[Federal Register Volume 63, Number 244 (Monday, December 21, 1998)]
[Notices]
[Pages 70409-70410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33706]


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FEDERAL TRADE COMMISSION

[File No. 9410047]


Columbia River Pilots; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Action proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before February 19, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
K. Shane Woods or Charles A. Harwood, Seattle Regional Office, Federal 
Trade Commission, 915 Second Ave., Suite 2896, Seattle, Washington 
98174, (206) 220-6363.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for December 14, 1998), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the 
FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, N.W., 
Washington, D.C. 20580, either in person or by calling (202) 326-3627. 
Public comment is invited. Such comments or views will be considered by 
the Commission and will be available for inspection and copying at its 
principal office in accordance with Section 4.9(b)(6)(ii) of the 
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted a proposed consent order 
from Columbia River Pilots (``COLRIP''). COLRIP is an association of 
approximately forty marine pilots licensed by the State of Oregon to 
provide navigational assistance to vessels on the Columbia River. 
COLRIP facilitates the provision of marine pilotage by its members by, 
among other things, dispatching marine pilots to incoming and outgoing 
vessels and collecting and distributing marine pilots' fees.
    In 1989, two pilots resigned from COLRIP to form a competing 
pilotage group, Lewis & Clark Pilotage, Inc. (``L&C''). For the first 
time in forty years, there was competition for pilotage services on the 
Columbia River. The benefits from this competition were immediate and 
significant. L&C made several improvements in its service that reduced 
costs to shippers.
    The profitability of shippers depends on the speed and volume of 
shipments. Ships cost tens of thousands of dollars a day to operate. 
Shippers' costs are lower the less time ships are on the river and the 
more product they ship. Marine pilots play an important role in this 
effort, because they influence the time a vessel is on the river and 
how much cargo is transported. L&C quickly improved efficiency on the 
Columbia River by expanding the hours pilots moved vessels, by working 
with shippers to get a maximum load for the time of sailing, and by 
being available to move vessels twenty-four hours a day, without 
significant advance notice. The results were dramatic. For example, at 
Peavey Grain Company, a ConAgra-owned grain elevator that is among the 
largest on the West Coast, L&C's practices improved the rate at which 
Peavey funneled grain through its elevators by more than 10%, resulting 
in significant cost reductions for Peavey.
    L&C's innovations reverberated through the market. COLRIP improved 
its services in response to L&C by, e.g., dispatching pilots more 
quickly and moving longer and deeper vessels under a broader range of 
conditions with fewer tugs. Before L&C's entry, COLRIP offered none of 
the service innovations that L&C provided Peavey. After L&C's 
formation, the Oregon legislature modified Oregon's pilotage statute to 
protect competition from regulatory interference in marine pilotage.
    Unfortunately, the benefits of competition were short lived. COLRIP 
took actions to eliminate L&C and any future competitors. Soon after 
L&C's formation, COLRIP adopted a series of penalties for its remaining 
members so severe that no other COLRIP pilot was likely to leave COLRIP 
to join L&C or to form a new company. Any COLRIP pilot who left to 
compete with COLRIP would forfeit $200,000, appreciation in stock in a 
corporation owned by COLRIP members, pension benefits, and six months' 
work on the Columbia. This last penalty would not only cost the marine 
pilot approximately $70,000 in lost revenues, but would also provide 
grounds under Oregon law for requiring that the pilot either be 
retrained or have his license revoked. Because COLRIP was responsible 
for pilot training, this penalty could have effectively ended a pilot's 
career on the Columbia River.
    In 1991, L&C sued COLRIP, alleging that COLRIP instigated a series 
of acts to eliminate competition and preserve its monopoly, including 
threatening shipping agents with labor disruptions should they hire L&C 
for work outside Peavey. See Lewis & Clark Pilotage Inc. v. Columbia 
River Pilots, No. CV91-25 (D. Ore. filed January 8, 1991). COLRIP and 
L&C settled this ligation on terms that allowed L&C to survive, but 
restricted competition. COLRIP agreed to let L&C serve shippers berthed 
at Peavey, but L&C could not provide pilotage to any other vessels. L&C 
could bid on business at new docks, but it could not expand by more 
than a single pilot, which limited its ability to serve new business.
    In addition, as part of the litigation settlement, COLRIP required 
L&C not to enter exclusive dealing contracts. L&C's

