Antitrust laws. When the liner conference system became formalised in the 19th century, one of the main functions was that freight rates on an agreed route would be fixed between the members to the conference.
A “cartel” is a combination of producers of goods or services to control production, marketing of services, and, most important, prices. The freight rate fixing arrangements between the members of the liner conference placed it under the category of a cartel. Because of the price fixing power, it was considered that the conference was a “monopoly” and rather than allow a monopoly to have unfair bargaining strength over the shippers, the users of the service, the legislators in the United States, particularly, enacted laws to control the formation and activities of such cartels or monopolies. These laws were called “antitrust laws”. These laws originated, in the U.S., in the “Sherman Act of 1890” and have been added to by other Acts.
In those early days, the United States was a rapidly developing country with a dominating philosophy that each individual had a complete freedom of choice without any intervention from the Government. This resulted in complete free competition. However, the railway companies and the shipping companies were also growing fast and becoming very powerful. They were capturing large parts of the market. This led to monopolies being formed and this threatened free competition. The result was the Sherman Act. The fundamental purpose of the antitrust legislation is to prohibit restraint of trade by restricting free competition and by exercising total power over a trade like a monopoly. Initially this meant that all rate agreements between ocean carriers, such as liner conferences, would have been illegal. However, many shipowners (especially European shipowners) had already organised themselves into“rings”, or liner conferences. This seemed to go against the United States principles of “free enterprise” and open, marketplace competition and a committee was formed early in the 20th century to look into the practices of conferences and the acceptance by shippers. In 1914, the Alexander Report recognised that liner conferences did offer some economic and business advantages to the users of the services provided and some, limited or restricted, immunity from the United States antitrust provisions could be given to the conferences.
Accordingly, one major piece of legislation in the U.S. was the Shipping Act of 1916, which did recognize the existence and acceptance by the users of liner conferences or “rate agreements”, with limits. The provisions of the Act required “open membership”, allowed each member to operate independently of the conference (on 10 days’ notice) and included a long list of prohibitions such as a ban on boycotts (of shippers or ports), the use of “fighting ships” or other practices designed to deny entry or drive existing competitors from the market. The Act also prohibited the use of “loyalty contracts” between shippers and carriers, under which favorable treatment may be offered to a shipper to secure his business.
It seems that the main purpose of such laws was to prevent both a reduction in competition (for example, the Shipping Act 1916 required open membership) or an unreasonable reduction in the service offered to users or an unreasonable increase in the price to provide transportation.
By the 1980s the U.S. legislators began to realise that the world of shipping had changed considerably and the powerful antitrust provisions of the 1916 Act were no longer as relevant as they may have been in the early part of the 20th century. Another important Act was passed, the Shipping Act of 1984, in which section 7 granted certain exemptions from antitrust laws. (See U.S. Shipping Act 1984.)
