Speaker 1: Hello, and welcome to another episode of The Odd Lots Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe Wasn't Joe? Have I
Speaker 1: ever told you my favorite conspiracy theory? Uh? No, but
Speaker 1: I'm not surprised you have a favorite conspiracy theory. I
Speaker 1: don't know what it is. However, I'll try not to
Speaker 1: take that personally. Um, but my favorite conspiracy theory is
Speaker 1: a favorite and has something to do with a silver
Speaker 1: price suppression. Well, now, wait a second, that conspiracy theory
Speaker 1: actually turned out to be true. But anyway, Okay, we're
Speaker 1: going to go on a really long tangent if we
Speaker 1: keep heading in that direction. No, my favorite conspiracy theory
Speaker 1: is well, it has to do with inflation, um, and
Speaker 1: eggs and cholesterol. And yeah, this is a good one.
Speaker 1: Not many people know this, but in the nineteen sixties
Speaker 1: when there was high inflation and uh, the president was
Speaker 1: very worried about it. This is Lyndon B. Johnson. Back then,
Speaker 1: he was trying to come up with all these different
Speaker 1: ways to maybe get prices to start coming down, and
Speaker 1: one of the things he did was target eggs and
Speaker 1: he basically told the Surgeon General to issue alerts um
Speaker 1: all about the risk of cholesterol in eggs to try
Speaker 1: to get people to buy fewer of them. And you know,
Speaker 1: even to this day, people still think there's lots of
Speaker 1: cholesterol in eggs and that they're unhealthy. And a lot
Speaker 1: of that traces back to Lyndon Johnson trying to fight
Speaker 1: inflation fifty years ago or sixty years ago. I should say, So,
Speaker 1: you said this is a conspiracy theory, But is it true,
Speaker 1: Like did this actually happen or is it just people
Speaker 1: think this was the sequence of events? No? No, no,
Speaker 1: this actually happened. But basically there was a conspiracy to
Speaker 1: tell the public that eggs were terribly unhealthy when in
Speaker 1: fact they aren't. That's crazy. So the reason I'm bringing
Speaker 1: it up is because there are clearly concerns about inflation
Speaker 1: right now. I think um CPI is at something like
Speaker 1: six point eight percent, and when people think about inflation,
Speaker 1: I think the first thing their minds turned to is
Speaker 1: interest rates and monetary policy. Inflation is high, so maybe
Speaker 1: the Fed should start raising rates, But of course there
Speaker 1: are these different ways to actually try to bring prices down. Right.
Speaker 1: This is really the key thing, which is that you know, obviously,
Speaker 1: you know, people think of inflation is the purview of
Speaker 1: the FED and monetary policy and monetary aggregate Milton Friedman,
Speaker 1: Inflation is always an everywhere monetary phenomenon. But like we
Speaker 1: see it this year, if we had if we had
Speaker 1: had to say, like more used cars or more semiconductors
Speaker 1: to make cars or etcetera, we know that headline inflation
Speaker 1: would be lower, and that's just a fact. And so
Speaker 1: like we clearly see the existence, especially right now, what
Speaker 1: I would say is non monetary inflation. And maybe some
Speaker 1: economists would get annoyed by that or they would disagree
Speaker 1: or whatever, but like we could point to maybe overall
Speaker 1: it's not just about bottlenecks or whatever, but we could
Speaker 1: certainly point to at times the existence of forces that
Speaker 1: are not clearly related to the faith that push up
Speaker 1: the aggregates of price and disease without question. And you know,
Speaker 1: in other areas like medical care, like and I don't
Speaker 1: think like the high cost of medical care is something
Speaker 1: that like obviously is attributable to monetary policy, no um.
Speaker 1: And we are starting to see politicians pay more attention
Speaker 1: to these specific issues. So we've been talking a lot
Speaker 1: about attempts to ease supply chain congestion, and I have
Speaker 1: to say one of the more interesting efforts that is
Speaker 1: currently going on has to do with antitrust legislation, which
Speaker 1: is not necessarily something that you would think of when
Speaker 1: you think of supply chain problems. Yeah, no, I think
Speaker 1: that's like really interesting. And you know, obviously these are
Speaker 1: sort of like slow moving things and they're probably a
Speaker 1: limit to what you could do in the next few months.
Speaker 1: But the idea that a few companies have incredible amount
Speaker 1: of buying power because of concentration, because of lack of competition,
Speaker 1: it seems like a very interesting avenue and one that
Speaker 1: even at least in the medium to longer term, if
Speaker 1: not right away in the next few months, could increase
Speaker 1: the sort of like productive capacity overall if we have
Speaker 1: more competitive markets exactly. So we are going to be
Speaker 1: digging into that question of whether or not you can
Speaker 1: use antitrust enforcement to try to bring down inflation and
Speaker 1: ease some of these supply constraints bring down things like
Speaker 1: food prices. And we do have the perfect guest to
Speaker 1: talk about. We're going to be speaking with Craig Sebald.
