Antitrust On The High Seas Case Study

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AugusL 1, 2012

8y: WalLer A. avlo, !r. AugusL 1, 2012
Ant|trust on 1he n|gh Seas
!acksonvllle, lL ls one of Lhe buslesL porLs on Lhe easL coasL of Lhe unlLed SLaLes. ShlpmenLs Lhrough Lhe
porL represenL more Lhan 16 mllllon Lons each year of manufacLured goods, farm producLs, coal, crude
peLroleum, reflned peLroleum producLs and chemlcals. Shlps from all over Lhe world load and dlscharge
goods ln Lhe porL each day. ShlpmenLs Lo and from domesLlc u.S. porLs are also parL of porL acLlvlLles ln
!acksonvllle buL Lhelr acLlvlLles fall under unlque u.S. governmenL marlLlme laws.
1he MerchanL Marlne AcL of 1920-SecLlon 27, beLLer known as Lhe !ones AcL, provldes regulaLlon for
caboLage (shlpplng beLween u.S. porLs). 1hese regulaLlons requlre LhaL all goods LransporLed by waLer
beLween porLs of Lhe unlLed SLaLes be carrled on u.S. flagged shlps, consLrucLed ln Lhe u.S., owned by
u.S. clLlzens, and crewed by u.S. clLlzens. 1he purpose of Lhe !ones AcL was/ls Lo supporL Lhe u.S.
marlLlme lndusLry and provlde general securlLy by havlng u.S. shlps move cargo beLween u.S.
desLlnaLlons. 8ecause of Lhese resLrlcLlons and Lhe relaLlvely small slze of Lhese Lrade rouLes,
ollgopollsLlc markeLs develop where only a very small number of carrlers serve rouLes Lo sLaLes or
LerrlLorles ouLslde of Lhe malnland u.S. uerLo 8lco, a u.S. LerrlLory, falls under Lhe !ones AcL for
marlLlme LransporLaLlon beLween Lhe conLlnenLal unlLed SLaLes and uerLo 8lco.
lf you have ever gone a crulse shlp ouL of Lhe porL ln Mlaml, lL and your desLlnaLlon was uerLo 8lco,
Lhe shlp sLopped aL a locaLlon ouLslde of Lhe u.S. prlor Lo maklng porL ln uerLo 8lco. lor crulse shlps,
whlch are prlmarlly non-u.S. vessels, Lhey are requlred Lo do Lhls because lL would be a vlolaLlon of Lhe
!ones AcL Lo leave dlrecLly from Mlaml and Lhen make porL ln uerLo 8lco. Also, ln a slmllar seL of
regulaLlons, Lhe u.S. alrllne lndusLry has resLrlcLlons LhaL llmlL domesLlc alr rouLes Lo domesLlc u.S.
carrlers. 1hls ls why you do noL see, for example, Alr Chlna flylng from 8osLon non-sLop Lo Los Angeles.
ln CcLober 1998, Sea SLar Llne (SSL) was formed Lo provlde shlpplng servlces under Lhe !ones AcL,
carrylng goods from !acksonvllle, lL Lo San !uan, uerLo 8lco. SSL provlded conLalner, shlpplng servlces
on Lhelr Lwo shlps, whlch were boLh abouL 764' long and 92' wlde. 1hey could carry up Lo 600 sLandard
(40') conLalners aL a speed of 23 knoLs (abouL 30 mph).

AugusL 1, 2012
2
8ackground
eLer 8acl (31) [olned Sea SLar Llne (SSL) ln CcLober of 1998 havlng spenL hls enLlre career ln Lhe
marlLlme lndusLry ln poslLlons of lncreaslng auLhorlLy and responslblllLy. ln college, eLer had obLalned
a 8achelor of Sclence degree from a well-recognlzed marlLlme lnsLlLuLlon, Lhe SLaLe unlverslLy of new
?ork MarlLlme College ln new ?ork ClLy. ln addlLlon Lo hls degree he was commlssloned ln Lhe unlLed
SLaLes navy 8eserve and held a 1hlrd Cfflcer's MerchanL Marlners Llcense by Lhe unlLed SLaLes CoasL
Cuard. uurlng Lhe flrsL four years of hls career he worked on Lhe ocean and vlslLed over 23 counLrles
from SouLh vleLnam, Lo lndla, Lo norLhern Lurope, Lo SouLh Amerlca. Pe loved belng parL of Lhe
marlLlme lndusLry and evenLually Look managemenL [obs ln Lhe shlpplng lndusLry wlLh some of Lhe
leadlng shlpplng companles. AL each sLep of hls career he performed exLremely well and was rewarded
by hls employers Lhrough promoLlons and bonuses. Pls roles aL Lhese companles generally focused on
Lhe commerclal aspecLs of shlpplng lncludlng sales, markeLlng, buslness developmenL and prlclng/yleld
managemenL.
eLer was also a famlly man who was marrled and had Lwo chlldren who were ln hlgh school aL Lhe Llme
he [olned SSL. uurlng hls Llme aL SSL he served as resldenL of Lhe !acksonvllle MarlLlme Museum
SocleLy, resldenL of Lhe ropeller Club of Lhe unlLed SLaLes for Lhe orL of !acksonvllle and llrsL vlce
resldenL of Lhe lorL Schuyler MarlLlme Alumnl AssoclaLlon.
SSL goL lLs sLarL ln 1998 by acqulrlng Lhe asseLs of uerLo 8lco-based Sea 8arge, whlch had puL lLself up
for sale afLer 13 years of belng ln buslness as a !ones AcL carrler beLween Lhe u.S. and uerLo 8lco. SSL
Look over Lhe exlsLlng cusLomers and launched Lhelr buslness. An lnlLlal lnvesLmenL ln Lhe company was
made by Lhree parLners, MaLson navlgaLlon (43), SalLchuk 8esources (43) and 1alno SLar (10).
MaLson had experlence ln !ones AcL LransporLaLlon servlces and lL was subsldlary of a larger, n?SL
Lraded company, wlLh exLenslve experlence ln shlpplng beLween Lhe conLlnenLal u.S. and Pawall.
SalLchuk 8esources (prlvaLely held) also was lnvolved ln domesLlc shlpplng rouLes operaLlng beLween Lhe
conLlnenLal u.S. and Alaska. 1alno SLar was a group of local uerLo 8lcan lnvesLors wlLh numerous
buslness connecLlons ln uerLo 8lco lncludlng many aL marlne Lermlnal faclllLles. lL was an experlenced
group of lnvesLors wlLh slgnlflcanL flnanclal sLrengLh wlLh Lhe purchase of Lhe Sea 8arge cusLomer base
and Lhe flnanclal resources of Lhe lnvesLors.

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AugusL 1, 2012
3
MaLson owned Lwo shlps LhaL were ldled ln San lranclsco and Lhey puL Lhose lnLo servlce aL SSL. 1he
speed of Lhe shlps (23 knoLs) enabled SSL Lo dellver cargo beLween !acksonvllle and San !uan, uerLo
8lco ln 34 hours across a dlsLance of nearly 1,200 sea mlles. 1he speed was parLlcularly lmporLanL for Lhe
movemenL of producLs suscepLlble Lo spollage such as produce and fresh chlcken. 'Speed' was also
lmporLanL for cusLomers ln Lhe pharmaceuLlcal buslness, sofL-drlnk manufacLurlng, package shlpplng,
such as ledLx and uS, and some large reLallers such as Wal-MarL. WlLh Lhe hlgh speed, SSL shlps were
able Lo make a round Lrlp wlLhln a week on a regular basls. lL provlded an advanLage over slower
vessels, owned by compeLlLors, whlch servlced Lhe same rouLe.
SSL had lLs own managemenL Leam and lLs resldenL reporLed Lo Lhe 8oard of Managers represenLlng
Lhe Lhree lnvesLors. 1he 8oard of Managers meL wlLh Lhe SSL resldenL and hls managemenL Leam on a
quarLerly basls. 1hese meeLlngs generally focused on Lhe flnanclal resulLs of Lhe buslness and lncluded
sLraLeglc plannlng revlews and long Lerm caplLal plannlng. 1he 8oard of Managers provlded dlrecLlon
and was also responslble for Lhe appolnLmenL of audlLors. Cne member of Lhe SSL Leam was Lhe Senlor
vlce resldenL-Commerclal Lo whom eLer lnlLlally reporLed as vlce resldenL-MarkeLlng. eLer's lnlLlal
responslblllLles lncluded Lhe prlclng, lnLermodal (movemenL of cargo Lo and from Lhe shlp) and
markeLlng funcLlon. rlclng declslons were based on an evaluaLlon of Lhe cusLomer's needs and Lhe
compeLlLlve envlronmenL. 1he markeLlng funcLlon measured SSL's performance ln Lhe markeL and Lhe
developmenL of markeL sLraLegles, speclflcally, whlch parLs of Lhe markeLs SSL wanLed Lo focus on Lo
maxlmlze sales and proflL. ln Lhls poslLlon, eLer had access Lo every markeLlng and prlclng declslon LhaL
affecLed SSL's cusLomers.
eLer also was able Lo deLermlne Lhe markeL share of each compeLlLor ln Lhe u.S./uerLo 8lco markeL by
uslng publlcally avallable lnformaLlon from Lhe !ournal of Commerce lL8s sysLem. 1he lL8s sysLem
represenLed a commerclal daLabase, avallable by subscrlpLlon, whlch provlded a vlew lnLo recenL
commodlLy movemenLs of u.S. lmporLs and exporLs. 1he !ournal of Commerce was lnlLlally a marlne
LransporLaLlon newspaper, slmllar Lo whaL Lhe Wall SLreeL !ournal ls Lo flnance. As a newspaper lL sends
lLs reporLers Lo Lhe CusLoms Pouses Lo gaLher shlpplng lnformaLlon. Cver Llme, Lhese became
auLomaLed daLa feeds of valuable lnformaLlon LhaL every shlpplng company used Lo galn markeL
lnformaLlon. lL provlded ln-depLh lnformaLlon LhaL allowed eLer Lo deLermlne exacLly whlch loads hls
compeLlLors were movlng Lo and from uerLo 8lco. SSL's compeLlLors had Lhe same compeLlLlon
vlslblllLy.

