Korea penalizes shipping companies for price-fixing of China, Japan routes

To fight anti-competition.

Korea Fair Trade Commission (KFTC), the antitrust regulator that monitors economic competition, is imposing penalties on 20 shipping companies that operate routes to China and Japan for price-fixing practices.  KFTC will announce the amount of penalty at the end of the month.  The accused companies, of which 11 are Chinese-owned, included HMM, Korea Marine Transport, Sinokor Merchant Marine.

According to KFTC, these companies engaged in price-fixing from 2002 to 2018 and earned profits through unfair practices, for example, applying additional freight fare for fuel adjustments and not letting their consignors know.

This is not the first time that KFTC penalized shipping companies for price-fixing.  In February, 23 companies were fined 96.2 billion won (US$80 million) for fixing freight rates on the routes from South Korea to Southeast Asian countries over 15 years.

The Korea Shipowners’ Association said that it will file a lawsuit against KFTC, arguing that the commission should have applied the Maritime Transportation Act when reviewing price-fixing practices rather than the Fair Trade Act. Article 2 of the Maritime Transportation Act states that shipping companies can fix freight rates through collaborative action. However, KFTC said the 23 companies did not follow procedures such as letting their consignors know in advance before increasing rates.

Jeff Koo, a logistics professor at Baewha Women’s University, told Maritime Fairtrade that the essence of both cases was the same.  The 20 companies involved in the China and Japan routes also did not follow procedures to qualify their raise in freight rates as collaborative action.

“The difference from the former case, however, is that freight rates of these routes must have been discussed through bilateral alliances between South Korea and the respective countries,” Prof. Koo said. 

He explained that the companies should have already settled on certain levels of freight rates and shipment amounts for the mutual benefit of the respective bilateral alliances. He said that “if not, the rates would have dropped lower and lower due to the competition among the companies.” 

The expectation of the amount of penalty varies.  Some rationalized that KFTC would not impose a heavy fine because of severe opposition from the industry.  Also, Cho Seung-hwan, the newly appointed Minister of Oceans and Fisheries, was open to the use of collaborative action.

“In principle, we should consider the shipping industry’s distinctive characteristics when it comes to collaborative actions among the shipping companies,” Cho replied to a question about his thoughts on the KFTC’s penalty on shipping companies at his confirmation hearing on May 4.

Prof. Koo said the new administration of President Yoon Suk-Yeol also has to think of bilateral relationships with Japan and China when deciding what actions to take against price-fixing.

“The direction of the new government’s Korea-China and Korea-Japan diplomacy is an important factor,” he said. “China and Japan are South Korea’s big partners in trade, so maintaining good relations with them is important.”

Photo credit: iStock/Marius Steinke  

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