Can Global Shipping Be Fixed? One Regulator Will Try. | Big Indy News
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Can Global Shipping Be Fixed? One Regulator Will Try.

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Daniel B. Maffei is at once a crucial player in the campaign to subdue inflation, and a figure virtually unknown outside the confines of his wonky Washington domain.

He’s the chairman of the Federal Maritime Commission, a small, traditionally obscure institution that has been thrust into a central role in the Biden administration’s designs on taming soaring prices — a menace that could determine which party next controls Congress.

The commission regulates the international shipping industry at American ports, an element of modern life that is typically ignored but has emerged as a reason major retailers are short of popular goods, and why people renovating homes are waiting months for doorknobs.

Nine container shipping carriers — all of them foreign companies — dominate the market for moving goods between Asia and North America. For more than a year, the industry has been besieged by chaos, from traffic jams choking ports to a shortage of truck drivers impeding efforts to move cargo. With containers stuck on ships and stacked on docks, shortages and rising prices have become central features of these times.

The ocean carriers have multiplied their shipping rates and imposed a bewildering assortment of fees. The container shipping industry is on track to make $300 billion in profits before taxes and interest, according to Drewry, an industry research firm.

The White House has seized on these two realities — soaring prices, and record profits for carriers.

“One of the reasons prices have gone up is because a handful of companies who control the market have raised shipping prices by as much as 1,000%,” President Biden declared on Twitter in June. “It’s outrageous — and I’m calling on Congress to crack down on them.”

Days later, he signed into law the Ocean Shipping Reform Act, which is engineered to bolster the maritime commission’s authority.

The president handed Mr. Maffei, a former member of the House of Representatives from central New York State, primary responsibility for taking on a major culprit in his narrative on inflation.

In contrast to the colonnaded fortresses of most of official Washington, the maritime commission occupies two floors of a nondescript office building. It commands an annual budget of just $32 million, even as the agency is now tasked with taking on a collection of ocean carriers whose profits exceed 9,000 times that amount.

Mr. Maffei, a Democrat who represented a highly contested congressional district, presents himself as a centrist and pragmatist. As the bearer of three Ivy League degrees — Brown undergrad, Columbia journalism school and Harvard’s John F. Kennedy School of Government — he brings an analytical bent that tends toward shades of gray, not the colorful vernacular of political denunciation.

Yet the president has handed him a resolutely populist mission: Apply force to remedy what Mr. Biden describes as a “rip-off” of American consumers.

Mr. Maffei acknowledges the difficulties of the terrain.

“There is a rip-off,” he says. “But explaining where the rip-off is doesn’t fit easily into a quick speech.”

As he describes it, higher shipping rates are largely the product of market forces. Americans confined by a pandemic ordered astonishing quantities of goods from factories in Asia. Demand overwhelmed the supply of container vessels, pushing up prices.

Mr. Maffei diverges from the White House on its contention that higher shipping costs are primarily the result of monopoly power amassed by ocean carriers.

Three alliances of shipping companies control 95 percent of routes across the Pacific, according to the International Transport Forum, an intergovernmental body based in Paris. As shipping prices have soared, and as delays have besieged ocean transit, retailing giants like Amazon and Walmart have chartered their own vessels, prompting complaints from smaller importers that they are at an unfair disadvantage.

Mr. Maffei expresses concern about market concentration, but also resignation that enormous companies are an inevitable outgrowth of American economic forces after decades of deregulation.

“The small and medium-sized folks are boxed out,” he says. “That’s capitalism.”

But the chairman smells foul play in the fees that ocean carriers levy on American importers — so-called detention and demurrage charges for containers that sit uncollected or go unreturned, even when truck drivers are denied access to ports; congestion surcharges; and fees for “premium” and even “superpremium” services.

The new Ocean Shipping Reform Act — vigorously sought by Mr. Maffei — details an unambiguous plan of attack.

The commission has six months to write rules aimed at forcing shipping carriers to transport more American exports. That’s a redress to complaints from farming interests that carriers have largely forsaken them, depriving them of a way to ship exports while giving priority to the more lucrative import trade.

The law directs the agency to bulk up enforcement while creating systems that make it easier for aggrieved shippers to file complaints. It increases the agency’s funding 50 percent by 2025.

