Corrected Version of Written Testimony

Testimony of James P. Hoffa

General President, International Brotherhood of Teamsters

BEFORE THE HOUSE OF REPRESENTATIVES

COMMITTEE ON THE JUDICIARY

June 5, 2002

Mr. Chairman and Members of the Committee, my name is Jim Hoffa and I am the General President of the International Brotherhood of Teamsters. It is a pleasure to appear before you today to support H.R. 1253, the Free Market Antitrust Immunity Reform or “FAIR” Act of 2001, that proposes to eliminate antitrust immunity for ocean carriers. I am here today on behalf of the 1.4 million members of the Teamsters Union, some of whom are already employed in the ports. In addition, I am here representing the 50,000 truck drivers who haul intermodal containers in ports located throughout the United States and who, in the near future, will be Teamsters members. I thank you for the opportunity to address these important issues.

Notably, this is not the Teamsters’ first appearance before Congress on behalf of port drivers. Two years ago, the Director of the Teamsters Port Division appeared before this Committee in support of Representative Hyde’s 1999 Free Market Antitrust Immunity Reform Act. Soon thereafter, the Port Division’s National Coordinator testified before the House Transportation Committee on the negative effects of the Ocean Shipping Reform Act of 1998 (“OSRA”) on port drivers and on the deplorable wages and working conditions of those drivers. Our message was then, and remains today, a very simple one: By allowing ocean carriers to continue to collectively set rates, even through voluntary discussion groups, competition in the inland transportation segment will remain suppressed, and port drivers will suffer the results.

Most of the participants in the maritime industry ignore the plight of port drivers, and thus their interests are seldom mentioned in any discussion of maritime trade. Although widely disregarded, these workers play an integral role in United States trade. Ships and trains only can transport goods so far; nothing is delivered to or from a customer’s dock unless it is delivered by a port truck driver.

In my testimony today, I will explain how the perpetuation of ocean carriers’ antitrust immunity directly contributes to the poverty level wages and deplorable working conditions endured by port drivers. To do so, I will briefly describe (1) the economic growth in the maritime industry compared to the economic depression experienced by port drivers; (2) the manner through which the ocean carriers’ antitrust exemption allows carriers to dictate rates and suppress competition in the trucking industry; (3) how this suppressed competition perpetuates unsafe and unsustainable working conditions for port drivers; and (4) why this exemption should be eliminated.

1. The Intermodal Industry Has Expanded And Ocean Carriers Have Enjoyed Increasing Profits, But Port Drivers Continue To Earn Poverty Level Wages

United States’ ports and the shipping industry form the foundation for international trade on which the vitality of the United States’ free market economy depends. Foreign trade accounts for one-fifth of the United States Gross Domestic Product. In 1996, port activities provided employment for over 1.4 million Americans and contributed approximately $74.8 billion to the U.S. Gross Domestic Product. Fueled by the advent of the global economy, this foundation has developed at a rapid pace. International trade experts reported that the global container trade rose from an estimated 83 million containers in 1990 to 198 million in 2000. In the Port of Los Angeles alone, container volume increased by over 20% in 2000. And despite the economic slowdown in 2001, the top 20 U.S. ports still experienced increases in container volume from 2000. Not surprisingly, experts predict that by 2010 at least 90% of all freight carried by ocean carriers will be transported by intermodal containers.

Consistent with this growth, the profits of these foreign-owned ocean carriers, on the whole have increased over the last three years. Hapag-Lloyd Container Line’s operating profit for 2001 totaled $168 million, an increase of 17% from 2000. Similarly, P&O Nedlloyd Container Line Ltd. reported record profits of $201 million in 2000, from $7 million in 1999. Even with a decrease in profits for 2001, P&O Nedlloyd averaged a $40 million increase per year over the last three years. Based upon these promising statistics, one could easily assume that everyone associated with the flourishing shipping industry is reaping its rewards. This is certainly true for the large, foreign-owned carriers and the port authorities, which directly benefit from increased container traffic at their ports.