AugusL 1, 2012
4
1he Compet|t|on
1here were a number of barrlers Lo enLry ln Lhe uerLo 8lcan caboLage markeL, whlch meanL LhaL Lhere
would be few compeLlLors. 1he prlmary facLors llmlLlng compeLlLlon were dlrecLly aLLrlbuLable Lo Lhe
!ones AcL and were:
a) no compeLlLlon from forelgn operaLed vessels
b) LnLrenched markeL poslLlons of Lhe lncumbenL shlpplng companles
c) Large caplLal lnvesLmenL and long dellvery lead Llmes ln bulldlng a new conLalner shlp ln Lhe
unlLed SLaLes
d) SubsLanLlal lnvesLmenL ln lnfrasLrucLure needed Lo handle conLalner shlps
e) ConsLralnLs on porL space ln San !uan, uerLo 8lco
f) Plgh flxed cosLs (e.g. shlp) relaLlve Lo varlable cosL (e.g. fuel), and
g) need Lo develop a broad base of cusLomer relaLlonshlps Lo reallze economles of scale

WlLh Lhe acqulslLlon of Sea 8arge, Lhe experLlse of Lhe lnvesLor parLners and Lhe connecLlons of Lhose
same parLners, SSL was able Lo overcome Lhese barrlers.

1here were flve (3) companles, lncludlng SSL, compeLlng ln Lhe unlLed SLaLes (prlmarlly !acksonvllle) Lo
uerLo 8lco rouLe (see Lable below). 1he shlpplng servlces were broken down lnLo Lwo Lypes of servlces,
Shlp and 8arge. 1he Lwo prlmary dlfferences beLween Lhe servlces was speed of shlpmenL (Shlp Servlce
belng fasLer) and cosL (8arge Servlce belng cheaper). 1he compeLlLlve landscape and Lhe number of
vessels ln use were as follows:

Market Competitors Ship Service Barge Service
SSL 2
Navieras de Puerto Rico (NPR) 4
Crowley Liner Services 7
Horizon Lines 4
Trailer Bridge 4
Total
10 11

rlclng ln Lhls envlronmenL was lnelasLlc, meanlng LhaL prlce changes of Lhe servlce, ln Lhls case
shlpplng, dld noL cause much of an lncrease or decrease ln Lhe amounL of shlpplng LhaL was done over
Lhe rouLe. AfLer all, when goods have Lo be shlpped Lo an lsland, Lhere ls no oLher compeLlLlon for
LransporLaLlon such as Lruck or rall servlces (alr frelghL ls cosL prohlblLlve for mosL lLems LhaL are
rouLlnely LransporLed ln bulk). So Lhe goods have Lo be shlpped no maLLer Lhe prlclng pressure for
geLLlng Lhe goods Lo Lhelr desLlnaLlon.
lrom 1998 unLll 2002, navleras de uerLo 8lco (n8) embarked on a volume-drlven buslness sLraLegy,
whlch meanL LhaL Lhey would aLLempL Lo galn more buslness aL any prlce. As a quasl-governmenL
(uerLo 8lco) owned operaLlon, lL had already susLalned slgnlflcanL flnanclal losses for mosL of lLs 20
AugusL 1, 2012
3
years ln buslness. 1he sLraLegy was Lo drlve oLher compeLlLors ouL of buslness so LhaL, over Llme, prlces
could be lncreased Lo levels LhaL would yleld a proflL. 1hls sLraLegy, and Lhe compeLlLlve envlronmenL,
would puL pressure on SSL as lL sLarLed lLs new buslness.
lL was a hlghly compeLlLlve markeL. ln facL, whlle Lhere was a nearly 14 lncrease ln Lhe number of
conLalners shlpped on uerLo 8lco Lrade rouLes from 1994 Lhrough 2003, frelghL raLes for shlpplng
beLween Lhe u.S. malnland and uerLo 8lco decllned by 30 due Lo excess supply (Loo many shlps).
CperaLlng resulLs for all flve carrlers were awful. lL was esLlmaLed LhaL ln 2001, Lhree years afLer SSL's
lnlLlal voyage, Lhe flve shlppers collecLlvely reallzed flnanclal losses ln excess of $100M.
1he lnvesLors ln SSL had envlsloned a peaceful, maLure markeL place, llke Lhe ones Lhey saw on Lhelr
Alaska and Pawall rouLes. lnsLead Lhey found a markeL LhaL was hyper-compeLlLlve, Lhanks ln large parL
Lo Lhe markeLlng sLraLegy of n8.
Some rellef came when Lhe owners of n8 flled for bankrupLcy ln March 2001. no longer able Lo susLaln
annual losses and achleve Lhe goal of becomlng Lhe domlnanL player, n8 dropped ouL of Lhe buslness
by flllng for bankrupLcy. AL Lhe Llme, n8 had abouL 20 of Lhe markeL, so Lhls was good news for Lhe
survlvlng compeLlLors.
SSL's 8oard of Managers meL Lo declde how Lo reacL Lo Lhe demlse of n8. SalLchuk was moLlvaLed Lo
purchase Lhe asseLs of n8 wlLh hopes of reshaplng Lhe markeL. MaLson, on Lhe oLher hand, wanLed Lo
sLay Lhe course wlLhouL any furLher lnvesLmenL (n8 asseLs) and hope for beLLer resulLs wlLh one-less
compeLlLor. SSL averaged an annual loss of $20 mllllon a year, so Lhrowlng more money lnLo Lhe
company was of no lnLeresL Lo MaLson. 1alno SLar slded wlLh SalLchuk, and Lhe declslon Lo move
forward wlLh Lhe purchase of n8 asseLs was made, buL MaLson wanLed ouL of Lhe lnvesLmenL.
SalLchuk lnvesLed Lhe money needed Lo purchase Lhe asseLs of n8 ($32 mllllon) and a seLLlemenL was
negoLlaLed for MaLson Lo leave Lhe parLnershlp. SalLchuk was now 90 owner of SSL and 1alno SLar was
10. SalLchuk managemenL would clearly be calllng Lhe shoLs for SSL.
SSL purchased n8's remalnlng asseLs, lncludlng 4 shlps, for $32 mllllon. 1hree of n8's shlps were sold
as scrap and one was sold Lo Porlzon, who used lL for replacemenL parLs (never puL lnLo servlce). now
Lhere were 6 shlps provldlng Shlp Servlce" where Lhere had been 10 before. Whlle Lhls Look over 1,600
conLalners per week of capaclLy off of Lhe markeL, eLer and oLhers sLlll had doubLs LhaL Lhe companles
could be proflLable ln Lhls markeL.
8uL senlor managemenL sLlll saw poLenLlal and soughL Lo make changes ln Lhe managemenL sLrucLure.
1he senlor vlce presldenL of SSL was LermlnaLed ln 2001 and eLer was promoLed Lo Lhe [ob. 1he person
who eLer replaced had been Lhe person who broughL hlm lnLo Lhe company. 1he resldenL of SSL was
LermlnaLed and Lhe new ma[orlLy lnvesLor senL ln Lhelr man Lo Lurn Lhlngs around unLll a permanenL
presldenL could be found.
SalLchuk, now Lhe 90 owner, began Lo Lhrow senlor managemenL resources and personnel aL
challenges LhaL SSL was experlenclng. Cne of Lhem was senlor shlpplng execuLlve, Leonard Shaplro. As
a resulL, heaLed meeLlngs Lo Lurn Lhlngs around and LermlnaLlon of employees became commonplace.
AugusL 1, 2012
6
Shaplro was deLermlned Lo Lurn Lhlngs around. Lven Lhough eLer was a veLeran of Lhe lndusLry, he
knew Lhlngs were Lough and was lnLlmldaLed by Lhe new managemenL and Lhe dlfflculL worklng
condlLlons ln Lhe offlce.
ln hls new poslLlon, eLer's mosL lmporLanL mlsslon was Lo lncrease Lhe yleld/conLalner LhaL SSL
achleved, whlch would ln Lurn make Lhe company proflLable. Cnce ln Lhe role, he consldered varlous
alLernaLlves Lo achleve hls goal, lncludlng slmply announclng a very large prlce lncrease shorLly afLer Lhe
asseL acqulslLlon of n8. lL would have been a qulck flx buL from a publlc relaLlons sLandpolnL and
pollLlcal lmpllcaLlons, lL would have been dlfflculL Lo Lake over a compeLlLor, n8, and Lhen [ack up Lhe
prlces so qulckly. eLer conLlnued Lo do deLalled analysls of Lhe compeLlLlon and evaluaLed how SSL
could Lurn Lhe buslness around. Crunchlng some numbers, eLer deLermlned LhaL SSL needed real prlce
lncreases Lo generaLe ln excess of $40 mllllon ln sales, whlch would earn lL a good proflL. WlLh n8
gone, and lLs shlps Laken ouL of commlsslon, Lhere looked Lo be some opporLunlLy Lo meeL Lhls goal.
Whlle Lhe parLners ln SSL, namely SalLchuk, had plenLy of money Lo supporL Lhe buslness, lL was clear
LhaL conLlnulng Lo lose money was noL golng Lo be an opLlon. SalLchuck managemenL, prlmarlly
Leonard Shaplro, began Lo Lake an acLlve role ln Lhe company afLer Lhe purchase of n8's asseLs and Lhe
new appolnLmenL of eLer Lo Lhe senlor v poslLlon. 8oard of Manager meeLlngs became less relevanL
and formal meeLlngs wlLh sLaff were posLponed. Shaplro sLarLed Laklng sLaff supporL from SalLchuk Lo
SSL's !acksonvllle offlces and some people losL Lhelr [obs ln Lhe process. Whlle lL was Lough for everyone
aL SSL, Lhlngs were beglnnlng Lo Lake shape and Lhere was a new sense of opLlmlsm. 1hen Lhlngs Look a
more dramaLlc Lurn.

