe put to rest US Justice Department satisfied aer investigation of the global container shipping industry JOC Staff If carriers exceed a limited antitrust authority by jointly fixing rates, they are subject to antitrust prosecution by the DOJ. Antitrust investigators believe that because of a history of legally having the ability to discuss pricing under antitrust immunity, the industry is susceptible to illegal activity. International | Washington | Customs | Security | Regulation

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