Sea Star Line: Rigged Freight Rates on USPS and USDA Shipments

Sea Star Line agreed to pay $1.9 million to resolve allegations of rigged freight rates on USPS and USDA shipments between the continental United States and Puerto Rico. The government alleged that shipping executives exchanged confidential bids through personal email accounts and divided routes at predetermined rates. For someone inside a freight business, the revealing detail is the advance knowledge: a carrier allegedly knew what its competitor would bid before the government received the competing offers.

The Justice Department announced the civil settlement on March 7, 2014. The affected contracts included U.S. Postal Service mail transportation and Department of Agriculture food shipments. A former Sea Star executive brought the qui tam whistleblower case, and the government joined it.

How the Freight-Rate Scheme Worked

The alleged bid rigging connected a confidential price to a particular route. According to the government’s civil announcement, former executives at Sea Star and Horizon Lines used personal email accounts to communicate the transportation rates their companies intended to submit to federal agencies. That information allegedly allowed the carriers to allocate specific routes between themselves at predetermined rates.

An intended bid gives a competitor something much more useful than yesterday’s price. It tells the other carrier what the government is about to see. Combine that knowledge with an agreement about who gets the route, and the decision that should belong to the buyer has already been made between the sellers.

We see the absurdity in asking the government to compare offers after the bidders have privately divided the work. Two company names on the paperwork. One arrangement behind them.

Sea Star operated scheduled ocean voyages carrying heavy equipment, perishable food, medicines and consumer goods between the continental United States and Puerto Rico. Those are the services described in the Justice Department’s November 17, 2011 announcement of the criminal charges. The government was buying transportation on those routes, with mail and food among the civilian cargo identified in the later civil case.

According to the Justice Department, the felony charge to which Sea Star agreed to plead guilty alleged a conspiracy to fix rates and surcharges from as early as May 2002 until at least April 2008. The criminal court documents described meetings and communications to allocate customers, rig bids and agree on rates and surcharges. Sea Star, its former president and their co-conspirators also allegedly met to monitor and enforce adherence to the agreed rates.

That last detail goes beyond exchanging a price. The charge described an arrangement that participants worked to maintain. For an insider who knows the customer accounts or pricing discussions, communications about keeping to an agreed rate explain why the numbers submitted to a buyer looked the way they did.

What the Civil Whistleblower Case Covered

The Sea Star civil settlement resolved False Claims Act allegations about prices on government cargo contracts. Horizon Lines separately agreed to pay $1.5 million in the same announcement.

The settlement announcement credited the Justice Department’s Civil Division and the U.S. Postal Service Office of Inspector General, whose Major Fraud Investigations Division addressed the case. The announcement also said the whistleblower would receive a share of the recovered funds.

The government’s account identifies the connection a freight whistleblower may know firsthand: who communicated, which route they discussed and what rate the other carrier intended to offer.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We build the case with you, connecting the government purchase to the agreement behind its price and assessing the potential whistleblower reward.

The Former President’s Criminal Trial

According to the Justice Department’s account of the former president’s criminal trial, the trial evidence connected him to the freight-pricing conspiracy. The department described his involvement as running from at least late 2005 until at least April 2008 and confirmed that Sea Star had pleaded guilty in the related criminal case.

The Antitrust Division’s National Criminal Enforcement Section and the Defense Criminal Investigative Service investigated the criminal case. The civil settlement separately addressed the government-cargo allegations, including the mail and food contracts.

What Proof Do You Need as a Whistleblower?

For a freight-rate case like Sea Star’s, we look for the connection between competitor communications, the affected route, the submitted bid and the government contract. The personal-email exchange and route allocation are the specific conduct the government alleged here. Your knowledge may connect a pricing conversation to the offer that reached the agency.

The contract and billing records give those communications a commercial setting. We examine how those records fit together with you, including who made or approved the pricing decision.

A pricing employee may recognize the rate, an account employee the customer allocation, and a billing employee the charge that followed. You may know the part that makes the other records intelligible.

What Are the Red Flags of Bid Rigging?

Advance exchanges of intended bids, agreements over who gets a route, and efforts to keep carriers to an agreed price are the warning signs described in Sea Star’s civil and criminal cases. Procurement scholarship adds another useful question: how did the bidders actually behave when they faced competition?

The 2013 National Research University Higher School of Economics working paper Collusion Detection in Procurement Auctions examined highway construction auctions in a Russian region. It found passive bidding by five suppliers consistent with a rotating arrangement. In its comparison of bidding behavior, the paper described a striking feature of the high-price auctions:

In the same study, firms applied without appearing or appeared without bidding, while outside bidders disrupted the passive strategy. For a freight bid file, we look at participation as well as price: who pursued the work, who stood back and what the communications explain.

Why the USPS and USDA Contracts Matter

The named buyers connect the alleged freight agreement to public spending: the Postal Service purchased mail transportation, and Agriculture purchased food shipping. In the government’s account, the carriers’ advance coordination reached the rates offered on those purchases. That is where a private conversation between competitors becomes a taxpayer’s problem.

A separate USPS case shows why the specific contract records matter. In its international-mail settlement with UPS, the government alleged false reports of when mail arrived and when it transferred to foreign postal services or other recipients. The contracts required electronic scans showing those events, and the allegedly false reports avoided late-delivery penalties.

For UPS, the alleged deception concerned the reported delivery. For Sea Star, it concerned the competition behind the price. A person who knows how a shipment moved and a person who knows how its rate was agreed can bring different evidence about the same kind of government purchase. We work with that operational knowledge to identify the transaction and the decisions that matter to the case.

You Know How the Rate Was Agreed

If you know about competitor bid exchanges or deals over government cargo routes, talk with our whistleblower experts about the freight business you know. We build the government procurement whistleblower case with you and bring in government-contract whistleblower lawyers who understand collusion and transportation pricing. From the first conversation through the case, we stay beside you to build your strongest bid-rigging whistleblower case.