Speaker 1: He's a partner at Vincent and Alkins and an expert
Speaker 1: in anti trust. So, Craig, welcome to the show. Well,
Speaker 1: Tracy and Joe, it's my pleasure to be with you,
Speaker 1: and I'm excited to talk to you about some of
Speaker 1: my favorite subjects, anti trust, politics, and a little history. Great,
Speaker 1: I had a question for you too. I really I
Speaker 1: worked on this because it's hard to combine a joke
Speaker 1: that includes anti trust and supply chain. But here it goes,
Speaker 1: how many anti trust lawyers does it take to change
Speaker 1: a light bulb? How many? None? The light bulbs are
Speaker 1: late and not shipping. So that was pretty good. I
Speaker 1: like it. I like it. It's solid, it's tough materially
Speaker 1: anti trust. That's the best I can do. Well, I mean,
Speaker 1: on that note, maybe you could just to begin with
Speaker 1: you could start by defining what antitrust actually is and
Speaker 1: how it could relate to supply chain problems. Yeah, let
Speaker 1: me just give you a quick overview. In the United
Speaker 1: the States, we have three basic antitrust laws, and well,
Speaker 1: in the United States, high prices in ament themselves are
Speaker 1: not in any trust violation. We do worry and the
Speaker 1: greatest sin for the any trust area is actions that
Speaker 1: were that cause higher prices. So we have three laws
Speaker 1: as always saying. One is the Sherman Act, and the
Speaker 1: German Act goes back to have Sherman Act Section one,
Speaker 1: which regulates agreements and restraint and trade, and we're looking
Speaker 1: at price fixing, bid rigging, those type of agreements between
Speaker 1: competitors that raise prices. Those are illegal. The second major
Speaker 1: antitrust law we have is Section two of the Sherman Act,
Speaker 1: which regulates monopolies. This is getting a lot of press
Speaker 1: these days because the government's challenges to Google, to facebooks,
Speaker 1: those are all under Section two. What's interesting under our law,
Speaker 1: it's not illegal in the United States to be a monopolist,
Speaker 1: but it's illegal to engage in monopolization. And what do
Speaker 1: I mean by that. It means it's okay to be
Speaker 1: big in the United States, but it's not okay to
Speaker 1: be big and do bad things. And one of the
Speaker 1: bad things could be taking actions to raise prices. And
Speaker 1: so one of the things that we worry about with
Speaker 1: the big tech companies is what actions they're doing to
Speaker 1: make markets less competitive. And then finally, we have our
Speaker 1: merger control laws, which go back to the Clayton Next
Speaker 1: section seven, which regulate anti competitive mergers. And when we
Speaker 1: review mergers, and we have a whole regime here in
Speaker 1: the United States. Um and actually we have a unique
Speaker 1: system in the United States because we have to antitrust agencies.
Speaker 1: One wasn't apparently not good enough for the United States.
Speaker 1: We have the Justice Department Antitrust Division and the Federal
Speaker 1: Trade Commission, both with authority to investigate matters under the
Speaker 1: intrust draws challenged mergers. And the greatest sin with mergers
Speaker 1: is a merger that increases concentration and raises prices. So
Speaker 1: increased prices through bad actions are something that the antitrust
Speaker 1: laws are good at going after. So let me ask
Speaker 1: you a question about anti trust as applied. Because there
Speaker 1: is our antitrust regulation, there is an impression and that
Speaker 1: in recent years that by and large anti trust on
Speaker 1: any of the avenues that you identified has not been
Speaker 1: pursued particularly vigorously. That in the past our anti trust
Speaker 1: laws were taken more seriously, that regulator has had a
Speaker 1: greater appetite to enforce them, whatever they are, and that
Speaker 1: by and large these days there's not a lot of
Speaker 1: regulatory activity, or there hasn't been up until recently. Is
Speaker 1: that a fair characterization or is that just sort of
Speaker 1: like a medium meth, you know, I would say it's
Speaker 1: a mixed record. Over the last few years, we are clearly,
Speaker 1: I think, poise for much more antitrust enforcement. The Biden
Speaker 1: administration any trust regulators are very aggressive and has signaled
Speaker 1: that they're going to be aggressive in the market. There's
Speaker 1: almost an attitude of what's happened before didn't work, We're
Speaker 1: gonna change things and do more. When I say it's
Speaker 1: a mixed record, when we look at enforcement, we've been
Speaker 1: fairly strong in terms of our criminal enforcement, and that's
Speaker 1: an important point. The anti trust laws in the United
Speaker 1: States are prosecuted both criminally, so people go to jail
Speaker 1: for anti trust crimes and civilly, and so the criminal
Speaker 1: enforcement program has been very active. In the last twenty years.
Speaker 1: There's been a lot of cases involving international cartels, and
Speaker 1: both Republican and Democratic administrations have gone after them. There's
Speaker 1: been a fairly rigorous merger enforcement, although I think there's
Speaker 1: questions about whether we've let too many mergers go through,
Speaker 1: and we'll talk about that as we talk about shipping.
Speaker 1: The one area there hasn't been many cases, and I
Speaker 1: do signal a change in this is the monopolization cases
Speaker 1: you look at, you know, just a couple of years ago,
Speaker 1: we were bringing zero monopoly cases and uh, that started
Speaker 1: to change at the end of the Trump administration with
Speaker 1: the high tech suits, and so I think they're looking
Speaker 1: to reinvigorate the monopolization cases that they're they're looking at
Speaker 1: these days. So you sort of tease this a few
Speaker 1: minutes ago when you when you mentioned that we're going
Speaker 1: to get into some history. But one of the interesting
Speaker 1: things when it comes to supply chains and antitrust is
Speaker 1: that there's actually a carve out for shipping companies. So
Speaker 1: there's an antitrust exemption. Could you maybe walk us through
Speaker 1: what that is and how that came to be. So
Speaker 1: in the antitrust general, there are exemptions to the antitrust rules.