As the chairman portrays it, the details of the law matter less than the fact that Congress has mustered action, sending a warning to recalcitrant ocean carriers.

“Deterrence is what it’s about,” Mr. Maffei says. “On a day-to-day basis, we’re too small an agency. We’re never going to catch every instance.”

The passage of the law has already had an impact, say exporters, prompting ocean carriers to make more containers available at West Coast ports. It has also changed perceptions about the commission’s once-cozy dealings with the carriers.

“They became hostage to the industry,” says Peter Friedmann, a former Capitol Hill aide who heads the Agriculture Transportation Coalition, an advocacy and lobbying organization. “The commission has really turned the corner.”

The changed tone was reflected in the blistering note of protest unleashed by the World Shipping Council, an industry lobbying group, on the day Congress passed the new law.

“We are appalled by the continued mischaracterization of the industry by U.S. government representatives,” the statement declared, condemning a “disconnect between hard data and inflammatory rhetoric.”

For now, the industry is in schmooze mode, sending delegations to meet the chairman, other commissioners and members of Congress. With headquarters in places like China, South Korea, Taiwan and Denmark, the carriers — many of them state-owned — are unaccustomed to having to grasp the odd workings of American politics.

Mr. Maffei offers himself as a voice of reason, the seeker of the middle path in an age of politicized blame.

That Mr. Maffei, 54, is even on the commission seems a quirk of happenstance.

Raised in Syracuse, N.Y., he never saw the ocean until he was 11. He worked as a local television reporter before going to Washington to work for Senators Bill Bradley and Daniel Patrick Moynihan, followed by a stint on the staff of the powerful House Ways and Means Committee.

In the summer of 2015, having lost his bid for re-election, Mr. Maffei found himself casting about for the next phase of his career. He did not want to be a lobbyist. He approached friends in the Obama administration seeking counsel.

They told him about an open seat on a commission. His ears pricked up. The Consumer Product Safety Commission? That could be interesting. No, they told him, the Federal Maritime Commission.

“I said, ‘Well, OK, I think I’ve heard of them,’” Mr. Maffei recalls. “‘I’m already ahead of the game.’”

He took a seat in July 2016 and was reappointed by President Donald J. Trump. When Mr. Biden took office, he elevated him to chair of the five-member body.

On a recent morning, Mr. Maffei enters the commission’s offices just before 9, wearing a New York Yankees baseball cap and a brown polo shirt. He rides the elevator to the 10th floor and enters his capacious suite, which is adorned with models of giant container ships and antique maritime clocks. He changes into a dark blue suit and a tie decorated with a maritime anchor pattern.

The morning’s commission meeting quickly descends into fiasco. The chairman assumes his place on a wooden dais, facing an audience of two dozen people — mostly lawyers and lobbyists representing shipping companies. A few minutes in, he learns that others watching the proceeding remotely cannot hear the audio, so he adjourns the session while waiting for a corrective that never comes.

“We’ve been trying to get the hearing room fixed,” Mr. Maffei says. “You can tell it’s kind of old.”

He conducts the meeting from his office, via a clunky videoconferencing platform that is rife with delays. He uses a thick bound volume of maritime regulations to prop up his laptop. He wields his coffee mug as a gavel.

Members of his staff detail the new law, section by section. They are investigating reports of noncompliance by ocean carriers while recruiting enforcement staff.

“This is the law of the land,” Mr. Maffei declares. “If you have a complaint about it, we can direct you to the Congress or the White House.”

After lunch in a conference room with his staff — roast chicken from a nearby Peruvian restaurant — he meets behind closed doors with a delegation representing a carrier based in France.

Then he calls Bethann Rooney, the head of the Port of New York and New Jersey, the largest container shipping hub on the East Coast.

In a tone of weary indignation, she briefs him on the mayhem besieging her facilities.

The port is running out of places to stash containers, because the docks are crammed with more than 200,000 empties. The carriers are not sending enough ships to collect them, she says, preferring to deploy their vessels to Asia to bring more imports.

Everything is backed up. Local truck drivers cannot get appointments to return containers, yet carriers are charging them fees for holding on to boxes.

Mr. Maffei absorbs this while sitting in a wingback chair, facing a wall bearing an oil painting by a 17th-century Dutch artist displaying two ancient sailboats caught near rocks in crashing surf.

Would it be helpful for him to visit the port? His presence could signal to the carriers that they must take action.

