Lawsuits: Caveat Emptor, Caveat Venditor!
Disclaimer: This is not a quantitative analysis, but rather an opinion piece reflecting the perceptions and opinions of the Sea-Intelligence management team, as expressed by the author.
Author: Bjorn Vang Jensen, VP Advisory Services - Global Supply Chain
It happened, as it was almost bound to do: The first BCO has filed a suit against named carriers, alleging violations of the US Shipping Act of 1984 and the Amendment of 1998, as well as alleged failure to fulfill a specific contractual obligation. And naturally, it happened in the US, in this case through a Verified Complaint filed with the Federal Maritime Commission.
The full Verified Complaint can be read at https://www2.fmc.gov/readingroom/docs/21-05/21-05_Complaint.pdf/
We are not lawyers, so this is merely our opinion.
The closest parallel we can find is the the Argos suit against Maersk in 2010 (for not fulfilling promised allocations), but the jurisdictions and legislations were different in any case, and the substance in the Argos v. Maersk suit was very limited, compared to the sweeping allegations made in MCS’s Verified Complaint. The Argos v. Maersk case was ultimately settled out of court, leaving no precedence, which is probably exactly what at least one of the parties was aiming to achieve with the settlement.
Much will therefore depend on what, exactly, the carriers named in MCS’s Verified Complaint actually signed. Carriers are notoriously bad at reading the fine print in commercial terms associated with tenders, just as many shippers are terrible at reading bill of lading clauses and conventions.
But while the named carriers may have signed on to something that they will live to regret, BCOs may just as well live to regret attempting to settle this via courts or regulatory bodies.
Firstly, BCOs (the final owners of the cargo) will open themselves up to future suits for not fulfilling their own end of the bargain, a very common occurrence; secondly, if the MCS Complaint is successful, carriers will be much more reluctant to sign special tender clauses going forward, particularly for smaller BCOs. MCS itself, with only about 3,500 containers a year moving on a single trade (as reported in The Loadstar), is definitely one of those.
NVOs (freight forwarders who handle cargo on behalf of BCOs) could of course, in theory, join the fray, but in reality, we believe they are highly unlikely to bite the hand that feeds them. Not least because, unlike some BCOs, they are certainly not fighting for survival, as many recently published accounts and forward-looking statements show very clearly!
So much for our general caution against taking the battle to the authorities, and potentially creating a double-edged sword in the process.
If we take a closer look at the MCS Complaint itself, several points stand out as weak, both with respect to the allegations against carriers in general, and with respect to MCS’s requests of the FMC.
Firstly, and strikingly, nearly every paragraph in the complaint contains the phrase, “upon information or belief”. This is a very common legal phrase used to create protection against perjury. A more down-to-earth translation is, “the following is based on second-hand information that we believe is true". In other words, speculation.
Not exactly a smoking gun, nor a very firm foundation on which to rest the Complaint’s sweeping allegations against carriers for collusion, profiteering, monopolistic behavior and other (criminal) activity, to say the least. One certainly understands why the aforementioned phrase is repeated ad nauseam.
Contraction of the competitive landscape is of course real, but not illegal. Let’s not forget that both the alliances and the recent M&A activities have been approved by all regulatory bodies of any consequence worldwide, including the FMC, sometimes with requirements for divestitures and caps on market control.
So, unless and until someone finds an actual “smoking gun” (and in a digital age where information on rate increases is easily available, price increases across the playing field is NOT one), we believe that, absent a Harry Potter with a law license, an anti-trust charge will not stick anywhere.
In addition, the Complaint de facto asks the FMC to force carriers to negotiate with MCS (and presumably other BCOs), an obligation the FMC has no mandate to impose, and which indeed violates the very foundation of a free market.
It further states that carriers have contractually committed to maintaining guaranteed transit times and port rotations. If any carrier signed this, then someone will (or should) be out of a job very soon, and we have a very hard time believing that this is true, particularly for a small BCO.
Firstly, carriers are protected by precedent from having to guarantee transit time, and there isn’t a carrier in the world that will guarantee port rotations for a year!
Secondly, specifically the Hague-Visby Convention’s Article IV provides numerous liability exemptions for carriers that are highly relevant, indeed almost tailor-made, to the current situation.
It is very understandable that MCS is frustrated and angry, as are many other BCOs. Their very survival is on the line, a risk which we at Sea-Intelligence were the first to highlight and test against available data, where indeed we singled out the furniture industry as one of the most vulnerable.
But to air these grievances through a Complaint that, on its face, appears to be based more on hear-say and speculation than on fact is a very risky undertaking, and one which we believe may backfire. Not only on MCS but potentially on the BCO community at large.
“I believe” and “they won’t play with me, make them!” won’t cut it.