Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Vehicle carrier service providers charged with price fixing, bid rigging, market allocation, (Jun 16, 2015)

By Linda O’Brien, J.D., LL.M.

Providers of ocean vehicle carrier services restrained trade and conspired to suppress competition by fixing the prices for vehicle carrier services to and from the United States, rigging bids, and allocating markets, according to a complaint filed in the federal district court of Brooklyn, New York (General Motors LLC v. Nippon Yusen Kabushiki Kaisha, June 15, 2015).

Ocean transportation companies Nippon Yusen Kabushiki Kaisha, NYK Line (North America) Inc., Wallenius Wilhelsen Logistics AS, Wallenius Wilhelsen Logistics Americas LLC (WWL), and EUKOR Car Carriers Inc. operate large specialized freight vessels that transport any type of wheeled freight between continents and are equipped with ramps so wheeled freight can be rolled on or rolled off the vessels. The majority of freight shipped is newly-assembled cars, trucks, and other motor vehicles but also includes construction and agricultural equipment. General Motors (GM), one of the world’s largest automobile manufacturers, enters into contracts for the purchase of vehicle carrier services to and from the United States.

The complaint alleges that, since 1997, the defendant engaged in a wide-ranging conspiracy to restrain competition for the sale of vehicle carrier services. The defendants—with their co-conspirators Hoegh Autoliners Holdings AS, Compania Sud Americana De Vapores S.A. (CSAV), Kawasaki Kisen Kaisha, Ltd. (K Line), Mitsui O.S.K. Lines, Ltd. (MOL), and Nissan Motor Car Carrier Co., Ltd. (NMCC)—frequently met and communicated to rig bids and fix prices for vehicle carrier services, GM charged. To implement the conspiracy, the defendants and co-conspirators allegedly exchanged confidential pricing information and agreed to the amount and timing of price increases.

In 2008, the demand for vehicle carrier services fell dramatically, as a result of the global financial crisis and the defendants were left with excess capacity. In response, the defendants conspired to reduce the supply of vehicle carrier services by reducing the size of their fleets through vessel scrapping and resisted price reduction requests from customers. The agreements to fix prices and reduce capacity resulted in artificially high prices paid by GM for vehicle carrier services on their shipments to and from the United States, the complaint states.

The complaint also states that GM used vehicle carrier services to transport its vehicles to and from ports in the United States and elsewhere in the world. Automobile original equipment manufacturers, such as GM, used procurement teams to negotiate the rates, volume levels, and other conditions that govern GM’s purchases of vehicle carrier services. The procurement teams often establish benchmark or target prices that service providers are encouraged to meet and evaluate qualified providers for quotes for such services. The negotiations are finalized in a service contract, which govern the services provided and designated shipping routes. As a result of the defendants’ unlawful conduct, the prices of GM purchases for vehicle carrier services were artificially inflated, the auto manufacturer maintained.

Competition authorities in the United States, Canada, Mexico, Japan, Chile, and the European Union have been actively investigating anticompetitive practices in ocean shipping services. In March 2014, the Japan Fair Trade Commission issued cease and desist orders and imposed fines total $223 million against NYK, K Line, WWL, and NMCC for violations of Japan’s Antimonopoly Act. Since May 2014, CSAV, K Line, and NYK have pleaded guilty to violating Section 1 of the Sherman Act for conspiring to suppress competition for vehicle carrier services. Further, in January 2015, Chile’s Fiscalia National Economica an injunction and imposed fines on K Line, MOL, NYK, and EUKOR for agreeing to allocate markets for vehicle carrier services.

According to the complaint, the structure and characteristics of the vehicle carrier services market are conducive to a price fixing conspiracy. The market is highly concentrated and the defendants control over two-thirds of the vehicle carrier services market. Vehicle carrier services are highly homogenous and customers make purchase decisions based primarily on price. There are substantial entry barriers to the market including high startup costs associated with acquiring ships and equipment, distribution infrastructure, and hiring skilled labor. Furthermore, demand for vehicle carrier services is highly elastic as there are no close substitutes for these services.

There have opportunities for conspiratorial communications, GM claimed. The shipping industry has been characterized as a small world where many of the key figures are familiar with one another. Key employees have also transferred between the defendant and co-conspirator companies, fostering familiarity and connections. Moreover, the defendants are members of several trade associations that provide opportunities to meet under the auspices of legitimate business.

The plaintiff asserts claims for breach of contract, unjust enrichment, and violations of Section 1 of the Sherman Act and New York’s Donnelly Act. The action seeks declaratory relief, damages, disgorgement, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The cases are No. 1:15-cv-03451.

Attorneys: Elizabeth Anne Figueira, Daniel A. Sasse, Chahira Solh, Ryan C. Wong, Kent A. Gardiner (Crowell & Moring LLP) for General Motors LLC.

Companies: General Motors LLC; Nippon Yusen Kabushiki Kaisha; NYK Line Inc.; Wallenius Wilhelsen Logistics AS; Wallenius Wilhelsen Logistics Americas LLC; EUKOR Car Carriers Inc.

News: Antitrust NewYorkNews