Yes, Ms. Rooney says. A visit could not hurt.

The next week, under a pounding summer sun, Mr. Maffei arrives at the port administration building in Newark as tractor-trailers rumble by, hauling clattering containers to and from the docks.

Inside a conference room, he walks a slow turn around a long table, shaking the hands of the dozen people assembled, the heads of local trucking companies.

The truckers are seething with disgust over the fees they must pay for holding containers — up to $150 per day per box. The carriers will not release their cargo until invoices are paid. This is ransom, one says.

“Our port is gridlocked,” complains Tom Heimgartner, chairman of the Association of Bi-State Motor Carriers, which represents local trucking firms. “It’s an emergency. We need something done here.”

Mr. Maffei listens earnestly, a study in constituent service, while jotting notes in a pocket-size journal.

The truckers urge him to force the carriers to place a moratorium on fees until the congestion is resolved.

The commission lacks the authority to do that, Mr. Maffei explains. But the carriers could agree to one voluntarily. He and other commissioners could apply pressure on them.

He says the carriers appear to be violating the shipping act in effectively forcing truckers to store their containers without compensation — a potential avenue for enforcement.

But the truckers would need to lodge formal complaints at the commission.

Traditionally, truckers have been reluctant to file cases for fear of angering the carriers. Perhaps the atmosphere of contempt has changed that calculation.

“It sounds like they are treating you like such dirt,” Mr. Maffei says. “I’m not sure you have anything to lose.”



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Sister Patricia Daly, 66, Dies; Took On Corporate Giants on Social Justice

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For years, Sister Pat and other environmentalists had urged ExxonMobil to take significant steps to reduce greenhouse-gas emissions from its operations and products. In 2007, she proposed a resolution that called on that energy giant to set a firm date to report on its progress.

“We’re the most profitable company in the history of the planet,” she told Rex Tillerson, then the company’s chief executive (and later secretary of state in the Trump administration), at the company’s annual meeting, “but what will be our long-term health when we are really faced with the regulatory and other challenges around global warming?”

She added: “We are now, this company and every single one of us, challenged by one of the most profound moral concerns. And we have the wherewithal to respond to that.”

The proposal won 31 percent of the ballots, or about 1.4 billion shares, the largest tally for an ExxonMobil climate-change resolution. If not an outright victory, it was a page in a decades-long narrative that led ExxonMobil to put a climate scientist on its board in 2017. Three executives who recognized the urgency to address climate change joined the company’s board in 2021, nominated by a tiny activist hedge fund, Engine No. 1.

“The arc of her work led us to those victories by working from the inside and the outside,” John Passacantando, the founder of Ozone Action, an anti-global warming group, and a former executive director of Greenpeace, said in a phone interview.

In 1999, Vanity Fair named her to its Hall of Fame, applauding her as one who “translates belief into commitment and never backs down from a fight.”

Mary Beth Gallagher, who replaced Sister Pat as executive director of the Tri-State Coalition in 2017, said Sister Pat had not become frustrated when her resolutions were routinely voted down.

“She lived in hope,” Ms. Gallagher said. “We never talked about winning or losing. It was about raising consciousness and educating. If we’re not asking these questions, who will?”

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Families can make a tax-free rollover from 529 plans to Roth individual retirement accounts starting in 2024

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Americans who save for college in 529 plans will soon have a way to rescue unused funds while keeping their tax benefits intact.

A $1.7 trillion government funding package has a provision that lets savers roll money from 529 plans to Roth individual retirement accounts free of income tax or tax penalties.

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The House passed the measure Friday and the Senate did so Thursday. The bill heads to President Biden, who’s expected to sign it into law.

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The rollover measure — which takes effect in 2024 — has some limitations. Among the largest: There’s a $35,000 lifetime cap on transfers.

“It’s a good provision for people who have [529 accounts] and the money hasn’t been used,” said Ed Slott, a certified public accountant and IRA expert based in Rockville Centre, New York.

That might happen if a beneficiary — such as a child or grandchild — doesn’t attend a college, university, vocational or private K-12 school, or other qualifying institution, for example. Or, a student may receive scholarships that mean some 529 funds are left over.

Millions of 529 accounts hold billions in savings

There were nearly 15 million 529 accounts at the end of last year, holding a total $480 billion, according to the Investment Company Institute. That’s an average of about $30,600 per account.

