Biden's SOTU remarks: The shipping industry's future

Robert Mottier

Global Key Account Director

In his recent State of the Union speech, President Biden announced a crackdown on ocean carriers and the container shipping industry as a whole. The administration’s scrutiny stems from the argument that ocean carriers are taking advantage of supply-chain congestion to maximize their profits at a time when the world is still recovering from the COVID-19 pandemic. The administration has also suggested that ocean carriers often give preference to the most profitable cargo, leaving commodities like agricultural exports left waiting to literally rot. 

What does this crackdown entail?  

1. Existing anti-trust protections for ocean carriers will be repealed  

The Ocean Shipping Reform Act was introduced the Monday before President Biden’s speech by Rep. Jim Costa, D-Calif. According to Politico, this act “would give the Federal Maritime Commission more power to regulate large container ships and prevent ocean carriers from rejecting U.S. exports in favor of hauling empty containers.” The result of amending U.S. shipping regulations would repeal protections for foreign carriers from certain antitrust laws.

2. DOJ and FMC will work together on anti-trust investigations and enforcement actions.  

On Monday, the White House released a document outlining regulatory actions, which included this key paragraph giving more details.

"Today, the FMC and the Department of Justice (DOJ) are announcing a new joint initiative to promote competition in the ocean freight transportation system. Under the new initiative, DOJ 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. The FMC will provide the Antitrust Division with support and maritime industry expertise for Sherman Act and Clayton Act enforcement actions. The agencies’ announcement explains that competition in the maritime industry is integral to lowering prices, improving quality of service, and strengthening the resilience of supply chains.”

In addition to the Ocean Shipping Reform Act working through Congress, it looks like the administration will be using the FMC & DOJ for this crackdown on ocean carriers in multiple areas. The Sherman Act addresses the common idea of smoky backroom deals to fix prices, restrict supply, and conspire to divide customers. Meanwhile, the Clayton Act includes provisions for several other anti-competitive activities. These undertakings include price discrimination between customers, conditional sales (aka bundling services), limits on M&A activity, and restrictions on individuals acting as a director for competing companies. 

What does this mean for the industry overall? 

Moving forward, we can count on more change and some unintended consequences. Assuming the DOJ does not find any prohibited price fixing for bid rigging activities, it is likely they will focus on limiting carrier activities in a few areas related to Clayton Act violations. This includes customer discrimination, price discrimination, bundling services, and limiting future M&A activity. We could see carriers forced to change how they go to market, moving away from contract rates and generous terms for large shippers to more spot pricing and published accessorial fees. As for unintended consequences, if carriers are forced to offer all shippers the same terms for demurrage and detention, this could mean higher cost and substantial changes for shippers who rely on low detention rates to hold equipment for extended periods.  

If congress passes H.R.6864, the door will be open for the DOJ and FMC to pursue a broad investigation into the carriers’ alliances, the carrier’s business practices, and limit future activities. H.R.6864 already has bipartisan support from members in both parties representing agricultural heavy districts. How this bill advances will determine the future of antitrust investigations and actions against carriers. If H.R.6864 fails to pass, the impact of the administration’s crackdown could be limited to a narrower antitrust investigation and the existing regulatory authority of the FMC and Surface Transportation Board.