German Container Company Ordered to Pay $9.8 Million for Violating Shipping Act
German container shipper Hamburg Sud must pay nearly $10 million to OJ Commerce, an American e-commerce business, after Hamburg retaliated against OJC for threatening to file a complaint with the Federal Maritime Commission, the FMC’s administrative law judge ruled June 7. The massive fine came after the FMC said Hamburg Sud, owned by major shipping line Maersk, violated the Shipping Act’s anti-retaliation provision and refused to fulfill contract terms.
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Although OJC said it faced about $5 million in injuries, the judge said Hamburg’s “knowing and willful” violations warranted “additional damages” and doubled the penalty, ordering Hamburg to pay OJC $9,843,766.40 in reparations. The judge also said the case raised several “novel legal issues” about refusal to deal claims, retaliation claims and calculation of reparations.
The order stems from complaints submitted by OJC to the FMC in 2021 and 2022, which were filed before the enactment of the Ocean Shipping Reform Act last year and therefore only alleged violations of the Shipping Act. OJC accused Hamburg of unfairly charging demurrage fees and continually refusing to make space available for OJC’s goods.
After OJC lawyers told Hamburg it would be “forced” to file a complaint with the FMC accusing Hamburg of violating U.S. shipping regulations, Hamburg’s “unfair and unjustly discriminatory methods became more common and frequent,” OJC said, and Hamburg eventually told OJC that it would not renew its service contract under “any terms.”
In the order, the FMC judge said carriers can’t decline to do business with a shipper “for reasons having no relation to legitimate transportation-related factors.” But Hamburg argued that it didn’t “shut out” OJC, adding that it transported 185 of the 200 forty-foot equivalent unit containers that it committed to transport during its 2020-21 service contract and continued to ship “significant amounts of OJC’s cargo” throughout 2021 and 2022. It also argued that its decision not to enter into a service contract with OJC “does not constitute a refusal to deal.”
The judge pointed to several “smoking-gun emails” -- a term used by OJC -- that showed Hamburg refused to offer OJC cargo space, including an internal 2021 email sent from Hamburg Sud North America Senior Vice President Juergen Pump. Pump wrote: “We should not engage in any renewal discussions with customer in light of the potential litigation. I would also not provide them with space under the existing contract.”
The judge said the “preponderance of the evidence establishes” that Hamburg in 2021 “stopped dealing or negotiating in good faith” with OJC. That decision wasn’t “based on perceived unreasonable contractual requests or any other legitimate business decision or transportation factors,” the judge said, and therefore was “unreasonable.”
During arguments over whether Hamburg’s actions met the Shipping Act’s threshold for retaliation, the company said its emails show “a reasonable business decision based on a misunderstanding.” Hamburg also warned the judge about setting an “unworkable precedent” that could cause “every shipper” to file or threaten to file complaints with the FMC during contract negotiations. But OJC said a finding of retaliation “would essentially encourage carriers to retaliate if a dispute arose before the shipper could file its complaint, as a loophole to avoid liability.”
The judge determined Hamburg’s actions were retaliation after examining several factors, including Hamburg’s decision not to “communicate” to OJC that it ended its contract renewal talks because of “potential litigation” with the company before the FMC. Hamburg’s decision to omit that piece of information suggested that it “knew the real reason was not appropriate.”
In calculating its penalty, the judge said Hamburg was “aware for months that it was not meeting its contractual commitment” and “made a knowing decision not to provide that space” due to potential litigation before the FMC. “The evidence establishes that Hamburg’s executive, Mr. Pump, knew that his executive decision violated the Shipping Act.”
Instead of resolving OJC’s “legitimate concerns,” Hamburg “retaliated by not transporting containers under the service contract and ending negotiations for a new contract,” the judge said. “This knowing and willful behavior supports ordering payment of the maximum amount of additional damage amounts.”
Spokespeople for Hamburg Sud and Maersk didn’t immediately respond to a request for comment.