Speaker 1: The courts have been very consistent in saying anti trust
Speaker 1: exemption should be applied very carefully and they should construed
Speaker 1: very nearly. One of the most famous antitrust exemptions that
Speaker 1: exist is Major League Baseball. There is an exemption from
Speaker 1: Major League Baseball. They are not challenged. What's interesting, They
Speaker 1: get the benefit of that. But other professional sports football,
Speaker 1: the n c a, A, golf, others words don't have
Speaker 1: the benefit of that. So that's a very famous one.
Speaker 1: And actually there was some concern the summer over even
Speaker 1: that exemption, because when Baseball decided not to have its
Speaker 1: um All Star Game in Georgia this summer, there was
Speaker 1: some talk about getting read of that exemption. Putting that
Speaker 1: side talking about the shipping exemption. So it goes back
Speaker 1: to this notion that shipping used to be a highly
Speaker 1: regulated area, and so because of the highly regulatory nature
Speaker 1: of it, that there was felt that the shippers would
Speaker 1: need to be able to work together to organize how
Speaker 1: they ship freight, to maximize storage capacity, to work together
Speaker 1: on rates, and so because of this regulatory structure, there
Speaker 1: was given an antitrust exemption, and the exemption allowed that
Speaker 1: that the shippers could agree on rates tariffs they charge
Speaker 1: so long as those were filed with the Federal Maritime
Speaker 1: Commission and approved by the Federal Maritime Commission. So you
Speaker 1: can have a classic cartel, but so long as under
Speaker 1: this exemption they were filed with the Federal Maritime Commission,
Speaker 1: it was allowed. That's kind of evolved over the years
Speaker 1: as we've had deregulation in the shipping industry, so that
Speaker 1: there is still then exemption, but it's fairly limited. You
Speaker 1: can still technically file tariffs, but people don't do that.
Speaker 1: All the shipping contracts are private contracts these days, so
Speaker 1: those are those are not any trust exempt. Where the
Speaker 1: exemption really lies is that you can have what they
Speaker 1: call conferences, and I think that's just a light way
Speaker 1: to talk about competitor meetings where you can have competitor
Speaker 1: meetings where they can talk about rates, but they can't
Speaker 1: agree upon the rates. Now they have to if they
Speaker 1: have if they talk about them. Again, it's this filing notion. Uh,
Speaker 1: they still have to file what they're talking about with
Speaker 1: the Federal Maritime Commission, but they can't agree on it.
Speaker 1: So it's a little odd, I have to admit, because
Speaker 1: it's a pretty fine line to be able to say, oh,
Speaker 1: we're gonna talk about rates and have a general agreement
Speaker 1: that we may or may not agree to. So it's
Speaker 1: a pretty fine line and it causes I think a
Speaker 1: lot of issues in the shipping industry. And as you say,
Speaker 1: it's not just one of the shipping industry. We see
Speaker 1: this in some other industries as well. So, first of all,
Speaker 1: when it comes to shipping, and you know, this is
Speaker 1: this is an area we've talked about a fair amount.
Speaker 1: Most of these companies are US based, and I'm just
Speaker 1: curious or the big ones anyway that we talked about.
Speaker 1: I'm just curious about the extent to which US regulators
Speaker 1: have reached into this space versus you know, how much
Speaker 1: does that further challenge the ability of US regulators, even
Speaker 1: in any legal regime, to do anything on shipping competitiveness
Speaker 1: the US Any trust laws, I would say, are not
Speaker 1: unlimited in their jurisdiction, but very fulsome in their jurisdictions.
Speaker 1: So any action caused by a foreign company that has
Speaker 1: a direct enforeseeable effect on US commerce is subject to
Speaker 1: challenge by the Justice Department. So you could have a conspiracy.
