FTC Staff Comment Before the Federal Maritime Commission Concerning Ocean Transportation Industry Agreements

V940014
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Bureau of Competition
Bureau of Economics
May 19, 1994
Joseph C. Polking
Secretary
Federal Maritime Commission
_800 North Capitol Street, N.W.
Washington, D.C. 20573-0001
COMMISSION 	AUTHORIZED
Re: Docket No. 93-23, Advance Notice of Proposed Rulemaking Concerning Section
6(g) of the Shipping Act of 1984
Dear Mr. Polking:
The Federal Maritime Commission recently announced proposed guidelines that discuss
how the agency will take account of competitive considerations when assessing agreements in
the ocean transportation industry. The staff of the Federil Trade Commission is pleased to
have this opportunity to comment on some of the issues involved.! These comments are
submitted pursuant to the notice at 59 Fed. Reg. 13471 (March 22, 1994), which invited views
on the draft guidelines and on previously filed comments.
The proposed guidelines describe the manner in which the FMC proposes to apply
section 6(g) of the Shipping Act of 1984, 46 V.S.c. App. § 1705(g). The 1984 Act generally
1 These comments represent the views of the Bureau of Competition and the Bureau of
Economics of the Federal Trade Commission. They do not represent the views of the
Commission itself, or of any individual Commissioner.

Joseph C. PoIking
Page 2
exempts 	agreements 	in the 	ocean 	shipping industry 	from 	the 	antItrust 	statutes. 2 Such
agreements are reviewed by the FMC, which is empowered under section 6(g) to challenge
agreements that, "by a reduction in competition," are likely to produce or have produced "an
unreasonable reduction in transportation service or an unreasonable increase in transportation
Many different types of agreements are reviewed under this standard. The principal one
is the carrier conference, pursuant to which vessel operators in the same trade lane coordinate
their services and set common rates. Other types of agreements range from closely-integrated
operating consortia among carriers to relatively-nonintegrated discussion agreements between
conferences and independent carriers. 4
2 See 1984 Shipping Act § 7, 46 V.S.c. App. § 1706. This section provides that the
antitrust laws do not apply to "agreements" filed with the FMC, and also provides that a
decision denying antitrust immunity cannot apply retroactively. 	•
.l This subsection provides:
Substantially Anticompetitive Agreements - 	If, at any time after the filing or
effective date of an agreement, the Commission determines that the agreement
is likely, by a reduction in competition, to produce an unreasonable reduction
in transportation service or an unreasonable increase in transportation cost, it
may, after notice to the person filing the agreement, seek appropriate injunctive
relief under subsection (h) of this section.
46 U.S.C. App. § 1705(g).
4 A consortium agreement is a combined operation among ocean carriers that issues its
own bills of lading and holds itself out in its own distinct operating name. Discussion
agreements 	involve 	less 	structured 	cooperative 	working 	relationships. 	Other 	types 	of
agreements can also be found in the maritime industry. Pooling agreements provide for the
allocation 	of cargo carryings or revenue 	between the members 	in 	accordance with 	an
established formula. Space charter agreements permit one carrier to lease space or equipment
from another in exchange for specified compensation. The various types of agreements are
(continued...)