This has not been the case, however, for port drivers. Despite the financial success of the ocean carriers, port drivers earn substandard wages and have not received any type of pay increase in over a decade. On average, port drivers earn an effective wage of $7.00 to $8.00 per hour, before taxes. They are not provided health benefits -- either for themselves or their families -- nor do they receive pension or retirement benefits. As a result, many are forced to choose between making the payments and repairs on their trucks or buying groceries for their families. Faced with such hardship, many drivers have been forced into bankruptcy and have lost their homes as well as their trucks -- their primary means of livelihood. Consequently, port drivers and their families are forced to rely on public assistance to survive. Their plight is directly caused by the multi-billion dollar cartel that has flourished at the expense of hard working men and women. This is bad policy and must be stopped.

2. The Ocean Carriers’ Antitrust Exemption Suppresses Competition In The Trucking Industry

Under the Shipping Act of 1916, Congress allowed ocean carriers to enter into conference agreements (with other ocean carriers) to establish shipping rates, pooling arrangements, and trade route allocations. In the 1970s, a number of United States ocean carriers were prosecuted by the Department of Justice for exceeding the scope of their antitrust exemption. In response, Congress essentially rewrote the 1916 Act to broaden the antitrust exemption. Under the Shipping Act of 1984, Congress eliminated the Federal Maritime Commission’s (“FMC”) oversight of the rate-setting agreements established by the ocean carrier conferences. In addition, Congress broadened the exemption to permit conferences to establish intermodal “through rates” incorporating rail, truck, and ocean legs of intermodal transportation.

In 1998, Congress passed the Ocean Shipping Reform Act of 1998 (“OSRA”), with the hope of introducing a more competitive relationship among ocean carriers. Under OSRA, carriers are permitted to participate in voluntary discussion groups to discuss and collectively establish rate guidelines, including inland rates carriers will charge their customers. In addition, OSRA expressly does not prohibit discussion or agreement among ocean carriers regarding “the charge to the public by a common carrier for the nonocean portion of through transportation.”[1] Thus, ocean carriers may discuss or enter into agreements regarding the rates they will charge shippers for inland transport and may set “joint through rate[s] by a conference, joint venture, or an association of ocean common carriers.”[2]

The antitrust immunity provided by both the Shipping Act of 1984 and perpetuated by OSRA allows ocean carriers to dictate non-sustainable rates in the trucking industry. Through these agreements and discussion groups, ocean carriers collectively establish through rates, which include the aggregate cost of moving a container from its port of origin to its final destination. Thus, the inland transportation charge -- the charge for moving a container from a port to a customer’s dock or other destination -- is embedded in the established rate.

Based on these rates, ocean carriers negotiate individual and confidential service contracts with shippers. These rates generally include both the ocean voyage and the transport of the container from the harbor to an inland point. The ocean carriers then dictate set rates to trucking companies to provide the inland transport segment of the move. According to the trucking companies, ocean carriers try to use port trucking rates to “recoup” the losses they encountered as a result of underpricing the cost of the ocean voyage. To do so, the ocean carriers dictate rates to the trucking companies that are prohibitively low in order to reduce the ocean carriers’ overall cost of transport.

Since the rate negotiated between the ocean carrier and shipper already has been established, the trucking company is forced to either accept the proposed rate or forego the work and lose business. As the latter is not a viable business option, trucking companies are left to provide service at a rate that barely covers their costs. After the trucking company covers its costs, the port drivers are left to work for substandard wages with no health or retirement benefits.

At first blush, one could think this market a competitive one. After all, this collective behavior is what keeps trucking prices low. The problem, however, is that the forces driving these prices are artificial. Neither supply nor demand influences these rates, nor does the cost of the service. As a result, port trucking companies are unable to compete effectively with one another or to improve their own operations when they are operating below cost. In the long run, the quality of the service for the customer is compromised. Most importantly, however, these conditions place the public at risk as veteran drivers leave the industry and are replaced with less skilled workers, who generally operate run-down trucks and are forced to pull unroadworthy chassis. At times, port truck drivers are pulling over 80,000 pounds of equipment and freight with vehicles that are at best marginally roadworthy and at worst, grossly unsafe. As a result, both they and the drivers with whom they share the road are at great danger.

