ED Fines on shippers

Interagency differences should be narrowed first

The Korea Fair Trade Commission has imposed a combined fine of 96.2 billion won ($80.7 million) on 23 shipping companies providing cargo services between Korea and Southeast Asia. The KFTC said Tuesday that the shippers ― 12 of which are Korean ― colluded to fix freight rates 120 times since December 2003. It was the first time that the antitrust agency applied the Fair Trade Act on price fixing by shipping companies.

However, the Korea Shipowners' Association is protesting the decision for neutralizing the purpose of the Marine Transportation Act, vowing to file an administrative suit. Price-fixing by shippers has been recognized as an internationally permitted practice since the United Nations established the Liner code in 1974. Before then, global shipping companies used to undercut prices to bring smaller firms to bankruptcy and then raise freight rates sharply later, at the expense of cargo owners and consumers. Korea also revised its related law in this direction in 1978 and has since operated accordingly, the shippers' group said.

In response, the regulator maintained that the shippers' acts were illegal, as they failed to meet certain criteria permissible under the law. For instance, the shipping lines did not report to the Ministry of Oceans and Fisheries within 30 days after taking “collective action” and omitted adequate discussion with freight owners before making a report, it explained. However, the ministry took a different stance, saying, “Basically, there is no need to report occasional decision-making adjustments made within the specified range.” Shippers are finding it difficult to know which rhythm to follow.

Bluntly speaking, it will be like the tail wagging the dog if regulators drop a penalty bomb under the pretext of minor procedural flaws. The ongoing controversy occurred when the fair trade law aimed at preventing trust and collusion collided with the maritime transport law that puts weight on the specificity of Korea as an export-led economy. If the regulator blocks the fixing of freight rates, it might erode the competitiveness of Korean shippers that are no match for their European rivals who are ready to play a game of chicken. Policymakers and legislators should amend the marine transport act and end the unnecessary confusion quickly.