Joseph C. Polking
Page 3
The FMC's draft guidelines for the review of such agreements under section 6(g)
identify factors to be considered and describe a general balancing approach.s Under the draft
guidelines the FMC will first identify the relevant geographic market and then consider such
factors as capacity, entry barriers, concentration, rate and service trends, and the type of
agreement involved 6 in determining whether enforcement action is warranted. 7 Commenting
on this proposal, another federal agency with antitrust jurisdiction, the Antitrust Division of
the Department of Justice, suggested that the FMC statement include more specific substantive
guidelines patterned after our agencies' Merger Guidelines.s
4(••. continued)
reviewed in greater detail in the Report of the Advisory Commission on Conferences in Ocean
Shipping, at 25~27 (April 1992) (hereinafter cited as "ACCOS Report").
5 The FMC cites the Conference Report on the 1984 Act for the "nature of the section 6(g)
standard and the appropriate analysis to be performed pursuant to it," 59 Fed. Reg. at 62,617,
citin& Conference Report to Accompany S.47, H.R. Rep. No. 600, 98th Cong., 2d Sess (1984)
(hereinafter cited as "Conference Report").
(, The inclusion of this factor on the list suggests that the FMC may believe some types
of agreements, which may have different effects than others, call for closer scrutiny. Some
possible reasons for sU:ch a distinction, such as the degree of integrating efficiencies, are
discussed below.
7 When reviewing agreements that are already in operation, the FMC would also consider
information on their actual effects. Although such information is useful, we agree with the
Department of Justice that competition analysis already permits a fair assessment of the likely
competitive effects of agreements that are proposed but not yet implemented. See Comments
of the United States Department of Justice at 15-17. Indeed, post-implementation evidence is
subject to difficulties of its own, including the possibility that short-term conduct may be
adjusted in anticipation of litigation.
I See U.S. Department of Justice and Federal Trade Commission, 1992 Horizontal Merger
Guidelines, 4 CCH Trade Reg. Rep. 1 13,104. The Merger Guidelines set out a methodology
for defining the 	relevant market, 	identifying levels of concentration and 	market 	share,
identifying likely competitive effects, and considering ease of entry and offsetting consumer
(continued...) .

.' 	Joseph C. Polking
Page 4
We agree with the Justice Department that antitrust law, and the Merger Guidelines
in particular, provide a well-developed analytical framework for assessing the competitive issues
to be evaluated under section 6(g). In addition, we suggest that the antitrust case law applicable
to joint ventures may be especially relevant in applying section 6(g). Both section 6(g) and the
antitrust analysis of joint ventures involve balancing certain benefits of cooperative ventures
against possible harms due to reduction in competition. For example, in the analysis of joint
ventures under antitrust law's "rule of reason," procompetitive efficiency benefits - 	which are
also cit~d as a relevant factor in the legislative history of section 6(g) - 	are balanced against.
possible anticompetitive consequences.
The legislative history of section 6(g) indicates that non-eompetition factors also must
be taken into account by the FMC when assessing the permissibility of maritime agreements,
and, as a consequence, that antitrust principles may not always be determinative. In this
connection, we wish to point out that there may 	ofte~ be a middle 	ground between
challenging the establishment of a shipping conference or other agreement and permitting it
to 	operate 	without 	constraint. 	That 	is, 	the 	FMC 	may 	consider 	challenging 	ancillary
anticompetitive provisions of maritime agreements. Where such action is appropriate, the
antitrust analysis of agreements ancillary to joint ventures may provide a useful model.
Finally, we suggest that the FMC may wish to use this opportunity to clarify through
the 	proposed 	guidelines 	that 	section 	6(g) 	applies 	to 	"an 	unreasonable 	reduction 	in
8( ... continued)
benefits as possible mitigating factors. This framework may be useful in assessing the factors
that the FMC has identified as important under its own statute.

Joseph C. Polking
Page 5
transportation service [below] or an unreasonable increase in transportation cost [above]" the
level at which they would have been in the absence of the agreement. This would mean, for
example, that agreements that prevented sen-ice increases or rate reductions that would have
occurred absent the agreement could be challenged under section 6(g). The methods of
competition analysis that have been developed by this agency and the Antitrust Division may
provide a useful framework for such evaluations.
Antitrust and the joint venture cases provide useful ~idance
Like the Department of Justice, we believe that antitrust analysis in general, and merger
and joint venture analysis in particular, are relevant to the issues before the FMC. With only
a few exceptions, the rule of reason analysis that is applied to joint ventures under the antitrust
laws is analogous to the analysis described in the FMC's Request for Comment as appropriate
to proceedings under section 6(g). Joint venture analysis under the antitrust laws involves
weighing both the concern, expressed in the text of section 6(g), for preventing unreasonable
reductions in competition, and also the concern, articulated in the Conference Report, for
recognizing the efficiencies and other benefits to competition that may be attained through
cooperative agreements. The antitrust analysis of joint ventures may provide useful precedent
for proceedings under section 6(g).9
Section 6(g) 	requires the FMC to assess the competitive effects, either actual or
predicted, of the agreements before it. The federal antitrust laws also are concerned with the
9 Since the Antitrust Division has already described the Merger Guidelines analysis, we will
not duplicate that discussion here.

