Biden Administration Ramping Up Competition Enforcement in Ocean Shipping

Biden Administration is stepping up it’s scrutiny of container shipping alliances and enforcement of competition laws.

The U.S. Justice Department and the Federal Maritime Commission (FMC) announced actions Monday to reaffirm and strengthen their commitment to jointly enforce competition laws to promote fair competition in the container shipping industry as soaring shipping costs add to inflationary pressures.

President Biden is even expected to discuss container shipping issues at Tuesday’s State of the Union address.

The announcement comes less than a year after the FMC and DOJ formalized their working relationship by entering into a Memorandum of Understanding (MOU) in July 2021. The MOU establishes an initial framework for partnership between the FMC and the DOJ’s Antitrust Division that “enhances cooperation in the enforcement of antitrust and competition laws, including the Shipping Act, including by facilitating information exchange between and among attorneys, economists and technical experts,” which was issued in response to objectives in President Biden’s Executive Order on Promoting Competition in the American Economy, issued earlier that sam

Building on the earlier MOU, Attorney General Merrick B. Garland and FMC Chairman Daniel B. Maffei have now announced new steps the two agencies will take to strengthen the partnership.

Going forward, the Justice Department will provide the FMC with the support of attorneys and economists from the Antitrust Division for enforcement of violations of the Shipping Act and related laws, while the FMC will provide the Antitrust Division with support and maritime industry expertise for Sherman Act and Clayton Act enforcement actions, the two agencies said in a press release.

“The Justice Department will continue to aggressively enforce our antitrust laws – no matter the industry, no matter the company, and no matter the individual,” said Attorney General Garland. “Competition in the maritime industry is integral to lowering prices, improving quality of service, and strengthening supply chain resilience. Expanding joint enforcement partnerships like the partnership between the FMC and DOJ is one of our most powerful tools for promoting competition. Lawbreakers should know that the Justice Department will provide the Federal Maritime Commission all necessary litigation support as it pursues its mission of promoting competition in ocean shipping.”

“The Attorney General and I share both the priority of a competitive marketplace and a commitment to pursue enforcement actions when necessary,” said Chairman Maffei. “Our agencies have a history of cooperating to the benefit of the American consumer and this new support will help ensure that the working relationship will help both government entities in our shared goal of fair competition.”

White House Calling Out Shipping Alliances

Coinciding with today’s announcement from the FMC and DOJ, the White House issued a Fact Monday titled Lowering Prices and Leveling the Playing Field in Ocean Shipping, detailing new steps to lower consumer prices and “level the playing field” in ocean shipping, pointing out that just three major ocean alliances have grown to “control 80% of global container ship capacity and control 95% of the critical East-West trade lines.”

President Biden also is calling on Congress to pass “robust reforms” on the ocean shipping industry, including reforms that “address the current antitrust immunity for ocean shipping alliances.”

“Since the beginning of the pandemic, these ocean carrier companies have been dramatically increasing shipping costs through rate increases and fees,” the Fact Sheet states. “They increased spot rates for freight shipping between Asia and the United States by 100% since January 2020, and increased rates for freight shipping between the United States and Asia by over 1,000% over the same period. Oftentimes cargo owners are charged fees—known as “detention and demurrage” fees—even when they can’t get access to their containers to move them. The FMC estimates that from July to September of 2021, eight of the largest carriers charged customers fees totaling $2.2 billion—a 50% increase on the previous three-month period.”

The fact sheet also draws attention to the fact that ocean carriers have experienced profit windfalls as a result of these increases.

“Estimates suggest that the container shipping industry made a record $190 billion in profits in 2021, a seven-fold increase from the previous year and five times what it made over the entire period from 2010-2020. Profit margins have increased by even larger amounts. In the third quarter of 2021, the average operating margin of the major carriers was about 56%, compared to an average operating margin of 3.7% two years earlier…”

The President is now expected to address these issues during tomorrow’s State of the Union address.

World Shipping Council Responds

In response, the World Shipping Council, representing ocean carriers, issued the following statement:

“It is unfortunate that the President is demonizing ocean carriers, the industry that is the backbone of the U.S. and global economy and that has been working around the clock through the pandemic to move more cargo than at any time in history.

“Allegations that the container shipping industry is highly concentrated and uncompetitive are factually incorrect. Ocean carriers actively compete against one another in the global marketplace, including on the shipping lanes most relevant for U.S. trade, while concentration levels in many other U.S. industries are markedly higher than those in container shipping. In a clear sign of a competitive market responding to increased demand, competition increased in 2021, with more ships operated by a larger pool of carriers serving the trans-Pacific trade.

“The bottom line is that container shipping is a very competitive industry—this is what the numbers show. Regulators in the U.S. and Europe have repeatedly and recently confirmed that this is the case.

“The deeply flawed Ocean Shipping Reform Act passed by the House will not solve the landside logistics breakdowns that are at the heart of America’s supply chain problems. In fact, the legislation as written would make existing congestion worse and stifle innovation.

“Policymakers must instead address the root cause of the logjam by seeking real solutions that take a comprehensive, forward-looking view of the supply chain, further strengthening the intermodal transportation system that has supported the U.S. economy throughout the pandemic.”