AugusL 1, 2012
7
1he Consp|racy
Cn Aprll 24, 2002, eLer 8acl Lraveled Lo CharloLLe, nC Lo parLlclpaLe ln a hlgh level meeLlng. 1he
requesL for hls aLLendance came from SalLchuk's execuLlve Leonard Shaplro, who was Laklng an acLlve
role ln Lurnlng around SalLchuk's lnvesLmenL ln SSL.
!olnlng eLer and Shaplro would be Lop execuLlves from SSL and SalLchuk, as well as execuLlves from a
compeLlng shlpplng llne, Porlzon, aL Lhe ark PoLel ln CharloLLe, nC. 1hls group represenLed Lhe only
companles offerlng Shlp Servlce" Lo and from uerLo 8lco. ALLendees lncluded hll 8aLes (Sea SLar's Sr.
vlce resldenL of CperaLlons), Cabe Serra (Porlzon's Sr. vlce resldenL & Ceneral Manager for uerLo
8lco), nell erlmuLLer (SSL's ClC) and kevln Clll (Porlzon). 1he purpose of Lhe meeLlng was Lo conclude
an agreemenL, an unwrlLLen agreemenL, Lo ellmlnaLe Lhe n8 capaclLy from Lhe uerLo 8lco Lrade rouLe
and make oLher arrangemenLs Lo conLrol shlpplng capaclLy so as Lo lncrease prlces. lL was LhaL easy.
1here would be no more loslng years. eLer felL some sense of rellef LhaL senlor managemenL was
lnvolved and even Lhough he knew Lhe meeLlng was wrong (uneLhlcal and probably lllegal), lL solved a
loL of problems for hlm and, ln Lurn, SSL. Whlle on Lhe surface Lhls may have looked llke a soluLlon Lo
eLer and Lhose gaLhered aL Lhe ark PoLel, lL was a vlolaLlon of Lhe Sherman AnLlLrusL AcL. lL was a
crlmlnal vlolaLlon.
WlLh Lhe reducLlon ln shlpplng capaclLy assoclaLed wlLh n8's sale, Lhe oLher compeLlLors, 1raller 8rldge
and Crowley, saw an opporLunlLy Lo begln ralslng Lhelr prlces. 1hough nelLher company was
represenLed aL Lhe meeLlng ln CharloLLe, lL was apparenL Lo Lhem boLh LhaL a markeL wlLhouL n8 was a
good one.
AfLer Lhe meeLlng ln CharloLLe, Senlor vlce resldenL of Porlzon ln uerLo 8lco, Cabrlel Serra, Lold eLer
LhaL hls conLacL wlLhln hls company for prlclng lssues was golng Lo be eLer's long Llme frlend, kevln Clll.
eLer had known Clll for years and each knew Lhe oLher's challenges aL work. ShorLly afLer Lhe meeLlng
aL Lhe ark PoLel, Clll and eLer meL aL Porlzon's corporaLe aparLmenL ln CharloLLe Lo dlscuss prlce
lncreases, lncludlng Lhe need for raLes Lo lncrease by 10 per year across Lhe board. 1hey also
dlscussed Lhe need Lo generaLe addlLlonal revenue by ralslng fuel surcharges, raLes for refrlgeraLed
conLalners and raLes on oLher cargo shlpmenLs. 8oLh Porlzon and SSL also lncreased Larlff raLes and SSL
lncreased raLes on n8's old cusLomers. WlLh Porlzon and SSL belng Lhe only Lwo shlpplng companles
offerlng Shlp Servlce", lL was easy Lo conLrol Lhe enLlre markeL.
ConLrolllng prlces was noL enough. 1he Lwo companles needed Lo assure LhaL Lhere were sufflclenL
loads golng on each shlp Lo make each run proflLable. 1o address Lhls lssue, Leonard Shaplro meL wlLh
Porlzon's Cabrlel Serra Lo dlvlde Lhe buslness 30/30. 1hey would be monlLorlng each oLher's buslness Lo
assure LhaL Lhe buslness would conLlnue Lo be equally dlvlded.
Whlle eLer was meeLlng wlLh Clll, Shaplro meL wlLh senlor execuLlves aL Porlzon, Crawley and 1raller
8rldge abouL Lhe lndusLry. Whlle meeLlngs among compeLlLors are usually reserved for Lrade shows or
conferences, closed meeLlngs wlLh compeLlLors are very uncommon.
AugusL 1, 2012
8
Soon meeLlngs and communlcaLlons beLween eLer aL SSL were belng held among all of Lhe
compeLlLors. eLer was worklng Lhe day-Lo-day level of Lhe consplracy, whlle meeLlngs were belng held
above hlm Lo revlew declslons he was maklng. AL one polnL, SSL's share of conLalner shlpmenLs dropped
Lo 43 compared Lo Porlzon's 34. AL abouL Lhe same Llme, eLer was blddlng on a u.S. mlllLary
conLracL ln dlrecL compeLlLlon wlLh Porlzon. eLer asked hls counLerparLs aL Porlzon Lo allow SSL Lo wln
Lhe conLracL ln order Lo brlng abouL some equlLy ln markeL sharlng. When Porlzon refused, eLer
escalaLed Lhe lssue Lo SSL's newly appolnLed presldenL, lrank eake. ShorLly LhereafLer, SSL won Lhe
governmenL conLracL. LveryLhlng was back ln balance.
8y 2003, eLer and Clll spoke on Lhe phone Lwo Lo Lhree Llmes per week and also emalled prlclng and
oLher lnformaLlon Lo each oLher. ln order Lo cover Lhelr Lracks, Lhey seL up Cmall accounL allases.
eLer's was LlghLhouse123[gmall.com. 1he consplracy began Lo work wlLh an efflclency LhaL rlvaled
Lhe leglLlmaLe day-Lo-day operaLlons. 1hey would communlcaLe ln advance Lo ensure LhaL Lhey avolded
each oLher's ma[or cusLomers. 1hey rlgged Lhe blds and exchanged lnformaLlon ln advance of blds so
LhaL Lhey would each undersLand Lhe oLhers expecLaLlons. lL was a coordlnaLed dance.
As ln mosL buslnesses, 20 of Lhe cusLomers produced 80 of Lhe revenue sLream so lL was noL dlfflculL
Lo keep Lrack of whlch cusLomers were lmporLanL Lo Lhe oLher carrler. lf an accounL was shared
beLween SSL and Porlzon Lhey predeLermlned, based upon share, who would be Lhe lead" and who
would be Lhe follower". ln dolng Lhls, lf SSL had a larger share of a parLlcular cusLomers buslness Lhey
would make Lhe lnlLlal prlclng proposal (lead) and afLerwards Porlzon would follow Lhelr lead wlLh a
hlgher prlce, assurlng a saLlsfled SSL cusLomer. SSL would of course reLurn Lhe favor for Porlzon
cusLomers.
AfLer a number of meeLlngs, eLer came away wlLh flrm declslons as Lo whlch days of Lhe week SSL and
Porlzon vessels would sall on and Lhe prlclng assoclaLed wlLh Lhose loads. 1he Lwo Lhen exchange exacL
lnformaLlon perLalnlng Lo:
AgreemenLs Lo allocaLe cusLomers of uerLo 8lcan caboLage
8lgglng blds Lo cusLomers for 8 caboLage
llxlng raLes, surcharges and oLher fees for uerLo 8lcan caboLage
MarkeLlng and selllng uerLo 8lco caboLage aL agreed-upon prlces
Lxchanglng lnformaLlon on cusLomers, blds, raLes, surcharges, fees, volumes and capaclLy
lmplemenLlng and monlLorlng Lhe arrangemenLs among carLel members

