South Korean politicians are stopping antitrust watchdog from penalizing corrupt shipping companies.By Sunny Um, South Korea correspondent, Maritime Fairtrade
South Korea’s antitrust watchdog Korea Fair Trade Commission (KFTC) in May has informed 23 shipping companies, including HMM Co., the biggest carrier in South Korea, that it has found illicit attempts of price-fixing during its investigation, and will impose fines on them for colluding to raise freight rates.
The KFTC first started the investigation in 2018 upon receiving reports from South Korean timber importers alleging that shipping companies indiscriminately raised the freight rates for routes to Southeast Asian countries. During the investigation, it was found that they had made around 100 agreements related to South Korea-Southeast Asia routes with the Committee of Shipowners for Asian Liner Service.
The KFTC plans to impose on the shipping companies a fine of 8.5 to 10 percent of their revenue from the Southeast Asian routes. The total fine will amount to 500 to 600 billion won (US$434 to US$521 million).
Shipping companies and the Korea Shipowners’ Association (KSA) said that the move in price-fixing is “allowed under the Marine Transportation Act” in South Korea. They also added that the penalty is too heavy and will jeopardize the operations of some small- and medium-sized companies.
Politicians jump into the fray
Fourteen lawmakers from the main opposition party, People Power Party, endorsed the official complaint made by the KSA and demanded that the government overturns the KFTC’s decision.
Representative Lee Man-hee from the People Power Party also raised the issue during the hearing of the Special Committee on Budget and Accounts held at the National Assembly on July 15 where he urged Prime Minister Kim Bu-gyeom to look into this issue and come to a “decision that will benefit the shipping industry”. Prime Minister Kim said that he will review the case and make a statement soon.
The KFTC told Maritime Fairtrade that the penalty amount is not finalized yet, and they will decide on an equitable amount that can reflect the seriousness of the offense after meeting with the shipping companies.
Is price-fixing in the shipping industry legal under Korean law?
The KSA said shipping companies can take “collaborative actions”, according to Article 29 of the Marine Transportation Act, which states in the first clause that “any person who has registered overseas cargo transportation services” can enter into “joint activities with other providers of overseas cargo transportation services”. The association claimed that the term “joint activities” includes price-fixing as well.
“The current administration (of the KFTC) sees the joint activities as collusion and tries to push the Korean shipping industry over the edge,” KSA said.
On the other hand, the KFTC stated that while it is true that joint activities in the shipping industry are legal as stated in the Marine Transportation Act and Article 58 of the Monopoly Regulation and Fair Trade Act, written agreements among shipping companies must be made before the joint activities take place, and they must report these joint activities to the Ministry of Oceans and Fisheries.
However, the KFTC stated that these shipping companies have not reported to the Ministry of Oceans and Fisheries regarding their “joint activities” back in 2018.
Reactions from major shipping players
Some industry groups said that the heavy penalty will be a burden on small- and medium-sized companies. However, it is worthwhile to note they did not address the procedural mistake made by the shipping companies but instead focused on the quantum of the penalty.
Busan Port Trade Union said on July 2 that “the KFTC ignored (the rights of shipowners stated in) the Maritime Transportation Act” and the commission tries to impose a “severe sanction which can cause a big disruption in the market”. The union added that the “shipping industry and all ports in Busan will be under tremendous impact if the KFTC penalizes local shipping companies.”
On July 8, Mokpo Port Development Committee and four other organizations said that “the penalty will destroy the logistics network in the Mokpo area and will negatively impact shipping companies, ports, imports and exports in the city”.
Maritime Fairtrade asked two professors of shipping and transportation regarding the potential impact of the KFTC’s fine, but they declined to answer due to the political nature and sensitivity of the issue.