Copyright 2008, Traffic World, Inc.
A hearing late this month will decide when and where Jones Act shipping lines and shippers will face off in court. The carriers face nearly two dozen class-action lawsuits filed by shipper attorneys in the wake of a federal antitrust investigation into alleged price fixing.
At least 21 similar cases have been filed in Miami and Jacksonville, Fla., and San Juan, Puerto Rico, against Horizon Lines, Sea Star Line, Crowley Liner Services and Trailer Bridge, the four carriers that dominate the U.S. mainland-Puerto Rico trade. Other lawsuits in California accuse Horizon and Matson Navigation of antitrust violations in the Hawaii and Guam markets.
The carriers are fighting the lawsuits, which they describe as baseless, and say they are cooperating with the federal investigation.
The investigation became public knowledge April 17 when Justice Department agents raided offices of Horizon, Sea Star and Crowley and subpoenaed information from Trailer Bridge and Matson. More recently, there have been unconfirmed reports that federal officials seized records from a non-vessel-operating common carrier in the Puerto Rico trade.
At first it appeared the investigation centered on the Puerto Rico trade. However, Matson, which does not operate in Puerto Rico, later confirmed the investigation also includes pricing practices in other domestic shipping markets. Shipping between the U.S. mainland and Puerto Rico, Alaska, Hawaii and Guam is covered by the Jones Act, which requires carriers to be U.S.-flag and operate only U.S.-built vessels.
The first class-action suits against the Puerto Rico carriers were filed less than a week after the raids and subpoenas. Other lawsuits followed, and now the courts are working out how the cases will be consolidated and where the consolidated case will be heard.
Carriers have asked that the case be heard in U.S. District Court in Jacksonville, but various plaintiffs have asked for Miami, San Juan and even the eastern district of Louisiana, which includes New Orleans and Baton Rouge. A multidistrict court panel set arguments for July 31.
The lawsuits against the Puerto Rico carriers make similar, albeit general, allegations of collusion to fix rates and fuel surcharges. The lawsuits say the carriers boosted rates despite a weak market and acted in lockstep to increase fuel surcharges. They also cite the federal investigation and suggest in order to obtain subpoenas and search warrants, investigators must have probable cause.
Rates in the Puerto Rico trade have risen since the demise in 2002 of bankrupt NPR-Navieras, the privatized successor to Navieras de Puerto Rico, which had been owned by the Puerto Rico government. When NPR-Navieras was liquidated, Sea Star was the sole bidder for the company''s four ships. Three of the vessels were scrapped, and the fourth was sold to Horizon (then called CSX Lines), which later provided ship capacity to Sea Star under a vessel-sharing agreement.
The Hawaii and Guam lawsuits allege price-fixing by Matson and Horizon. A class-action lawsuit filed May 9 on behalf of Taste of Nature, a candy and snack manufacturer based in Los Angeles, accuses the lines of conspiring to fix fuel surcharges, limit capacity and fix domestic intermodal rates in the Guam trade.
On June 4, Taste of Life filed a class-action lawsuit making similar allegations of antitrust violations in the Hawaii trade, and adding an accusation that the lines had improperly refused to deal with freight forwarders.
The lines'' dealings with forwarders were the subject of a decision last year by the 9th U.S. Circuit Court of Appeals. The appeals court upheld a Surface Transportation Board ruling against forwarder DHX, which claimed the carriers acted illegally in creating special tariff rates to induce regular, high-volume shippers to deal directly with the carriers instead of forwarders. The STB ruled the carriers'' actions could be considered a legitimate response to competition.
DHX was represented by Rick Rude, a Washington attorney who has engaged in numerous battles with domestic offshore carriers over more than 25 years. Rude hasn''t been involved in the current litigation but is following developments closely. He said the federal antitrust investigation has the potential to produce changes in the Jones Act.
Rude said the federal investigation, depending on how it turns out, could be as explosive as the revelations of abuses in the 1928 Merchant Marine Act''s contracts for subsidized mail carriage by U.S.-flag lines. Those produced congressional hearings that were followed by the 1936 Merchant Marine Act, which scrapped mail subsidies in favor of a new subsidy system for U.S.-flag international carriers.
"This carries more potential for change than anything since 1928," he said.