In addition, these practices foreclose the possibility of any competitive movement in inland transportation rates. When ocean carriers increase their rates, no increase is passed along to the trucking companies or port drivers. For example, in May 1999, ocean carriers collectively implemented $400 to $900 (per container) shipping rate increases. Notably, neither trucking companies nor port drivers enjoyed the “trickle down” effect of that increase. Similarly, in March 2002, the Trans-Atlantic Conference Agreement implemented a $120 to $150 shipping rate increase (per container) for its eastbound trade lanes. Again, no rate increase was passed on to the trucking companies or port drivers. To the contrary, many port trucking companies on the East and West coasts recently have received notices from ocean carriers announcing a rate reduction for inland transport. One ocean carrier, Evergreen America Corp., informed its trucking company vendors that it would be reducing its inland transport rates by 5% effective April 15. These unilateral decreases show that it is the ocean carriers, not free market forces, that control inland transport rates. And because carriers have no incentive to increase those rates (to the contrary, low inland transport rates help carriers recoup losses from underpricing the ocean voyage), they will continue to set prohibitively low rates for inland transport.

Simply put, ocean carriers’ antitrust immunity gives carriers the ability to establish through rates that are so low that the cost of inland transport is essentially treated as a pass-through. Meaningful competition in the trucking industry is eliminated because ocean carriers, rather than free market forces, prescribe inland trucking rates. Consequently, trucking companies are forced to provide inland transport services at rates that barely cover their costs and are left with little to pay port drivers.

3. The Rates Established By Conferences and Discussion Groups Cause Port Drivers to Endure Substandard Working Conditions and Earn Poverty Level Wages

The low inland transport rates dictated by the ocean carriers encourage trucking companies to squeeze every possible penny and cut every corner in dealing with port drivers. This dynamic, initially triggered by the ocean carriers’ conference agreements, and perpetuated under voluntary discussion agreements, results in abusive conditions for port drivers and questionable, from a legal standpoint, practices on the part of trucking companies, ocean carriers, terminal operators, and shippers. For example, the following practices have become the norm in the container hauling industry:

¨ Port drivers are forced to spend an average of “3 hours per day” or 15 hours per week in ports, all unpaid, waiting in various lines to pick up chassis and containers.

¨ Port drivers are forced to choose between hauling unsafe chassis, which are owned by the ocean carriers, or taking their place at the end of a new line to wait while the maintenance and repair shop makes the chassis barely roadworthy.

¨ Port drivers are forced to choose between hauling overweight containers or receiving no work as a result of their refusal.

¨ Port drivers are forced to haul improperly labeled containers that often contain hazardous materials. In addition, port drivers sometimes are forced to clean out these containers without protective gear, proper training, and appropriate means of disposal, thus placing themselves and the public at risk.

¨ Port drivers are forced to purchase insurance from the trucking company or the trucking company’s designated company. Trucking companies charge drivers exorbitant administrative fees for this service yet routinely fail to provide a copy of the policy nor an accounting of the premium payments.

¨ Trucking companies often withhold fuel surcharges they receive from customers rather than passing them onto the drivers who actually pay for the fuel.

¨ If a port driver complains about these conditions, he or she is likely to suffer some retaliation from the trucking company or ocean carrier, either by being denied future work or simply having their lease terminated with the trucking company.

Unfortunately, these practices have become standard in the port trucking industry. They are the direct result of the ocean carriers setting substandard inland transportation rates as permitted by the antitrust exemption perpetuated by OSRA. Because the ocean carriers set such a low ceiling for inland transport, trucking companies are forced to accept unreasonably low rates from both the carriers and the shippers. As a result, the trucking companies have done everything possible to recoup their losses from port drivers.

