President Biden’s sweeping executive order signed last week laid out the administration’s priorities for promoting competitive markets and limiting corporate dominance. Among the dozens of provisions included in the order are directives aimed at railroads and ocean shipping.
The administration says the relatively small number of major players in the ocean-shipping trade and the U.S. freight-rail business has enabled companies to charge unreasonable fees. In the case of the seven Class 1 freight railroads, consolidation has given some railroad companies control of most of the freight tracks in parts of the country.
Rail lines owned by major freight carriers
Union Pacific
Norfolk Southern
Canadian Pacific
Kansas City Southern
Canadian National
Rail lines owned by major freight carriers
Union Pacific
Norfolk Southern
Canadian Pacific
Kansas City Southern
Canadian National
Rail lines owned by major freight carriers
Union Pacific
Norfolk Southern
Canadian Pacific
Kansas City Southern
Canadian National
The executive order encourages the Surface Transportation Board to take up a longstanding proposed rule mandating so-called reciprocal or competitive switching, the practice whereby shippers served by a single railroad can request bids from a nearby competing railroad if service is available. The competitor railroad would pay access fees to the monopoly railroad, but could win the shipper’s business by offering a lower price, using the rival railroad’s tracks and property. The railroad trade association, the Association of American Railroads, has opposed the policy.
Railroads only run their trains on their own tracks and generally don’t have access to other railroad tracks. With reciprocal switching, one railroad serves a customer on behalf of another railroad for a fee. One simplified scenario:
Green train is carrying a loaded car destined for the orange line.
Orange line
The loaded car is dropped off.
Interchange track
Green train pulls into
a rail yard and detaches
the car.
A second green train picks up the car and heads to an interchange.
Orange train picks up the car and takes it to its destination on the orange line.
Green line
Green train is carrying a loaded car destined for the orange line.
Orange line
The loaded car is dropped off.
Green train pulls into a rail yard and detaches the car.
Interchange track
A second green
train picks up the car and heads to an interchange.
Orange train picks up the car and takes it to its destination on the orange line.
Green line
Green train is carrying a loaded car destined for the orange line.
Orange line
Green train pulls into a rail yard and detaches the car.
A second green
train picks up the
car and heads
to an
interchange.
Interchange
track
The
loaded
car is dropped
off.
Orange train picks up the car and takes it to its destination on the orange line.
Green line
In its actions targeting the transportation sector, the administration is highlighting what it calls the dangers of consolidation. For U.S. importers, the consolidation has given ocean carriers leverage to raise fees such as those for demurrage, essentially late fees on shipments that aren’t picked up from freight terminals on time.
Ocean-shipping lines have consolidated into three major alliances: Ocean Alliance, THE Alliance and 2M.
Consolidation in carrier industry
APM-Maersk
APM-Maersk
2M
6.61
Million
TEUs*
Mediterranean
shipping co.
Hamburg Süd
Hapag-Lloyd
Hapag-Lloyd
YANG MING MARINE
OCEAN
4.97
CMA CGM GROUP
CMA CGM GROUP
Hapag-Lloyd
CMA CGM GROUP
YANG MING
Marine
APM-Maersk
Mediterranean
shipping co.
Hamburg Süd
CMA CGM
GROUP
Hapag-
Lloyd
APM-
Maersk
4.97 million teus*
Hapag-Lloyd
CMA CGM GROUP
YANG MING
Marine
APM-Maersk
Mediterranean
shipping co.
Hamburg Süd
CMA CGM
GROUP
Hapag-
Lloyd
APM-
Maersk
4.97 million teus*
The executive order asks the maritime commission to take steps to protect American exporters from high fees. The order also asks the commission to work with the Justice Department to enforce its actions.
—Merrill Sherman and Lindsay Huth contributed to this article.
Write to Roque Ruiz at [email protected] and Ana Rivas at [email protected]
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