Fair Trade Commission: "Korea-Southeast Asia Route Freight Collusion, Non-compliance with Shipping Act Procedures"...962 Billion KRW Fine Imposed

Non-compliance with the content and procedures of the Shipping Act allowing collusion... No report to the Minister of Oceans and Fisheries or consultation with shipper organizations
Shipping companies also aware of Fair Trade Act violations... Attempts to conceal joint actions

Chairman Jo Sung-wook of the Fair Trade Commission is announcing the review results of the 'Korea-Southeast Asia route maritime freight collusion' case at the Government Complex Sejong on the 18th.

[Sejong=Asia Economy Reporter Joo Sang-don] The Fair Trade Commission has decided to sanction 23 domestic and foreign shipping companies that colluded on freight rates a total of 120 times on Korea-Southeast Asia export and import routes. While the shipping companies argued that joint actions under the Shipping Act exclude the application of the Fair Trade Act, the Fair Trade Commission ultimately judged these as unfair joint actions that failed to meet requirements such as reporting to the Minister of Oceans and Fisheries and consultation with shipper organizations.

On the 18th, the Fair Trade Commission announced that it decided to impose corrective orders and a total fine of 96.2 billion KRW on 12 domestic shipping companies and 11 foreign shipping companies that agreed on freight rates a total of 120 times on Korea-Southeast Asia export and import routes through 541 meetings and other communications from December 2003 to December 2018.

Chairman Cho Sung-wook of the Fair Trade Commission stated, "For joint actions permitted under the Shipping Act, the content must not restrict withdrawal from the joint action or unfairly raise freight rates to substantially limit competition, and procedurally, prior consultation with shipper organizations and reporting to the Minister of Oceans and Fisheries must be conducted. Joint actions that do not meet these requirements are not legitimate under the Shipping Act and are subject to the Fair Trade Act like ordinary joint actions."

According to the Fair Trade Commission, 23 domestic and foreign shipping companies, including Korea Marine Transport, agreed and executed freight rates for container maritime cargo transport services a total of 120 times on Korea-Southeast Asia routes (export routes from Korea to Southeast Asia and import routes from Southeast Asia to Korea) through 541 meetings and other communications between December 2003 and December 2018.

Director Cho Hong-sun of the Fair Trade Commission's Cartel Investigation Bureau explained, "With the goal of increasing total freight rates (All-in), the shipping companies selected freight increase methods with a high chance of success by considering shippers' acceptance and market conditions. Accordingly, the freight agreements appeared in various forms such as setting minimum levels for base freight rates, introducing or increasing specific ancillary charges, and determining bidding prices for large shippers, totaling 120 agreements."

After the agreements, the shipping companies checked the implementation of the agreements through meetings of the Southeast Asia liner shipping conference and the IADA, a shipping alliance among domestic and foreign shipping companies operating on Asian routes. Through this, the companies monitored and pointed out violations of agreements by other companies, demanded explanations, selected weekly and deputy operators for detailed routes, and had these operators lead the implementation and monitoring of the agreements.

The Fair Trade Commission judged that an organized monitoring of joint actions was conducted through a neutral committee. Eleven domestic shipping companies established a neutral committee in July 2016 to monitor the implementation of freight agreements on three coastal routes and conducted seven freight audits on Korea-Southeast Asia export routes from 2016 to 2018. Companies found violating agreements were fined a total of 63 million KRW.

The Fair Trade Commission viewed that the shipping companies recognized the illegality of this collusion and used various methods to conceal it. Director Cho said, "Externally, the companies claimed that freight rates were decided by individual companies' own judgment, not by agreement among companies, and to avoid suspicion of collusion, the freight increase amounts were set at 1,000 KRW and implementation dates differed by 2-3 days. They managed minimum freight rates and bidding price decisions as confidential and even anonymized the names of related large shippers by initials."

Until now, the shipping companies have claimed their joint actions were legitimate based on the Shipping Act. Article 29 of the Shipping Act permits joint actions of liner shipping companies under certain procedural and substantive requirements, and Article 58 of the Fair Trade Act excludes the application of the Fair Trade Act to lawful acts performed under other laws.

However, the Fair Trade Commission judged that the joint actions in this case did not meet procedural and substantive requirements. To qualify as joint actions under the Shipping Act, companies must report to the Minister of Oceans and Fisheries within 30 days after the joint action and sufficiently exchange information and consult with shipper organizations about the agreed transport conditions before reporting, which was not complied with.

Additionally, the shipping companies argued that since 18 reports of rate restoration (RR) included 120 freight agreements (mostly minimum freight rates and ancillary charges), there was no need to report the 120 agreements separately. However, the Fair Trade Commission viewed the 18 reports and 120 freight agreements as entirely separate.

Director Cho said, "RR and minimum freight rate (AMR) are different freight increase methods. The companies agreed on AMR to avoid consultation with shipper organizations but reported as RR since October 2003. The contents of the 18 reports and the 120 actual agreements differed in specific details such as the content of the freight agreements, implementation dates, and participants."

The Fair Trade Commission also pointed out that the companies did not sufficiently exchange information or consult with shipper organizations before reporting the 120 freight agreements. The companies merely 'notified' the shipper organizations once before the 18 rate restoration reports, and the documents did not specify concrete grounds for the freight increases.

Accordingly, the Fair Trade Commission decided to impose corrective orders and fines totaling 96.2 billion KRW on the 23 shipping companies and corrective orders and fines of 165 million KRW on the Korea Shippers' Council. The fines are significantly reduced from the originally estimated amount of about 800 billion KRW in the initial investigation report (equivalent to the prosecution's indictment).

Director Cho said, "By ensuring that liner shipping companies' joint actions related to freight rates are conducted as necessary and minimally through reporting to the Minister of Oceans and Fisheries and consultation with shipper organizations, the management by shipping authorities will be actualized, and the damage to numerous export and import companies, the shippers, can be prevented. Also, regarding institutional improvements such as amendments to the Shipping Act related to joint actions by shipping companies, tentative alternatives have been prepared through several working-level consultations between the two ministries, and we plan to continuously strive to have these reflected in the amendment bill."

This content was produced with the assistance of AI translation services.