President Biden recently issued an executive order targeting corporate consolidation and anticompetitive behavior in several industries, including freight-rail and ocean shipping. The order may contain some salutary provisions, but on these issues it is more notable for what it doesn’t do. American freight-rail and ocean shipping are held back less by oligopoly than by specific government regulations—some of which Biden supports—that raise costs and subsidize trucking, an inefficient and environmentally dirtier competitor.
A press release summarizing the order focuses on the industries’ consolidation. It noted that “in 1980, there were 33 ‘Class I’ freight railroads, compared to just seven today, and four major rail companies now dominate their respective geographic regions.” The executive order “encourages the Surface Transportation Board . . . to strengthen [freight railroads’] obligations to treat other freight companies fairly” by not overcharging other railroads that use their tracks through trackage rights. The press release also noted a massive consolidation of ocean shipping, citing a 2019 article in a trade publication noting that the ten largest shipping companies controlled 82 percent of the global shipping business, up from 51 percent in 2000, and observed that “carriers’ behavior is shifting towards strategies that can make use of the newly established oligopolistic structure.” Finally, it complained that consolidation lets shipping companies charge their customers excessive fees for “detention and demurrage”—essentially, penalties for leaving cargo to be shipped in port terminals for too long—and claimed that the executive order “encourages the Federal Maritime Commission to ensure vigorous enforcement against shippers charging American exporters exorbitant charges.”
But the unfair competition that freight railroads face with each other pales in comparison to the competition they face with the trucking industry, which has also seen substantial consolidation in recent years yet escaped attention in Biden’s executive order. The American system of road funding constitutes a massive subsidy for trucking. Interstate highways are maintained with a mixture of general tax revenues and gasoline taxes collected from all drivers (and local roads are typically funded by general revenues), but trucks cause almost all road damage. A rule of thumb in transportation planning is that the damage a vehicle causes to roads is proportional to the fourth power of the weight on each axle: for instance, a four-axle, 30-ton truck, possessing ten times the weight per axle as a two-axle, 1.5-ton compact passenger car, causes about 10,000 times more damage to the road. It’s no surprise that areas such as Pennsylvania’s Lehigh Valley—whose proximity to New York and Philadelphia has made it a growing hub for distribution centers for Amazon and other companies—have had to invest hundreds of millions in freeway improvements.
Biden’s executive order ignores other disadvantages that freight rail faces. Railroads not only have to maintain their own rails as well as their trains but also generally must pay property taxes on the improved value of their own facilities. That policy helps make many infrastructure upgrades, such as electrification that could allow faster, higher-powered trains to compete with trucking on time-sensitive deliveries, uneconomical. (In Europe, even rural railroads with little passenger traffic tend to be electrified.) And under Biden, the Federal Railroad Administration has proposed to reinstate a burdensome rule that would require a two-person crew for freight rail operations, which railroad workers’ unions insist is necessary for worker safety but is rare in nations with far better rail-safety records than the United States. (In northern Sweden, for example, solo train operators drive half-mile trains of iron ore hauled by some of the world’s strongest locomotives.)
As for shipping, the White House frames Biden’s measures as protecting American manufacturers against foreign depredations. It complains that shipping-industry consolidation is “leaving domestic manufacturers who need to export goods at these large foreign [shipping] companies’ mercy.”
As for domestic manufacturers that want to ship goods domestically, though, they’re out of luck. Biden has repeatedly supported one of the most egregious anti-competitive policies not just in freight transport but in all federal policy: the Jones Act, a 1920 law that prohibits ships from carrying cargo between American ports unless they are built in the United States and have American crews.
The Jones Act ostensibly exists to maintain U.S. shipbuilding capacities that could prove necessary for national defense, but, as a 2018 analysis from the Cato Institute showed, it has clearly failed. The U.S. shipbuilding industry has a mere fraction of the capacity of those of world leaders such as China, Korea, and Japan; U.S.–built ships are dilapidated, inefficient, and inexpensive, thanks, largely, to the Jones Act’s shielding American shipyards from having to keep up with global state of the art. Meanwhile, the nations that lead the world in shipbuilding, with the exception of China, are longstanding U.S. allies, making a national security argument still more tenuous.
Though Biden views the Jones Act as a vital part of revitalizing American manufacturing, the law conflicts with his stated priorities. It raises the cost of living in island areas such as Hawaii and Puerto Rico; there are no Jones Act–compliant ships that can transport certain commodities, such as liquified natural gas. Even in the American mainland, liberalized sea shipping could replace truck transport in areas such as the U.S. East Coast, going a long way toward the administration’s claimed environmental goals. As Scott Shackford notes at Reason, Biden’s Jones Act support sits uneasily alongside his administration’s solicitude for racial minorities, given that Hawaii and Puerto Rico, the two areas of the United States that suffer the most from the Jones Act, are also among the least white. Moreover, it is poor urban neighborhoods that suffer the most from truck pollution.
Actions to de-consolidate the freight rail and shipping industries may prove salutary, but they address only a small, politically convenient part of the problem with freight transport in America. Far worse inefficiencies—not only harming manufacturers and consumers but also wasting large sums of tax money and adding to air pollution—are the fault of bad regulations and sops to narrow special interests. The Biden administration plans to leave these unaddressed, and in some cases to exacerbate them.
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