Date: Monday, November 14, 2022
Source: New York Times
Like the rest of the e-commerce world, Jacob Weiss was contending with excruciating difficulties in getting his goods — mostly furniture — across the Pacific from factories in China.
It was April 2021, and the global supply chain was rife with dysfunction because of the pandemic. At ports in China, Mr. Weiss’s usual ocean carrier, Hamburg Süd, was refusing to accept some of his shipping containers at his contracted rates, saying it had no room on its vessels.
These sorts of complaints had become commonplace, given shortages of containers and crippling traffic jams at ports. Most importers avoided conflict, fearing reprisals from the carriers. But Mr. Weiss had his lawyer fire off a menacing letter, demanding that Hamburg Süd “immediately honor” his contract while threatening to file a complaint with the Federal Maritime Commission.
Here was a minnow picking a fight with a whale. Mr. Weiss’s company, OJ Commerce, is modest in size. Hamburg Süd is a subsidiary of Maersk, a publicly traded Danish conglomerate that is the second-largest container shipping company on earth, with annual revenues exceeding $61 billion.
The result of the letter was swift and decisive — though not in the way that Mr. Weiss intended. Hamburg Süd halted negotiations with his company over a new contract for the next year.
The actions of Hamburg Süd, which Mr. Weiss describes as retaliation for his decision to protest mistreatment, attest to the power of the carriers that dominate ocean transport, challenging the Biden administration’s promises of a crackdown on bad behavior.
The White House has seized on the largest ocean carriers — a key element of global trade — as culprits in its narrative on inflation. “These companies have raised their prices by as much as 1,000 percent,” President Biden said during a visit to the Port of Los Angeles in June.
Days later, the president signed into law the Ocean Shipping Reform Act of 2022, declaring that it would “put a stop to shipping companies taking advantage of American families, farmers, ranchers and businesses.”
The act was aimed at boosting the enforcement powers of the Federal Maritime Commission, which is tasked with policing a global container shipping industry on track to tally $270 billion in operating profits this year, according to Drewry, a maritime research firm. But the agency, which occupies two floors of an unimposing office building in Washington, has a small staff and an annual budget of only $32 million.
Its chairman, Daniel B. Maffei, has acknowledged that his regulators are outgunned even as he has urged shipping clients to come forward and bring cases if they have complaints.
“Deterrence is what it’s about,” Mr. Maffei said in an interview in July. “We’re too small an agency. We’re never going to catch every instance.”
While the commission’s flow of filings has roughly tripled in recent months, the experience of OJ Commerce presents a cautionary tale of what can happen when companies threaten to go public with shipping grievances.
After Hamburg Süd terminated negotiations on a new contract last year, OC Commerce filed a complaint at the commission, seeking more than $22 million in damages. A verdict is expected late this year, but OJ Commerce has already endured a time-consuming, expensive court process fighting the carrier to turn over documents relevant to the case.
According to its complaint and subsequent amendments, OJ Commerce had a contract with Hamburg Süd that gave it the right to transport 200 shipping containers from ports in China and Vietnam to warehouses in Southern California over the course of a year.
Hamburg Süd would be paid about $1,800 to ship each 40-foot container, which held most of the furniture and household goods that OJ Commerce would sell under its own brands. The carrier delivered only 185. That forced OJ Commerce to pay vastly inflated prices to lock up last-minute bookings for its additional containers.
The complaint claims that Hamburg Süd denied OJ Commerce’s containers so it could cash in on soaring shipping rates, selling the same space to other importers for 10 times the contracted price.
OJ Commerce says its conflict with Hamburg Süd decimated its fastest-growing division, which makes products at factories in Asia and ships them to the United States for sale.
According to the complaint, Hamburg Süd’s sales staff had devoted months to negotiating a new contract that would have started in June 2021, guaranteeing OJ Commerce passage for more than 4,000 containers from Asia to the United States over the subsequent year. Then the carrier revoked its offer and ceased negotiations.
“We should not engage in any renewal discussion with customer in light of potential litigation,” Juergen Pump, a senior vice president at Hamburg Süd North America, wrote in an internal email that OJ Commerce obtained and filed as part of its case at the maritime commission. “I would also not provide them with space under the existing contract.”
In an interview, Mr. Maffei, the regulator, declined to discuss the specifics of OJ Commerce’s litigation but said: “The clear intent of Congress, and my intent as well, is to come down as hard as possible on any kind of retaliation. It undermines the entire system of enforcement.”
In documents filed in the commission proceeding, OJ Commerce referred to an internal email dated April 29, 2021, from Kevin Li, a cargo flow specialist in Hamburg Süd’s sales department, to Mr. Pump, who then oversaw the company’s North American division.
“They are threatening us on liquidated damage against the space that we couldn’t provide,” Mr. Li wrote. “This is pathetic and unacceptable, it will be a risk to continue work with this account.”
Mr. Li and Mr. Pump did not respond to messages seeking comment. Maersk declined to comment on the claim that it had retaliated against OJ Commerce. In filings, the company has argued that it complied with the terms of its contract with OJ Commerce.
In the 11 months since filing its case, OJ Commerce has sought access to historical pricing information maintained by Hamburg Süd and transaction records that could shed light on how much money the carrier netted by selling its space to other shippers.
The administrative law judge assigned to the case, Erin M. Wirth, established a discovery phase in which both sides could request records and depose witnesses, initially setting a deadline of July 29, 2022.
She twice extended that deadline, while ordering Hamburg Süd to turn over records included in OJ Commerce’s requests. The carrier repeatedly ignored those directives, she declared in an Aug. 31 order while threatening to impose sanctions.
The same order referred to OJ Commerce’s complaints that one witness whom Hamburg Süd had made available for deposition testified that he had no knowledge of the issues in the case. Judge Wirth told the carrier to “identify appropriate witnesses” and schedule depositions within seven days.
Hamburg Süd’s legal tactics are indicative of the challenges that American importers face when they seek justice at the maritime commission.
Judge Wirth is also weighing a similar complaint filed last year by a Pennsylvania furniture company against Mediterranean Shipping. In that case, the carrier has declined to satisfy a demand for documents under the discovery process, asserting that criminal law in its home country of Switzerland bars it from disclosing the requested information.
Judge Wirth pointedly rejected that argument. “The Swiss authorities” advised “that their intervention is not needed,” she asserted in an order on July 29.
With Mediterranean Shipping continuing to maintain that it cannot legally hand over the documents, Judge Wirth has threatened to issue a judgment against the company.
“Relitigation of the same issue will not be permitted and has only delayed this proceeding,” she declared in a Sept. 8 filing.
A Mediterranean Shipping spokesman declined an interview request.
For OJ Commerce, the clock ran out on its discovery process last month, apparently without the company’s receiving the evidence it was seeking.
In an order dated Sept. 30, Judge Wirth said it was “not clear” whether OJ Commerce had received the documents it requested, but directed the company to specify the significance of the missing information in its summation of the case. A Maersk spokesman said the carrier had made available multiple witnesses within the time frame allotted for discovery.
Mr. Maffei, the maritime commission chairman, said the lopsided balance of power between importers and global shipping carriers highlighted the need for the Ocean Shipping Reform Act, which will increase his agency’s budget and allow it to add staff.
“We’re not going to tolerate abuse,” he said.