Welcome to The Corner. In this issue, we look at one of the first challenges the Trump Administration will face — as ocean freight carriers exploit their monopoly to drive freight rates to unprecedented levels. We also look at the DOJ’s plan to break up Google. 

Ocean Freight Carriers’ Price-Gouging Poses Early Challenge to Trump Administration

Arnav Rao

As corporations released their quarterly earnings reports at the end of September, one industry drew considerable attention for its successes — ocean freight carriers. One stunning figure came from South Korean ocean carrier HMM, which noted a 1,664 percent increase in profit compared with the same quarter a year ago. French carrier CMA CGM announced that its profits grew sixfold. Japanese carrier ONE also reported a 969 percent increase in profit.

These staggering rises in profit are the result of skyrocketing freight rates, which the carriers have justified mainly by pointing to the disruption of normal trade lanes caused by attacks on commercial vessels in the Red Sea by Yemen’s Houthi rebels. Carriers claimed that rerouting vessels around Africa’s Cape of Good Hope has increased fuel and operational costs, necessitating increases in freight rates.

 The Houthi disruptions have certainly marginally raised costs for the industry by lengthening voyages. But the primary reason for increased rates and profitability appears to be nothing more than price gouging and manipulation of U.S. importers and exporters little different than the worst days of the pandemic supply chain crisis. Addressing ocean carriers’ price-gouging provides the incoming Trump administration an early key test of its promise to keep inflation under control.

Evidence for the price gouging lies in the speculative language carriers used to justify ballooning freight rates and profits. For instance, in its earnings release CMA CGM cited the “prospect” of port strikes on the U.S. east coast as a driver of freight rates and profitability. ONE pointed to the “uncertainty” around the U.S. elections, alluding to the possibility of U.S. businesses frontloading volumes to avoid increased tariffs under a Trump administration. Thus far, neither factor has played any discernible role in increasing the carriers’ cost to deliver ocean freight service, yet they nevertheless exploited their monopolistic control over ocean shipping to dramatically hike prices. 

Take for example the Danish carrier Maersk, which reported a 456 percent increase in profit. Despite only a 3.9 percent increase in unit costs, and a 0.3 percent increase in volumes, Maersk increased average freight rates by 54 percent. Japanese carrier ONE also raised rates by nearly 79 percent despite only a 16-percent increase in total fuel costs and a 3-percent increase in volumes.

The harms go far beyond higher costs for imports. Higher prices also threaten the operations of many U.S. companies — including exporters — especially smaller ones with tighter margins. Many small companies pre-negotiate vessel space allotments with carriers, to ensure stable freight rates and space allocation. But many carriers have used their fear mongering to force smaller shippers to pay high “spot” market prices or special surcharges and handling fees. Such charges can easily increase the cost of shipping by 200 percent. “It’s pay a [surcharge] or there’s no space,” a transportation consultant told the Journal of Commerce.

The ability of ocean freight carriers to routinely extract exorbitant profits from U.S. importers and exporters is a result of a radical deregulation of the maritime sector during the Reagan and Clinton administrations. Prior to deregulation, the U.S. government regulated ocean shipping as a form of essential service. Under this regulatory paradigm, the government allowed ocean carriers to form regulated cartels to fix prices and capacity as long as they adhered to the principles of “common carriage” and kept prices reasonable.

Under common carriage principles, ocean carriers were required to publicly post prices and other essential terms of service. Additionally, they were required to ensure that all “similarly situated” shippers were offered roughly equal terms of service. This system ensured stable profitability and democratized control within the ocean carrier industry while also preventing ocean carriers from squeezing shippers during times of disruption. Prices were predictable, and from 1966 to 1983, there was only one major ocean carrier merger.

After President Ronald Reagan signed legislation that weakened ocean freight regulation, the industry rapidly consolidated. Between 1984 and 1990, seven major carriers were bought by larger competitors. This trend was accelerated by further deregulation during the Clinton administration in 1998; since then, carriers have finalized at least 35 additional takeovers. This rapid consolidation has led to a one-two punch of oligopolistic domination combined with little to no regulation of services or pricing. Today, just three major ocean carrier “alliances” composed of entirely foreign carriers control 91 percent of transpacific trade and 89 percent of transatlantic trade. These foreign carriers are largely free to exploit their positions to squeeze particular U.S. retailers, manufacturers, and farmers. 

After the pandemic, the Biden administration signed a bipartisan bill that aimed to curb some of the most egregious ocean carrier practices. But much more can be done. Congress and the incoming Trump administration must restore regulatory oversight to the Federal Maritime Commission and restore common carriage obligations to ocean shippers to ensure that all U.S. businesses — big and small — have equal access to these essential transportation services.