Joseph C. Polking
Page 6
competitive effects of agreements among firms. The Sherman ActIO applies to agreements
among competitors, the 	Clayton 	Actll 	applies 	to 	acquisitions 	of stock 	or 	assets 	of a
competitor, and section 5 of the FTC Act 12 applies to unfair methods of competition.
Joint venture analysis under the antitrust laws seems particularly relevant to the
balancing approach that is called for by section 6(g). Joint ventures are cooperative business
enterprises, short of merger or acquisition, that involve integration of some business activities
and a sharing of some business risks. Agreements that come before the FMC may be joint
ventures. Joint ventures may bring about a mixture of beneficial and harmful effects on
competition. For example, a particular joint venture may enable a new product to reach the
market but may also eliminate preexisting competition between the participating firms. These
factors must be weighed against each other to assess the venture's net competitive effect.
This balancing'is carried out, in the typical antitrust case, through the "rule of reason."
The rule of reason recognizes that many forms of lawful business conduct restrain trade in
some way. A 	supply contract, for example, may take away the parties' ability to deal
elsewhere for a certain period. 	On 	its 	face 	the Sherman 	Act 	forbids 	every 	"contract,
combination ... or conspiracy, in restraint of trade." From a very early date, however, the
courts recognized that this language could not be applied literally. The Supreme Court instead
held that the Sherman Act was intended to reach only those agreements that unreasonably
10 15 U.S.C. § 1.
11 15 U.S.C. § 18.
12 15 U.S.C. § 45.

Joseph C. Polking
Page 7
restrict competition.13 "Reasonableness" in this context is determined through an assessment
of the agreement's net effects:
The true test of legality is whether the restraint imposed is such as merely
regulates and perhaps thereby promotes competition or whether it is such as
may suppress or even destroy competition. To determine that question the
court must ordinarily consider the facts peculiar to the business to which the
restraint is applied; its condition before and after the restraint was imposed; the
nature of the restraint and its effect, actual or probable. The history of the
restraint, the evil believed to exist, the reason for adopting the particular
remedy, the purpose or end sought to be attained, are all relevant facts. 14
ThuS the rule of reason contemplates a broad inquiry into an agreement's likely effects on
competition, including its effects on price and output.
Section 6(g) appears to contemplate an FMC inquiry with quite similar methods and
alIDS. Like a court applying the rule of reason, and relying on the same key concept of
"reasonableness," the FMC is to determine whether an agreement is likely to produce "an
unreasonable reduction in transportation service or an unreasonable increase in transportation
cost." The Conference Report on section 6(g) makes clear that this inquiry involves a weighing
of the 'lgreement's costs and benefits:
u See Standard Oil Co. v. United States, 221 U.S. 1, 58 (1911) (Act bars only agreements
·which were unreasonably restrictive of competitive conditions"). The Court subsequently
noted that any other analysis would be unworkable: "Every agreement concerning trade, every
regulation of trade, restrains." Chicago Board of Trade v. United States, 246 U.S. 231, 238
(1918).
t4 Chicago Board of Trade v. United States, 246 U.S. at 238. Subsequent cases have made
clear that rule of reason analysis does not encompass all possible arguments, however, but
rather only those that bear on the agreement's competitive effects - 	that is, whether the
agreement "is one that promotes competition or one that suppresses competition." National
Soc'y of Professional Engineers v. United States, 435 U.S. 679, 691 (1978). 	'

Joseph C. Polking
Page 8
[An} aspect of the unreasonableness requirement is that the negative impact
upon shippers may be offset by the benefits of an agreement. For example, the
competitive harm ensuing from conferences, already diminished by the statutory
limitations on conference activity, can and often will be offset by the significant
benefits of such activity.tS
On other occasions, of course, an agreement might not produce sufficient offsetting benefits.
In any event. that is a judgment that the FMC is charged with making in each case.
A number of factors are considered in applying a rule of reason analysis to joint
ventures under the antitrust laws. The combined market share of the co-venturing parties is
highly relevant;16 however, we agree with the Justice Department that market share alone is
not conclusive. 17 Rather, if concentration data preliminarily indicate that the joint venture
may have market power, then further examination may be appropriate. The analysis would
then tum to such other relevant considerations as whether the venture permits or eliminates
significant competition between the parties, such as in pricing and marketing the jointly-
15 Conference Report at 35.
16 See, e.&., United States v. Ivaco, Inc., 704 F. Supp. 1409 (W.D. Mich. 1989).
17 See Horizontal Merger Guidelines, supra n. 8; see also Conference Report at 34 (market
share analysis "is only one factor in the Commission's decision calculus").

