September 27, 2021

Volume XI, Number 270

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September 24, 2021

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Spotlight on The International Maritime Sector as The Biden Administration Looks to Address Competition Activities

On 9 July 2021 the Biden Administration released an Executive Order (EO) on promoting competition in the American economy. The latest White House effort directs federal agencies to strengthen oversight of several key industries that are perceived to be impacted by the monopolistic control of a small number of dominant companies. The industries addressed in the EO include agribusiness, freight rail, health care, and shipping. The order reflects a “whole-of-government effort to promote competition in the American economy,” providing 72 individual recommendations to foster competition, including multiple provisions related to the global shipping industry. The order could mark the beginning of a potentially significant movement by the federal government to further regulate unfair or unreasonable shipping practices. 

Discussing the EO, White House Press Secretary Jen Psaki stated that “a lot of American companies rely on…ocean carriers to ship their goods internationally," noted that the industry has “grown more concentrated over time,” and concluded that the “concentration has contributed to a spike in shipping costs and fees during the pandemic.” The fact sheet accompanying the order also states that in 2000, the largest 10 shipping companies controlled 12 percent of the market, a share that has grown to more than 80 percent today. 

The White House is not alone in expressing concerns about ocean carrier rates and practices. A congressional hearing in June on supply chain congestion issues focused on concerns that ocean carriers had been declining to carry U.S. agriculture exports, choosing instead to return empty containers to Asia to be filled with high-value consumer goods. The hearing before the House Subcommittee on Coast Guard and Maritime Transportation also heard criticism of significant fees levied on shippers through detention and demurrage charges—which are often levied on shippers when chassis and containers are caught in the system—and the lack of export options throughout the pandemic as American consumers shifted spending habits from services to consumer goods. The EO and the congressional inquiry followed the Federal Maritime Commission’s (FMC) ongoing efforts to investigate ocean supply-chain disruptions and FMC interpretive rules and information demands targeting detention and demurrage practices. 

Ultimately, the EO appears to respond to expressed concerns from domestic shippers. The EO expressly highlights that “the global container shipping industry has consolidated into a small number of dominant foreign-owned lines and alliances, which can disadvantage American exporters.” Unlike a broader-based policy initiative by the Obama Administration to enhance the global competitiveness of U.S. markets, the Biden EO details specific and actionable directives for agencies to take. 

While there is no mandate in the order for independent agencies such as the FMC to commit to these goals, new FMC Chairman Dan Maffei has stated that he will cooperate in the effort, saying, “The President is saying all hands on deck, which we appreciate.” Chairman Maffei also commented that “by having a consolidated industry, you set the stage for some of the price increases that we’ve seen.” Ocean carriers have, by contrast, painted the rate increases as a normal incident of current supply-and-demand conditions. 

With respect to shipping provisions, the EO specifically encourages the FMC to: 

  • Vigorously enforce the prohibition of unjust and unreasonable practices in the context of detention and demurrage pursuant to the Shipping Act, as clarified in [its] “Interpretive Rule on Demurrage and Detention Under the Shipping Act,” 85 Fed. Reg. 29638 (18 May 2020); 

  • Request from the National Shipper Advisory Committee recommendations for improving detention and demurrage practices and enforcement of related Shipping Act prohibitions; and

  • Consider further rulemaking to improve detention and demurrage practices and enforcement of related Shipping Act prohibitions.

On 12 July 2021, the FMC and Department of Justice’s (DOJ) antitrust division signed an interagency memorandum of understanding to foster increased cooperation and communication on competition issues raised by the EO. The focus on the antitrust authority of the DOJ could be particularly consequential for the maritime industry. The Shipping Act of 1984 (Act) recognizes the FMC as the expert regulator of the industry, and exempts from antitrust liability any agreement between ocean common carriers and marine terminal operators filed with the FMC and effective under the act or exempt from filing under the act. However, the DOJ retains full authority over mergers and acquisitions and the authority to prosecute unfiled anticompetitive agreements. The EO states that “when agencies have overlapping jurisdiction, they should endeavor to cooperate fully in the exercise of their oversight authority, to benefit from the respective expertise of the agencies and to improve Government efficiency.” 

LOOKING FORWARD

The latest EO from the Biden White House has the potential to reshape the structure and capabilities of several key sectors of the global economy, including the maritime industry. Affected stakeholders will have a voice in shaping how the FMC and other agencies plan to implement the EO via rulemakings, potential enforcement actions, and continuing oversight from the congressional committees of jurisdiction. The complex and intersecting nature of the governing regulatory systems will require careful navigation on all sides.

Copyright 2021 K & L GatesNational Law Review, Volume XI, Number 195
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About this Author

Michael F. Scanlon, KL Gates, administrative procedure lawyer, Maritime litigation attorney
Partner

Mr. Scanlon's practice concentrates on the postal and maritime industries, administrative procedure and litigation. 

Mr. Scanlon advises and represents both large and small clients on a broad range of commercial and administrative law issues. His litigation experience includes numerous federal court and agency proceedings at both the trial and appellate levels,  including significant experience with matters involving rates, fees and other competitive issues.

Mr. Scanlon also advises and helps lobby on behalf of a wide...

202-661-3764
John Longstretch, KL Gates Law Firm, Antitrust and Litigation Attorney
Partner

Mr. Longstreth’s practice concentrates in administrative procedure, antitrust and litigation, primarily involving regulated industries. His litigation experience includes numerous federal court and agency proceedings at both the trial and appellate levels, many of which have resulted in reported decisions. He has argued in numerous appellate courts, including multiple times in the D.C., Fourth, and Ninth Circuits, and has been counsel in a number of U.S. Supreme Court and court of appeals proceedings for petitioners, respondents, intervenors, and amicus participants....

202-661-6271
Darrell Conner, KL Gates Law Firm, Public Policy Attorney
Government Affairs Counselor

Mr. Conner is a government affairs counselor in the Public Policy and Law practice group at K&L Gates, one of the largest policy groups in the United States.  He has nearly 25 years of experience working with Congress and the executive branch, experience that he leverages to provide advice to clients on effectively managing their government and regulatory affairs, in particular helping clients by create alignment between their objectives and government policies.

202-661-6220
Elle Stuart Transportation Lawyer KL Gates
Associate

 Elle Stuart is an associate in the firm’s Washington, D.C. office, where she is a member of the public policy and law practice group. Elle focuses her practice on a wide range of federal regulatory, policy, and legislative matters dealing with transportation issues, with an emphasis on the maritime and postal sectors.

Prior to joining K&L Gates, Ms. Stuart was an extern in the Environmental Division of the North Carolina Department of Justice. She was a summer associate at K&L Gates in 2016.

202.778.9081
Brody Garland Public Policy & Law K&L Gates Washington DC
Government Affairs Analyst

Brody Garland is a government affairs specialist in the firm’s Washington, D.C. office. His practice focuses on transportation, infrastructure, and maritime policy issues. In his current capacity, he advises over 30 partners, associates, and policy practice professionals on legislative, regulatory, and political proceedings on client matters related to aviation, energy, infrastructure, maritime, telecommunications, trade, and transportation policies. His efforts have helped the K&L Gates policy team secure favorable bill language and millions of dollars in congressional appropriations...

202-778-9189
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