CJL Submits Letter Asking DOJ to Consider Remedies for Google to Restore Competition in AI

The Department of Justice this week asked a federal court to compel Google to sell its Chrome browser as part of a suite of remedies following a district court ruling that the tech giant maintained an illegal monopoly over online search and search text advertising. Earlier this fall, the DOJ had also proposed that Google sell its smartphone operating system Android. 

The Center for Journalism & Liberty at the Open Markets Institute submitted a detailed letter to the DOJ earlier this week, urging the agency to consider stringent remedies for Google to restore competition and mitigate future harms in the AI-assisted search markets. In its letter, CJL expressed support for the DOJ’s proposal to divest critical Google assets but also called for additional remedies such as oversight of Google’s AI-assisted search built on a vast amount of private data and an opt-in approach for collection of data used to train AI models. “Google’s dominance in search and its aggressive leveraging of that power into emerging AI markets pose a clear danger to competition, innovation, and the integrity of our information ecosystem,” Dr. Courtney Radsch, Director of the Center for Journalism & Liberty, said. Read the letter here.

Join Us Dec. 4 for Launch of Sandeep Vaheesan’s Book on Electricity Monopolies

Join us for the launch of Open Markets’ legal director Sandeep Vaheesan’s first book Democracy in Power: A History of Electrification in the United States on Wednesday, Dec. 4, at the National Press Club. Democracy in Power traces the rise of publicly governed utilities in the 20th-century electrification of America. Vaheesan shows that the path to accountability in America’s power sector was beset by bureaucratic challenges and fierce private resistance. Through a detailed and critical examination of this evolution, Vaheesan offers a blueprint for a publicly led path to decarbonization. Published by the University of Chicago Press, Democracy in Power is at once an essential history, a deeply relevant accounting of successes and failures, and a guide on how to avoid repeating past mistakes. Pre-order the book, available on Dec. 3, here.

Open Markets Files Amicus Brief in Case Challenging FTC’s Non-Compete Ban'

The Open Markets Institute filed an amicus brief written by legal director Sandeep Vaheesan and policy counsel Tara Pincock in Villages v. FTC, one of two cases that challenge the Federal Trade Commission’s landmark prohibition on non-compete clauses. In the case, a judge for the Middle District of Florida ruled that the FTC’s noncompete ban exceeds the FTC’s authority. The case is currently under appeal. The Open Markets brief argues that non-compete agreements or contracts that bind workers to their jobs are an unfair method of competition and that banning these coercive contracts is fully consistent with the FTC Act and FTC historical policymaking. Read the brief here.

Open Markets Institute’s Europe director Max von Thun published an article in ProMarket urging the EU’s incoming competition commissioner, Teresa Ribera, to take bold action against corporate monopolies, especially in digital markets, and to establish a clear vision for fostering fair competition and innovation. “While a more effective use of existing tools will go a long way, in some cases new or strengthened powers will also be necessary,” von Thun writes.

OMI policy counsel Tara Pincock published an article in LPE Project calling for stricter enforcement to stop price-fixing schemes, like the one practiced by property management software company RealPage, before they emerge. “To deter businesses from entering into price-fixing schemes in the first place, antitrust enforcers must be more diligent in detecting and investigating markets that maintain unexplainable supracompetitive prices,” Pincock wrote.

Open Markets senior legal analyst Daniel Hanley and Europe director Max von Thun coauthored an article in CounterPunch warning that the monopolization of AI by a few powerful corporations threatens innovation and urging immediate action to regulate the technology for the public good. “The structure of the market — the actors that have control over the development and deployment of AI — will determine whether AI lives up to its promise or entrenches the power a few dominant corporations already hold over our lives," they write. 

Open Markets senior fellow Cori Crider wrote an article for Arab News calling on newly appointed European competition czar Teresa Ribera, who also holds a portfolio on climate policy, to take a hard line on Big Tech by breaking up the tech giants. “The crises facing the natural and digital worlds are increasingly interconnected,” Crider writes.”

Daniel Hanley appeared on a recent podcast from The Capitol Forum to discuss his recently published paper, "Illuminating the Anti-Coercion Foundations of Refusals to Deal." He spoke about the need to revive refusals to deal as a viable and robust antitrust claim against monopolists.

Jacobin quoted Max von Thun as saying a report written by Mario Draghi, former European Central Bank president, on the state of European competitiveness is ripe for “cherry-picking depending on the political forces in power. As we know, this is going to be the most right-leaning commission and EU parliament that we’ve ever seen.”