Speaker 1: We see this all the time in the cases I
Speaker 1: work on, where two companies to business people of real
Speaker 1: prices in some foreign country. They're even in the United States,
Speaker 1: but yeah, the US government can go challenge them and
Speaker 1: challenge the conduct in US sports. So a couple of
Speaker 1: years ago, there's this coalition of the shipping companies. They
Speaker 1: get together and talk about race, talking about something that
Speaker 1: we're just talking about under the exemption, and they came
Speaker 1: to San Francisco for their meeting. You knew who visited
Speaker 1: their meeting. Anti trust lawyers and the FBI. They came
Speaker 1: in and rated this meeting and they handed out subpoenas
Speaker 1: to everybody in the room. So I can you imagine
Speaker 1: you're in this hotel room with all these your it's, it's, it's,
Speaker 1: it's it's a group of shipping executives, and it's all
Speaker 1: the CEOs, all the top guys. So they all come
Speaker 1: to San Francisco for this meeting to talk about these
Speaker 1: things that they're allowed to talk about under the exemption,
Speaker 1: and who bust in is the FBI and the entrut
Speaker 1: Division handing out subpoenas like their candy. Clearly they did
Speaker 1: this investigation was interesting. They did an investigation of the
Speaker 1: shipping industry. I think they were worried about the alliances
Speaker 1: and some of the other things. Ultimately there were no
Speaker 1: action brought, so uh, you know, I think the exemptions
Speaker 1: did take a bit of a part of that and
Speaker 1: why the Justice Department didn't move forward on that. But
Speaker 1: it just shows you that the view that here you
Speaker 1: had thirteen fourteen four and executives all getting subpoenas, so
Speaker 1: that the jurisdiction is very broad from the Justice Department's perspective,
Speaker 1: Why don't we get into um like specific actions that
Speaker 1: the US government the antitrust authorities could take in order
Speaker 1: to remedy supply chain issues, because we already mentioned shipping,
Speaker 1: that's one aspect of it. But of course another thing
Speaker 1: they could do is try to go after large monopoly
Speaker 1: players in consumer goods and try to bring down prices
Speaker 1: that way. So could you maybe get into some specifics
Speaker 1: of what could happen here, what sort of enforcement actions
Speaker 1: are realistic. So there are several actually that are ongoing
Speaker 1: at the moment. The Federal Train Commission just announced that
Speaker 1: they're doing an investigation of the supply chain issues. They
Speaker 1: sent out inquiries to a number of US companies. These
Speaker 1: are the big companies like Amazon, Broger, Procter, and Gambill Tysons,
Speaker 1: those that are trying to bring products in the United
Speaker 1: States to try to understand what the problems are. So
Speaker 1: that's the first step. They're doing an investigation. Now, this
Speaker 1: is under a rule at the FTC that allows the
Speaker 1: FTC to investigate industry wide practices that may have any
Speaker 1: trust problems. So this is really a first step This
Speaker 1: is to say, is there an any trust competitive problem?
Speaker 1: What that could lead to if they say, gee, they're
Speaker 1: do soon to be any trust problems are investigations. The
Speaker 1: Justice Department or the FTC could open up civil The
Speaker 1: Justice Department could open a civil or criminal investigation of
Speaker 1: thinks that there are any trust problems. One of the
Speaker 1: problems about any trust though, is it is very very slow.
Speaker 1: So while we have these problems now, you know, investigation
Speaker 1: can take a year, two years. All any trust cases
Speaker 1: are driven by documents and evidence. It takes a long time,
Speaker 1: especially if you're getting them from foreign companies. It's it's
Speaker 1: can be troubling. There's issues about getting them from foreign companies.
Speaker 1: Quite frankly, foreign companies like China have blocking statutes which
Speaker 1: don't allow foreign companies to reduced documents to the U.
Speaker 1: S Government without the Chinese governments signing off on it.
Speaker 1: And so these investigations can get bogged down. And then
Speaker 1: even if they bring a case, anti trust cases are
Speaker 1: super slow, and so you could have a case filed
Speaker 1: and not even have a court date for four or five, six,
Speaker 1: seven years. So we could be on three different supply
Speaker 1: chain events past where we are today, before we start
Speaker 1: having any trust case about what's happening right now. So
Speaker 1: any trust can be helpful, but it's certainly not an
Speaker 1: immediate solution to the problems we're having today. So this
Speaker 1: actually leads me right into my next question. And you know,
Speaker 1: we sort of said in the intro it's like, oh, right,
Speaker 1: you know, well, we're talking about inflation right now. Anti
Speaker 1: trust isn't going to do anything in the next few months.
Speaker 1: But one of the themes that we come back to
Speaker 1: a lot on this show is that a lot of
Speaker 1: what we've run into now is this sort of like
Speaker 1: compounding price that we pay for diminished markets or at
Speaker 1: your feed markets. And we had this long period after
Speaker 1: the Great Financial Crisis in which many industries, maybe due
Speaker 1: to you know, usually talk about mediocre growth or mediocre
Speaker 1: and demand simply did not invest particularly much in capacity,
Speaker 1: and we pay the price. Now, maybe we don't pay
Speaker 1: the price during periods of low demand, but as soon
Speaker 1: as GDP grows rapidly, we pay the price of atrophied capacity.
Speaker 1: And I'm curious, like, okay, long term, like yeah, or
Speaker 1: we accepted in the short term anti trust can't do much,
Speaker 1: but what about in the medium or longer term, like
Speaker 1: is the idea that if we had more robust anti
Speaker 1: trust and we had more competitive markets as the norm,
Speaker 1: that perhaps productive economic capacity overall in any cycle would
Speaker 1: be greater than it is today. I think that's true.
Speaker 1: I think you'll see it, especially in merger enforcement. When
Speaker 1: I was in law school, I had a professor that
Speaker 1: talked about the fact that we see every forty years
Speaker 1: kind of the antitrust pendulums wing. When I was going
Speaker 1: to law school was right after the Regaan administration. Regulation
Speaker 1: was disfavored, let the markets do their own thing, let
Speaker 1: not have very big government enforcement. And I think you're
Speaker 1: starting to see this movement towards more regulation towards more enforcement.
Speaker 1: I think there is a realization by some of our lawmakers,
Speaker 1: by some of our regulators that maybe they let things
Speaker 1: go too far. So if you look, for instance, I'm
Speaker 1: involved in the case right now against some of the
Speaker 1: railroad companies for some logistics issues for some fees that
Speaker 1: they put in place almost twenty years ago at this point.
Speaker 1: But you're like a railroad industry. We used to have
Speaker 1: a very vibrant railroad industry with lots of competitors. It
Speaker 1: was highly regulated then we had this movement and make
Speaker 1: it not regulated, and now we're down to four major
Speaker 1: railroads which control almost of all the all the railroad
Speaker 1: traffic in the United States. And the same as was shipping,
Speaker 1: you had a American competitors, you have foreign competitors. From
Speaker 1: I understand, now you're down to basically nine shippers of
Speaker 1: control almost all of the export products in the United States.
