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Blog Post | June 28, 2022

Rogue Regulator: Biden Cedes Chance to Enlist FMC in Inflation-Fighting Agenda

Economic PolicyExecutive BranchIndependent Agencies
Rogue Regulator: Biden Cedes Chance to Enlist FMC in Inflation-Fighting Agenda

President Biden, in his State of the Union address, announced a crackdown on ocean carriers reaping record profits as consumers face rising prices. Ocean carriers have raised their prices by as much as 1,000 percent, which is factored into the cost of every good that moves throughout our globalized economy. But, earlier this month, Biden appears to have undermined his administration’s path to following through by nominating officials who oppose his agenda to the key agency responsible for carrying it out.  The Federal Maritime Commission, tasked with regulating massive shipping companies, has been actively compromising the Biden administration’s stance on anti-competitive pricing and the role that it plays in ongoing inflationary turmoil. When given the opportunity to replace two of the commissioners responsible, however, Biden demurred, electing instead to nominate them to new terms and seemingly entrench an anti-regulatory status quo at the FMC for the foreseeable future. 

In recent weeks, the clash between the FMC and the broader administration has remained stark. The President, in a speech at the Port of Los Angeles, took aim yet again at ocean carriers, blaming their greed for higher price levels. But the FMC, the agency best positioned to do something to rein in that greed, just weeks earlier released a report claiming the opposite: that the shipping market was competitive and that concentration had no effect on prices. (For reference, three ocean carrier alliances control 80 percent of the world’s shipping container capacity.) The report argued that price increases were due purely to supercharged demand. According to Capitol Forum (Vol. 10 No. 246), both the White House and the Department of Justice have taken issue with the report’s findings and methodology. It was, however, wholly consistent with the agency’s demonstrated track record of deference to major shipping lines’ policy interests and its willingness to fight with other parts of the federal government on their behalf.

What is more confounding is that Biden, rather than seizing an opportunity to set the agency on a different path, is enabling it through his personnel decisions when his reputation suffers substantially from high inflation. Today’s inflation is one of the most salient economic issues since the Great Recession and the centerpiece of the Republican midterm strategy. It is also considered one of the things most negatively impacting Biden’s approval ratings. Given these high stakes it would only seem natural that the president would move as quickly as possible to  replace FMC commissioners who are undermining his policy and messaging strategy on one of the most influential issues around. 

There have been three openings on the FMC since Biden took office. Biden made his first nomination to fill one of these last June, naming Democrat Max Vekich, to replace Republican Michael Khouri and secure a Democratic majority on the board. The elevation of Vekich, a former longshoreman and union representative, was a promising first step towards shifting the agency’s direction. But then, this spring, the administration took a step backwards by renominating Rebecca Dye, who authored the aforementioned report absolving the shipping industry and has previously said that she is opposed to all regulation, to another term. 

Dye is clearly a roadblock to getting the FMC to take industry concentration seriously. Due to a statutory provision dictating that no more than three commissioners can belong to the same political party, Biden did need to fill her seat with a Republican. But, given the rise of populist, anti-corporate Republicans fulfilling that requirement likely did not require elevating someone so starkly opposed to his agenda. 

In a final blow, Biden renominated the commission’s Democratic chair, Daniel Maffei, this month. Although not as zealous an advocate of deregulation as Dye, Maffei has historically been willing to go along with the FMC working as an industry rubber stamp. 

Had Biden opted to replace both with a Republican corporate skeptic and a progressive, the commission could have been primed to seriously consider the harms of unchecked corporate power. Those two new commissioners could have teamed up with Vekich, who likely knows firsthand how ocean carriers abuse their power. However, by not replacing either Dye or Maffei, Biden has functionally guaranteed more of the same.

This is particularly disappointing, as Congress recently granted the FMC new authorities to investigate and enforce abusive detention and demurrage fees and discriminatory practices through passage of the Ocean Shipping Reform Act of 2022. The implementation of the new anti-competition regulations and crackdown on ocean carriers will hinge upon the FMC’s interpretation. 

Dye and Democrat Carl Bentzel both actively helped to deregulate the industry in the first place and seem unlikely to reverse the hands-off policy that was the result of their crowning achievement: the Ocean Shipping Reform Act of 1998. (Dye called it the best day in her career working for Congress.) The other Republican on the FMC, Louis Sola, is also unlikely to be much help for Biden’s messaging given his background as a shipping executive, mega-yacht broker, and fervent Trump advocate. Maffei’s background is far better by comparison, but he still seems likely to continue to operate the FMC as a faux regulator.

Not all hope is lost, however. In a recent interview, Maffei acknowledged the failure of his pro-industry self-regulatory approach: “I will admit to being a bit naïve…We needed to get tougher, particularly on the enforcement side. I think that was what was missing; we didn’t have the credibility. Now our enforcement efforts are turned up in order to convince the carriers that we’re not going to let them get away with it.” The agency signaled a welcome first step by fining Hapag-Llyod $2 million for charging shippers exploitative detention and demurrage fees. 

Yet, World Shipping Council, the shipping cartels’ main trade association, is still hopeful of the FMC’s interpretation of the watered-down Senate version of OSRA: “[it] provides regulators enough authority to get the final rules right.”  While the legislation gives the hobbled underfunded agency greater power, it is yet to be seen if the industry-friendly commissioners will follow through with the administration’s agenda to crack down on shipping cartels. 

Had Biden appointed corporate skeptics, rather than maintaining the pro-business balance of the commission, those expanded powers could be used to rein in the excess of monopoly on the high seas. Now, whether the FMC will actually deign to deploy these tools and fulfill the mandate it has been given by Congress remains an open question. There are some signs for hope, but the future of ocean shipping regulation remains needlessly muddled.

PHOTO CREDIT: “Cargo ship entering the Gatun Locks — Panama Canal Trip 10-10-10” by Corvair Owner is marked with CC BY-SA 2.0.

Economic PolicyExecutive BranchIndependent Agencies

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