FMC ruling leaves Japanese box lines in limbo


Plans by Japan’s three major container lines to combine certain assets and functions this year ahead of a merger next year have been left in disarray after US competition regulators rejected the pre-merger arrangement.

Yesterday, the Federal Maritime Commission (FMC) rejected “on jurisdictional grounds” the so-called “tripartite agreement” proposed by Kawasaki Kisen Kaisha (K Line), Mitsui O.S.K. Lines (MOL), and Nippon Yusen Kaisha (NYK). The carriers, which have agreed to merge their container operations by next April, were seeking permission to share information and conduct joint negotiations with third-party businesses in the US in advance of their merger. But the FMC held that these provisions would violate “gun-jumping” laws that forbid the sharing of competitively sensitive information or the premature combining of the parties, Lloyd’s List reports.

According to K Line’s latest financial results released last week, the schedule for establishing the new joint venture company to be owned 38% by NYK and 31% each by K Line and MOL was to establish the new business entity on 1 July this year. Business was then due to commence on 1 April 2018 with a fleet of some 1.5m TEU of container ship capacity.

However, that timetable is now likely to require revision after the FMC ruled that the "Tripartite Agreement" filed by the lines with the Commission on March 24 this year was in effect a merger because the parties were seeking authority to share information with each (other) in advance of the new business entity being formed next year.

“Absent [yesterday’s] vote, or a Request for Additional Information, the agreement would have gone into effect on May 8,” ruled the FMC, which is responsible for regulating US international ocean transport for the benefit of exporters and importers, and guarding against anti-competitive or unfair practices.

“The Shipping Act does not provide the Federal Maritime Commission with authority to review and approve mergers,” added the FMC. “After careful consideration, the Commission determined that parties to the Tripartite Agreement were ultimately establishing a merged, new business entity and that action is among the type of agreements excluded from FMC review.”

FMC commissioner William Doyle said: “This decision by the FMC in no way precludes the Japanese carriers from merging their container trade business units into a single stand-alone company,” Lloyd’s List reported. “Rather, the vote recognises that the FMC cannot approve certain actions that would allow the three Japanese companies to act as a merged entity prior to actually merging. In order to receive the benefits of a merger, you need to first merge.”