Sea Star Line’s guilty plea to price-fixing and the indictment of its former president add to questions swirling around the future of the Puerto Rico trade and the U.S.-flag carriers that serve it.
For years the trade’s four carriers have been locked in a game of “Survivor,” hoping to outlast each other in a chronically depressed market that probably isn’t big enough to support four competing lines.
The market’s future will be influenced by fallout from the antitrust investigation that became public when federal agents raided the headquarters of Sea Star, Horizon Lines and Crowley Maritime on April 17, 2008.
The antitrust case has proved costly to all of the carriers, some of which weren’t in robust health to begin with.
Sea Star will pay a $14.2 million criminal fine as a result of its guilty plea. Last March Horizon pleaded guilty to similar charges and accepted a $45 million fine that was cut to $15 million after the Justice Department said the higher penalty threatened to bankrupt the company.
Separately, the carriers were hit with class-action civil antitrust lawsuits filed on behalf of shippers and shippers’ customers. Horizon, Sea Star and Crowley agreed to pay a total of $52.75 million to settle the shipper lawsuits, plus $5 million for the indirect customers’ lawsuits.
Despite those settlements, the civil litigation isn’t over. Carrier lawyers are still trying to settle individual claims by numerous shippers that opted out of the class-action settlement.
For Horizon, which had been bought and sold by two private-equity groups in the last decade, the antitrust cases worsened the company’s financial strains and threatened to put the company in default on its debt. Horizon escaped bankruptcy through deft financial footwork that produced a $652 million refinancing but eventually must figure out how to replace a fleet whose average age exceeds 30 years.
Sea Star also has an old fleet. Its three container/roll-on, roll-off ships were updated in the 1990s but were launched in the mid-1970s. As a privately owned company, Sea Star doesn’t disclose its financial results but has the backing of Seattle-based Saltchuk Resources, which also owns PNW-Alaska carrier TOTE.
Trailer Bridge, the trade’s smallest carrier, wasn’t involved in the price fixing and escaped criminal charges or civil liability, but filed for Chapter 11 bankruptcy reorganization this week after failing to refinance $82.5 million in senior notes that came due Nov. 15. The company hopes to file a reorganization plan by March but could be a candidate for merger or acquisition.
The trade’s best-positioned carrier may be Crowley. The company paid $13.75 million to settle its part of the civil antitrust class action but denied any wrongdoing, and neither Crowley nor its executives have faced criminal charges. Crowley has an extensive network of maritime operations and its Puerto Rico container-barges would seem a good fit with Trailer Bridge’s if the smaller company ends up being sold.
The turmoil in the trade hasn’t gone unnoticed in Puerto Rico. The Jones Act, which restricts U.S. domestic waterborne commerce to U.S.-flag ships owned, built and crewed by Americans, is a sensitive subject on the island. The Government Accountability Office, the investigative arm of Congress, recently agreed to a request by Puerto Rico’s Resident Commissioner Pedro Pierluisi to analyze the impact of the law on Puerto Rico’s commerce.
This story is a long way from finished.