Speaker 1: There are no US producers. And on top of it,
Speaker 1: you have these three alliances. And so I think you're
Speaker 1: starting to see people say, did we go too far
Speaker 1: and letting some of these mergers go through? And so
Speaker 1: I think you're seeing this reflected in that we need
Speaker 1: to take a harder look at some of the mergers
Speaker 1: going on now to make sure it doesn't go any further. So,
Speaker 1: just on that note, does it feel like attitudes towards
Speaker 1: antitrust enforcement are starting to change? And I guess another
Speaker 1: way of saying that is, does it feel like there's
Speaker 1: bipartisan support for more antitrust legislation? Inflation being one of
Speaker 1: the few things I think that both parties agree um
Speaker 1: is actually bad and so doing something or anything about
Speaker 1: it might be a good thing. I used to not
Speaker 1: worry about antitrust letters insolation, because I just never thought
Speaker 1: it had much of a chance to pass, because you
Speaker 1: always had the setup where the Democrats were more pro enforcement,
Speaker 1: more willing to think about new legislation, and then the
Speaker 1: Republican Party at least ten twenty thirty years ago, was
Speaker 1: the party of country club, Republicans chamber of commerce and
Speaker 1: didn't want to have it. That has changed dramatically in
Speaker 1: the last year or two, as you see the Republican
Speaker 1: Party move away from big business to become more populist.
Speaker 1: And so now you're seeing this merging of kind of
Speaker 1: the left, which has traditionally wanted anti trust enforcement in
Speaker 1: the right. Now that's more anti business. The summer I
Speaker 1: was struck. I was reading pulling from the Gallop organization
Speaker 1: that talked about confidence in big business, and they asked
Speaker 1: Republicans and Democrats whether they had a great deal or
Speaker 1: quite a lot of confidence in business. And just from
Speaker 1: this year to last year, Republicans confidence in big business
Speaker 1: declined by twelve point. Only only of Republicans have confidence
Speaker 1: in big business. And they track kind of the net
Speaker 1: confidence in each so the percentage, so that compares the
Speaker 1: percentage expressing high confidence in business minus those expressing little
Speaker 1: or no confidence. And so in the past, the Republican
Speaker 1: Party over years, I mean over decades was kind of
Speaker 1: plus ten, twelve, fifteen percent in favor of big business,
Speaker 1: you know where it was last year negative. That's incredible,
Speaker 1: it's incredible. So the Republican Party is no longer and
Speaker 1: it's really in line worth where the Democratic Party is.
Speaker 1: And so bringing it back to shipping, there was this
Speaker 1: kind of out of nowhere there was this new anti
Speaker 1: trust bill called Ocean Shipping Reform Act, and it was
Speaker 1: to kind of consistent when we're talking about give the
Speaker 1: Federal Maritime Commission more regulatory powers, more oversight powers, more
Speaker 1: teeth to worry about some of the things we've been
Speaker 1: talking about. The thing that amazes me this bill new
Speaker 1: any trust legislation passed in the House of Representatives. And
Speaker 1: we're talking about the House of Revery just divided and everything.
Speaker 1: This passed three sixty four to sixty. I mean, that
Speaker 1: is about as one side as you can't have in this.
Speaker 1: And here's here's the thing. You think, Joe and Tracy
Speaker 1: think about this. This is the lineup of people who
Speaker 1: voted for this. You had people like on the right list, Cheney,
Speaker 1: Devin Newness, Kevin McCarthy vote for this well, also Madison Cathorne,
Speaker 1: So some of the new guys coming in. But then
Speaker 1: you also had ok Ceo Cortez Omar the Democrats. So
Speaker 1: can you imagine a bill where you would have Kevin
Speaker 1: McCarthy and AOC both supporting it. But that's what we're
Speaker 1: seeing any trust, Sorry, what's the name of this bill?
Speaker 1: I had totally missed this. What what's the name of
Speaker 1: this bill? Because now I'm definitely gonna have to like go. Yeah.
Speaker 1: So it's called the Ocean Shipping Reform Act, and it
Speaker 1: was just passed by the House in December. The Senate
Speaker 1: seems very receptive to it. The Biden administration has indicated
Speaker 1: that they would approve it. It It was a bipartisan bill.
Speaker 1: One of the congressman was a Republican congressman from South Dakota,
Speaker 1: which is kind of funny that South Dakota will be
Speaker 1: worried about shipping, but they are because they would have products.
Speaker 1: He has a been consisient that needs to get Lactose
Speaker 1: to New Zealand and a Democratic sponsor as well. So
Speaker 1: it just didn't have a lot of hearings that didn't
Speaker 1: have a lot. It's just kind of popped up on
Speaker 1: the radar and got improved. And so I think the
Speaker 1: Senden's going to improve it, and I think the Biden
Speaker 1: administration is gonna prove it. And what it does, if
Speaker 1: you're interested, is gives the as I said, the Federal
Speaker 1: Maritime Commission more powers. One of the things that's really
Speaker 1: focused on is some of these fees, these demerged fees
Speaker 1: that people are incurring. Apparently people are paying incredible fees
Speaker 1: as their product is sitting in a port and not
Speaker 1: being shipped, and there are people throughout the country, shippers
Speaker 1: that are very upset about it. So it puts upon
Speaker 1: the shippers and the dock honders that they have to
Speaker 1: show that the fees are reasonable. The burden is on
Speaker 1: them to prove it's reasonable. There's reporting requirements. It authorizes
Speaker 1: the Federal Maritime Commission to have investigations related to fees
Speaker 1: and charges. It prevents ocean carriers from declining opportunities for
Speaker 1: US exports. So there was apparently an issue that was
Speaker 1: a great concern where products would come to the United
Speaker 1: States and then empty containers would leave without being anything
Speaker 1: in it, uh, and so they want to stop that.
