Compania Sud Americana Vapores S.A. (CSAV) is a shipping company operated by the Luksics, a billionaire family based out of Chile. Compared to others, it is not a large group, operating just 1.5% of the market share and placing 20th on the list of the top operators. Recently, the Justice Department brought down the hammer on CSAV for fixing prices on automobile shipments both leaving and entering the U.S.
“Price fixing” is a term that generally refers to any agreement between participants (in this case, CSAV and its co-conspirators) to decide on a particular price for a product or service in order to control the market and create profit for all parties involved. According to Department of Justice officials, the company’s goal was to suppress, if not eliminate, competition by manipulating bids, assigning customers and routes to themselves and specific co-conspirators, and fixing the prices of international ocean shipping services. Specifically, the price fixing affected “roll on, roll off” cargo, which is essentially cargo, such as automobiles, farm equipment, and construction machinery, which workers can roll on and off ocean liners without putting them in containers. This activity is in direct violation of the Sherman Antitrust Act.
Although no other co-conspirators have yet been named and a full list of ports involved has not been released, officials have revealed that CSAV was involved in illegal activity at the Port of Baltimore from January of 2000 to September of 2012. A representative from the Maryland Port Administration Baltimore said that the port is well-suited for competitive pricing on “roll on, roll off” business due to the wide variety of companies using the port, and that it’s hard to understand how such significant price fixing even occurred. The port has an incredible diversity for automobile shipments and it would have provided at least some buffer against price rigging. Importing and exporting automobiles accounts for more than 1,000 of the 14,500 jobs in the port, and the port handled 33,321 automobiles in January of 2014 alone.
CSAV plead guilty to violating the antitrust laws and as a result has to pay $8.9 million in criminal fines, as well as an additional $625,000 to resolve civil allegations of wrongdoing. It’s a good thing the company agreed to cooperate, as it could have faced up to $100 million in criminal fines if it hadn’t accepted a plea bargain – the maximum for corporations charged with price fixing. That being said, law also allows the courts to fine guilty parties up to twice the gain derived from the crime or twice the loss suffered by victims of the crime instead, if the amount exceeds $100 million.
Despite the fact that CSAV has a relatively small portion of market share, the 6th largest shipper – Hapag Lloyd – has begun planning an initial public offering on the Frankfurt Stock Exchange to merge with CSAV. The deal will likely be finalized by early March and will create the 4th largest container shipper in the world in terms of capacity. The deal calls for two capital increases totaling $1 billion – one within the first 100 days after the merger, and the other within the first year after the process is completed. The plan comes as good news for the Luksic family, whose company has been battling steep losses due to high fuel prices, low freight rates, and expensive leases.
