A number of regulators are stepping up efforts to stop bad actors from profiting off of global supply chain woes as the surge in carrier rates shows little sign of abating.
The Department of Justice (DOJ) alerted the broader business community last week its Antitrust Division is bumping cases of possible supply chain exploitation for profit to the top of its priority list in a move that expands the current administration’s push to identify and remove weaknesses in the movement of goods.
“The lingering challenge of supply chain disruptions from the COVID-19 pandemic has created an opportunity for criminals to fix prices and overcharge customers,” Luis Quesada, assistant director of the Federal Bureau of Investigation’s Criminal Investigative Division, said in a statement. “The FBI and our law enforcement partners will continue to collaborate and investigate schemes that violate our antitrust laws and stifle our economic recovery.”
“The announcement doesn’t broaden what DOJ has the authority to do, but it does indicate that DOJ is going to be casting a fairly broad net in trying to suss out whether there are companies along the supply chain that are taking advantage of the pandemic and known supply chain issues to collude to set prices at an anticompetitive rate,” said Corey W. Roush, a partner in the Washington D.C. office of law firm Akin Gump Strauss Hauer & Feld LLP.
The announcement builds on an initiative that began in February 2021 with President Biden’s executive order aimed at identifying weaknesses in supply chains. That led to the formation of a Supply Chain Disruptions Task Force in June. A month later the DOJ’s Antitrust Division linked with the Federal Maritime Commission (FMC) on a memorandum of understanding to facilitate communication between the agencies in a bid to ensure competition in the maritime industry.
It’s not just logistics firms that are being scrutinized, too.
Retailers and suppliers became the focus in late November when the Federal Trade Commission (FTC) ordered companies such as Walmart Inc., Amazon.com Inc., Kroger Co., Procter & Gamble Co. and Kraft Heinz Co. to provide information on the main causes of supply chain disruptions to their companies, the impact on prices and how they handle inventory allocation in times of tight supplies among other details.
Roush, who leads Akin Gump’s antitrust/competition and FTC-facing consumer protection practices, said this latest move isn’t a complete surprise in the context of the Biden administration’s actions, but does serve as a preventative measure.
“If anything, the announcement says, ‘Yeah, we’ve said we’re focused on maritime and transportation, but others beware. We’re going to start focusing on other things.’ And, I would expect that this is genuine that they are going to go after this, but it is also somewhat prophylactic,” Roush said. “If you’re a company that is on the margins maybe talking to a competitor or two about what they’re charging, if you weren’t aware that that was potentially problematic or didn’t think DOJ would ever care—and you see this [announcement]—maybe you stop. And, if DOJ can eliminate any sort of collusion in that way, even if it doesn’t catch it, it’s good for the U.S. economy. And, if [DOJ] does catch it, then obviously those companies are going to be in trouble.”
The effort also goes beyond the U.S. with the DOJ’s Antitrust Division joining last week with four other agencies to form a working group with a similar goal of cracking down on supply chain collusion.
The group, representing the Five Eyes intelligence sharing alliance, also includes the Australian Competition & Consumer Commission (ACCC), Canadian Competition Bureau, New Zealand Commerce Commission and U.K. Competition and Markets Authority.
Major global trade routes have seen ocean freight rates surge seven times above what they were two years ago amid port congestion and delays, the Five Eyes group said.
Rates changed little this week, with freight marketplace and booking platform Freightos Group reporting prices from Asia to East Coast ports on Tuesday at $17,866 per forty-foot-equivalent unit (FEU), a unit of measurement for the standard 40-foot container. The rate is up 207 percent from the same week a year ago.
Rates between Asia and the West Coast ports are at $15,511 per FEU, up 179 percent from a year ago.
“We will be sharing intelligence to identify any behavior that restricts or distorts competition, and companies are now on notice that the ACCC and its international counterparts will be ready to act,” ACCC Chair Rod Sims said at the time of the Five Eyes announcement.
The global group said it will be paying particular attention to “cartels and any other activities that materially impact competition, such as exclusionary arrangements by firms with market power.”
The rise in ocean container costs have drawn the ire of European freight forwarders, with the Brussels-based European Liaison Committee of Common Market Forwarders (CLECAT) last week calling on the European Commission (EC) to investigate the ocean liner industry.
The group, which says it represents the interests of more than 19,000 companies in the freight forwarding and logistics industry, contends market circumstances have allowed liners to prioritize larger shippers holding longer term contracts with more favorable pricing. Meanwhile, smaller companies with less volume to ship have been subjected to higher spot rates.
“Ninety-plus percent of world international trade moves by sea. Three alliances consisting of eight carriers now control 80 percent of that trade. This is an oligopoly charging oligopoly prices,” CLECAT director general Nicolette van der Jagt said in a statement.
Spokespeople for the EC did not respond to a request for comment on CLECAT’s concerns.
CLECAT called on the EC to look into the impacts of the Consortia Block Exemption Regulation (CBER), in combination with consolidation and a lack of industry data standards the group said has allowed liners to “cherry pick” its customers in what it called a “discriminatory strategy.”
The CBER allows liners with combined market share under 30 percent to offer joint shipping services. The regulation is set to expire in April 2024, after it was extended in 2020 by the EC.