Rick Rude, a Washington attorney who has engaged in numerous battles with domestic offshore carriers over more than 25 years, said the federal antitrust investigation has the potential to produce changes in the Jones Act.
Rude said the federal investigation, depending on how it turns out, could be as explosive as the revelations of abuses in the 1928 Merchant Marine Act's contracts for subsidized mail carriage by U.S.-flag lines. Those produced congressional hearings that were followed by the 1936 Merchant Marine Act, which scrapped mail subsidies in favor of a new subsidy system for U.S.-flag international carriers.
"The lack of competition and price-fixing, if ultimately substantiated, is reflective of an absolute failure of federal policy in the domestic offshore trades, and of the Surface Transportation Board's position that it is not responsible for ensuring competition," he said. "This carries more potential for change than anything since 1928."
Horizon Lines Inc. (HRZ) Chairman, President and CEO Charles G Raymond sells 6,000 Shares
Chairman, President and CEO of Horizon Lines Inc. (HRZ) Charles G Raymond sells 6,000 shares of HRZ on 09/29/2009 at an average price of $6.51 a share.
Recent Trades of Horizon Lines Inc. by CEO:
* Sell: Chairman, President and CEO Charles G Raymond sold 6,000 shares of HRZ stock on 08/31/2009 at the average price of $5.54; the price of the stock has increased by 18.05% since.
* Sell: Chairman, President and CEO Charles G Raymond sold 6,000 more shares of HRZ stock on 07/29/2009 at the average price of $4.92; the price of the stock has increased by 32.93% since.
* Sell: Chairman, President and CEO Charles G Raymond sold 6,000 more shares of HRZ stock on 06/29/2009 at the average price of $3.8; the price of the stock has increased by 72.11% since.
* Sell: Chairman, President and CEO Charles G Raymond sold 6,000 more shares of HRZ stock on 05/29/2009 at the average price of $5.21; the price of the stock has increased by 25.53% since.
* Sell: Chairman, President and CEO Charles G Raymond sold 6,000 more shares of HRZ stock on 04/29/2009 at the average price of $4.65; the price of the stock has increased by 40.65% since.
That's the whole point ... the current DOJ investigation could result in the conclusion that the Jones Act has created an anti-competitive market - that the Jones Act is responsible for the high shipping costs to Hawaii, etc. Why do I have to pay $9 for a gallon of milk in Hawaii when it costs half that in the mainland? Re-read this paragraph:
"Rude said the federal investigation, depending on how it turns out, could be as explosive as the revelations of abuses in the 1928 Merchant Marine Act's contracts for subsidized mail carriage by U.S.-flag lines. Those produced congressional hearings that were followed by the 1936 Merchant Marine Act, which scrapped mail subsidies in favor of a new subsidy system for U.S.-flag international carriers."
So you're telling me that Congress would allow an even playing field for all carriers covering domestic shipping routes? What pipe dream is this? Moving goods, including military ones, within the vast corners of the empire would be considered a "national security issue" even before any Jones Act elemination talk could get going. Rememember the stink when DP World, just two years ago, proposed to take an ownership stake in over a half-dozen U.S. Ports?
First of all , it is not up to DOJ to interpret policy that is mandated by Congress. Jones Act is (and has been) law! In other words, it is a sanctioned monopoly by the nation-state. Absent any contrary legislative action, it's probably here to stay in its current form and DOJ is bound to enforce such law.
If the company has made a $20mm civil settlement in the Puerto Rico price fixing case, will the auditors require them to take a reserve for a criminal fine? It is all but certain that they will be found guilty of price fixing on the Puerto Rico trade lane by the DOJ - 3 former executives in prison, settling a civil case, etc. At what point do the auditors make them provision for criminal fines and what impact will that have on earnings?
Seems like its no question there will be a large DOJ fine here, but the uncertainty of the amount means there probably won't be an accrual until any settlement is reached. Look for even more broad disclaimers to cover all eventualities. Its not like the co. isn't telling people about this risk.
From the Journal of Commerce:
Two things about the guilty pleas were noteworthy. First, the speed at which they were reached — it took less than six months after the federal raids for the defendants to accept plea deals with prison terms, which suggests that prosecutors had an airtight case. Second, the positions that the former carrier officials held. Among those headed to prison are former senior vice presidents of Horizon and Sea Star.
For Jones Act carriers, the most ominous detail about this month’s guilty pleas was the Justice Department’s statement that these are “the first charges in the Antitrust Division’s ongoing investigation into collusion in the coastal shipping industry.” Where the investigation will lead remains unclear, but the feds have left no doubt that they’re serious.
“…the Justice Department says its investigation continues to widen to other domestic shipping markets… investigation “is far broader than simply the U.S. and Puerto Rico trade. This is a nationwide investigation that involves other trade lanes.”
The Justice Department said Baci’s sentence was the longest ever imposed for a single antitrust violation
Houlihan said Baci has “contemporaneous notes contained in his personal notebook … from 2002 through 2008” and “an enormous collection of e-mails substantiating the conspiracy...Furthermore, since Mr. Baci has provided information about meetings and travel, he has alerted the government to additional evidence (i.e., travel vouchers and airline and hotel records) that will corroborate his extensive testimony.”
So--BUY on the DIPS and sell on the UP -- no different than any other stock. Hell, if the Govt looked into the way 50% of the deals in corporate America were made -- we'd have a CONSTRUCTION BOOM building new jails!!!
IF there are going to be any changes to Jones Act, particularly under this current administration, it will probably for the strengthening of it to carriers who already prosper under it. It's hard to see it otherwise. A little know fact about the legislative history of the Act centers on its legislative intent by its makers back in the 1930's. "National security" is one such unwritten intent. International competition in merchant shipping and navies was starting to build up in the 1930's, in anticipation of trade wars and embargos (US-Japan), as well as the likelihood of armed conflict. Today's environment, although different is also the same. In the coming years, there is going to be a growing distinction between domestic shipping and international shipping. All one has to look at is where the dollar and globalizaton is at and going. 2/3 of all dollars (and its inflation) printed are held overseas (foreigners), while 1/3 is injected in the domestic (US) economy.
With capacity utilization at 60%, I can't imagine the DOJ would be happy to see that it costs $900 to ship a container all the way from China to Los Angeles and shipping that same container from Los Angeles to Hawaii costs $3,300. There's a massive overcapacity in container ships and containers - shouldn't rates be correlated with capacity utilization? I wonder how much longer before HRZ will see lower rates ... any thoughts?