eLer and Clll also rouLlnely provlded lnformaLlon Lo Lhelr superlors on prlclng and cusLomers so LhaL
declslons on Lhe markeL could be made. 1op execuLlves from Lhe companles sLarLed meeLlng aL evenLs
Lo revlew Lhls analysls ln WashlngLon, uC, golf courses ln uerLo 8lco and, one Llme, aL Lhe ldlLarod sled
dog race ln Alaska.
Whlle Lhere was some LrepldaLlon by boLh eLer and kevln Clll, Lhey felL LhaL Lhelr conversaLlons would
beneflL boLh companles and Lhe bosses would cerLalnly approve of any declslon LhaL meanL a proflL for
AugusL 1, 2012
9
Lhelr respecLlve companles. 1hey also knew LhaL any prlclng changes Lhey mlghL agree Lo would have Lo
be approved by Lhe Lhelr own managemenL. Such passlve approval would cerLalnly be an lndlcaLlon LhaL
Lhey (hlgher execuLlves) condoned Lhe means Lo geL Lo Lhose prlces.
As Llme wenL by and as SSL and Porlzon pushed Lhelr prlces up, a large gap had developed beLween Lhe
Shlp Servlce prlclng and Lhe 8arge Servlce prlclng. As eLer would say, A rlslng Llde ralses all shlps," so
lL was Llme LhaL every compeLlLor ln Lhe !acksonvllle-uerLo 8lco rouLe goL lnvolved ln lncreaslng
shlpplng prlces (and proflLs). Cver Llme Lhe 8arge Servlce carrlers sLarLed Lo ralse Lhelr prlces Lo closer
maLch Lhe ralses experlenced on Lhe Shlp Servlce. Agaln, mosL of Lhe lndlvlduals lnvolved ln Lhe shlpplng
buslness had known each oLher for many years and Lhere was a slgnlflcanL level of LrusL.
lrom May 2002 Lhrough Aprll 2008, capaclLy for uerLo 8lcan caboLage remalned flaL, buL raLes,
surcharges and fees lncreased dramaLlcally and nearly slmulLaneously across all suppllers. Pere are a
few of Lhe charges cusLomer experlenced:
Iebruary 2003 - Porlzon, SSL and 1raller 8rldge lmposed a $40 per conLalner
Lermlnal handllng charge, where Lhey had noL done so prevlously, excepL for
SSL.
Apr|| 2003 - Porlzon, SSL, Crowley and 1raller 8rldge lmposed a securlLy
fee" per conLalner, where Lhey had noL done so prevlously, excepL for 1raller
8rldge.
May 2003 - Porlzon, SSL, Crowley and 1raller 8rldge charged a bunker fuel
surcharge of $223/conLalner
March 200S - Porlzon, SSL, Crowley and 1raller 8rldge lncreased bunker fuel
surcharge $280/conLalner
Apr|| 200S - Porlzon, SSL, Crowley and 1raller 8rldge lncrease bunker fuel
Iune 200S - Porlzon, SSL, Crowley and 1raller 8rldge lncrease bunker fuel
September 200S - Porlzon, SSL, Crowley and 1raller 8rldge lncrease bunker
fuel surcharge $373/conLalner
lL should have been apparenL LhaL someLhlng was wrong ln Lhe markeL. As reporLed ln Lhe !ournal of
Commerce on !anuary 22, 2007, conLalner volumes for uerLo 8lco caboLage decreased beLween 8 and
12 ln 2006, yeL, frelghL raLes, lncludlng surcharges and fees, lncreased an average of 3. lL was noL a
blg lncrease, buL ln such a markeL one would have LhoughL prlces should decrease. Cn March 3, 2007,
!"#$%& ()* quoLed !ohn u. McCown, Chalrman and CLC of 1raller8rldge as saylng, 1hese are Lhe besL
quarLerly flnanclal resulLs LhaL 1raller 8rldge has reporLed ln lLs hlsLory." 1hls was aL a Llme when
AugusL 1, 2012
10
economlc facLors should have shown LhaL such prlce lncreases should noL have been posslble (lower
demand does noL equal hlgher prlces).
eLer and Clll would monlLor Lhelr markeL share Lhrough Lhe !ournal of Commerce lL8s daLa sysLem Lo
see Lhe lnformaLlon LhaL was requlred Lo achleve Lhelr ob[ecLlves and Lo make sure LhaL boLh companles
were dolng whaL Lhey agreed Lo do (LrusL buL verlfy). lL was an honesLy check among Lhe co-
consplraLors. 1he lL8s daLa sysLem was Lhe same one boLh eLer and Clll had used when Lhey were
flerce compeLlLors LhaL showed Lhem how much buslness Lhe oLher was dolng. now lL was used as a
measurlng devlce Lo make sure Lhose ln Lhe consplracy were keeplng Lhelr word.
1he meeLlngs beLween compeLlLors became rouLlne and [usL a parL of dolng buslness. ln facL, many
wlLhln Lhe SSL organlzaLlon were aware of Lhe lnformaLlon exchange beLween SSL (eLer 8acl) and
Porlzon (kevln Clll). lL was an open secreL lnslde Lhe company, alLhough Shaplro had warned eLer Lo
keep Lhese dlscusslons a prlvaLe maLLer.
WlLh Lhls plan, SSL was a Lurn around success. ln 2002, SSL had losL money buL ln 2003 lL had lLs flrsL
proflLable year..wlLh oLher proflLable years Lo follow. 1he aLLlLude around Lhe offlce of SSL had
changed from concern abouL Lhe company sLaylng open Lo plans for company geL-LogeLhers and
bonuses. 1here was renewed energy and back-offlce Lalk abouL flndlng anoLher [ob had all buL
vanlshed. lL was a noLlceable slgn LhaL Lhe company was a success. Lveryone ln Lhe ownershlp group
was happy wlLh Lhe performance of Lhe company and how eLer was managlng Lhlngs. 1he flrlng of
employees had sLopped, and a secure managemenL sLrucLure was ln place. new shlp consLrucLlon
programs were dlscussed and planned. LveryLhlng was golng exLremely well and, as a resulL of SSL's
success, eLer's salary conLlnued Lo lncrease, as dld hls annual bonus. 1here was never any money glven
Lo eLer ln exchange for parLlclpaLlng ln Lhe consplracy. Pls reward was a sLeady [ob, a bonus and peace
of mlnd LhaL he would have a long, successful career LhaL would Lake hlm Lo reLlremenL.

