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Supply Chain News: Shippers Mostly Bullish on Executive Order on Carrier Competitiveness

 

Ocean Shipping and Rail Switching Costs Called Out, as White House Says Too Many Sectors Seeing Competitiveness Drop

July 20, 2021
 

On July 9, President Joe Biden signed an executive order championing competitive markets across the US economy and limiting corporate power that the Biden administration says puts consumers, workers and smaller companies at a disadvantage.

Supply Chain Digest Says...

 

The White House said that in more than 75% of U.S.-based industries, a smaller number of large companies now control more of the business than they did 20 years ago.

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The order, really in a form of principles and potential areas for investigate by federal agencies rather than specific requirements, took special aim at the transportation sector. The order directs the Federal Maritime Commission, which regulates ocean shipping, and the Surface Transportation Board (STB), which does the same for the rail sector, to toughen their oversight of freight transportation.

In that vein, the order cites potential issues with so-called “reciprocal switching” in the rail markets, a practice that involves rail cars transfers between competing rail lines, often at high costs, because the switching may be the only route for the cars to get to their final destination. The STB has been promoting potential fixes to the perceived high costs for rail shippers for a number of years without much success.

“Freight railroads that own the tracks can privilege their own freight traffic - making it harder for passengers to have on-time services - and can overcharge other companies’ freight cars,” the order said.

The order calls on the Federal Maritime Commission to help rein in “detention and demurrage” fees that foreign container lines use against American exporters for the time their freight waits to be loaded or unloaded, many claim somewhat capriciously and unfairly.

In a quick explanation, demurrage fees are charged when full containers are still under the control of the shipping line, and exceed certain limits in terms of dwell times before they are cleared through customs or picked up by the consignee.

Detention costs, on the other hand, occur when the carrier’s container is still in use by the shipper beyond the last free day, regardless if the container is full or empty.

Both regulatory agencies and some industry groups were pleased with the president’s order, coming at a time when rail and especially ocean shipping charges have soared to record levels.

For example, FMC Chairman Daniel Maffei said his agency already has begun investigations into reports of anti-competitive behavior among container carriers.

Maffei also said detention and demurrage charges are “a top priority of the agency to identify and take action against those who flout the commission’s recent interpretive rule on reasonable regulations and practices.”

The National Industrial Transportation League, a shipper organization, said such fees have proliferated and “are crippling the maritime supply chain.”

Carrier groups naturally did not see it that way.

The Association of American Railroads said the order provides “a misguided direction to interfere with functioning freight markets” and would benefit trucking companies at the expense of railroads relative to the switching issue.

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John Butler, CEO of the World Shipping Council, a Washington-based trade group representing container carriers, said the rising rates and long delays in ocean transport are “a market aberration” brought on by the impact of the Covid-19 pandemic, not the result of uncompetitive behavior.

Beyond freight transportation, the White House said that in more than 75% of US-based industries, a smaller number of large companies now control more of the business than they did 20 years ago, adding that a lack of competition has increased consumer prices and also driven down wages for workers.

The executive order includes 72 suggested initiatives for more than a dozen federal agencies.

SCDigest View: The Biden executive order will likely energize transportation regulators in the short term. Whether it results in meaningful change is the question, under fierce lobbying from freight interest, and the likely hood rates and changes will pull back at some point.


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