4. The Ocean Carriers’ Antitrust Exemption Should Be Eliminated Because Its Original Purposes Are No Longer Relevant and the International Community Demands It

Congress granted ocean carriers antitrust immunity to place American ocean carriers on an even keel with their foreign competitors. Congress also provided this exemption based on the belief that in return for making the enormous capital investment in vessels and equipment, United States ship owners would earn a secure return on their investment and, in turn, develop new operations to build United States foreign trade.

These reasons, which were sound and rational at the time, are no longer valid. First, there is virtually no United States-owned fleet. In the last few years, ocean carriers owned and based in the United States have disappeared. Sea-Land has been sold to Maersk, a wholly owned subsidiary of Denmark’s A.P. Moller. Crowley Maritime’s South American services were sold to Germany’s Hamburg-Sud, and American President Lines has been sold to Singapore’s Neptune Orient Lines. Thus, protecting an American industry can no longer be used as a basis to support antitrust immunity. Second, the rationale of protecting ocean carriers’ capital investment in vessels and equipment so they may preserve another domestic industry is no longer applicable. It would be one thing if the United States ship building industry was flourishing because these foreign conglomerates were building their new ships in the United States. That, however, is not the case.

Ocean carriers argue that without this exemption, the efficiency of the movement of freight will be compromised. Specifically, they are concerned that carriers will not be able to coordinate with other carriers to meet their capacity needs. At present, carriers often assist one another by sharing freight when an ocean liner is about to set sail below capacity. This concern however is unfounded. First, if structured appropriately, carriers still could enter into joint ventures or partnerships that would enable them to maximize their capacity. Second, even if that proved unworkable, nothing in this legislation would prohibit carriers from using third party brokers to assist them in coordinating their capacity needs. Similar arrangements are commonplace in the trucking industry. Accordingly, this legislation in no way threatens the ability of ocean carriers to move freight efficiently.

Moreover, the international community has recognized that ocean carriers no longer need, nor should they enjoy, the benefits of antitrust immunity. In the Spring of 2001, the Organization for Economic Cooperation and Development (“OECD”)[3] issued a report - for “discussion purposes” - which recommended that countries “reviewing the application of competition policy in the liner shipping sector should remove anti-trust exemptions for common pricing and rate discussions.”[4] The OECD explained that “[o]ne can reasonably expect that removing anti-trust exemptions for price-fixing and rate discussion, insofar as they contribute to more competition in the liner industry, would lead to an acceleration of current trends relating to service quality, decreasing rates, and increasing industry concentration.”[5] The OECD also reported that it did not find “convincing evidence that the practice of discussing and/or fixing rates and surcharges among competing carriers offers more benefits than costs to shippers and consumers and recommends that limited antitrust exemptions not be allowed to cover price-fixing and rate discussions.”[6]

Based upon its considered deliberations, in April 2002, the OECD issued its Final Report calling for the elimination of ocean carriers’ antitrust immunity. The OECD concluded that “anti-trust exemptions for conference price-fixing no longer serve their stated purpose (if they ever did) and are no longer relevant.”[7] Further, the OECD stated, with regard to voluntary discussion groups, that the “ability for competitors to discuss sensitive market information regarding rates and to suggest pricing guidelines potentially serves to distort the market pricing mechanism, despite assurance from carriers to the contrary.”[8] Finally, the OECD noted that while many countries “at first, supported the principle of rate-fixing within conferences” they have since “increasingly sought to reduce the power of liner conferences and provide shippers with countervailing powers.”[9]

Based in part on OECD’s recommendations, the European Union recently announced that it has launched an extensive review of its own antitrust exemption for ocean carriers. In addition, the European Union recently prohibited ocean carriers from jointly setting inland transport rates under the European Union’s antitrust laws.[10] The European Commission held, and a European court affirmed, that the members of the conference had infringed upon their ocean carrier antitrust exemption by “agreeing [on] prices for inland transport services as part of a multimodal transport operation for the carriage of containerised cargo between northern Europe and the Far East.”[11]

