The U.S. Court of Appeals for the Ninth Circuit recently issued an opinion in DHX, Inc. v. Surface Transportation Bd., No. 05-74592 (Aug. 30, 2007) which does much to illuminate the workings of the federal Surface Transportation Board. The opinion follows traditional analysis of judicial review of federal agency decisions, but the court’s recitation of the facts provides great detail in how the prices for shipping to Hawaii are developed by the shippers and reviewed by the federal government.
"While some shipments via water carrier are arranged between the carrier and the shipper, others are handled through a third-party intermediary such as a freight forwarder. DHX is a freight forwarder, an entity that holds itself out to the general public to provide transportation of property for compensation, usually by assembling and consolidating shipments to take advantage of volume rates offered by the carrier actually hauling the goods."
After the volume of cargo shipped to Hawaii decreased in the mid-1990’s, Matson and Horizon "tailored their rates to attract profitable traffic away from freight forwarders as well as to draw traffic away from each other."
The carriers did this by offering high volume shippers with volume rates with "overflow provisions."
"Overflow occurs when a particular shipper’s traffic for a given shipment does not completely fill all the containers for that shipment." When a customer has a shipment that will fill more than one container, the carrier offers a discounted rate for the partially filled container. This directly competes with the market for freight forwarders.
The opinion says that DHX began to "target the water carrier’s larger customers that already tendered volume traffic to the carriers [directly]."
"Specifically, DHX would take the same containerload traffic of large shippers such as Home Depot, unpack the full containers, redistribute their contents, and repack them in order to create more overflow containers than the shippers themselves would have tendered had they dealt directly with the water carriers, thereby resulting in a larger number of containers subject to the lesser overflow rates."
In response to DHX’s competition, Matson and Horizon adopted specific actions to get their high volume customers back, including adopting tariffs setting up more favorable rates and entering into agreements with large shippers.
Thereafter, DHX brought suit with the Surface Transportation Board ("STB"), then ended up in federal court. The STB is a successor to the Interstate Commerce Commission and the Federal Maritime Commission and is the regulatory authority for trade between ports in Alaska, Hawaii, the U.S. territories/possessions and the U.S. mainland.
DHX challenged the carriers’ pricing schemes as anti-competitive and unreasonable as they relate to partially filled shipping containers.
The Ninth Circuit first held that there was no private cause of action or right to sue water carriers for discrimination.
The Ninth Circuit held that "providing different customers with different rates and services is not inconsistent with a water carrier’s common carrier duty to provide service to each customer upon reasonable request, if the rates charged are reasonable."
The court acknowledged the antitrust and oligopoly concerns of DHX, but held that the proper forum for airing these concerns was the STB, not an original action in federal court. In other words, STB is entrusted with these issues for initial vetting and resolution, the court stating, "the STB possess ample statutory authority to address and remedy any oligopolist pricing concerns arising out of the water carriers’ conduct under traditional antitrust principles."
With the significant majority of cargo to Hawaii arriving in maritime shipping containers, those rates have a inexorable impact on the cost of living in Hawaii, or as some have called it, the Price of Paradise.