Shipping cartels have been a frequent target of prosecution by the Antitrust Division of the United States Department of Justice. The rules around shipping cartels can be confusing because certain joint pricing activity can be legal and there are also exemptions for other cartels. But, as some companies have found out the hard way, there is no blanket exemption for collusive pricing in the shipping industry. Moreover, the number of enforcement agencies jumping in the water of cartel prosecutions is expanding. The United States has had an active shipping cartel investigation with prosecutions in the car carrier shipping business. Now, China has fined seven shipping companies, a total of 407 million yuan ($65 million) for price-fixing in what appears to be the same cartel.
The National Development and Reform Commission (NDRC) oversee the pricing restrictions of the antimonopoly law. In an announcement today, the agency said that for four years the companies colluded to raise rates on shipments of cars, trucks, and construction machinery across five shipping routes, including between China and North America, Latin America and Europe. The cartel targeted “roll-on, roll-off” shipping rates for cars, trucks and construction equipment. These are specialized cargo ships that can carry hundreds of vehicles.
The NDRC imposed fines of four to nine percent of the companies’ 2014 revenues of their related China business. EUKOR Car Carriers Inc. was hit with the largest fine, 284 million yuan ($45 million). At the other end of the spectrum, Nippon Yusen KK (NYK) said it fully cooperated with the probe and was granted immunity from any fine. Besides Eukor’s $45 million penalty, Wallenius Wilhelmsen Logistics, a Swedish-Norwegian company, was fined 45 million yuan ($7.1 million). Mitsui O.S.K. Lines Ltd. was fined 38 million yuan ($6 million). Other companies penalized were Japan’s K Line and Eastern Car Liner Ltd. and Chile’s CSAV and CCNI.CSAV and its roll-on, roll-off shipping unit were fined the smallest amounts of less than $1 million each.
Several years ago when I was with the Antitrust Division, I led an investigation and prosecution of a global parcel tanker cartel. At the time, I don’t believe China’s cartel enforcement law was enacted. Now, China has become a serious cartel enforcement agency. The NDRC is believed to be active in the current global capacitors cartel investigation. The Chinese have also fined cartel members in the TFT-LCD cartel.
Never Too Late for a Competition Law Compliance Program
Several of the fined companies issued announcements acknowledging the illegal conduct and vowing that the collusion would not recur. The companies stated that they were taking the action seriously and developing and implementing a competition compliance program. Of course, a compliance program is much better when developed before being fined for collusion, but a prosecution is sometimes what it takes to get the issue to be taken seriously by senior management. A compliance program is not only effective at preventing cartel activity, but even if it fails, having executives knowledgeable about competition law is also the best way to be in a position to be the first to qualify for immunity if there is an investigation.
US Still Main Concern for International Cartels
The biggest reason for an international company to have an effective competition law compliance program may be the aggressive international cartel prosecution program of the Antitrust Division of the US Department of Justice. The United States is not shy about prosecuting foreigners for cartel activity that affects the United States. In the United States price-fixing and bid rigging are criminal offenses carrying jail sentences of up to 10 years. And even if a foreign executive thinks he will never be apprehended by the US, being a fugitive on an Interpol Red Notice puts a serious crimp in any travel plans.
In the Chinese investigation NYK got immunity for their cooperation. This was not the case in the United States. On October 6, 2015, the US Department of Justice announced that three former ocean freight executives have been indicted for participating in the car carrier cartel:
These executives – Yoshiyuki Aoki, Masahiro Kato and Shunichi Kusunose – have been charged with allocating customers and routes, rigging bids and fixing prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States and elsewhere. The affected cargo included cars, trucks, construction equipment and agricultural equipment. Aoki, formerly of Kawasaki Kisen Kaisha (K-Line), and Kato and Kusunose, formerly of Nippon Yusen Kabushiki Kaisha (NYK), are among seven executives who have been charged in the investigation so far. Four have pleaded guilty and been sentenced to prison. NYK, K-Line and one other company have also pleaded guilty and paid more than $136 million in criminal fines.
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