Background

A U.S. shipper alleged in a complaint filed recently with the Federal Maritime Commission that surging freight transportation rates are due in part to statutory violations being committed by at least two major vessel carriers. The FMC is already investigating the reasons behind the cost increases but the new complaint could result in monetary penalties if the carriers are found at fault. However, a final decision may not come for another 18 months.

According to the complaint, the bulk of ocean carriage secured by shippers has traditionally been pursuant to written service contracts negotiated in advance at reasonable rates. Although a spot market also exists, it has historically been used primarily by smaller shippers making small and/or one-time shipments or for unexpected needs such as a one-time or seasonal increase in shipping needs for a larger shipper.

However, the complaint asserts that since the beginning of the COVID-19 pandemic the two named carriers and others have “unjustly and unreasonably exploited customers” by engaging in “policies and practices that manipulate prices and deliver unprecedented windfall profits to them by forcing shippers into an artificially inflated spot market.” For example, the company claims that the respondent carriers have violated their commitments under signed service contracts by providing only fractions of the agreed allotments of space on their vessels and instead forcing the company to make alternate transportation arrangements at substantially higher prices or forgo shipping its cargo altogether. The complaint alleges that the carriers are then reselling the capacity allotted to the company to other shippers at substantially higher rates than those agreed to under the original contract. The carriers are also charged with making blank (empty) sailings that deprive shippers of capacity and create artificial scarcity to further boost prices.

As a result of these and other actions, many of which have been undertaken “in parallel and seemingly coordinated fashion,” the complaint asserts that a container that might have cost about $2,700 to ship from China to the U.S. West Coast in 2019 might now cost $15,000 or more. The complaint states that this price inflation is supporting “massive windfalls for the carriers at the expense of the public” and that the carriers’ conduct “shows no sign of abating.”

The complaint alleges that the carriers’ actions are “unjust, unreasonable, and unlawful” under multiple sections of U.S. shipping law and have already caused the complainant more than $600,000 in financial damages. The complaint therefore asks the FMC to order the carriers to pay reparations, cease the alleged violations, and put practices in place designed to prevent similar problems in the future.

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