“There is a widespread conviction in the minds of the American people that the great corporations known as trusts are in certain of their features and tendencies hurtful to the general welfare.”
President Teddy Roosevelt wrote this passage in his first message as president. It set the tone for his administration’s trust-busting agenda. His legacy is clear, and he was invoked in President Biden’s July 2021 executive order on the urgency to leverage key laws like the Sherman Act and the Clayton Act to protect Americans’ welfare:
“When past presidents faced similar threats from growing corporate power, they took bold action. In the early 1900s, Teddy Roosevelt’s Administration broke up the trusts controlling the economy—Standard Oil, J.P. Morgan’s railroads, and others—giving the little guy a fighting chance.”
Citing consolidation in the ocean shipping industry amongst “large foreign companies”, the executive order encourages the Federal Maritime Commission (FMC) “to ensure vigorous enforcement against shippers charging American exporters exorbitant charges” for detention and demurrage. With the Department of Justice and the Federal Trade Commission (FTC), the FMC has grabbed the reins like a Rough Rider. The FMC has become a more recognizable agency outside of shipping as it leads antitrust campaigns that, while starting before the steep rise in inflation, have focused on detention, demurrage and per diem.
Shippers are angry, and Washington is listening. The columnist and economist Paul Krugman this week flatly wrote that the Biden administration’s antitrust efforts “won’t do any harm," but misguided regulation and legislation can indeed do harm. The sentiment is indicative of a pervasive climate scrutinizing the business practices of ocean carriers that extends from the Executive Branch to Congress.
In Congress, the Ocean Shipping Reform Act (OSRA) in the House and the FREIGHT Act in the Senate could have long and penetrating effects on ocean carriers, like codifying the Interpretative Rule into law. The flexibility ocean carriers currently have in managing detention and demurrage would be lost and the cost of compliance would rise. The myriad issues in Congress, like the ensuing battles to capture infrastructure dollars and pass some form of the Build Back Better plan, could delay these bills, and that is an opportunity for ocean carriers.
The time should be used to demonstrate self-regulation and controls. If practices are put in place that serve the objectives of Interpretive Rule, then the bill could be deemed unnecessary by enough members of Congress to never pass it.
A critical and doable step for ocean carriers is to manage customer disputes. Complaints are providing evidence to support enforcement action. Detention and demurrage have evolved into the lightning rod issues where government enforcement officials could fight for the “little guy,” and investigations have followed and are unfolding. Hearing and resolving disputes in a fair and timely process may not only create a better customer experience, but it may also mitigate regulatory risk.
While the FMC is progressing its audit program, specific cases are drawing its attention, and the problems each case reveals will be evaluated at other carriers. These cases cannot be viewed as one-offs; rather, they foreshadow the audit issues the FMC is likely to pursue, adding to concerns of additional inquiries and investigations.
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