Shipping Act 1984: Competition Issues in Liner Shipping - United States

Shipping Act 1984: Competition Issues in Liner Shipping - United States
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Shipping Act 1984: Competition Issues in Liner Shipping - United States
Introduction
A substantial chunk of the international goods trade is done via the sea. It is currently estimated to be at 90% of the entire trade (Voudouris, 2012). The U.S. Shipping Act 1984 was ascended into law in 1984 by the then President Ronald Reagan. The premise behind the Act was to accomplish very important objectives that would make the shipping practice worth the while and offer more benefits to the economy of the U.S. To begin with, it was to ensure the establishment of a regulatory process that was non-discriminatory in situations that involved the carriage of common goods by water (Vitale, 2015). This was to be achieved with the least interference as possible by the government or any regulatory costs. Secondly, it was to address the availability of a system of transportation that was efficient and economically sound with regard to the U.S. trade, in line with the international maritime rules and procedures. The third aspect under review was creation of a well-defined U.S. bound fleet of vessels that had the capability to live up to the security requirements and finally, through efficiency in the ocean transportation, achieve a competitive advantage in the international market (Vitale, 2015). This paper seeks to address those competition related issues in the liner shipping business especially in the United States as per the shipping Act 1984. It will discuss in short the rationale that exists behind the exemptions as per the level of completion in the shipping industry as has been historically documented. The relevant legislations regarding the global cooperation agreements will also be discussed at length.
History of the U.S. exemption for Ocean Shipping conference
Seaborne transportation o goods has been structured into three major segments of Bulk shipping, liner shipping and specialized shipping (Rodrigues, & Vitale, 2015). In the U.S context, the Competition Law is also known as the Antitrust Law. Initially it was referred to as restrictive trade practices law in Australia and the U.K. the main purpose for the formulation of these laws is to get rid of the restrictions involving the arrangements among the concerned business enterprises in the business of shipping and as such has a variance from one country to the next. It has to control any threats to the business that involves the players in the industry. By so doing, they actually check the cases of undue competition which have lasting effects on international commerce and also with possibility of hindering economic development (Premti, 2016; OECD.org, 2017).). The antitrust exemption therefore, is the oldest surviving Shipping Act of 1916. So much has happened in the area of exemptions with regard to agreements on fixing of prices, and other discussions on the antitrust legislations with a focus on ocean shipping carriers. Also discussed in the 1916 Act were matters related to pooling arrangements, rates for shipping and the allocation of routes for the purpose of shipping. All the agreements reached were supposed to receive the approval of U.S. Shipping Board, a body that was later called FMC.
With the 1916 Act enactment, dual rate contracts became applicable and as such bound all the shippers to the conferences, which in essence protected them from undue competition from non-members (Vitale, 2015). These contracts were also known as loyalty contracts and had advantages extended to members who enjoyed discounted rates for the shipping activity that involved the conference carriers. In a court case involving Federal Maritime v. Isbrandtsen Co. the court ruled that the dual rate was in violation of the Shipping Act. It is the outcome of the ruling that prompted Congress to amend the 1916 Act in 1961 allowing dual rate contracts but insisting that the discount that was allowed was to be set at 15% (Vitale, 2015). Together with this amendment, Congress made it a requirement that the filing of tariffs was to be effected and it therefore empowered the FMC to disapprove agreements that were not in line with public interest amongst the carriers (Vitale, 2015).
The 1916 Act was rewritten substantially in 1984 by Congress. The revision of the 1984 Act streamlined the process of regulation as pertains the agreements on antitrust exemptions. This revision also covered the activities involved regardless the provisions of this Act but were in pursuance of the intentions of the effectiveness of the agreement with a basis that was reasonable enough for conclusion. Also included was incorporation of truck, rail and ocean legs as concerns the movement of cargo. In the 1984 amendment, the FMC’s standard for the public interest review was also done away with and there was need for any approval by FMC where a carrier was involved. This resulted in the carriers becoming immune of the antitrust laws which had made it a requirement for the submissions of information that had been added at the request of the FMC (Vitale, 2015). Another notable issue was that upon filing of an agreement, there was no easy way to challenge it unless the FMC deemed it through court that the agreement had a likelihood of reducing the transportation services or an increased transportation cost. Regarding the publishing of tariff with the FMC as was the case in the 1916 Act was maintained as was amended in the 1961. The Act made a provision for the application of service contracts in restricted situations.
The Ocean Shipping Reform Act (OSRA)
The most felt setback felt in the international trade is the inefficiency and high transportation costs. Cooperative agreements have been in existence for quite a considerable length of time. They have been instrumental in the harmonization of freight rates and the regulation of capacity. Liner-shipping has for a very long time been exempted from the tough rules of antitrust since the ocean carriers argue that their stability and profitability are affected by the rules (Rodrigues, & Vitale, 2015). The hefty costs make it very difficult and unsustainable for fair competition to exist which in the end result into poor expected outcomes. It is because of this long standoff that after some years, a re-evaluation was done. There was a host of new activities popping up for example the development of s...