Biden executive order targets rail, ocean shipping

In early July, President Biden signed the Executive Order on Promoting Competition in the American Economy that targets ocean shipping lines and railroads in part. The order notes the lack of competition in the telecommunications and the financial services sectors in part because of industry consolidation. “Similarly, the global container shipping industry has consolidated into a small number of dominant foreign-owned lines and alliances, which can disadvantage American exporters,” the order states.

In comments Biden delivered when he signed the executive order, he said, “The heart of American capitalism is a simple idea: open and fair competition—that means that if your companies want to win your business, they have to go out and they have to up their game; better prices and services; new ideas and products.

“That competition keeps the economy moving and keeps it growing,” he continued. “Fair competition is why capitalism has been the world’s greatest force for prosperity and growth.”

Biden added, “But what we’ve seen over the past few decades is less competition and more concentration that holds our economy back.”

To help encourage more competition in the freight rail sector, the order encourages the chair of the Surface Transportation Board (STB) to further competition in the rail industry and to provide accessible remedies for shippers by considering “commencing or continuing a rulemaking to strengthen regulations pertaining to reciprocal switching agreements pursuant to 49 U.S.C. 11102(c), if the chair determines such rulemaking to be in the public interest or necessary to provide competitive rail service.”

The rail industry refers to this as a “forced switching” rule.

The executive order also asks the chair and the board to consider rulemakings relating to competitive access, including bottleneck rates and interchange commitments.

The STB and its chair also are asked to consider a carrier’s fulfillment of its responsibilities under 49 U.S.C. 24308 in the process of determining whether a merger, acquisition or other transaction is consistent with the public interest under 49 U.S.C. 11323-25.

The Association of American Railroads (AAR), Washington, responded to the executive order by issuing a press release that calls it a “misguided direction to interfere with functioning freight markets that could ultimately undermine railroads’ ability to reliably serve customers.”

AAR President and CEO Ian Jefferies says, “Competition is alive and well in the rapidly changing freight transportation market, with nearly three-quarters of all U.S. freight shipments moving by a mode of transportation besides rail. With the logistics chain already challenged by the recovery from COVID, this executive order throws an unnecessary wrench into freight rail’s critical role in providing the service that American families and businesses rely on every day.”

He continues, “Any STB action mandating forced switching would put railroads at a severe disadvantage to freight transportation providers that depend upon taxpayer funded infrastructure. Such a rule would degrade rail’s significant benefits to both customers and the public by throttling network fluidity, disincentivizing investment, increasing costs to shippers and consumers and ultimately diverting traffic onto trucks and the nation’s already troubled highways.”

In the ocean shipping sector, shipping lines have consolidated into three primary alliances: 2M, Ocean Alliance and THE Alliance. According to an article in the Wall Street Journal, these alliances respectively manage 6.61 million 20-foot equivalent units (TEUs), 4.97 million TEUs and 3.73 million TEUs.  

The executive order asks the chair of the Federal Maritime Commission (FMC) and the rest of that body to work with the Justice Department to “vigorously enforce the prohibition of unjust and unreasonable practices in the context of detention and demurrage pursuant to the Shipping Act, as clarified in “Interpretive Rule on Demurrage and Detention Under the Shipping Act,” 85 Fed. Reg. 29638 (May 18, 2020).”

It also asks the FMC to request recommendations from the National Shipper Advisory Committee for improving detention and demurrage practices and enforcement of related Shipping Act prohibitions and consider additional rules to improve detention and demurrage practices and enforcement of related Shipping Act prohibitions.

The Institute of Scrap Recycling Industries (ISRI), Washington, supports the executive order. 

"We applaud President Biden for issuing this important executive order that recognizes the systemic disruptions to our nation’s manufacturing supply chains and directs his administration to take all appropriate actions to help improve our transportation networks,” ISRI President Robin Wiener says in a news release. 

ISRI says the association and its members have been advocating against unfair demurrage practices to the Surface Transportation Board for years through public comments, testimony, outreach on Capitol Hill and other various efforts. The executive order will help urge the STB to complete outstanding rules and step up enforcement against the railroads, leveling the playing field for shippers.

More recently, ISRI says it made the FMC aware of the impacts of the shortage of shipping containers on the recycling industry and other manufacturers as part of their investigation into the ocean carrier’s unfair demurrage and detention practices.

"Recycling is an essential part of both our nation’s manufacturing supply chains and creating a sustainable and circular economy,” Wiener says. "This executive order helps our essential industry fulfill its mission of supplying specification-grade commodities that save energy, protect the environment, conserve natural resources and help combat climate change."

Days after Biden signed the order, the FMC and the Department of Justice Antitrust Division signed an interagency memorandum of understanding (MOU) to foster increased cooperation and communication in their respective oversight and enforcement responsibilities of the ocean liner shipping industry. 

The MOU establishes a framework for the FMC and the Antitrust Division to continue regular discussions and review law enforcement and regulatory matters affecting competition in the shipping industry, according to a news release issued by the FMC. The MOU also provides for information and expertise exchanges between the agencies that could be relevant and useful in meeting their oversight and enforcement responsibilities.

“The Federal Maritime Commission has an important enforcement role as an economic regulator of a vital industry,” FMC Chairman Daniel Maffei says. “As such, we will continually assess how the agency can improve its capacity to protect the integrity of the marketplace. This memorandum between the commission and the Department of Justice supplements and strengthens the FMC’s ability to detect, address and pursue violations of the law or anticompetitive behavior by those we regulate.”

“Collaboration between the Antitrust Division and the FMC is important to ensuring healthy competition in the maritime industry,” Acting Assistant Attorney General Richard Powers says. “Our partnership with the FMC is one of the many ways in which the Antitrust Division is prepared to play its role in achieving the competition objectives of the president’s competition executive order.”