The ocean carriers’ argued that the establishment of inland rates among the conference members’ in-house or contracted trucking companies produced no appreciable effect on trade between Member States of the European Union.[12] The court rejected this argument and found that although ocean carriers were establishing inland rates for only some portion of port trucking providers, the practice produced an anti-competitive distortion of the inland transport market. As in Europe, ocean carriers in the United States dictate the inland rates for the majority, if not all, of port trucking providers. As a result, the market for inland transportation services is distorted because it is dictated by the ocean carriers, rather than by the natural forces of supply and demand. The European Union now prohibits ocean carriers from establishing rates for the inland transportation segment of intermodal freight. Congress should follow this important decision and eliminate antitrust immunity for ocean carriers and allow inland transport rates to be determined by a free market.

In conclusion, by allowing ocean carriers to continue to collectively set rates, even through voluntary discussion groups, competition in the inland transportation segment will remain suppressed, and port drivers will suffer the results. Mr. Chairman, in 2000, critics of Mr. Hyde’s bill argued that we should wait two more years and give OSRA a chance to work before stripping the ocean carriers of their antitrust immunity. In 2000, we argued against waiting because we feared that, in that time, too many American port drivers would lose their trucks, their homes, and their livelihoods. The decision to wait, in hope for increased competition among ocean carriers, only has brought 50,000 port drivers closer to poverty and that many families closer to despair. Our message is a simple one. We asked you then, and we ask you again today, to end the systematic exploitation of port drivers by foreign-owned ocean carriers.

Mr. Chairman, thank you again for the opportunity to address this important issue. I truly hope that Congress will take action to create a fair and sustainable market place for the port trucking industry. Thank you.

[1] 46 U.S.C. § 1702(11) and § 1702(12). We understand that certain ocean carriers have enterred into an agreement under which they “discuss, evaluate and reach agreement . . . [regarding] matters pertaining to the interchange of carrier equipment . . . for shippers and consignees.” Ocean Carrier Equipment Management Association, FMC No. 202-011284-048, Art. 2. Under its terms, certain carriers agree that they are not authorized to “negotiate, agree upon, or jointly contract for freight rates or compensation to be paid by the parties to motor carriers and/or port truck drivers.” See id. at Art. 5.8. Although the language in this agreement is a step in the right direction, it falls well short of protecting against rate setting for inland transportation. First, it is not binding on all ocean carriers. Second, even though the signatory carriers may agree not to set trucking rates, they are permitted to discuss information (including costs) “related to any aspect of inland transport.” Id. at Art. 5.9. In addition, under this agreement, carriers are permitted to discuss charges for insurance, terminal handling, destination delivery, detention, and many other charges, all of which are used to establish through rate. Thus, albeit indirectly, a ceiling rate is placed on the amount an ocean carrier will pay a motor carrier for the cost of the inland move. Finally, the language of the Act does not expressly prohibit discussion among carriers of the “charge to the public by a common carrier for the non-ocean portion of through transportation.” See 46 U.S.C. 1706(b)(2). Accordingly, under current law, carriers are permitted to discuss such issues.

[2] 46 U.S.C. § 1709(c)(4).

[3] The OECD represents 30 member countries that all share a commitment to democratic governance and a market economy. Principally, the OECD conducts research and issues reports, statistics, and publications on trade, education, and science and development.

[4] Organization for Economic Co-Operation and Development, Draft Liner Shipping Competition Policy Report, dated November 6, 2001, (“OECD Draft Report”) at 72.

[6] OECD Draft Report at 73.

[7] Organization for Economic Co-Operation and Development, (Final) Liner Shipping Competition Policy Report, dated April 16, 2002, (“OECD Final Report”) at 77.

[8] OECD Final Report at 78.

[9] OECD Final Report at 74.

[10] In Case T-96/95, Judgment of the Court of First Instance (Third Chamber), ¶ 12. Inland transport includes “inland transport to the port, and inland transport from the port of destination to the place of final destination.” ¶ 15.