AugusL 1, 2012
11
1he ka|d
Cn Aprll 17, 2008, eLer goL up early and wenL Lo Lhe !acksonvllle lnLernaLlonal AlrporL headlng for
meeLlngs ln new ?ork. As he was Laklng off, Lhe l8l and Lhe ueparLmenL of !usLlce ralded Lhe offlces of
all four of Lhe ocean carrlers (SSL, Porlzon, Crowley and 1raller 8rldge). l8l agenLs knocked on Lhe fronL
door of eLer's home only Lo flnd he was noL Lhere, buL hls wlfe was. eLer's wlfe called hls cell phone
[usL as he was geLLlng off Lhe plane ln newark. She was very upseL and Lold hlm whaL had Lransplred
and gave hlm Lhe phone number of an l8l agenL who had Lold her Lo have eLer call hlm lmmedlaLely.
As hls wlfe spoke, eLer knew whaL was happenlng buL lL seemed llke a dream. Who had Llpped off Lhe
governmenL?
Pls lnlLlal reacLlon was one of fear and lsolaLlon. Pavlng never been ln Lrouble wlLh Lhe law ln all of hls
61 years, hls mlnd raced and he was noL Lhlnklng clearly. Pls flrsL LhoughL should have been Lo do as hls
wlfe Lold hlm. lnsLead, he made a call Lo an old frlend who worked for hlm, Alexander Chlsholm. eLer
Lold Chlsholm Lo desLroy all of Lhe emalls ln Lhe Cmall accounL LhaL SSL used Lo share prlclng and
compeLlLlve lnformaLlon wlLh Porlzon. Chlsholm complled.
Pe Lhen made hls flrsL call Lo Lhe l8l agenL who had vlslLed hls home. 1he l8l agenL was up fronL wlLh
eLer, Lelllng hlm LhaL lL would be besL Lo come forward lmmedlaLely and cooperaLe so LhaL he would
recelve Lhe besL LreaLmenL when lL came Lo crlmlnal charges. Crlmlnal charges? lL [usL kepL geLLlng
worse. WhaL Lo do?" he kepL asklng hlmself. As he was Lhlnklng, Lhe l8l agenL Lold hlm LhaL Lhe offlces
of Lhe four carrlers, lncludlng Lhose ln uerLo 8lco, were belng ralded as Lhey were speaklng. Pe advlsed
eLer LhaL Lhey were noL golng Lo lmmedlaLely arresL hlm and furLher advlsed hlm LhaL Lhey had hlm on
Lape recordlngs LhaL concerned flxlng prlces. Someone had worn a wlre? 8alds? ArresL? 1apes? All Lhls
comblned wlLh Lhe facL LhaL eLer had [usL asked Chlsholm Lo desLroy emalls. eLer could now add an
obsLrucLlon of [usLlce charge Lo Lhlngs Lo worry abouL.
WanLlng Lo geL off Lhe phone, eLer Lold Lhe l8l agenL LhaL he would come Lo Lhelr offlces afLer he
arrlved back ln !acksonvllle. eLer Lhen Lrled Lo make oLher calls Lo Lhe offlce Lo see whaL was golng on
buL hls company cell phone and emall access had been suspended durlng Lhe rald. Pe was cuL off from
Lhe company and he had no ldea whaL people were golng Lhrough back aL Lhe offlce and aL oLher
offlces..or whaL Lhey were saylng abouL hlm.
When eLer goL back Lo !acksonvllle, he had declded LhaL raLher Lhan go Lo Lhe offlce and speak wlLh Lhe
l8l, he would geL ln Louch wlLh a lawyer for SSL. WhaL eLer dld noL know was LhaL ln Lhe shorL Llme he
was ln new ?ork, people ln Lhe offlce were already cooperaLlng wlLh Lhe governmenL. 1he meeLlng wlLh
Lhe l8l was cancelled and a lawyer pald for by SSL called Lhe governmenL and sald LhaL eLer had legal
represenLaLlon.
eLer wenL Lo work Lhe followlng mornlng and meL wlLh a couple of hls dlrecL reporLs who were
lnLervlewed Lhe prevlous day. lL was awkward. Pe felL awful and chose noL ask Lhem whaL Lhey had
sald Lo auLhorlLles buL Lold Lhem Lo do whaLever Lhey felL was rlghL and Lo proLecL Lhemselves and Lhelr
AugusL 1, 2012
12
famllles. eLer felL alone and Lhe looks on hls co-workers' faces Lold eLer LhaL Lhey had probably
Lhrown hlm under Lhe proverblal bus.
lL was an odd place Lo work buL Lhey sLlll had cusLomers calllng and shlps movlng Lo and from porLs. lL
was dlfflculL for everyone. 1he week followlng Lhe l8l rald Lhere was Lo be a scheduled company
meeLlng Lo revlew operaLlon resulLs (SSL was dolng greaL), buL LhaL meeLlng was superseded by Lhe
evenLs assoclaLed wlLh Lhe rald of Lhe company.
SalLchuk corporaLe counsel came Lo Lhe offlce and lnLervlewed every SSL employee LhaL had been
lnLervlewed by Lhe l8l, and eLer. 1hls was a facL gaLherlng efforL on Lhelr parL. eLer was offered Lhe
opporLunlLy by corporaLe counsel Lo have hls own lawyer, who had been selecLed by SSL. Scared Lo Lalk
Lo anyone, eLer declded Lo speak only wlLh hls own lawyer who was locaLed ln Mlaml. eLer's personal
lawyer was provlded under Lhe Lerms of an undersLandlng of AdvancemenL, baslcally meanlng LhaL Lhe
fees were belng pald by SSL buL lf he were found gullLy of a crlme Lhen he would be responslble for Lhe
legal fees..and eLer felL very gullLy. Powever, Lhe alLernaLlve was Lalklng Lo Lhe l8l wlLhouL a lawyer
or Lalklng wlLh lawyers who represenLed Lhe owners of SSL. Whlle eLer was busy Lhlnklng abouL whaL
Lo Lell hls lawyer, SSL puL hlm on pald admlnlsLraLlve leave, whlch meanL he conLlnued Lo geL hls salary
and beneflLs buL he could noL reLurn Lo Lhe offlce.
eLer's lawyer made lL clear LhaL eLer alone was hls cllenL even Lhough Lhe lawyer was belng pald by
SSL. lnlLlally hls lawyer advlsed hlm LhaL hls role would be Lo keep hlm ouL of prlson and Lo malnLaln hls
employmenL wlLh SSL. rlson? lL seemed surreal. eLer was concerned buL hls lawyer Lold hlm LhaL he
had Lo be honesL abouL everyLhlng, and LhaL meanL LvL8?1PlnC. As Lhey meL, eLer's lawyer
undersLood LhaL hls cllenL was deeply lnvolved ln lllegal acLlons and would mosL llkely be looklng aL
prlson unless Lhey could flnd a way Lo cooperaLe wlLh Lhe governmenL and geL some lenlency. lL was
declded LhaL eLer's lawyer would Lravel Lo WashlngLon, uC Lo meeL wlLh members of Lhe ueparLmenL
of !usLlce Lo see lf Lhey could negoLlaLe a deal. 1he meeLlng dld noL go well as Lhe governmenL already
had a loL of lnformaLlon, even aL Lhls early sLage of Lhe lnvesLlgaLlon. 1he governmenL dld agree Lo a
meeLlng wlLh eLer ln Mlaml, wlLh hls aLLorney presenL, Lo go Lhrough some quesLlonlng. 1hls ls known
as a proffer", whlch ls an agreemenL Lo allow someone under lnvesLlgaLlon Lo be quesLloned by federal
auLhorlLles wlLhouL havlng Lhelr answers be used agalnsL Lhem aL Lrlal.unless lL ls lnformaLlon Lhe
governmenL already knows.
1haL meeLlng wenL well as eLer remembered a loL of meeLlngs, daLes, Llmes and names. Much of whaL
he sald maLched whaL oLhers had sald, buL eLer was aL Lhe cenLer of Lhe acLlon. AfLerwards hls
aLLorney began Lhe negoLlaLlon of a plea agreemenL. rlson was now a cerLalnLy and as soon as lL was
known LhaL eLer was ln negoLlaLlons Lo plead gullLy, hls employmenL wlLh SSL was LermlnaLed wlLh an
effecLlve daLe of AugusL 31
,
2008. eLer was also responslble for hls own legal fees.

AugusL 1, 2012
13

|ead|ng Gu||ty and r|son
eLer's flrsL day ln federal courL was CcLober 20,

2008. ln Lhe weeks beLween hls flrsL meeLlng wlLh Lhe
ueparLmenL of !usLlce and CcLober 20
Lh
he Lrled Lo recall as many deLalls abouL whaL he had done and
whaL he knew oLhers had done relaLlve Lo Lhe consplracy. Lveryone LhaL eLer provlded lnformaLlon
abouL had been close buslness and personal frlends for years, lL was dlfflculL. Pls personal ob[ecLlve aL
Lhls Llme was Lo Lry and move Lhls forward as qulckly as posslble. CL1 l1 CvL8 Wl1P. 1here was a drlve
Lo plead, geL Lhe prlson senLence and sLarL servlng hls Llme as soon as posslble. AfLer all, hls prlson
senLence could noL end wlLhouL lL beglnnlng aL some polnL.
WhaL was lronlc abouL Lhe daLe of CcLober 20, 2008 was LhaL lL represenLed Lhe Len-year annlversary of
eLer's sLarL aL SSL. Pe would have never envlsloned Lhls endlng. eLer was noL Lhe only one who
would be ln courL LhaL day enLerlng a gullLy plea. Along wlLh eLer were Lhe subordlnaLe aL SSL he had
called Lo desLroy documenLs and deleLe Lhe Cmall accounL once he knew of Lhe rald, Alexander
Chlsholm. 1hen Lhere was Carblel Serra (Porlzon) and Lwo people who worked for hlm aL Porlzon, kevln
Clll and Cregory Clova. Clova had Laken over for Clll afLer Clll had requesLed Lo be moved Lo anoLher
poslLlon because he grew uncomforLable ln hls role of havlng Lo flx prlces. Pe Lralned Clova, a good
frlend, Lo work wlLh eLer and moved on Lo a new poslLlon LhaL dld noL lnvolve seLLlng prlces wlLh
compeLlLors.
eLer was senLenced Lo prlson based on lederal SenLenclng Culdellnes. 1hose guldellnes are rules LhaL
seL ouL a unlform senLenclng pollcy for lndlvlduals and organlzaLlons convlcLed of felonles agalnsL Lhe
unlLed SLaLes. 1hose guldellnes mandaLe polnLs" for each offense and Lhose polnLs are Lhen maLched
Lo a charL (lederal SenLenclng Culdellne 1able) Lo arrlve aL a range of monLhs ln prlson for Lhe [udge Lo
conslder durlng senLenclng. 1he guldellnes are [usL a recommendaLlon for Lhe [udge ln conslderlng a
lengLh of prlson senLence, buL mosL senLences fall wlLhln Lhe recommended range of Lhe guldellne.
eLer's plea lncorporaLed a $20,000 flne and a LoLal offense level of 32 (See LxhlblL ll for breakdown),
whlch was dlscounLed sllghLly by hls cooperaLlon and accepLance of responslblllLy Lo reach an offense
level of 23 (37-71 monLhs). eLer enLered hls plea of CullLy" and a senLenclng daLe was scheduled for
!anuary 30, 2009.
As a condlLlon of hls plea, eLer was flngerprlnLed, had hls phoLo Laken and was quesLloned abouL every
aspecL of hls personal llfe (flnances, famlly, home, cars, healLh, eLc.). All of Lhls lnformaLlon would be
used Lo puL LogeLher a resenLenclng 8eporL, whlch ls prepared by Lhe governmenL. Pe had Lo
surrender hls passporL and was lnformed LhaL he would noL be allowed Lo Lravel ouLslde of Lhe
!acksonvllle area wlLhouL permlsslon. uurlng Lhls Llme, eLer also spenL Llme wlLh prosecuLors abouL
lnformaLlon he knew on oLhers lnvolved ln Lhe consplracy who had noL yeL pled gullLy.
Cn !anuary 30, 2009, eLer 8acl was senLenced Lo prlson for 48 monLhs. lL was sllghLly below Lhe
recommended senLence buL Lhe governmenL and [udge boLh agreed LhaL hls LesLlmony was subsLanLlal.
AL Lhe wrlLlng of Lhls case sLudy (May 2012), eLer's cooperaLlon has led Lhe arresL of oLhers..people he
AugusL 1, 2012
14
had also once worked wlLh aL SSL. Pe wlll be asked Lo LesLlfy aL Lhose Lrlals as a governmenL wlLness.
eLer was Lhe flrsL one senLenced ln Lhls case, and as lL Lurned ouL, he has recelved Lhe longesL senLence
Lo daLe. eLer was Lhe lasL one Lo cooperaLe of Lhe four oLhers LhaL had pleaded gullLy back ln CcLober
2008.
Cn Aprll 13, 2009, almosL slx monLhs afLer pleadlng gullLy and a year afLer Lhe lnlLlal l8l rald on SSL,
eLer arrlved aL Lhe lederal rlson Camp ln ensacola, lL. eLer made Lhe slx-hour drlve across llorlda
wlLh hls 30 year-old son. 1hey declded Lo head over Lhe nlghL before surrenderlng Lo prlson and sLayed
aL a local beach hoLel.
Pe enLered Lhe maln bulldlng of Lhe prlson faclllLy shorLly before noon and sLaLed hls name, eLer
8acl", and sure enough, Lhey were expecLlng hlm. Pe walLed as a guard made a call and wlLhln a few
mlnuLes anoLher prlson offlcer arrlved Lo Lake hlm Lo a room called 8ecelvlng and ulscharge, whlch ls
Lhe room where lnmaLes are recelved lnLo Lhe prlson sysLem and released back lnLo socleLy. eLer was
asked quesLlons abouL hls healLh and sLaLe of mlnd. 1here were also varlous forms Lo flll ouL and eLer
Lurned over prescrlpLlons for medlcaLlon he was Laklng under docLor's orders. 1hose prescrlpLlons were
conflscaLed and he was Lold LhaL he could see a physlclan lnslde Lhe prlson wlLhln a few days Lo geL any
prescrlpLlons needed. 1he only lLem eLer was allowed Lo keep was hls eyeglasses. 1he guard handed
hlm an orange [ump sulL and Lold hlm Lo sLrlp off all of hls cloLhes. Pls cloLhes and personal lLems were
lnvenLorled and puL ln a package LhaL eLer sealed. 1hese lLems were malled back Lo eLer's home.
WlLh LhaL, eLer was senL wlLh anoLher lnmaLe Lo obLaln hls everyday green prlson unlform, whlch he
would wear unLll hls release. 8y 4:00pm Lhe day of hls surrender Lo prlson, eLer's son was noL even
back Lo !acksonvllle whlle eLer was sLandlng up ln hls cell for a dally prlsoner counL conducLed by a
prlson guard.
eLer's senLence was 48 monLhs. ln Lhe federal sysLem Lhere ls no probaLlon buL lnmaLes can earn
good Llme" for good behavlor. lL ls an lncenLlve for lnmaLes Lo obey Lhe rules and keep order whlle ln
prlson. An lnmaLe can earn up Lo 34 days of good Llme Laken off of Lhelr senLence. ln addlLlon, eLer
quallfled for addlLlonal Llme off because of hls parLlclpaLlon ln Lhe 300-hour 8esldenLlal urug and
Alcohol rogram. ln LoLal, eLer spenL 23 monLhs ln prlson and slx monLhs ln a Palfway Pouse/ Pome
ConflnemenL, whlch ended as of november 14, 2011. uurlng hls Llme ln prlson, eLer's cooperaLlon
wlLh Lhe governmenL conLlnued, lncludlng an appearance before a Crand !ury. Slnce hls release, eLer ls
on Lwo (2) years of probaLlon, whlch wlll end ln november 2013. eLer was able Lo flnd employmenL as
a clerk for a small shlpplng company ln !acksonvllle. Pe has no managemenL auLhorlLy.