Speaker 1: So it's a pretty comprehensive bill in the shipping area
Speaker 1: that's going to be targets. So it's right on point
Speaker 1: with what we're talking about. Wow, Yeah, Joe, this is
Speaker 1: one of the things that when we spoke to John Porcari,
Speaker 1: the White House's envoy to the Ports, we actually asked
Speaker 1: him about this, but he kind of didn't answer the question,
Speaker 1: which is one reason why we're having this follow up conversations. Yeah,
Speaker 1: right right, I I remember that now, and I remember
Speaker 1: this sort of like the lack of substance or the
Speaker 1: lack of a very clear response about where this was going.
Speaker 1: Something that I'm sort of interested in is what I
Speaker 1: guess I would say is the other side of the
Speaker 1: coin whenever. So you mentioned, okay, shipping and rail and
Speaker 1: you know, we could talk about with the optimal number
Speaker 1: of competitors of the space or so forth. But another
Speaker 1: area that we've talked about a lot on the show
Speaker 1: is trucking, which seems like it has it's a hundred
Speaker 1: degrees different the barriers to entry into the space or
Speaker 1: essentially non existent huge boom and bus cycles even in
Speaker 1: boom times right now, companies regularly go out of business
Speaker 1: due to lack of pricing power. Do you see industries
Speaker 1: in which essentially would benefit from, you know, some sort
Speaker 1: of greater barriers to entry, in which the supply of goods,
Speaker 1: the supply, the stableness of prices, might benefit from some
Speaker 1: sort of like you know where where maybe make it
Speaker 1: a little bit harder to enter and exit the exit
Speaker 1: the industry. Well, that's a dangerous question for an anti
Speaker 1: trust lawyer, but you know, I think that, you know,
Speaker 1: I think the answer might be more government regulation. You know,
Speaker 1: back in the early seventies eighties, there used to be
Speaker 1: tons of regulation who could drive trucks and which is
Speaker 1: kind of a backdoor way of it's a kind of
Speaker 1: a backdoor anti trust on some level. So maybe you
Speaker 1: don't necessarily cap the competitors or whatever, but but you
Speaker 1: like make it a little the bar a little bit higher,
Speaker 1: and believe or not there is a ton of any
Speaker 1: trust activity in this area because there's another calling sessions
Speaker 1: and the intrust laws, but it's really granted in constitutional rights.
Speaker 1: Competitors and get together in the lobby the government to
Speaker 1: do legislative things that may have a adverse competitive effect.
Speaker 1: But because you're lobbying, because you're structing your First Amendment right,
Speaker 1: you get pushed for legislation that I wouldn't have the
Speaker 1: effect of recent barriers that would make it part of
Speaker 1: competitors in that all exempt from challenge under the ins
Speaker 1: because it's part of your right dempetition. I want to
Speaker 1: go back to the what we were talking about with
Speaker 1: the Ocean Shipping Reform Act of and the Federal Maritime
Speaker 1: Commissioned the of m C, because I guess my question
Speaker 1: is how well suited is the Commission to actually take
Speaker 1: on antitrust issues because my understanding is this is not
Speaker 1: something that they've been doing historically because of that antitrust
Speaker 1: exemption that you just described, So presumably this would be
Speaker 1: a pretty big shift for them. It would be I mean,
Speaker 1: let's start out with one fundamental problem of the fantasy
Speaker 1: is a really small organization. I looked at up yesterday.
Speaker 1: They're only a hundred thirty employees at the FMC. There's
Speaker 1: five commissioners, and they only have a budget of thirty
Speaker 1: million dollars or so. Hoping that we'll see Congress fund
Speaker 1: them more. One thing that it's happened, so this summer,
Speaker 1: one of the big things that happened in any Trust
Speaker 1: in one was that President Biden and issued this Executive
Speaker 1: Order on any Trust right around July fourth, and he
Speaker 1: has asked all the agencies to work to just look
Speaker 1: and try to solve lots of antitrust problems. He'd used
Speaker 1: the world that there's been too much consolidation, too many
Speaker 1: any trust things have let slide, and so he's really
Speaker 1: invigorated the government to look for warning trust issues. And
Speaker 1: so one of the things he's worried about his shipping
Speaker 1: and coming out of that. Just in a couple of
Speaker 1: days after the Justice Department in a trust division and
Speaker 1: the FMC has signed an MU pledging to work more
Speaker 1: close together. So I don't think it's gonna be the
Speaker 1: FMC by itself, but I think also working with the
Speaker 1: Justice Department. Now, the slip side of this is the
Speaker 1: Justice Department in the ANEC have more resources, but there's
Speaker 1: still also resource constrain in the middle of a major
Speaker 1: merger wave and they are overwhelmed with the number of
Speaker 1: mergers that they have to review. They're taking on big tax,
Speaker 1: they're doing lots of investigations. So yeah, they'll be interesting
Speaker 1: going after shipping, But when you put their list of
Speaker 1: priorities in the top ten, but it's not probably at
Speaker 1: the very top. So we're dealing with two agencies, the
Speaker 1: FMC and the antitrust agencies, who are going to be
Speaker 1: fairly resourced constrained. Can you just talk a little bit
Speaker 1: more about math and numbers of the short staffing or
Speaker 1: the capacity constraints, because you know, you have this idea
Speaker 1: is like, oh, no private entity could ever match the government,
Speaker 1: but realistically, of course they can. And these institutions only
Speaker 1: have so many lawyers at any given time, I'm and
Speaker 1: only so much budget. What does it often look like
Speaker 1: in terms of the amount you know, in terms of
Speaker 1: the legal firepower for some of these mergers versus on
Speaker 1: the private side versus the public side. Some of the
Speaker 1: agencies have a number of attorneys and economists that are
Speaker 1: staffed up to look at these but you know, you're
Speaker 1: dealing with companies that are very sophisticated that have outside council.