Joseph C. Polking
Page 9
produced product,18 and whether the venture eliminates a potential entrant that 	might
otherwise have brought new competition to a highly concentrated market. 19
An. important factor in assessing a joint venture has been whether it involves a
substantial, efficiency-enhancing integration of the firms' business conduct. Bona fide integrated
joint ventures have been upheld in several well-known cases. In the BMI case,20 for example,
some forty thousand individual composers granted centralized agencies the non-exclusive rights
to sell blanket licences to their musical compositions. 21 The ~upreme Court was persuaded
that, although the blanket licensing eliminated price competition among individual composers,
it may have been the only practical way of licensing large selections of works to large
consumers of music, such as radio stations. The Court found that the arrangement was "not
a 'naked restrain[t] of trade with no purpose except stifling of competition,' but rather
accompanie[d] the integration of sales, monitoring, and enforcement against unauthorized
copyright use."22 The Court therefore found that the arrangement as so structured might be
18 See General Motors Corp., 103 F.T.C. 374 (1984) (the "GM/Toyota" matter). The
parties' ability to compete independently with respect to marketing is a factor counting in
favor of a venture. An analogous judgment is found in the 1984 Shipping Act, which requires
that conference members retain a right of independent action; this provision diminishes to
some extent any anticompetitive effects that a conference might create.
19 See Brunswick Corp., 94 F.T.C. 1174, 1274 (1979), aff'd in part and modified in part sub
nom. Yamaha Motor Co. v. FTC, 657 F.2d 971 (8th Cir. 1981), cert. denied, 456 U.S. 915
(1982).
20 Broadcast Music, Inc. v. CBS, 441 U.S. 1, 20-23 (1979).
21 The fact that the rights were non-exclusive meant that the composers here, like the co-
venturers in GM/Toyota, supra n. 18, had not surrendered all ability to compete individually.
22 441 U.S. at 20, quotin& White Motor Co. v. United States, 372 U.S. 253, 263 (1963).

Joseph C. Polking
Page 10
pennissible under the rule of reason: "Joint ventures and other cooperative arrangements are
... not usually unlawful, at least not as price-fixing schemes, where the agreement on price is
necessary to market the product at all.,,23
In GMiToyota, the Federal Trade Co'11ffi.ission accepted a consent order involving a
joint venture for the production of automobiles. 2
-4 The project involved the first and fourth
largest automobile companies in the United States and Canada. The then-Chairman of the
FTC believed that the joint venture offered several beneficial efficiencies: it would make
available a lower-cost production facility, it would increase. the total number of small cars..
available to U.S. consumers at a time when Japanese imports were restricted, and it would be
,
an opportunity for GM to learn Japanese manufacturing techniques. 25 The FTC's order
allowed the venture to go forward as the parties had planned, but subject to restrictions on
its scope and duration and on the exchange of competitively sensitive information among the
parties and the joint venture, to safeguard agair.st anticompetitive effects. 26 The order was
23 441 U.S. at 23.
24 The Commission did not issue an opinion with the original consent order. General
Motors Corp., 103 F.T.C. 374 (1984). The Commissioners issued individual statements
explaining their reasons for their actions.
25 103 F.T.C. at 387-88 (statement of Chairman Miller); see also id. at 398 (statement of
Commissioner Douglas); d. id. at 399 (statement of Commissioner Calvani) (expressing belief
in "substantial procompetitive benefits" although not enumerating them).
26 For example, the consent order barred the Erms from discussing, either with each other
or with the joint venture, final prices or marketing plans for the automobiles produced by the
venture.