AugusL 1, 2012
13
Lp||ogue
8oLh SSL, Porlzon and Crowley have seLLled Lhelr crlmlnal cases wlLh Lhe ueparLmenL of !usLlce. SSL was
senLenced Lo pay a $14.2 mllllon crlmlnal flne on uecember 20, 2011. Porlzon Llnes LLC was senLenced
Lo pay a $13 mllllon crlmlnal flne on March 22, 2011. Cn AugusL 1, 2012, Crowley Llner Servlces, lnc.
pleaded gullLy and was senLenced Lo pay $17 mllllon crlmlnal flne for lLs role ln a consplracy Lo flx prlces
ln Lhe coasLal waLer frelghL LransporLaLlon lndusLry.
1he oLher companles, Crowley and 1raller 8rldge, were noL charged crlmlnally. SSL agreed Lo pay a flne
of $14.2M. Porlzon Llnes agreed Lo pay a flne of $13M Lo Lhe u.S. governmenL. A class acLlon
seLLlemenL valued ln excess of $30M was awarded Lo cusLomers who clalmed LhaL Lhey were harmed by
Lhe prlce flxlng pracLlces. 1he companles paylng lnLo Lhe seLLlemenL lncluded, SSL $18.3M, Porlzon
$20M and Crowley $13.73M.
Cn november 17, 2011, eLer's boss aL SSL, lrank eake (resldenL of SSL), was arresLed as parL of Lhe
conLlnulng lnvesLlgaLlon. Mr. eake has pled noL gullLy" and hls Lrlal ls scheduled for some Llme ln
2012. Porlzon was dellsLed from Lhe n?SL on CcLober 14, 2011 due Lo low Lradlng prlce (caplLallzaLlon)
and has been worklng wlLh lLs shareholders Lo resLrucLure lLs $80 mllllon debL. 1raller 8rldge flled for
bankrupLcy ln !anuary 2012 and ls currenLly worklng on a resLrucLurlng plan. SSL ls sLlll ln operaLlon and
ls now owned 90 by Amerlcan Shlpplng Croup, lnc.(arenL of SalLchuk) and 10 1alno SLar, lnc.
1he lnvesLlgaLlon lnLo prlce flxlng ln Lhe uerLo 8lco rouLes covered by Lhe !ones AcL are acLlve ln Lhe
ueparLmenL of !usLlce.
Gabr|e| Serra (lnmaLe #32377-018) - led gullLy on CcLober 20, 2008 LhaL he and hls co-consplraLors
engaged ln a comblnaLlon and consplracy ln vlolaLlon of SecLlon 1 of Lhe Sherman AcL Lo suppress and
ellmlnaLe compeLlLlon ln Lhe markeL for caboLage beLween Lhe u.S. and uerLo 8lco.
k. kev|n G||| (lnmaLe #32374-018) - led gullLy on CcLober 20, 2008 LhaL he and hls co-consplraLors
allmnaLe compeLlLlon ln Lhe markeL for caboLage beLween Lhe u.S. and uerLo 8lco.
Gregory G|ova (lnmaLe #32376-018) - led gullLy on CcLober 20, 2008 LhaL he and hls co-consplraLors
eter 8ac| (lnmaLe #32372-018) - led gullLy on CcLober 20, 2008 LhaL he and hls co-consplraLors
A|exander G. Ch|sho|m (lnmaLe #32373-018) - led gullLy on CcLober 20, 2008 LhaL he became aware of
an lnvesLlgaLlon by a grand [ury slLLlng ln Lhe Mlddle ulsLrlcL of llorlda, asslsLed by Lhe l8l, lnLo posslble
federal anLlLrusL offenses ln uerLo 8lcan caboLage, on Aprll 17, 2008, he corrupLly alLered, desLroyed
AugusL 1, 2012
16
and concealed records and documenLs and aLLempLed Lo do so wlLh Lhe lnLenL Lo lmpalr Lhe avallablllLy
of Lhe records and documenLs for use ln Lhe lnvesLlgaLlon.
Irank eake - eake, Lhe former presldenL of SSL, was arresLed on november 17, 2011 and ls scheduled
Lo sLand Lrlal on !anuary 14, 2013. eLer 8acl ls llsLed as a governmenL wlLness.
ln Aprll 2012, krafL loods Croup, lnc. and 1he kellogg Company flled a lawsulL agalnsL SSL, SalLchuk
8esources, Crowley and Mr. Leonard Shaplor alleglng prlce flxlng. 8oLh krafL and kellogg chose noL Lo
seLLle wlLh Lhe shlpplng companles and have lnsLead pursued Lhelr own lawsulL for damages assoclaLed
wlLh Lhelr companles shlpplng goods Lo uerLo 8lco.
1here has been pressure Lo ellmlnaLe Lhe proLecLlonlsL leglslaLlon LhaL ls Lhe !ones AcL. unlons and
domesLlc shlpplng companles wanL Lo proLecL Lhe !ones AcL whlle large corporaLlons LhaL shlp goods
belleve LhaL shlpplng prlces are kepL aL hlgh raLes. ln 2012, SenaLor !ohn McCaln (8epubllcan, Arlzona)
lnLroduced leglslaLlon LhaL would repeal Lhe !ones AcL. 8uslnesses ln Pawall are also applylng pressure
Lo Lhelr represenLaLlves sLaLlng LhaL shlpplng goods from Los Angeles Lo Pong kong, ls half Lhe prlce of
shlpplng goods from Los Angeles Lo Pawall (half Lhe dlsLance). Shlp bullders are also geLLlng lnvolved
sLaLlng LhaL wlLh cuL backs ln Lhe ueparLmenL of uefense budgeL and Lhe ellmlnaLlon of Lhe !ones AcL aL
Lhe same Llme would desLroy Lhelr buslnesses. As of 2009, 83 of new cargo shlp capaclLy worldwlde
was bullL by korea, Chlna and !apan. 1here ls also pressure on Lhe alrllne lndusLry Lo furLher deregulaLe
Lo allow forelgn carrlers on domesLlc rouLes.