529 plans carry tax advantages for college savers. Namely, investment earnings on account contributions grow tax-free and aren’t taxable if used for qualifying education expenses like tuition, fees, books, and room and board.

Retirement plan changes in the omnibus spending bill

However, that investment growth is generally subject to income tax and a 10% tax penalty if used for an ineligible expense.

This is where rollovers to a Roth IRA can benefit savers with stranded 529 money. A transfer would skirt income tax and penalties; investments would keep growing tax-free in a Roth account, and future retirement withdrawals would also be tax-free.  

Some think it’s a handout for the rich

However, some critics think the rollover policy largely amounts to a tax handout to wealthier families.

“You’re giving savings incentives to those who can save and leaving behind those who cannot save,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.

A 2012 analysis conducted by the Government Accountability Office found the typical American with a 529 account had “much more wealth” than someone without: $413,500 in total wealth for the median person, about 25 times the amount of a non-accountholder.

You’re giving savings incentives to those who can save and leaving behind those who cannot save.

Steve Rosenthal

senior fellow at the Urban-Brookings Tax Policy Center

Further, the typical owner had a roughly $142,000 annual income versus $45,000 for other families, the GAO report said. Almost half, 47%, had incomes over $150,000.

The new 529-to-Roth IRA transfer provision doesn’t carry income limits.

Limitations on 529-to-IRA transfers

While the new tax break primarily benefits wealthier families, there are “pretty significant” limitations on the rollovers that reduce the financial benefit, Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis, said in a tweet.

The restrictions include:

  • A $35,000 lifetime cap on transfers.
  • Rollovers are subject to the annual Roth IRA contribution limit. (The limit is $6,500 in 2023.)
  • The rollover can only be made to the beneficiary’s Roth IRA — not that of the account owner. (In other words, a 529 owned by a parent with the child as beneficiary would need to be rolled into the child’s IRA, not the parent’s.)
  • The 529 account must have been open for at least 15 years. (It seems changing account beneficiaries may restart that 15-year clock, Levine said.)
  • Accountholders can’t roll over contributions, or earnings on those contributions, made in the last five years.

In a summary document, the Senate Finance Committee said current 529 tax rules have “led to hesitating, delaying, or declining to fund 529s to levels needed to pay for the rising costs of education.”

“Families who sacrifice and save in 529 accounts should not be punished with tax and penalty years later if the beneficiary has found an alternative way to pay for their education,” it said.

Are 529 plans already flexible enough?

Some education savings experts think 529 accounts have adequate flexibility so as not to deter families from using them.

For example, owners with leftover account funds can change beneficiaries to another qualifying family member — thereby helping avoid a tax penalty for non-qualified withdrawals. Aside from a kid or grandkid, that family member might be you; a spouse; a son, daughter, brother, sister, father or mother-in-law; sibling or step-sibling; first cousin or their spouse; a niece, nephew or their spouse; or aunt and uncle, among others.

Owners can also keep funds in an account for a beneficiary’s graduate schooling or the education of a future grandchild, according to Savingforcollege.com. Funds can also be used to make up to $10,000 of student loan payments.

The tax penalty may also not be quite as bad as some think, according to education expert Mark Kantrowitz. For example, taxes are assessed at the beneficiary’s income-tax rate, which is generally lower than the parent’s tax rate by at least 10 percentage points.

In that case, the parent “is no worse off than they would have been had they saved in a taxable account,” depending on their tax rates on long-term capital gains, he said.



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Goldman grumbling grows for banking giant to sack CEO David Solomon

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The knives are out for Goldman Sachs CEO David Solomon, and this time the people brandishing them aren’t the usual suspects — his junior staffers annoyed that they have to work late or come into the office several times a week.

Solomon’s problems are more serious and existential, I am told, and how he handles what can best be described as a revolt in some quarters of Goldman’s middle and upper management ranks could determine how much longer he stays in his job.

Solomon, 60, took the job in 2018 and was always somewhat of an odd choice to run the white-shoe investment bank that usually cultivated its leaders from within. He cut his teeth at a decidedly un-Goldman-like venue: the scrappy investment bank Bear Stearns (ultimately one of the causalities of the 2008 financial crisis).

He joined Goldman in 1999, as a partner, no less, because his deal-making chops allowed him to skip layers of management.