Joseph C. Polking
Page 11
subsequently reopened and vacated on grounds of changed conditions.]J The market had
become less concentrated, new entry and expansion had occurred, GM had developed its own
new line of small cars independent of the joint venture, and some of the order limitations were
found to have impeded legitimate activity. The Commission concluded that there was no
continuing need for restrictions on the scope and duration of the venture and that continuing
the restrictions might hinder the venture's ability to respond to consumer demand.
Not all aspects of a joint venture are necessarily permissible merely because some
aspects involve bona fide efficiencies. That was the teaching of the NCAA case. 28 This case
involved the National Collegiate Athletic Association's regulation of college football, and, in
particular, its regulations fixing the number of times that individual schools' games could be
telecast during the season and indirectly controlling the prices at which the broadcast rights
for those games could be sold. The Supreme Court began by observing that the NCAA itself
represented a legitimate joint venture. College football could be produced only by agreeing on
common rules, eligibility requirements, and so forth, and the agreements on these terms, like
the agreement in BMI, was thus justified as necessary in order to bring out the product in the
first place. 29 The specific television restrictions, on the other hand, could not be so justified.
The Court concluded that television rights could be sold just as effectively without the NCAA
17 See Order Granting Petition To Reopen and Set Aside Order, Okt. C-3132 (Oct. 29,
1993).
28 NCAA v. Board of Regents, 468 U.S. 85 (1984).
29 468 U.S. at 101-03.

Joseph C. Polking
Page 12
broadcast restrIction and) indeed) that "many more" games would be televised in a free
market. 3O 	The 	NCAA 	rules 	were 	found 	to 	be 	output-restricting 	rather 	than 	output-
enhancing. 31
As cases such as NCAA indicate) when joint ventures incorporate ancillary restraints
on price or output) antitrust principles may permit those restraints only to the extent that
they are reasonably related to the joint venture and are no broader than necessary to make the
venture work.32 Thus) in BMt the price uniformity implicit in blanket licenses was necessary
if such licenses were to be offered at all) and so the ancillary price restraint was reasonable. In
the General Leaseways case)33 by contrast) the court found a valid joint venture among small
truck-leasing firms) but also found that the location clause in their agreement tended to impede
competition among the venture)s members and was not necessary to the operation of the
venture) and so the court enjoined enforcement of that clause.
30 Id. at 119.
31 Id. at 120.
32 See Brunswick Corp.) 94 F.T.C. 1174) 1275 ("such agreements) to be legitimately
ancillary to a joint venture) must be limited to those inevitably arising out of dealings between
partners) or necessary (and of no broader scope than necessary) to make the joint venture
work")) aff'd in part and modified in part sub nom. Yamaha Motor Co. v. FTC) 657 F.2d 971
(8th Cir. 1981), cert. denied) 456 U.S. 915 (1982). Cf. IV P. Areeda & D. Turner) Antitrust
Law 1947b (1980) (ancillary agreements "must be shown to be 'reasonably necessary' to the
efficient functioning of the venture"). See also Rothery Storage & Van Co. v. Atlas Van Lines)
792 F.2d 210) 224 (D.c. Cir. 1986)) cert. denied) 479 U.S. 1033 (1987).
33 General Leaseways v. National Truck Leasing Ass)n) 744 F.2d 588 (7th Cir. 1984).