Speaker 1: I work for Vinca, Milicans and we are a big
Speaker 1: law firm in the United States, but we have only
Speaker 1: we have a set and twenty attorneys. Uh, there's law
Speaker 1: firms have three thousand and two thousand attorneys. So you're
Speaker 1: dealing with situation where you know, companies can afford a
Speaker 1: lot of attorneys, and you come to meetings and the
Speaker 1: attorney the merchant parties may have twenty three attorneys and
Speaker 1: the araman may have five or attorneys in the ECONO,
Speaker 1: so it is an issue. So we're talking about obviously
Speaker 1: supply chains and logistics, and I want to like just
Speaker 1: go back to something again on the sort of market structure.
Speaker 1: And you mentioned the number of competitors are un rail
Speaker 1: and obviously the number of competitors that are in shipping,
Speaker 1: and one of the aspects of both of those industries
Speaker 1: is there is a sort of like I guess I
Speaker 1: would say, very limited constrained public infrastructure. There's only so
Speaker 1: many ports that are available and they're sort of like
Speaker 1: quasi public or quasi private, and there's only so many
Speaker 1: rail tracks available, and it's sort of, you know, on
Speaker 1: rail is sort of reminiscence of the cable up companies
Speaker 1: where there's always been challenges with shipping. How much are
Speaker 1: these industries inherently constrained in terms of what the government
Speaker 1: can do by simply like the lack of like public
Speaker 1: infrastructure basically to support new competitors. I think you're seeing
Speaker 1: it with the new legislation we were just talking about.
Speaker 1: I think the one thing they could do is step
Speaker 1: in and try to regulate more. The notion that you're
Speaker 1: going to have the Federal Maritime Commission regulate rates and
Speaker 1: think about what's reasonable, I think is something that we
Speaker 1: may see more of. That's probably as much as they
Speaker 1: can do. I mean, we're a capitalist society, and we
Speaker 1: can't start doing industrial planning. I don't think so. I
Speaker 1: think we'll just see probably more legis more regulation. So
Speaker 1: maybe just to summit all up, what what's your sort
Speaker 1: of gut sense about the degree to which antitrust enforcement
Speaker 1: or legislation would actually bring down inflation and ease some
Speaker 1: of these supply chain pressures that we've been talking about.
Speaker 1: I think it will be a useful tool, but it's
Speaker 1: not going to be the cure all. As I said,
Speaker 1: some of these cases just last for a long time.
Speaker 1: I'm involved in two cases right now that involves supply
Speaker 1: chain management. Mentioned when earlier. We're litigating against the railroads
Speaker 1: related to fuel searcharges that were imposed in two thousand three.
Speaker 1: Uh So we're dealing with that and I am involved
Speaker 1: in another case where we're dealing with supply shortages from
Speaker 1: kind of the two thousand fifteen two thousand sixteen era.
Speaker 1: So antitrust is generally retrospective, obviously looking at problems in
Speaker 1: the past. What it can be helpful though, is as
Speaker 1: these cases get decided, the case laws established, and you know,
Speaker 1: I think it will have an impact on how people
Speaker 1: do business. I also think one of the things coming
Speaker 1: out of this is that compliance of big companies is
Speaker 1: going to be very important. If you know that there's
Speaker 1: gonna be an increased regulatory environment. And we've just been
Speaker 1: talking about the United States, it's the European Commission, and
Speaker 1: it's Australians, it's it's the Chinese, it's everybody is becoming
Speaker 1: more antitrust focused and uh focus. So if you're a company,
Speaker 1: I think it's gonna be more important to have very
Speaker 1: strong compliance programs. In fact, the Justice Department has a
Speaker 1: program that if you can come in and show that
Speaker 1: you had an extremely good compliance program, even though you
Speaker 1: have some antitrust problems, you can get some benefits and
Speaker 1: some leniency from the Justice Department as a result of that.