AugusL 1, 2012
17
Source Documents
1hls case ls based off of Lhe case of anLlLrusL flled by Lhe u.S. governmenL agalnsL eLer 8acl ln Lhe unlLed SLaLes ulsLrlcL of llorlda, !acksonvllle
ulvlslon, Case no.: 3:08-cr-330-!-321LM. CL. 1: 13 u.S.C 1. Source documenLs lnclude Lhe followlng:
unlLed SLaLes of Amerlca v. eLer 8acl, Case no.: 3:08-cr-330-!-321LM, lea AgreemenL, CcLober 20, 2008
unlLed SLaLes of Amerlca v. eLer 8acl, Case no.: 3:08-cr-330-!-23!8k, lndlcLmenL, CcLober 1, 2008
ueparLmenL of !usLlce, ress 8elease, llorlda-8ased Sea SLar Llne LLC Agrees 1o lead CullLy And lLs lormer resldenL ls lndlcLed lor rlce
llxlng Cn CoasLal lrelghL Servlces 8eLween 1he ConLlnenLal unlLed SLaLes and uerLo 8lco, november 17, 2011
Clvll Case, ClvlL nC. 08-1467 (u8u) (08-1323, 08-1333, 08-1333, -08-1617, 08-1626, 08-1618, 08-1663), 08-1369 (u8u), MuL nC. 08-1960,
Second ConsolldaLed Amended Class AcLlon ComplalnL, lebruary 23, 2009
ln 1PL unl1Lu S1A1LS ulS18lC1 CCu81 lC8 1PL ulS18lC1 Cl uL81C 8lCC, !Cln1 MC1lCn lC8 8LLlMlnA8? A8CvAL Cl SL11LLMLn1
Wl1P ALLxAnuL8 CPlSPCLM, CL81llCA1lCn Cl SL11LLMLn1 CLASS, Au1PC8lZA1lCn 1C ulSSLMlnA1L CLASS nC1lCL, Anu S1A? Cl
8CCLLulnCS ACAlnS1 CPlSPCLM, MasLer uockeL no. 08-md-1960 (u8u)
CharloLLe Cbserver, Shlpplng Company llned $43 mllllon - Porlzon Llnes Lo lead CullLy ln rlce-llxlng Scheme lor lrelghL Lo uerLo 8lco,"
lebruary 23, 2011
1he !ournal of Commerce, Sea SLar, Crowley Conflrm AnLlLrusL ayouLs," Aprll 23, 2011
unlLed SLaLes of Amerlca, lalnLlff v. lrank eake, uefendanL, lndlcLmenL, Crlmlnal no. 11-312 (!Al), vlolaLlon: 13 u.S.C. 1, november 17,
2011
ueparLmenL of !usLlce, ress 8elease, lormer Shlpplng LxecuLlve SenLenced Lo 48 MonLhs ln !all lor Pls 8ole ln AnLlLrusL Consplracy," !anuary
30, 2009
!acksonvllle 8uslness !ournal, lormer Porlzon Cfflcers CeL rlson 1erms," May 12, 2009
aclflc Shlpper, Wldespread Consplracy Alleged," lebruary 8, 2009
noLlce of SeLLlemenL, lf you pald for ocean shlpplng servlces (caboLage") beLween uerLo 8lco and Lhe conLlnenLal unlLed SLaLes, you could
recelve a beneflL from class acLlon seLLlemenLs," AugusL 23, 2010
unlLed SLaLes ulsLrlcL CourL lor 1he ulsLrlcL of uerLo 8lco, MuL uockeL no. 3:08-md-1960, Cplnlon and Crder on Legal lees, AugusL 30, 2011
unlLed SLaLes of Amerlca v. Alexander C. Chlsholm, Case no.: 3:08-cr-333-!-23MC8, lndlcLmenL, CcLober 1, 2008
!ournal of Commerce, Porlzon ConverLs $49.7 Mllllon of uebL Lo LqulLy", !oseph 8onney, Senlor LdlLor, !anuary 11, 2012
unlLed SLaLes of Amerlca v. Cabrlel Serra, Case no," 3:08-cr-349-!-3271LM, lea AgreemenL, CcLober 20, 2008
!ones uay, AnLlLrusL AlerL: u.S. !usLlce ueparLmenL CbLalns 8ecord !all SenLence for AnLlLrusL Consplracy: 1he value of CooperaLlon and
!udlclal ulscreLlon," Aprll 2009
krafL loods Croup, lnc. and 1he kellogg Company v. Sea SLar Llne, LLC, SalLchuk 8esources, lnc., Crowley MarlLlme CorporaLlon, Crowley Llner
Servlces, lnc. and Leonard P. Shaplro ln Lhe u.S. ulsLrlcL CourL for Lhe ulsLrlcL of SouLh Carollna CharlesLon ulvlslon, Aprll 13, 2012
Arrowpac lncorporaLed, eL.al. v. Sea SLar Llne, LLC' SalLchuk 8esources, lnc., 1oLem Ccean 1raller Lxpress, lnc., Crowley MarlLlme CorporaLlons'
Crowley Llner Servlces, lnc., and Leonard Shaplro, ln Lhe u.S. ulsLrlcL CourL for Lhe ulsLrlcL of SouLh Carollna CharlesLon ulvlslon, Case no. 2:12-
cv-1008-CWP, Aprll 12, 2012
ueparLmenL of !usLlce ress 8elease, !"#$%&'()'*+& -$#."+/ "%0+$ *+$1%-+* %0-2 3"+'&* 45%"6/ 6# 3$%-+ !%7%04 #0 !$+%486 *+$1%-+*
)+6.++0 52*2 '0& 35+$6# $%-#, AugusL 1, 2012
AugusL 1, 2012
18

Lxh|b|t I - 1|me L|ne
2001 - n8 navleras flled for bankrupLcy and ceased operaLlons
May 2002 - flrsL meeLlng Lo dlscuss flxlng prlces
uecember 2003 - Clova [olns Lhe consplracy
Aprll 17, 2008 - l8l ralds offlces aL Porlzon, SSL and Crowley. Alexander Chlsholm accessed a remoLe
server from hls home compuLer and deleLed flles LhaL were relevanL and maLerlal Lo Lhe grand [ury's
lnvesLlgaLlon..he laLer recovered Lhe flles and gave Lhem Lo Lhe governmenL. 1he lnsLrucLlon Lo deleLe
flles came from eLer 8acl, Lake down Lhe C-mall accounL."
May 7, 2008 - Sea SLar lssued a press release sLaLlng LhaL lL was cooperaLlng wlLh uC!'s lnvesLlgaLlon
and had placed a number of employees on lndeflnlLe admlnlsLraLlve leave for vlolaLlons of company
pollcy.
AugusL 31, 2008 - eLer 8acl ls LermlnaLed from SSL as hls aLLorney enLers lnLo dlscusslons Lo arrange a
gullLy plea wlLh Lhe governmenL.
CcLober 1, 2008 - 8acl, Clll, Clova charged wlLh one counL of consplracy Lo suppress and ellmlnaLe
compeLlLlon by rlgglng blds, flxlng prlces and allocaLlng cusLomers
CcLober 1, 2008 - Chlsholm charged wlLh alLerlng, desLroylng and conceallng records.
CcLober 20, 2008 - Serra (Porlzon uerLo 8lco) pleads gullLy, Clll (Porlzon) pleads gullLy, Clova (Porlzon)
pleads gullLy, 8acl (SSL) pleads gullLy
!anuary 30, 2009 - eLer 8acl senLenced Lo 48 monLhs ln prlson and flned $20,000 (no resLlLuLlon as he
had no slgnlflcanL asseLs and Lhe companles would evenLually have Lo pay some form of seLLlemenL).
May 12, 2009 - Alexander Chlsholm (SSL) was senLenced Lo 7 monLhs ln prlson and flned $4,000.
Cabrlel Serra (Porlzon) was senLenced Lo 34 monLhs ln prlson and flned $20,000. 8. kevln Clll (Porlzon)
was senLenced Lo 29 monLhs ln prlson and flned $20,000. Cregory Cloba (Porlzon) was senLenced Lo 20
monLhs ln prlson and flned $20,000.
!une 11, 2009 - Porlzon came Lo a seLLlemenL agreemenL as parL of a class acLlon sulL Lo pay
$20,000,000. ln addlLlon, lL provlded rellef Lo members of Lhe class acLlon Lo freeze shlpplng raLes for a
perlod of Lwo years.
!anuary 13, 2010 - Crowley came Lo a seLLlemenL agreemenL as parL of a class acLlon sulL Lo pay
$13,730,000. ln addlLlon, lL provlded rellef Lo members of Lhe class acLlon Lo freeze shlpplng raLes for a
perlod of Lwo years.
AugusL 1, 2012
19
!uly 21, 2010 - SSL came Lo a seLLlemenL agreemenL as parL of a class acLlon sulL Lo pay $18,300,000. ln
addlLlon, lL provlded rellef Lo members of Lhe class acLlon Lo freeze shlpplng raLes for a perlod of Lwo
years.
lebruary 24, 2011 - Porlzon Llnes agrees Lo pay $43 mllllon flne Lo Lhe u.S. governmenL and plead gullLy
Lo Laklng parL ln a scheme Lo flx prlces for frelghL LransporLaLlon Lo uerLo 8lco. lL also agreed Lo pay
$1.8 mllllon flne ln uerLo 8lco Lo seLLle lawsulLs from people alleglng Lhey pald lnflaLed prlces because
of Lhe company's prlce flxlng.
Aprll 2011 - Porlzon negoLlaLes a reduced paymenL wlLh Lhe governmenL for $13 mllllon, down from
$43 mllllon, afLer noLlng Lhe flnanclal dlfflculLles of Lhe company. lncludes sLaLemenL LhaL lLs legal fees
assoclaLed wlLh Lhls acLlon cosL lL almosL $11 mllllon.
Aprll 23, 2011 - A class acLlon lawsulL seLLles wlLh Lhose clalmlng harm from Lhe consplracy by Lhe
companles lnvolved. Sea SLar llne pald $18.3 mllllon, Crowley pald $13.73 mllllon and Porlzon pald $20
mllllon. 1hese amounLs are ln addlLlon Lo crlmlnal flnes.
!uly 13, 2011 - Crowley, SSL and 1raller 8rldge share ln a $70.3 mllllon conLracL wlLh Lhe ueparLmenL of
uefense for cargo seallfL LransporLaLlon servlces.
CcLober 14, 2011 - new ?ork SLock Lxchange suspends Porlzon Llnes from Lradlng because Lhe
company's average caplLallzaLlon over 30 Lradlng days fell below $13 mllllon. 1he sLock was Lradlng aL
$0.32/share. lL now Lrades on Lhe C1C markeL under Lhe symbol P8ZL.
november 16, 2011 - 1raller 8rldge flles for ChapLer 11 8ankrupLcy (nASuAC: 1888)
november 17, 2011 - lrank eake, Chlef CperaLlng Cfflcer and resldenL of SSL ls lndlcLed
november 18, 2011 - SSL agreed Lo pay a $14.2 mllllon crlmlnal flne Lo Lhe u.S. governmenL
uecember 20, 2011 - SSL was senLenced Lo pay a $14.2 mllllon crlmlnal flne Lo u.S. governmenL.
!anuary 11, 2012 - Porlzon seLLles wlLh debL holders Lo converL $49.7 mllllon ln debL Lo equlLy
!anuary 17, 2012 - 1raller 8rldge flles plan Lo exlL ChapLer 11 afLer negoLlaLlng wlLh ls debL holders on
$82.3 mllllon ln noLes.
Aprll 2012 - krafL loods Croup, lnc. and 1he kellogg Company flled a lawsulL agalnsL SSL, SalLchuk
8esources, Crowley and Mr. Leonard Shaplor alleglng prlce flxlng. 8oLh krafL and kellogg chose noL Lo
seLLle wlLh Lhe shlpplng companles and have lnsLead pursued Lhelr own lawsulL for damages assoclaLed
wlLh Lhelr companles shlpplng goods Lo uerLo 8lco.
AugusL 1, 2012 - Crowley Llner Servlces, lnc. pleaded gullLy and was senLenced Lo pay $17 mllllon
crlmlnal flne for lLs role ln a consplracy Lo flx prlces ln Lhe coasLal waLer frelghL LransporLaLlon lndusLry.