Joseph C. Policing
Page 13
These precedents may be directly relevant to the FMC. Section 6(g) also seems to
contemplate a consideration of efficiencies and an inquiry into whether those could be
achieved by some less restrictive3-4 means:
In assessing the benefits of any of these agreements, however, the Commission
need not wear blinders. If, in applying its expertise, the Commission establishes
that reasonable and commercially proven alternative arrangements will provide
most or all of the essential benefits without the same anticompetitive impact,
it may weigh this fact in its decision calculus. 35
-In a similar vein the conferees noted that section 6(g) "grants to the Commission the necessary
authority to act to stop schemes that go beyond what is necessary to obtain such benefits and
cause substantial anticompetitive effects. "36
The FMC could also examine the subsidiary details of an inter-carrier agreement, even
if the agreement as a whole is accepted, since ancillary agreements may cause "an unreasonable
reduction in transportation service or an unreasonable increase in transportation cost." In this
respect the FMC's analysis would be analogous to that of an antitrust agency considering an
agreement ancillary to a joint venture. Indeed, the 1984 Act already provides that certain types
of ancillary clauses are forbidden. For example, the statute bans the use of predatory practices
3-4 The 1984 Shipping Act and the antitrust laws are essentially similar in their treatment
of this factor. Although both look to see if less restrictive alternatives are available, neither
insists that the parties to an agreement rigorously prove that their approach is the single least
restrictive option. The legislative history of the Shipping Act, for example, directs the FMC
to consider only those less 	restrictive alternatives that 	are known 	and proven, 	and it
specifically notes that the parties are not required to show that a particular restraint was the
least restrictive one possible. See Conference Report at 36. In these respects the current law
may be somewhat different from that which had prevailed under FMC v. Svenska Amerika
Linien, 390 U.S. 238 (1968).
35 Conference Report at 36.
36 Conference Report at 33.

Joseph C. Polking
Page 14
and the allocation of shippers among specific carriers.37 The FMC could ban other agreement
terms, not listed in the statute, if they appear unduly anticompetitive after a similar analysis.
The Conference Report 	notes that 	the "flexible standard [in section 6(g)] permits th~
Commission to seek an injunction even whpn an agreement would not violate any of the
prohibited acts set forth elsewhere in the bill. "38 The terms that the FMC can challenge may
have been expressed as ancillary parts of the basic agreement, or as collateral and formally
separate agreements.
Provisions that may limit or burden an individual carrier's ability to take independent
action may be worth examination. The right of independent action permits 	individual
members of the conference to depart from the common pricing and offer their own rate or
service, on a particular product, with notice to the conference. 39 To the extent that the
exercise of that right is inhibited, competition may be deterred. In this context, capacity-
limitation 	agreements 	or 	"capacity 	managetr.ent 	programs" 	may 	warrant 	particular
examination. These programs typically involve agreements by carriers to leave a certain
percentage of their vessel carrying capacity unfilled. By eliminating a certain measure of
37 See 1984 Shipping Act § 10(c), 46 U.S.C. App. § 1709(c).
38 Conference Report at 31.
39 Provisions allowing the participants in a joint venture to take action independent of the
venture have been deemed important to maintaining competition in a number of antitrust
cases. See BMI, 441 U.S. at 23-24 (individual composers still retained power to market their
works independently); GWToyota, 103 F.T.C. at 384 (parties required to develop separate
pricing and marketing plans). See also National Bancard Corp. v. VISA USA, Inc., 596 F.
Supp. 1231, 1254-55 (S.D. Fla. 1984), aff'd, 779 F.2d 592 (11th Cir.), cert. denied, 479 U.S. 923
(1986); Stratmore v. Goodbody, 866 F.2d 189, 193 (6th Cir.), cert. denied, 490 U.S. 1066
(1989).

Joseph C. Polking
Page 15
useable excess capacity, the agreements may reduce the carrier's ability to respond to any
increase in demand that its independent action might generate.
Thus, in shon, the antitrust analysis of joint ventures in general, and of ancillary
restraints in particular, appears relevant to the FMC's application of the competition standards
in section 6(g).
If the FMC wishes to formally incorporate some of the techniques of antitrust joint
venture analysis into its own analysis, it might wish to indicate this by adding the following
items to the list of factors to be considered in Paragraph B of the draft guidelines section on
Pre-implementation Review: "the degree of efficiency-enhancing integration that is achieved
through the agreement," and "whether such efficiencies could be achieved through other,
known and proven, less restrictive means." If the FMC wishes to specifically consider the
competitive effects of ancillary and collateral agreements, it might also include the following
sentence at an appropriate point in the guidelines: "The FMC may examine both the effects
of an agreement as a whole and the effects of particular terms or collateral agreements."
The special aspects of the 1984 Shippin& Act
do not preclude a central role for antitrust principles
We recognize that the 1984 Shipping Act differs in some respects from the antitrust
laws. Those differences do not appear so great, however, as to preclude a central role for
antitrust principles. 4O
40 One of these principles is concern for the welfare of consumers. That principle is echoed
in the Conference Report, which expresses an intent that section 6(g) should serve "the long-
(continued...)'

