A U.S. manufacturer is accusing two of the world's largest ocean carriers of reneging on its container service contract for imports from Asia so that the carriers can instead charge other shippers exorbitant transportation rates on the spot market.
In a complaint filed on Wednesday with the Federal Maritime Commission, Easton, Pennsylvania-based MCS Industries, a maker of household furnishings, also accuses China's COSCO Shipping Lines, Switzerland's MSC Mediterranean Shipping, and their competitors in the Asia-U.S. trans-Pacific trade of violating the U.S. Shipping Act since the beginning of the pandemic while increasing profits at the expense of their customers.
"MCS has experienced this misconduct by global ocean carriers firsthand, as they have unreasonably refused to deal and negotiate with MCS," the company stated in its complaint. "In a stark break from pre-pandemic practice, several ocean carriers refused to negotiate or provide service contracts to MCS, and those that did provide such service contracts, including Respondents [COSCO and MSC], refused to provide more than a fraction of the cargo capacity that MCS requested and needs, despite the fact that the Respondents overall have continued to operate at or near pre-pandemic capacity."
To make matters worse, MCS states, COSCO and MSC "then proceeded to engage in a common practice of refusing to perform even under those limited service contracts, instead forcing MCS to buy space on the inflated spot market."
Average daily price (U.S. dollars) for 40-foot container, China-U.S. West Coast trade, YTD as of July 31. Source: SONAR
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The practice has delivered to COSCO, MSC and other carriers "unprecedented windfall profits," MCS asserts, noting that a container in 2019 that might have cost approximately $2,700 to ship from China to the U.S. West Coast costs $15,000 or more on the current spot market.
Market Power Audit Underway
MCS' complaint comes just weeks after the FMC announced plans to audit nine of the largest container carriers operating in U.S. markets, including COSCO and MSC, to find out if they are using their market power to overcharge shippers on detention and demurrage fees. The audit program, according to the agency, will also "provide additional information beneficial to the regular monitoring of the marketplace for ocean cargo services."
Last week FMC Commissioner Rebecca Dye issued a series of interim recommendations for the agency and Congress to consider — which include amending the Shipping Act — to address congestion and disruption along the container supply chain. One recommendation would provide more protection for shippers, their agents, and drayage truckers against ocean carriers that threaten to refuse vessel space in retaliation for complaining to the FMC — an allegation denied by the World Shipping Council, which represents the carriers.
Lawmakers are already drafting legislation to address alleged abuses by ocean carriers, particularly as they affect U.S. exporters. A bipartisan bill expected to be proposed by John Garamendi, D-Calif., and Dusty Johnson, R-S.D., would prohibit ocean carriers from refusing to book exports.
Minimum Space Denied
In detailing its complaint, MCS explained it had entered into a written service contract with COSCO, per U.S. Shipping Act regulations, that was effective as of Jan. 1. According to MCS, the contract called for a minimum number of twenty-foot equivalent units for shipment by COSCO from China, Hong Kong, and/or Indonesia to the U.S. at agreed prices.
Despite that minimum commitment, however, beginning in May, COSCO has been refusing to provide MCS more than a fraction — 1.6% — of the allotted space in the contract, which has forced MCS to book in the spot market with other carriers at much higher prices or not ship at all.
"Upon information and belief, COSCO is violating the Shipping Act in a similar fashion with respect to other shippers, as well as discriminating against U.S. shippers such as MCS by favoring Chinese shippers with greater space allotments than those provided to MCS," the company alleges. It accused MSC of providing 35% of the space required under contract.
$600,000 In Damages And Counting
MCS claims the two carriers are benefiting at the expense of shippers by organizing themselves under the three major alliances that MCS contends collectively control over 90% of the trans-Pacific trade. "These collusive ocean alliances give Respondents venue and opportunity to coordinate discriminatory practices such as those alleged herein," MCS states.
That market power and five alleged violations of the Shipping Act have so far cost MCS over $600,000, the company maintains, which continues to accrue. The company is asking FMC to find, after investigating its allegations, that the carriers have been "unreasonably refusing to deal or negotiate with MCS."
The company is also seeking from the agency an order requiring the carriers to put in place "lawful and reasonable practices to preclude Respondents from refusing to provide MCS with its allotted space at the prices agreed under their respective service contracts with MCS for the remaining terms of those service contracts."
COSCO and MSC were not immediately available to comment.
FMC on board for Biden's ocean carrier ‘crackdown'
Shipper group pressures Congress to clamp down on ocean carriers
Buttigieg vows to help US exporters resolve supply chain woes
Click for more FreightWaves articles by John Gallagher.
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