July 9, 2021
The Biden Administration will push regulators to confront consolidation and perceived anticompetitive pricing in the ocean shipping and railroad industries as part of a broad effort to blunt the power of big business to dominate industries, according to a person familiar with the situation, The Wall Street Journal reports.
As part of a sweeping executive order expected this week, the Administration will ask the Federal Maritime Commission and the Surface Transportation Board to combat what it calls a pattern of consolidation and aggressive pricing that has made it onerously expensive for American companies to transport goods to market.
The Administration says the relatively small number of major players in the ocean shipping trade and in the U.S. freight rail business has enabled companies to charge unreasonable fees.
In the case of the seven Class 1 freight railroads, consolidation has given rail carriers monopoly power over sections of the country where theirs are the only freight tracks, the person said.
According to the Journal, the executive order will encourage the STB to take up a longstanding proposed rule on so-called reciprocal or competitive switching—the practice whereby shippers served by a single railroad can request bids from a nearby competing railroad if service is available.
The STB proposed a competitive switching rule in 2016, but hasn’t yet acted on it.
“The consolidation brought about much-needed rationalization in the system 25 years ago, but the net result is a lot of shippers who are subject to a market-dominant railroad,” said a government official briefed on the White House’s proposal for the STB.
But a move to mandate switching would guarantee a battle with the freights and the railroad trade association, the Association of American Railroads, which has long opposed the policy.
“Competition remains fierce across freight providers, and any proposal mandating forced switching would put railroads—an environmentally friendly option that invests $25 billion annually in infrastructure—at an untold disadvantage,” Ian Jefferies, chief executive of the railroad association, said Thursday. “Such a rule would roll back the foundational market-driven principle that keeps the industry viable, reduce network fluidity, and ultimately undermine railroads’ ability to serve customers at a time when freight demands have dramatically increased.”
The call to crack down on ocean carriers and freights is one facet in a multipronged executive order that will be one of President Biden’s most sweeping unilateral moves on economic policy to date, the Journal says.
The Democratic president is trying to blunt big business while introducing more competition in areas across the economy. The result, the administration contends, will be more leverage for smaller companies and individual workers, and less ability for a few huge companies to dictate terms for the economy at large.
Among other things, the executive order will call on the Federal Trade Commission to adopt rules that curtail noncompete agreements. The White House said roughly half of U.S. private-sector businesses use noncompete agreements, affecting an estimated 30 million people.
“He believes that if someone offers you a better job, you should be able to take it,” White House Press Secretary Jen Psaki said Wednesday.
“While occupational licensing can serve important health and safety concerns, unnecessary or overly burdensome licensing can lock people out of jobs,” Psaki said, adding that the White House estimates about 30% of jobs in the U.S. require a license.
What’s more, in its actions targeting the transportation sector, the administration is highlighting what it calls the dangers of consolidation. Three alliances control 80% of the shipping market, the person familiar with the executive order said.
The White House says that dominance has come at a cost for American exporters, allowing the companies to extract higher rates. For U.S. importers, the consolidation has given carriers leverage to raise fees like those for demurrage, essentially late fees on shipments that aren’t picked up from freight terminals on time.
The order will ask the maritime commission to crack down on such fees, and to take all other steps to protect American exporters from high fees. The order also asks the commission to work with the Justice Department to enforce its actions. The commission and the Justice Department are expected to sign a new memorandum of understanding to improve their cooperation on such investigations soon, the person said.
Maritime Commission Chairman Dan Maffei said recently that the commission’s ability to address issues such as container shortages and surging rates may be limited if the cause is the surge in demand as the global economy rebounds from the coronavirus pandemic. The commission is limited in its options unless it finds evidence of intentional manipulation of prices, he has said.
Research contact: @WSJ