[[Page 70410]]

exclusive dealing contract with Peavey had fostered L&C's entry. It is 
likely that an upstart firm such as L&C could be successful only if it 
could enter exclusive deals.
    Finally, the settlement prohibited L&C from proposing or supporting 
a rate structure that did not have the essential features of the 
current rate structure. This provision substantially reduced 
competition in the rate-setting process. Rates are set by the Board 
after soliciting proposals from shippers and pilot groups.
    The settlement permitted L&C to continue to compete, although at a 
diminished level. The penalties imposed by COLRIP on pilots leaving to 
compete with COLRIP were devastating to competition. Because L&C could 
not recruit new pilots, L&C was forced to exit the market when its 
founding members retired.
    The complaint charges that COLRIP's penalties on pilots leaving to 
compete and its settlement with L&C violate Section 5 of the Federal 
Trade Commission Act, as amended, 15 U.S.C. Sec. 45. COLRIP's penalties 
on pilots leaving to compete with COLRIP protected COLRIP from 
additional competition. Not one pilot left to compete with COLRIP, 
either by joining L&C or by forming another pilotable group, after 
COLRIP adopted these penalties. Indeed, no pilot has left COLRIP since 
L&C's founders retired and COLRIP regained its monopoly. L&C's pilotage 
business was very profitable and, absent COLRIP's draconian penalties, 
should have attracted competition. In addition, COLRIP's settlement 
with L&C all but eliminated the ability of L&C to compete with COLRIP 
before L&C exited the market. The settlement substantially limited 
L&C's ability to offer pilotage to customers other than Peavey Grain 
Company and reduced L&C's ability to influence rates before the Oregon 
Board of Maritime Pilots. The settlement provisions and the penalties 
on departing pilots were not justified on efficiency grounds.
    The proposed consent order would prohibit COLRIP from penalizing 
marine pilots who leave to compete with COLRIP, except where a pilot 
either has been a member of COLRIP for less than five years or fails to 
give COLRIP ninety days' notice of his intention to leave. COLRIP is 
also required to notify its members and the local shippers' association 
of this prohibition.
    COLRIP's ability to penalize pilots who leave before serving five 
years appears unlikely to prevent competition in pilotage, since it 
affects only 25% of COLRIP's members. Approximately 75% of COLRIP's 
marine pilots would immediately be free to leave COLRIP without a 
penalty. Moreover, it appears reasonable for COLRIP to demand that 
pilots remain for some period after COLRIP has trained them. Similarly, 
the notice requirement appears too brief to reduce significantly a 
pilot's incentive to leave and would afford COLRIP the opportunity to 
attend to internal issues raised by a departure, such as pilot 
scheduling changes and any contractual pay-outs required by a 
departure.
    Should competition emerge, the proposed consent order also would 
protect that competition by prohibiting COLRIP from entering into 
agreements similar to the ones with L&C. That is, COLRIP cannot agree 
with a competitor to allocate customers, limit a competitor's size, or 
restrict the competitor's ability to enter exclusive agreements with 
customers or to submit rate proposals or otherwise communicate with the 
Oregon Board of Maritime Pilots. Finally, COLRIP cannot prevent a 
COLRIP marine pilot from recommending or otherwise supporting an 
applicant for a pilot's license or for training to obtain one. This 
restriction on COLRIP should encourage more applicants and expand the 
number of available pilots.
    The proposed consent order has been placed on the public record for 
sixty (60) days for receipt of comments from interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will again review the 
agreement and the comments received, and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    The purpose of this analysis is to assist public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the agreement containing the proposed consent order 
or to modify in any way its terms.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-33706 Filed 12-18-98; 8:45 am]
BILLING CODE 6750-01-M