Last week, the White House announced a new Biden Administration Executive Order titled, Promoting Competition in the American Economy.
A White House briefing on Friday indicated that this order was established as: “a whole of government effort to promote competition and deliver concrete benefits to America’s consumers, workers, farmers, and small businesses.”
This executive order includes 72 specific initiatives involving more than a dozen federal agencies which are specifically directed at restoring competition in a variety of wide-ranging industry sectors which the White House briefing document characterized as some of the most pressing competition problems across the U.S. economy.
In a Supply Chain Matters blog posting last week, we echoed a published report that hinted that this order addresses two specific areas that will be of concern to multi-industry supply chain management teams and their respective businesses and indeed it does.
In a section titled Transportation, the order notes: “In the transportation sector, multiple industries are now dominated by large corporations air travel, rail and shipping.” In addition to airline travel, the order addresses rail and shipping sectors.
The order observes that in 1980, there were 33 “Class 1” freight railroads across the U.S. compared to just 7 today, with four major rail companies now dominating their respective sectors. “Freight railroads that own their own tracks can privilege their own freight traffic- making it harder for passenger trains to have on-time service- and can overcharge other companies’ freight cars.” In addition, the Biden Administration has been much more focused on adopting active measures addressing sustainability and climate change, and U.S. railroads have become strategic toward facilitating such efforts as a more carbon efficient means to transport goods as well as passengers.
The order encourages the Surface Transportation Board (STB) to require railroad track owners to provide rights of way to passenger rail and to strengthen their obligations to treat other freight companies fairly.
Unlike some other countries or national rail companies, Amtrak which provides U.S. wide rail service has to rely on other freight railroads for track clearance in certain parts of the U.S. The conflict of priority access involving for profit transport and government subsidized national rail has been a bone of contention for many years. Major freight rail operators continue to stress that they have the legal means to control their own networks.
The timing of this executive order’s specific mention of rail comes as the STB is in the midst of considering two announced acquisitions of regional based Kansas City Rail (KSF) originally by Canadian National Rail and later countered by Canadian Pacific’s (CP) bid for a roughly $30 billion acquisition. The STB must approve the deal as to whether it meets service competitiveness criteria for shippers along both routes. Unclear at this point is whether this new executive order adds a further perspective to approval, that being shipper’s access to multiple rail carriers, along with any impacts to existing or future passenger rail access.
The order observes that the global maritime shipping industry has rapidly consolidated since the start of this decade. Noted is that today, the ten largest shipping companies now control over 80 percent of the ocean shipping market compared to 12 percent in the year 2000. That reportedly has domestic manufacturing exporters or importers at the mercy of these large foreign shipping lines. Specific mention is made of “exorbitant fees” for detention and demurrage for the time freight is sitting waiting to be loaded or unloaded with no direct influence from those being charged.
The order encourages the Federal Maritime Commission (FMC) to “ensure vigorous enforcement against shippers charging American exporters exorbitant charges.” It further encourages the FMC to work with the U.S. Justice Department to investigate anti competitive practices. The order reportedly urges the FMC to allow shippers to challenge inflated rates when there is no competition among routes. The order further seeks the FMC to request from the National Shipper Advisory Committee recommendations for improving detention and demurrage practices and enforcement.
On Thursday, FMC chairperson Daniel Maffei indicated in an interview with FreightWaves that he welcomed the new executive order and intends to cooperate, citing the agency’s ongoing investigation into ocean shipping practices.
In a separate news release published last week, the World Shipping Council an industry association comprised of shipping lines which represents upwards of 90 percent of global trade reportedly disputed the reasoning promoted by the White House that market correction is the problem. John Butler, President and CEO of World Shipping Council attributed the current surge of shipping demand directly to increased demand levels by U.S. consumers:
“The driver of these problems is demand for imports by U.S. consumers and U.S. businesses. Of the past 12 months, 11 months have had a year-on-year growth in spending on consumer goods of over 10%. To put this into perspective, in the 18 years before the pandemic, the average growth rate was 4.7%. The impact of this sustained increase in spending on consumer goods is manifested in the volume of U.S. container imports stressing the supply chain.”
Regarding the industry response to the ongoing disruption and exploding shipping and demurrage rate, the release indicates:
“Ocean carriers are employing all available capacity and pulling out all stops to manage the operational disruptions brought on by Covid-19. But when marine terminals cannot clear the cargo already on the docks, ships cannot berth to discharge and load cargo. And marine terminals cannot clear cargo if the importers of that cargo have no warehouse or distribution space to put those containers. And containers are stuck in many places in the U.S. waiting for adequate rail and truck capacity to move them.”
From our Supply Chain Matters lens, what the above statements from the World Shipping Council seem to be blinded to is that increased exploding demand and ongoing cascading disruptions among marine and inter-modal terminals is not solely a U.S. problem but a global wide logistics and transportation network challenge involving the globe’s busiest and most critical terminals. Further, some shipping companies own import and export terminals themselves, hence they have some responsibility and control for resolving ongoing congestion as opposed to profiting by that condition.
The inclusion of both the rail and ocean carrier industries as cited candidates for increased scrutiny by the Biden Administration is a formal wake-up call to each of these industries that shippers and importers, especially small business focused companies, are reaching threshold frustration levels and are lobbying for added government oversight. Our belief is that other nations will add their voice and actions in the coming weeks.
The transportation and logistics industry as a whole needs to reflect on what their traditional rate actions are participating in economic harm and in customer relationships.
While the finger pointing and the blame game will provide for added color and industry discourse, supply chain management and business teams need that add their objective voices minus the PR spin. The succinct question is whether certain carriers or certain rather large significant corporations are unduly benefitting from their structural market power and their newly discovered technology tools.
What is your organization’s perspective? Let us know.
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