Speaker 1: Um So, I think that's going to be important, and
Speaker 1: maybe stepping up the compliance will have some impact. But
Speaker 1: so I think it's kind of where the secondary effects
Speaker 1: of any trust cases. I will say one thing that
Speaker 1: has a mediate effect is if the Justice Department sends
Speaker 1: you a grand jury criminal subpoena in your company, gets
Speaker 1: the attention of the CEO and the general counsel and
Speaker 1: a lot of other folks in the company, and so
Speaker 1: that can sometimes have a interrom effect at change behavior
Speaker 1: if it's illegal, but it's just a slow it's it's
Speaker 1: a useful tool, but it's a slow moving tool. Well, Craig,
Speaker 1: that was That was really fascinating, and I'm glad you
Speaker 1: could walk us through one of the more interesting ways
Speaker 1: of fighting inflation. Thank you so much, My pleasure, enjoy
Speaker 1: talking to you. That was fascinating. Thank you so much.
Speaker 1: I really appreciate it. So, Joe, obviously, I thought that
Speaker 1: was really interesting and one of the things that keeps
Speaker 1: coming out of these conversations, and you know, Jene Siroka
Speaker 1: kind of talked about it to the executive director of
Speaker 1: the Port of Los Angeles, is this idea of Okay,
Speaker 1: maybe antitrust enforcement isn't going to actually do what it's
Speaker 1: supposed to do or what it's explicitly written to do
Speaker 1: for a very long time because it's tough to push
Speaker 1: those enforcement actions through. But maybe the threat of future
Speaker 1: enforcement action is enough to start some sort of change
Speaker 1: of behavior within the shipping industry itself. And this again
Speaker 1: seems to be a recurring theme, Like just the idea
Speaker 1: of getting people involved in the supply chain to actually
Speaker 1: change habits that have been ingrained for decades at this point,
Speaker 1: that that seems to be something that people are really
Speaker 1: trying to do right now. Yeah, no, absolutely, this idea
Speaker 1: of like okay, and he made that point about compliance
Speaker 1: departments and the changing norms. I do think like ultimately,
Speaker 1: like okay, anti competitive behavior, part of the competitive behavior
Speaker 1: is actually competing and investing and trying to win and
Speaker 1: market share and offering something better. And I do think
Speaker 1: that like one of the problems I have with this
Speaker 1: in general or is like okay, but what is going
Speaker 1: to actually get people to invest and increase capacity? And
Speaker 1: I still feel like, you know, obviously the legal aspect
Speaker 1: is a big part of it, and maybe a very
Speaker 1: big part of it, but I'm still like trying to
Speaker 1: wrap my head or as like yeah, well, Okay, you
Speaker 1: can change norms around pricing or fees or penalties or whatever,
Speaker 1: But what is going to like increase competition in like
Speaker 1: the sort of like pure capitalist sense, right, But conversely,
Speaker 1: you could argue that anti competitive behavior right now leads
Speaker 1: to higher shipping prices and so people have very very
Speaker 1: little incentive to actually increase capacity because they're already making
Speaker 1: billions of dollars. And I think I didn't didn't Marisk
Speaker 1: like unveil quarterly profit recently that was like its highest
Speaker 1: in over a century something like that, And it seems
Speaker 1: like this is like the type of thing which is
Speaker 1: like the goal is hopefully to like I guess I
Speaker 1: would say, like reach new equilibrium or like change overall
Speaker 1: like norms throughout multiple cycles going forward, rather than something
Speaker 1: that we hope is going to solve the problem now,
Speaker 1: but you know, maybe at the margins there will be
Speaker 1: some uh, some potential solution. Now. Yeah. The other interesting
Speaker 1: thing I mean on that note is this idea of
Speaker 1: deregulation cycles and the idea that this actually has a
Speaker 1: lot of bipartisan support. So maybe we are starting to
Speaker 1: enter a new cycle where people are more interested, where
Speaker 1: where Washington is more interested in actually bringing down some
Speaker 1: of the monopolies. And again Craig was talking about this,
Speaker 1: but we've already seen that in tech. But it is
Speaker 1: really striking this sort of spectrum of interest that this
Speaker 1: is attracting from both the left and the right. Yeah. No,
Speaker 1: I thought that was probably one of the most interesting.
Speaker 1: And it's like sort of like tropism and the sort
Speaker 1: of like disdain for anyone in power. I guess I've
Speaker 1: always been like, it's a little bit skeptical at this
Speaker 1: idea that, Okay, are we actually ever going to pass legislation?
Speaker 1: But you know, he pointed out a pretty big bills
Speaker 1: passed the House, and maybe this changing political environment will
Speaker 1: have some real downstream legislative effects. Maybe have been too
Speaker 1: skeptical of this sort of like changing public mood actually
Speaker 1: changing and changing public law. You've underestimated people's hatred of
Speaker 1: big business. I guess, yeah, maybe I have, and now
Speaker 1: I have to really sort of change some of my
Speaker 1: my priors that they speak. No, I haven't really underestimated
Speaker 1: people's hatred, underestimated whether that hatred will change laws, and
Speaker 1: maybe it will. Yeah, Okay, that's fair. Yeah, um, okay, Well,
Speaker 1: shall we leave it there let's leave it there, all right.
Speaker 1: This has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Wasn't All. You can follow
Speaker 1: me on Twitter at the Stalwart. Follow our producer on Twitter,
Speaker 1: Laura Carlson. She's at Laura M. Carlson. Followed the Bloomberg
Speaker 1: head of podcast, Francesca Levi at Francesca Today and check
Speaker 1: out all of our podcasts at Bloomberg under the handle
Speaker 1: at podcasts. Thanks for listening, O