AugusL 1, 2012
20
Lxh|b|t II - Ca|cu|at|on of A Iedera| Sentence
1he base offense level was 12, lL was lncreased by one for submlLLlng non-compeLlLlve blds , by Lhree for
my role, by Lwo for my aLLempLed obsLrucLlon of [usLlce, and by 14 because of Lhe volume of commerce
aLLrlbuLed Lo my acLlons. 1he uC! malnLalned LhaL Lhe lmpacLed commerce was $18 whlch equaLes Lo
Lhe LoLal SSL revenue durlng Lhe daLes of Lhe consplracy. We had Lrled Lo dlspuLe Lhe $18 number as lL
was very arblLrary. l wenL Lhru all of Lhe SSL revenue daLa aL my dlsposal and by my calculaLlons Lhe
lmpacLed commerce was slgnlflcanLly less Lhan $18. l looked aL cusLomers LhaL were never parL of any
dlscusslons wlLh compeLlLors and oLher facLors such as conLracLual relaLlonshlps and ramp-up Llmlng of
Lhe consplracy. As far as Lhe uC! was concerned Lhere would be no dlscounLlng of Lhls number. 1hey
baslcally sald lf we prevalled on Lhls lssue Lhey would slmply add anoLher charge such as mall fraud Lo
make Lhe prlson Llme equaLe Lo whaL Lhey wanLed Lo achleve. under Lhe plea agreemenL Lhe mlnlmum
amounL of Llme l would serve would be 37 monLhs. 1hls was a Lype C" plea agreemenL whlch baslcally
presenLs Lhe Lerms Lo Lhe !udge as a 'Lake lL or leave lL" deal. 1he !udge has very llLLle opporLunlLy Lo
change Lhe Lerms of Lhe senLence.
8ase Level Cffense 12
arLlclpaLlon ln an agreemenL Lo submlL non-compeLlLlve blds +1
volume of Commerce ALLrlbuLable Lo 8acl was over $1 bllllon +14
uefendanL's leadershlp role +3
CbsLrucLlon of [usLlce +2
AccepLance of responslblllLy -2
1lmely AccepLance of responslblllLy -1
SubsLanLlal AsslsLance -4
1he governmenL recommended an offense level of 23 on Lhe lederal SenLenclng Culdellnes. 1hls Look
lnLo accounL eLer's asslsLance Lo Lhe governmenL and hls accepLance of responslblllLy. 1he prlson
senLence for a person ln Lhls range, wlLh no prevlous crlmlnal hlsLory (Crlmlnal PlsLory CaLegory l ), ls 37-
71 monLhs ln prlson (see 1able on followlng page). Cne drlvlng facLor ln Lhe governmenL's
recommendaLlon was Lhe amounL of money lnvolved ln Lhe consplracy, whlch Lhey pegged aL $1 bllllon
(Lhe LoLal sales of SSL over Lhe enLlre perlod of Lhe consplracy).

AugusL 1, 2012
21

SENTENCING TABLE
(in months of imprisonment)
Criminal History Category (Criminal History Points)
Offense
Level
I
(0 or 1)
II
(2 or 3)
III
(4, 5, 6)
IV
(7, 8, 9)
V
(10, 11, 12)
VI
(13 or more)
Zone A
1 0-6 0-6 0-6 0-6 0-6 0-6
2 0-6 0-6 0-6 0-6 0-6 1-7
3 0-6 0-6 0-6 0-6 2-8 3-9
4 0-6 0-6 0-6 2-8 4-10 6-12
5 0-6 0-6 1-7 4-10 6-12 9-15
6 0-6 1-7 2-8 6-12 9-15 12-18
7 0-6 2-8 4-10 8-14 12-18 15-21
8 0-6 4-10 6-12 10-16 15-21 18-24
Zone B
9 4-10 6-12 8-14 12-18 18-24 21-27
10 6-12 8-14 10-16 15-21 21-27 24-30
Zone C
11 8-14 10-16 12-18 18-24 24-30 27-33
12 10-16 12-18 15-21 21-27 27-33 30-37
Zone D
13 12-18 15-21 18-24 24-30 30-37 33-41
14 15-21 18-24 21-27 27-33 33-41 37-46
15 18-24 21-27 24-30 30-37 37-46 41-51
16 21-27 24-30 27-33 33-41 41-51 46-57
17 24-30 27-33 30-37 37-46 46-57 51-63
18 27-33 30-37 33-41 41-51 51-63 57-71
19 30-37 33-41 37-46 46-57 57-71 63-78
20 33-41 37-46 41-51 51-63 63-78 70-87
21 37-46 41-51 46-57 57-71 70-87 77-96
22 41-51 46-57 51-63 63-78 77-96 84-105
23 46-57 51-63 57-71 70-87 84-105 92-115
24 51-63 57-71 63-78 77-96 92-115 100-125
25 57-71 63-78 70-87 84-105 100-125 110-137
26 63-78 70-87 78-97 92-115 110-137 120-150
27 70-87 78-97 87-108 100-125 120-150 130-162
28 78-97 87-108 97-121 110-137 130-162 140-175
29 87-108 97-121 108-135 121-151 140-175 151-188
30 97-121 108-135 121-151 135-168 151-188 168-210
31 108-135 121-151 135-168 151-188 168-210 188-235
32 121-151 135-168 151-188 168-210 188-235 210-262
33 135-168 151-188 168-210 188-235 210-262 235-293
34 151-188 168-210 188-235 210-262 235-293 262-327
35 168-210 188-235 210-262 235-293 262-327 292-365
36 188-235 210-262 235-293 262-327 292-365 324-405
37 210-262 235-293 262-327 292-365 324-405 360-life
38 235-293 262-327 292-365 324-405 360-life 360-life
39 262-327 292-365 324-405 360-life 360-life 360-life
40 292-365 324-405 360-life 360-life 360-life 360-life
41 324-405 360-life 360-life 360-life 360-life 360-life
42 360-life 360-life 360-life 360-life 360-life 360-life
43 life life life life life life
November 1, 2011

Antitrust On The High Seas Case Study

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