The Biden administration will issue an executive order shortly ordering federal regulators to tackle “the consolidation and anti-competitive pricing” in the rail and shipping sectors “as part of a broader effort to contain corporate power big companies dominate industries,” as per the 8th July article in the Wall Street Journal by reporters Tedd Mann and Andrew Restuccia.
“As part of a sweeping executive order expected this week, the government will ask the Federal Maritime Commission and the Surface Transportation Board to fight what is known as aggressive pricing and a consolidation model that has made the transport intolerable for American companies goods to be marketed,” the WSJ said in its Biden to Target Railroads article, Ocean Shipping in Executive Order, citing an unidentified person familiar with the situation.
“The government says the relatively small number of major players in the US ocean and rail freight industry has allowed companies to impose unreasonable charges,” the WSJ said.
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“In the case of the seven Class I freight railways, the consolidation has given the railways a monopoly over parts of the country where they are the only freight routes,” the person said.
“The call for action against shipping lines and freight forwarders is one facet of a multi-pronged implementing regulation that will be one of Biden’s most radical unilateral economic policy moves to this day,” noted the WSJ.
“The Democratic president, who has filled his government with a cohort of advisers skeptical of corporate power and market dominance, is trying to curb big business while introducing more competition into areas of the economy. The result, according to the government, will be a greater impact for small businesses and individual workers, and fewer opportunities for a few large businesses to dictate conditions for the wider economy.”
With its measures in the transport sector, the administration points the finger at the dangers of regrouping that it evokes. Three alliances control 80% of the shipping market, the person close to the decree said.
In 2000, this person said that the 10 largest shipping companies controlled only 12% of shipping activities. The White House says the domain has come at a cost to U.S. exporters, allowing companies to get higher prices and have more power to collect fees such as delays, essentially late fees for shipments that are not delivered within one hour of being collected from freight terminals.
“A wave of combinations in the 1990s left the United States with only seven Class I railways, although STB merger rules have effectively prevented further consolidation since the administration of President George W. Bush.” Noted the WSJ.
Yet the White House says the current state of the industry leaves the railways with an effective duopoly across much of the country and a monopoly at the local level, meaning customers have little control over contract negotiations price.
The Executive Order will encourage the STB to adopt a long-proposed rule of so-called mutual or competitive switching (what the American Railroad Association calls “forced access” – editor), the practice in which carriers are served by a single railroad can ask for offers from a nearby competing rail company, if available.
The competing railway would pay the cost of access to the monopoly railways but could win the business of the airline by offering a lower price.
“In 2016, the STB proposed a rule for competitive change, but it has yet to react to it. Any move would likely spark a major battle with cargo and … AAR which is long against policy.”
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“Consolidation resulted in a much-needed rationalization of the system 25 years ago, but the net result is that many airlines are subject to a dominant railroad,” said a government official briefed on the White House’s proposal for the STB.
The White House will also encourage the STB to consider proposals that would require railways to come up with tariffs that would allow airlines to improvise routes through competing rail networks in order to reduce costs and more easily enter the STB to challenge the railroads the prices, said this person.
