Horizon Lines: The Freight Rates Competitors Already Knew

Horizon Lines agreed to pay $1.5 million in its civil freight settlement to resolve allegations that it fixed prices for government cargo moving between the continental United States and Puerto Rico. The government alleged that former shipping executives exchanged confidential bid information through personal email accounts, letting each carrier know the rates its competitor intended to submit. For someone inside freight pricing, the revealing detail is that advance knowledge: the rival’s intended price, for a particular route, before the government received its bid.

The Department of Justice announced the settlements on March 7, 2014. Sea Star Line separately agreed to pay $1.9 million, for $3.4 million between them.

Personal Emails Put the Rival’s Bid Inside the Pricing Decision

The government’s bid-rigging allegations connected confidential prices to the division of government shipping routes. Former executives allegedly used their personal email accounts to communicate the rates the carriers intended to offer federal agencies. Knowing those rates allowed the shippers to allocate specific routes between themselves at predetermined prices.

The details matter to an employee who has seen how a bid was prepared. The information allegedly exchanged concerned an intended submission, tied to a particular route. It gave the other carrier a view inside a pricing decision that the government was supposed to receive as a competing offer. The alleged route allocation then gave that exchange a commercial purpose: deciding who would get the work and at what rate.

Among the affected contracts were U.S. Postal Service purchases of mail transportation and Department of Agriculture purchases of food transportation. Taxpayers were paying for the movement of mail and food under contracts whose prices, the government alleged, the carriers had coordinated in advance.

On the government’s account, the competitors were agreeing on the answer first.

The Criminal Charge Reached Rates, Surcharges and Customers

The criminal charge against Horizon described a broader freight-pricing arrangement, including customer allocation and meetings to enforce agreed rates. In its February 24, 2011 announcement of the charge and agreement to plead guilty, the Justice Department said the charged conspiracy ran from at least as early as May 2002 until at least April 2008.

That announcement describes Horizon’s business as carrying heavy equipment, medicines and consumer goods on scheduled ocean voyages between the mainland and Puerto Rico. The charge covered both rates and surcharges, and agreements about which carrier would serve particular customers.

The department also said Horizon and its co-conspirators held meetings to monitor and enforce adherence to the agreed rates and sold freight services at collusive prices.

That last detail brings the scheme into the daily business of selling freight. Agreeing on a rate is one decision. Watching whether the other carriers stick to it is how the charged arrangement was maintained. An insider’s knowledge of pricing discussions, customer assignments or pressure to honor an agreed rate can explain the relationship between a private conversation and the price offered to a buyer.

The criminal investigation involved the Antitrust Division’s National Criminal Enforcement Section, the Defense Department’s Office of Inspector General and Defense Criminal Investigative Service, the Transportation Department’s Office of Inspector General, and the FBI.

The later civil announcement confirms that Horizon and Sea Star had pleaded guilty to anticompetitive conduct in related criminal proceedings. The government separately alleged the exchange of confidential government bids and the allocation of federal cargo routes in the civil case.

When Bidders Stop Trying to Win

A bidder can participate in an auction while leaving a preselected competitor to win. In Collusion Detection in Procurement Auctions, a 2013 working paper from the National Research University Higher School of Economics, researchers examined highway construction auctions in a Russian region. They identified five suppliers whose passive bidding was consistent with a bid-rotation arrangement.

The paper describes forms of passive participation in which firms apply or attend while a winner has already been selected. In the high-price group, the researchers found that suppliers did not bid as competitors would:

In Horizon’s case, the government’s allegation supplies a more direct account of how competition was displaced: rivals shared intended prices and allocated routes. The useful connection for a freight insider is the decision behind the offer. Who chose the rate, who knew the rival’s intended bid, and how did a particular customer or route become one carrier’s assigned business?

A Competitor’s Former Executive Brought the Civil Case

A former Sea Star executive brought the qui tam case under the False Claims Act, and the government joined it. The whistleblower came from inside a competing contractor.

The Justice Department credited its Civil Division and the U.S. Postal Service Office of Inspector General with the coordinated work that produced the civil settlements. The announcement also identified the postal watchdog’s Major Fraud Investigations Division and said the former executive would receive a share of the recovered funds.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

What Are the Red Flags of Bid Rigging?

In the Horizon allegations, the red flags were specific: competitors knew one another’s intended bids, exchanged that information through personal email, and allocated routes at predetermined rates. The criminal charge added customer allocation and meetings to monitor adherence to agreed pricing. Each detail points to a business decision someone inside a carrier may have seen.

A pricing employee may recognize a competitor’s intended rate in a discussion about the company’s own offer. A sales employee may know why a customer was treated as belonging to another carrier. Someone working with government accounts may be able to connect those decisions to the mail or food contracts. You can start with the part you know. We work with you to understand how it fits the government’s purchases.

The contract and billing records add the government-purchase side. We connect what the pricing communications reveal with the affected route, the offer submitted and the resulting government charges. That is where knowledge of the freight business becomes useful to a government procurement whistleblower case.

You Know How the Freight Price Was Chosen

If you saw competitors exchange rates or divide government cargo routes, tell our whistleblower experts what happened inside the pricing decision. We build your strongest government procurement whistleblower case with you and bring in government procurement whistleblower lawyers who understand bid coordination and the government bills it produces. From the first conversation through the pursuit of a recovery, we stay on your side of the table.