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  • Writer's pictureStephen Fodor

Shipping lines come out swinging in high-profile profiteering case

September 2, 2021

(FreightWaves) MCS Industries, a Pennsylvania-based furnishings manufacturer, filed a blistering complaint against two of the world’s largest ocean carriers on Aug. 3, alleging profiteering, collusive behavior and violation of the U.S. Shipping Act. The accused liner companies — China’s Cosco and Switzerland-based Mediterranean Shipping Co.— just filed their responses. Not surprisingly, they made no apologies.

In its complaint filed with the Federal Maritime Commission (FMC), MCS claimed that several carriers refused to negotiate with it and those that did, including Cosco and Mediterranean Shipping Co., “refused to provide more than a fraction of the cargo capacity that MCS requested.”

Then, alleged MCS, the two carriers “changed their practices in parallel and seemingly coordinated fashion, depriving MCS of its contractually agreed space allotments and instead selling their respective capacity — including space actually allocated to MCS under its service contracts and then subsequently withdrawn — to the highest bidder on the very spot market to which their conduct has forced MCS to turn.”

MCS alleged that in May-July, Mediterranean Shipping Co. provided only 35% of the space required under the contracts and Cosco provided “an infinitesimal 1.6%.”

Shortly after the complaint was filed, Mediterranean Shipping Co. issued a press release vigorously denying the claims, stating that it was “reviewing whether … any of the allegations amount to defamation.” It filed its official response with the FMC on Thursday. Cosco filed its response Monday.

Cosco didn’t mention defamation, but it did question whether MCS had committed perjury.

The carrier said MCS’s “infinitesimal 1.6%” space allotment claim “is simply a falsehood. It is clear that this eye-catching claim about service in the May-July 2021 period — which was repeated twice in MCS’s complaint, attested to under penalty of perjury by MCS, and repeated in multiple media accounts — is a false statement of material fact to the tribunal.”

The carrier said that “MCS did not confirm any bookings with [Cosco] during the month of June at any original ports customarily used by MCS to present its containers to [Cosco] for carriage and even failed to utilize all space offered and confirmed to MCS in July.”

Cosco said that MCS signed a contract that runs from Jan. 1, 2021, to April 30, 2022, for 500 twenty-foot equivalent units. Cosco said that it has carried 92 TEUs for MCS through August, with eight months left in the contract, and that the contract included no monthly or quarterly carriage requirements.

Mediterranean Shipping Co. said in its filed response that it had a service contract with MCS effective May 1 and that “any non-carriage of MCS cargo was in line with the … agreement and attributable to MCS’s failure to comply therewith or to other causes outside MSC’s control.”

The Swiss carrier denied that it deprived MCS of its space allotment in order to sell it to the highest bidder. “MSC does not sell allotted space until after the prescribed cutoff date,” it said.

It called the allegation that it was colluding with Cosco “nonsensical” and “completely and utterly false.”

Both carriers blamed today’s service issues and record-high pricing on COVID-era disruptions.

According to Cosco, “The current congestion … and challenges faced by vessel-operating carriers to keep up with demand for capacity were triggered by unprecedented and unanticipated record growth in U.S. imports, coupled with shoreside COVID restrictions. These unforeseen global trade shifts have compounded sailing delays and stretched to the limit every part of the inland intermodal supply chain.

“[Cosco] neither created last year’s precipitous decline nor this year’s dramatic increase in demand, but both have had a bearing on the available capacity [it] could bring to the market.”

Mediterranean Shipping Co. said that it “has dealt reasonably with unprecedented dislocations in international ocean shipping caused by substantial increases in demand at the same time that unprecedented port congestion has effectively limited vessel capacity and created substantial operational difficulties for carriers.”

It argued that the dispute should be resolved via New York arbitration, as specified in the ocean contract. Cosco also maintained that the FMC lacked jurisdiction, calling allegations of a Shipping Act violation “bogus.”

The outcome of this high-profile dispute is a long way off. The discovery process will take another five months. The FMC will make its initial decision by Aug. 3, 2022, and its final decision is not due until Feb. 17, 2023.

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