Executive Order Targets Rail, Ocean and Air Transportation Competition and Unreasonable Practices
Date: July 12, 2021
On July 9, President Biden signed a sweeping executive order to promote competition throughout the economy, including in the rail, ocean and air transportation sectors. The order calls for regulatory initiatives to address rail and ocean shippers’ concerns about high rates, unreasonable fees and poor service. It also directs the Department of Transportation (DOT) to bolster aviation consumer protections and foster competition in the area of emerging aviation technologies, impacting airlines, airports and the drone industry.
The order reflects the Biden administration’s view that excessive industry consolidation across the economy is impairing economic growth and innovation, raising prices for consumers and reducing wages. Addressing the transportation sector, the administration describes the airline, freight rail and ocean shipping industries as dominated by large corporations that wield their market power to drive up their fees.
Under the order, the administration lays out a “whole-of-government” competition policy that encourages federal agencies, including the Surface Transportation Board (STB), Federal Maritime Commission (FMC) and DOT, to adopt pro-competitive rules and policies. The order specifically identifies 72 initiatives for various federal agencies to address pressing competition issues.
The order encourages the STB to address rail competition issues by:
- “Commencing or continuing a rulemaking to strengthen regulations pertaining to reciprocal switching agreements.” Reciprocal switching is a mechanism to increase access to competition by requiring a rail carrier who solely serves a customer at a “captive” origin or destination to transfer the traffic to a competing carrier at a nearby interchange for a switching fee. Current standards for obtaining reciprocal switching are so high that this competition-enhancing mechanism is effectively inaccessible to shippers. Presently pending before the STB is a long-standing rulemaking to increase access to reciprocal switching arrangements, known as EP 711, which was initiated in July 2011 by shipper groups represented by Thompson Hine. The STB’s efforts to make reciprocal switching more accessible stalled about five years ago. Based on the order, the STB can now pick up where it left off by issuing a final rule or it can reevaluate and modify the proposed rules.
- Considering rulemakings that would promote other competitive access mechanisms, including by addressing bottleneck rates and interchange commitments. Here, the order appears to be calling on the STB to address restrictions on shippers’ rights to obtain rates over solely served “bottleneck” rail segments when doing so would short-haul the bottleneck railroad that serves the origin or destination and make STB rate review mechanisms more accessible to captive shippers. Additionally, the order takes aim at commitments under which a railroad that sells or leases a rail line segment of its network to another railroad prevents the acquiring railroad from handing off any of the traffic from that segment to any railroad other than the seller/lessor.
- Holding freight railroads accountable for unwarranted delays they cause to passenger rail operations they host on their lines.
- Considering whether carriers fulfill their obligations to allow Amtrak to use their facilities when determining whether to approve a railroad merger, acquisition or change in control. This could have significant implications for the proposed merger of Canadian National and Kansas City Southern, which Amtrak has described as a major impediment to its restoration of service in the New Orleans area.
Unreasonable Ocean Demurrage and Detention Practices
The order encourages the FMC to adopt initiatives to address unjust and unreasonable practices related to detention and demurrage charges, which are fees ocean carriers charge U.S. importers and exporters for using ocean containers and storing cargo at ports beyond a free time period. During port congestion events currently and in recent years, there have been widespread concerns that carriers are assessing these charges even when shippers are unable to return containers or pick up their cargo for reasons beyond their control. The initiatives outlined for the FMC include:
- Vigorously enforcing the Shipping Act prohibition on unjust and unreasonable demurrage and detention practices in accordance with the FMC’s interpretive demurrage and detention rule, which it adopted in May 2020 in response to a petition filed by Thompson Hine on behalf of multiple trade associations representing shippers and other stakeholders.
- Requesting from the National Shipper Advisory Committee recommendations for improving detention and demurrage practices and enforcement of the prohibition on such practices that are unjust and unreasonable.
- Adopting additional rules to improve detention and demurrage practices and strengthen enforcement of related Shipping Act prohibitions.
The order directs the Secretary of Transportation to take actions to increase aviation consumer protections, promote more flight options for consumers and extend opportunities for airline competition and market entry, and facilitate U.S. leadership and market entry related to emerging aviation technologies and applications, like drones, advanced air mobility and high-altitude long-endurance operations. These actions include:
- Enforcing prohibitions on unfair and deceptive practices and unfair methods of competition related to advertising, marketing, pricing and ancillary fees.
- Issuing a proposed rule requiring airlines to refund baggage fees for delayed baggage and fees for other services, like inflight Wi-Fi, when the service is not provided.
- Considering a proposed rule requiring clear disclosure of ancillary fee information to airline customers.
- Considering measures to support airport development, increase airport capacity, improve airport congestion, and address slot and gate access.
- Facilitating innovation related to new aerospace-based technologies, like drones, while providing vigilant oversight over market participants.
The order’s true impact will depend on how the implicated federal agencies implement the initiatives outlined in the order. In many cases, regulators will need to consider feedback from industry and other stakeholders when making regulatory changes to reflect the policy outlined in the order. Additionally, while federal agencies that are independent of the Biden administration, like the STB and FMC, are not compelled to follow the order, the current STB and FMC chairs have issued statements supporting it.
FOR MORE INFORMATION
For more information, please contact:
Karyn A. Booth
Sandra L. Brown
David E. Benz
Jason D. Tutrone
*Director, Mobility, Automation and Safety; not licensed to practice law
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