Max Von Thun was also quoted by The Telegraph on whether a Trump administration will continue the aggressive antitrust policy against Big Tech pursued under President Biden, saying a Trump White House will likely take a “selective and at times incoherent approach.”

📝 WHAT WE'VE BEEN UP TO:

• Open Markets Institute’s Europe director Max von Thun published an article in ProMarket urging the EU’s incoming competition commissioner, Teresa Ribera, to take bold action against corporate monopolies, especially in digital markets, and to establish a clear vision for fostering fair competition and innovation. “While a more effective use of existing tools will go a long way, in some cases new or strengthened powers will also be necessary,” von Thun writes.
  

• OMI policy counsel Tara Pincock published an article in LPE Project calling for stricter enforcement to stop price-fixing schemes, like the one practiced by property management software company RealPage, before they emerge. “To deter businesses from entering into price-fixing schemes in the first place, antitrust enforcers must be more diligent in detecting and investigating markets that maintain unexplainable supracompetitive prices,” Pincock wrote.
  

• Open Markets senior legal analyst Daniel Hanley and Europe director Max von Thun coauthored an article in CounterPunch warning that the monopolization of AI by a few powerful corporations threatens innovation and urging immediate action to regulate the technology for the public good. “The structure of the market — the actors that have control over the development and deployment of AI — will determine whether AI lives up to its promise or entrenches the power a few dominant corporations already hold over our lives," they write. 
  

• Open Markets senior fellow Cori Crider wrote an article for Arab News calling on newly appointed European competition czar Teresa Ribera, who also holds a portfolio on climate policy, to take a hard line on Big Tech by breaking up the tech giants. “The crises facing the natural and digital worlds are increasingly interconnected,” Crider writes.”
  

• Daniel Hanley appeared on a recent podcast from The Capitol Forum to discuss his recently published paper, "Illuminating the Anti-Coercion Foundations of Refusals to Deal." He spoke about the need to revive refusals to deal as a viable and robust antitrust claim against monopolists.
  

• Jacobin quoted Max von Thun as saying a report written by Mario Draghi, former European Central Bank president, on the state of European competitiveness is ripe for “cherry-picking depending on the political forces in power. As we know, this is going to be the most right-leaning commission and EU parliament that we’ve ever seen.”
  

• Max Von Thun was also quoted by The Telegraph on whether a Trump administration will continue the aggressive antitrust policy against Big Tech pursued under President Biden, saying a Trump White House will likely take a “selective and at times incoherent approach.”

🔊 ANTI-MONOPOLY RISING: 

• The FTC’s challenge to Facebook’s acquisitions of Instagram and Whatsapp will proceed to trial after a federal judge in the District of Columbia allowed an amended claim from the agency. (Washington Post)
  

• The European Commission fined Facebook of over $800 million after a yearslong investigation found the tech giant had systematically abused its social media dominance to unfairly boost its classified advertising business. (Associated Press)
  

• A bid by American Airlines to overturn a ruling declaring that its proposed Northeast Alliance with JetBlue violated federal antitrust law was rejected by a federal appeals court in Boston. (CNBC)
  

• A UK-based consumer protection group filed a multibillion dollar lawsuit against Apple over claims that the tech giant uses illegal and anticompetitive practices to coerce users into paying for its iCloud storage services. (Wall Street Journal)

📈 VITAL STAT:

$3.3 billion

The amount UnitedHealth plans to pay for home healthcare corporation Amedisys if the deal is not blocked by a federal lawsuit by the Department of Justice and four state attorneys general. (New York Times)

📚 WHAT WE'RE READING:

Left Adrift: What Happened to Liberal Politics — George Washington University professor and historian Timothy Shenk takes a sweeping look at the way left-of-center parties around the globe have spurred and reckoned with the politics of class realignment. In his account, which follows the careers of well-known operatives Stan Greenberg and Doug Schoen, Shenk argues that the consultant class of liberal and left parties has made a science out of campaigns with a reliance on polling and models that has inadvertently contributed to the country’s vast cultural divide.

Order Sandeep Vaheesan’s forthcoming book:

Sandeep Vaheesan, the legal director at the Open Markets Institute, will publish his first book Democracy in Power: A History of Electrification in the United States on December 3. Vaheesan examines the history—and presents a possible future—of the people of the United States wresting control of the power sector from Wall Street, including through institutions like the Tennessee Valley Authority and rural electric cooperatives.