In other words, Solomon is an outsider at a firm with a wickedly insular culture. He has a quirky side gig as a DJ in the summer Hamptons party circuit. He’s also not one for small talk, and doesn’t consult with a lot of people before handing down his edicts. 

“He doesn’t breed a lot of love,” said one former Goldman executive who knows Solomon well.

Lots of people at Goldman don’t like him, and they’re letting their views be heard both internally and with pals at rival firms.

Solomon as a DJ
Solomon is an outsider at a firm with a wickedly insular culture.
David Solomon/Instagram

For the record: I’ve met Solomon and like him for his no-BS style. And until pretty recently, the numbers show him doing a great job. Goldman was running on all cylinders in deals and trading. Even as the market corrects, shares are up about 60% since Solomon took over as CEO in 2018 compared to around a 44% rise in the S&P during that time.

Goldman is still the top M&A shop, even widening its market share over rivals in that important business line. Solomon was the first among his fellow CEOs to see the downturn and enact significant layoffs to cut costs.

Still, the grumbling about Solomon is spreading to the managing director and partner class. High-priced Wall Street talent don’t call all the shots at any firm, of course. But Goldman’s MDs and partners have historically been a powerful force when the board decides the fate of current management, which makes Solomon’s hold on his job increasingly precarious as more and more of them defect from his camp.

David Solomon as a DJ
Solomon was the first among his fellow CEOs to see the downturn and enact significant layoffs to cut costs.
David Solomon/Instagram

Here’s how they’re building a case against him: Goldman’s longtime archrival investment bank Morgan Stanley now easily dwarfs Goldman in market value, $144 billion to $116 billion, continuing a trend that predates Solomon. That comes amid a slowdown in banking deals, Goldman’s bread-and-butter business, and Solomon’s home turf.

Morgan’s CEO James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues. Solomon’s effort to diversify was an overindulgence in something called Marcus, a digital retail bank launched by his predecessor Lloyd Bankfein that Solomon made his baby. So far, it’s been a disaster, so much so that Solomon has been forced to scale back, possibly on the way to winding it down.

Goldman, meanwhile, has missed targets in its recent earnings announcements, and more downward surprises could be in store as markets continue to wobble. Bonuses are down, in some places cut in half, albeit from the nosebleed levels of 2021.

Goldman Sachs headquarters
The grumbling about Solomon is spreading to the managing director and partner class.
AFP via Getty Images

Traders did well in 2022 because Goldman’s are particularly adept in profiting off turbulence, but part of their pool is being diverted to bankers to keep them in-house until the deal slowdown ends.

Since Solomon is a banker, he’s also being accused of favoritism, which in truth is a pretty lame charge, since bankers often subsidize trader bonuses when the markets aren’t profitable. Still, the Goldman trading department is powerful and can spark management change, as it has done in the past.

There’s also a question about Solomon’s allegiance to Goldman’s stand-alone culture. In its 153-year existence, Goldman has operated on the assumption that it would be the acquirer in any major strategic acquisition. Solomon’s experience at Bear, then one of the most transactional places on Wall Street, means he could be looking for a deal and not one that keeps Goldman in charge.

Morgan Stanley CEO James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues.
Morgan Stanley’s James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues.
AFP via Getty Images

At a time when most Goldman insiders believe he needs to do a “transformational deal,” i.e., something big that allows it to better compete against Morgan Stanley and super banks like JP Morgan, there is speculation that Solomon might allow Goldman to be swallowed whole by, say, a big asset manager or bank if the price was right.

As best I can tell, this grumbling, though real, doesn’t immediately threaten Solomon’s job. Then again, there is something to be said for keeping your producers happy.

Jack Welch, the legendary CEO of General Electric, was a notorious screamer and demanding beyond belief. Yet Welch knew how to nurture his people.

Former General Electric CEO Jack Welch
Jack Welch was a notorious screamer and demanding beyond belief. Yet Welch knew how to nurture his people.
Getty Images

“Jack could chew your ass, then put his arm around you and make you feel great,” one of his longtime executives, Bob Nardelli, once told me.

It’s why so many other talented execs chose to stay around under Welch, abuse and all, and left when his successor took over, watching GE implode from the outside.

Maybe it’s a good time for Solomon to take a page from Welch and start hugging it out.

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