UPDATE: Aug. 5, 2021: In response to MCS Industries' complaint filing, MSC said it had "received no formal complaint by MCS Industries in advance of the filing" and called the accusations "vague and unsubstantiated" while denying it was selling space to other shippers that had been allotted to MCS.
MSC also said it had not colluded with COSCO. The complaint does not accuse MSC of colluding with COSCO. When MCS refers to collusion, it says ocean alliances "give Respondents venue and opportunity to coordinate discriminatory practices."
The carrier said it was looking into whether the accusations amount to defamation.
- MCS Industries accused the ocean carriers MSC and COSCO of unfairly controlling rates and capacity in such a way that the importer shouldered increased freight cost and the inability to secure the amount of capacity it had signed onto in contracts, according to a formal complaint it filed with the Federal Maritime Commission.
- MCS entered into a contract with COSCO on Jan. 1 and a contract with MSC on May 1. But since the contracts took effect, MCS claims the carriers have only accepted a small percentage of the minimum quantity commitments. From May through July, COSCO provided 1.6% of the space agreed to in contracts while MSC provided 35% of the space in the commitments, MCS said in the filing.
- The failure to accept the minimum quantity commitments as agreed to in the service contracts pushed MCS to find capacity in the spot market. But MCS said the actions by ocean carriers "artificially inflated" the spot market, leading to rates that are thousands of dollars higher than in 2019. MCS said the actions by MSC and COSCO have resulted in $600,000 in damages.
Spot rates ride a wave of demand
This is the first formal complaint filed with the FMC since the start of the pandemic that alleges carriers are unfairly manipulating rates and capacity in a chaotic ocean freight market.
In December, FMC Chairman Daniel Maffei, just a commissioner at the time, said most cargo owners want to avoid the formal complaint process.
"They have a relationship with these carriers, and are very concerned that ... if they make any sort of formal complaints, that they will be harmed in terms of their future relationship with the carrier," Maffei said.
In written testimony to Congress, World Shipping Council CEO John Butler used the lack of formal complaints filed with the FMC to help argue that the agency didn't need expanded enforcement powers.
The complaint from MCS also comes as the Biden administration has called on the FMC "to crack down on unjust and unreasonable fees" in the ocean freight industry with a focus on issues surrounded increased consolidation.
And MCS specifically takes aim at the heavily consolidated freight market in its complaint, noting that the three major ocean alliances account for 90% of transpacific capacity.
"These collusive ocean alliances give Respondents venue and opportunity to coordinate discriminatory practices such as those alleged herein to violate contracts with shippers like MCS in favor of exploiting profit opportunities on the spot market," the complaint reads.
Shippers have been struggling to procure freight from ocean carriers for more than a year at this point. And this year's bidding process was harder than previous, according to shippers.
"It's absolutely crazy territory," Sea-Intelligence CEO Alan Murphy said in June. "There's still a mass shortage of not just capacity, but equipment, so the containers."
Issues with contract compliance last year led some shippers to look for ways to add more teeth to their agreements with two-way commitments and tiered pricing.
MCS does note that while it is filing this complaint alone, it doesn't believe it's the only cargo owner affected by these practices.
"Upon information and belief, Respondents have engaged, and are continuing to engage, in substantially similar conduct with respect to other shippers," the document says.
The complaint will now head to the FMC's Office of the Administrative Law Judges where it will be assigned to the agency's sole judge, Chief Administrative Law Judge Erin M. Wirth. The initial decision of the presiding office is expected by Aug. 3, 2022 with a final decision from the Commission coming by Feb. 17, 2023, according to a filing notice issued Tuesday by FMC Secretary Rachel E. Dickon.
If the FMC sides with MCS then the carriers could be forced "to pay MCS reparations for the unlawful conduct alleged" in the compliant, as the shipper calls for in its prayer for relief.