On May 2, 2017, the Federal Maritime Commission (“FMC” or “Commission”) declined to address Nippon Yusen KK (“NYK”), Mitsui O.S.K. Lines Ltd. (“MOL”), and Kawasaki Kisen Kaisha Ltd.’s (“K-Line”) (collectively the “parties”) Tripartite Agreement (the “Agreement”) on jurisdictional grounds.

As the final event of a historic year of consolidation, the three Japanese carriers announced plans in Fall 2016 to merge container operations through the formation of a joint venture, with services beginning by April 1, 2018. While terminal operations worldwide (excluding Japan) will be included in the joint venture, other components of the companies such as bulk and ferry services will remain unintegrated.

The Agreement - filed with the Commission on March 24, 2017 - sought FMC approval to share information in advance of the parties’ formation of this merged entity. The Shipping Act, as amended, vests the Commission with the power to approve and oversee cooperative agreements between common carriers, commonly referred to as alliances. However, the Shipping Act does not provide the FMC jurisdiction in any regard over pure horizontal mergers, a power primarily reserved for the United States Department of Justice, Antitrust Division (“DOJ” or the “Department”). It was on this jurisdictional ground that the Commission declined to approve the Agreement: “[t]he Shipping Act does not provide the [FMC] with authority to review and approve mergers. 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.”

On May 5, 2017, Chairman Michael Khouri issued a statement doubling down on the FMC’s deferral of substantive antitrust review, and clarified that the Commission had made no judgment as to the efficacy of the parties’ proposed merger: “[t]he Commission made only one finding – that the Tripartite Agreement falls outside the jurisdiction of the Shipping Act of 1984. The Commission made no determination of any kind regarding the agreement parties’ commercial activities regarding their compliance with general antitrust laws that are administered by other federal agencies.”

The denial comes at a pivotal time in the shipping industry, and among growing tension between the FMC and the DOJ. April 1st marked the long-awaited commencement of services under THE Alliance and the OCEAN Alliance, with the Maersk/MSC/HMM Strategic Cooperation Agreement coming into place on March 30th, separate and apart from the 2M Alliance; all three agreements received the FMC’s blessing, despite the DOJ’s sustained criticism.

The Department has long taken the public position that the general antitrust exemption for carrier agreements is no longer justified, and that the shipping industry exhibits no characteristics that warrant departure from traditional competition policy. As such, the Department has undertaken an independent probe into price-fixing in the shipping industry, in conjunction with mass consolidation and normalizing freight rates. In furtherance of its investigation, the Department served subpoenas on top executives of twenty of the world’s largest carriers less than two weeks preceding the new alliances’ commencement.

The FMC, mindful of its narrow Shipping Act mandate, is likely operating with increased vigilance in what has become a complicated and charged regulatory environment over this historic year of consolidation.