Joseph C. Polking
Page 16
As the FMC reviews the competitive effects of maritime agreements, Congress has
expressed an intention that it should count as benefits to the industry some factors that would
not necessarily be considered under antitrust law. Most notably, Congress has identified
"severe rate instability" and "overcapacity" as serious problems for the industry,<41 and has
indicated that measures to address these problems will "serve the long-term interests of ocean
carriers and shippers."<42 In this respect section 6(g) is different from the Sherman Act, which
would normally expect competition - 	not competitor agreements - 	to deal with both rate
instability and overcapacityY As a result, the interest-balan~ing analyses performed by the
FMC may differ in some of their particulars from those done under the antitrust statutes.
Given the importance of competition in the economy and its benefits to consumers,
however, we suggest that the FMC apply antitrust considerations in its analysis to the full
extent that the statute permits.
<4O(••• continued)
term interests of ... shippers," that is, of the consumers of transportation services, as well as
of carriers.
•1 Conference Report at 33 .
• 2 Conference Report at 33.
-43 See, e.&., United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221 (1940) (Sherman
Act case) (non-integrating horizontal combination was unlawful even if it merely "stabilized"
market prices).

Joseph C. Polking
Page 17
Section 6W should be construed to reach conduct that
prevents decreases in rates, as well as conduct that causes increases
The FMC may wish to consider whether the guidelines should state that section 6(g)
applies to agreements that prevent rates from dropping, as well as those that cause rates to rise,
and to agreements that prevent service from improving as well as those that cause service to
deteriorate. An agreement to stabilize prices (or terms of service), like an agreement to raise
prices (or reduce service), would result in prices that are above competitive levels (or service
that is below competitive levels).
This construction would seem to be consistent with the purpose of the statute to
address unreasonable reductions in competition adversely affecting price or service and to
pennit the agency to assess all the competitive effects of maritime agreements.~ It might also
best apply the letter of the statute, since it essentially involves no more than defining the most
relevant baseline from which an unreasonable "increase" in cost or "reduction" in service is
to be measured. In the context of section 6(g), these terms seem best understood as referring
to changes from the level that would have existed without the agreement.
Some of these issues may be presented, for example, by capacity-management programs,
under which the carriers in a particular trade withdraw a certain percentage of their capacity
from the market. Although such agreements may not have reduced capacity to a point that
~ The congressional concern about overcapacity and rate instability, although certainly
relevant in this context, would not seem to bar such an inquiry. That concern may well have
been a limited one, focusing on the rapid and unpredictable fluctuations in rates to which
shipping has historically been subject, see ACCOS Report at 6, 69-70, rather than reflecting
a desire to stand in the way of long-term changes in rates and service reflecting new economic
conditions.

Joseph C. Policing
Page 18
has caused rates to rise,-45 they may tend to support rates above competitive levels. The FMC
may wish to resolve any uncertainty about the relevance of this factor by declaring that
section 6(g) permits consideration of either type of effect on rates.
To make this point explicit, the F!,fC may wish to amend the first sentence in
Paragraph B of the guidelines on Post-Implementation Agreement Monitoring to refer to a
reduction in competition "that has increased transportation costs above the level that would
otherwise have prevailed or has decreased transportation service below the level that would
otherwise have prevailed ...."
Conclusion
We suggest that the FMC might wish to consider: (1) the relevance of antitrust law in
general and merger and joint venture law in particular to the assessment of competitive effects
under section 6(g); (2) the possibility that ancillary agreements could be challenged under
section 6(g) even for overall agreements that are permissible; and (3) the possibility of expressly
announcing that section 6(g) will apply to agreements that tend to prevent rate reductions or
servIce Improvements.
45 This conclusion was stated in the Federal Register notlce requestmg the current
comments. See 58 Fed. Reg. at 62619 n.7 (1993).

Joseph C. Polking
Page 19
We appreciate the opportunity to present these comments, and we hope you find them
Yours truly,
;!l{~\11-
C~Mary Lou Steptoe
O~ 	Acting Director
Bureau of Competition
~.Ronald 	Bond
Acting Director
Bureau of Economics