Home furniture manufacturer and supplier MCS Industries, Inc. got a win in a Federal Maritime Commission (FMC) court two months after filing a $600,000 lawsuit against China’s Cosco Shipping and Switzerland’s Mediterranean Shipping Co. alleging they failed to meet their contractual commitments.
Although Mediterranean has yet to settle, Cosco agreed to resolve the dispute for an undisclosed sum as afforded by the FMC’s confidentiality policy.
U.S.-based MCS, whose home goods and furnishings retail clients include Target, Walmart, Home Depot and Lowe’s, claimed in its initial suit that the foreign-owned carriers had “unjustly and unreasonably” exploited customers and colluded to manipulate the market in violation of the U.S. Shipping Act.
In particular, MCS alleged that collusion was made possible by the fact that there are now just three alliances which the major ocean carriers are now a part of (2M, THE Alliance and Ocean Alliance) that dominate more than 90 percent of the main east-west shipping routes. Mediterranean is part of 2M, while Cosco is part of Ocean Alliance.
“In a stark break from pre-pandemic practice, several ocean carriers refused to negotiate or provide service contracts to MCS, and those that did provide such service contracts, including the respondents named herein, refused to provide more than a fraction of the cargo capacity that MCS requested and needs, despite the fact that the respondents overall have continued to operate at or near pre-pandemic capacity,” the filing reads.
MCS said Cosco offered just 1.6 percent of the capacity it was contractually obliged to make available from May to July, while Mediterranean offered 35 percent. The home décor supplier also alleged that Cosco discriminated against U.S. shippers, instead favoring Chinese shippers with greater space allotments.
Cosco initially called MCS’s 1.6 percent claim “a falsehood,” saying that the supplier did not confirm any bookings during June at the traditional ports they mutually use. The Chinese company claimed MCS failed to use all space offered and confirmed to it in July.
Nevertheless, MCS said that the limited service forced the company to buy space in the “spot market,” which dictates the current market value for immediate delivery.
“By definition, the service contracts required respondents to ‘commit to a certain rate or rate schedule and a defined service level, such as assured space, transit time, port rotation or similar service features,’” the complaint said.
These spot rates have been inflated at prices much higher than contract rates, with MCS indicating in its suit that a container that cost approximately $2,700 to ship from China to the U.S. West Coast in 2019 now might cost $15,000 or more on the spot market.
As of Sept. 16, Drewry’s composite World Container Index of spot freight rates calculated an increase to $10,374.64 per 40-foot container, 323 percent higher than the same week in 2020. This is the 22nd consecutive week of increases. Similar to MCS’s comment in its July filing, Drewry calculates the average spot rate of a 40-foot container to be $16,138, or 252 percent up from a year ago.
The FMC settlement agreement aims to restore and reinforce the longstanding business relationship between the parties, so it appears MCS and Cosco will resume their partnership under the new terms. As such, the settlement agreement “reflects the parties’ desire to resolve their issues without the need for costly and uncertain litigation,” it said.
For these reasons, MCS requested the agreement’s approval and the dismissal of the claims against Cosco.
The suit is still ongoing with Mediterranean, which initially rejected MCS’s collusion claims, and said in its response that its non-carriage of the manufacturer’s cargo was in line with agreements.
As one deal gets settled, another rises. Eucatex North America, a company in the construction space, filed a complaint with the FMC, alleging that CMA CGM and Fenix Maritime Services overcharged for detention and demurrage on 43 containers, leaving it more than $270,000 out of pocket.
The case is likely being watched by other shippers, hit hard by escalating freight fees, capacity constraints and port congestion during the pandemic.
Additionally, MCS’s claims that both Cosco and Mediterranean violated the U.S. Shipping Act are timely as bipartisan legislators are looking to update the law, particularly when it comes to detention and demurrage, which many say has led to eye-watering cargo costs. A coalition of 152 companies and trade associations representing U.S. importers, exporters, transportation providers and other supply chain stakeholders submitted a letter of support to Congress on Monday, Sept. 13, endorsing the Ocean Shipping Reform Act of 2021.