STOLT-NIELSEN TRANSPORTATION GROUP

5 Pages   |   1,372 Words

1. What would you do if you were in Richard Wingfield's position in April 2001?

If I was Richard Wingfield in this scenario, I would have given a very deliberate thought of the entire issue. The key priority in this decision making would have been profitability of the firm since it was only a few months since I had assumed this role as the head of tanker division. My career progression is contingent on the profitability figures rather than how safely I lead the function. I would have chosen to continue with the cooperation with other companies in the industry for non-competition on certain routes or clients. Firstly, in this situation I am not the initiator of this non-competing behavior rather I am only sticking to status-quo. Also, there is no clear cut objective boundary established for the behavior which can be termed as monopolistic practice. Samuel Cooperman, who is the current CEO of the company, had created these relationships only three years ago in 1998. Also, it must be kept in perspective that at a time of this decision making in 1998, the company and the industry were facing highly challenging circumstances. Therefore, the driver of this change was not excess profiteering rather it was survival of the firm to avoid bankruptcy.
 

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Also, it must be acknowledged that qualification criteria to term cooperation with the two competitors, Jo Tankers and Odfjell Seachem, as a monopolistic practice is a weak one. The combined market share of the three companies is not large enough to classify the cooperation as a monopolistic practice. According to Souam (2001), the combined market share of the consortium should be significantly large for anti-trust changes to be levied. Even though Stolt is the largest company in this particular market segment, it commands only 23% of the entire market. The other members of this non-competing agreement are Odfjell ASA of Norway with a market share of 18% and Jo Tankers AS of Norway possessing 9% of the market. The combined global market commanded by these firms is 50% only, which implies that even after entering into this agreement, these firms still has to face competition with numerous other suppliers serving half of the market (Motchenkova, 2008). Also, the case for a monopolistic practice is also weak because the industry is catering to a niche rather than a mass market. However, one drawback of this non-cooperation agreement is that Stolt and Odfjell are family-controlled businesses which are always frowned upon by regulators (Armentano, 2007). Two of OdfjelTs six board members belong to the founding family. Jo Tankers is a company which is not even public and all its equity is privately held.

The reason for me to go ahead with the cooperation is that in this particular business, it is very common and in several ways essential that competitors cooperate with each other for arrangements such as trade lane, matters of sublets and in several forms of joint service agreements. When such form of cooperation is common among industry players, it is difficult to quality certain verbal agreements pertaining to non-competition on certain routes by regulators (Cooper et al., 2005). Also, it does not violate ethics that three firms agree not to interfere with each other’s existing clients in an industry where fixed costs is very high and low margins can very likely drive a firm out of business. In fact, such agreements can, in fact, benefit the clients by enabling firms to attain efficiency in certain regions, to pool resources for serving customers better and eventually to enhance operational efficiency.
Due to the above mentioned routine cooperation on load sharing, managers of these firms are in practice of meeting each other frequently. This implies that it is unlikely for regulators to trace a non-competition agreements on a few clients where there are frequent meetings taking place already (McAfee, Mialon and Mialon, 2008). Monopolistic charges are commonly levied on those firms which serve public rather than operate in B2B niche markets. Monopolistic practises command greater attention when innocent customers are being taken advantage of by charging excessive margins. The trio of specialized shipping service providers’ deal with business clients of manufacturers and traders of chemicals, oils, pharmaceuticals and petroleum products which make very structured business decision and keep a close eye on the cost incurred to them. Also, cooperation agreement only pertained to long-term contract market which is only 62% of the total market. Also, there is no evidence of excessive profiteering. Marigs of Parcel tanker division 18%; Stolt Tank Containers division operates at 25% margin and Stolthaven Terminals’ Margins are 31%. The agreements were not motivated solely by profit purposes, rather they were also aimed to reduce issues of port congestion by decreasing operational overlap between major carriers and enhance allocation of berth space in terminals. For the above mentioned reason, I would have chosen to continue the cooperation with competitors in 2001.
2. The current 'cooperation' arrangements were undertaken by your predecessor Samuel Cooperman, now promoted to the position of Chairman of the Stolt-Nielsen Transportation Group? How would this influence your decision?

The fact that current cooperation arrangements were made by the present Chairman of Stolt-Neilsen Transporation Company has a significant impact on my decision. It has also been mentioned in the previous question that my task of making a choice between two alternatives have been made easier because the present position of Cooperman and the choice he made only three years ago tend to validate my point of view. Also, it has only been three months for me to be in this position which puts a pressure for me to comply with the status quo of seniors rather than appear as someone who shakes established arrangements and incur possibility of displeasures from seniors in the organization (Hart, 2001).

3. In retrospect (and having had the opportunity to independently research the outcome - also see case supplement), what are your views about the position taken by the Antitrust Division in this case? Are they acting illegally or are they trying to set an example for others, at any cost?
The position taken by antitrust division in the case is entirely negative. They only example they are setting through this approach for other companies is not to cooperate with Antitrust Division. Antitrust Division failed to comply with its own promises and violated its leniency principle. This is also wrong even more because Antitrust Division would have a very hard time to even establish a case if Stold wouldn’t have cooperated by revealing information. The cooperation agreement between the three companies was verbal in most part. The only written component of the agreement was a list of clients which was never found by investigators.

Interestingly, suspension of immunity of Stolt was announced only after the two other parties to the case – Odfjell Seachem and Jo Tankers – were sentenced in the case. If there ever was any rationale for suspending immunity, it should have been done prior to the declaration of a criminal sentence against executives of the above mentioned companies (McAfee, Mialon and Mialon, 2008). This act only bespeaks of lack of integrity of Antitrust Division, and the government department deserved to be charged for illegal conduct in prosecution. Such acts tend to erode trust on criminal justice system. 

References

Armentano, D. (2007) Antitrust: The Case for Repeal, Albama: Ludwig Institute.
Cooper, J., Froeb, L., O'Brien, D. and Vita, M. (2005) 'Vertical antitrust policy as a problem of inference', International Journal of Industrial Organization, vol. 23, no. 8, pp. 639-664.
Hart, D. (2001) 'Antitrust and technological innovation in the US: ideas, institutions, decisions, and impacts, 1890–2000', Research Policy, vol. 30, no. 7, pp. 923-936.
McAfee, P., Mialon, H. and Mialon, S. (2008) 'Private v. public antitrust enforcement: A strategic analysis', Journal of Public Economics, vol. 92, no. 10, pp. 63-75.
Motchenkova, E. (2008) 'Determination of optimal penalties for antitrust violations in a dynamic setting', European Journal of Operational Research, vol. 189, no. 1, pp. 269-291.
Souam, S. (2001) 'Optimal antitrust policy under different regimes of fines', International Journal of Industrial Organization, vol. 19, no. 2, pp. 1-26.

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