The President announces a historic agreement between the Justice Department and the Federal Maritime Commission (FMC) to ensure major ocean carriers cannot take advantage of US businesses and consumers. Currently, three global alliances composed entirely of foreign companies control nearly all ocean shipping, giving them the power to raise prices for American businesses and consumers while threatening our national security and economic competitiveness.
Most commodities—from household goods you buy online to agricultural products that American farmers market overseas—are transported by ocean carriers. These companies have formed global alliances — groups of shipping companies working together — that are now taking control 80% of global capacity and control of container ships 95% of the critical east-west trade routes. This consolidation has happened rapidly over the past decade. From 1996 to 2011, the top three alliances operated only about 30% of global container shipping. There was significant consolidation in the years before the pandemic.
Since the pandemic began, these shipping companies have drastically increased shipping costs through tariff increases and fees. They have increased spot pricing for shipping freight between Asia and the United States by 100% since January 2020 and increased pricing for shipping freight between the United States and Asia by over 1,000% In the same period. Freight owners are often charged fees – known as “detention and demurrage” fees – even if they don’t have access to their containers to move them. The FMC estimates that eight of the largest airlines billed their customers for a total of $2.2 billion from July through September 2021 — a 50% increase from the previous three-month period.
These historically high shipping price increases result in higher prices for American consumers. Based on research from the Kansas City Fed and the European Central Bank, these shipping rate increases are expected to contribute to a roughly 1% increase in consumer prices over the next year.
Meanwhile, shipping company owners are seeing increased profits and rising profit margins. It is estimated that the container shipping industry will have recorded record profits of US$190 billion in 2021, a sevenfold year-on-year increase and a fivefold increase over the entire 2010-2020 period. Profit margins have increased by even larger amounts. In the third quarter of 2021, the average operating margin for major airlines was around 56%, compared to an average operating margin of 3.7% two years earlier:
Aside from price hikes, several specific business practices by many major shipping companies are hurting American businesses and farmers. For example, due to their market power, these alliances may cancel or change bookings and charge additional fees without notice. These unpredictable practices are eroding American companies’ ability to deliver orders on time. All too often, shipping companies effectively refuse to take on American exports altogether, preferring to return to China with an empty ship in order to achieve a quick turnaround rather than carrying American exporters’ cargo or calling at American ports. This is particularly difficult for our farmers who have spent decades building international relationships only to find they can no longer reliably or predictably transport their farm produce overseas.
Shippers also continue to engage in practices that directly contribute to port congestion, such as B. The introduction of “crate rules” that require truckers to only use specific trailers to haul their containers, forcing truckers to wait for the “right” type of trailer to become available. This translates into lower wages and longer wait times for our country’s truck drivers, who are paid per box, and allows shipping companies to charge even higher demurrage fees.
A century ago, in the original Ocean Shipping Act, Congress provided for utility-style regulation of ocean carriers, coupled with antitrust immunity for ocean carrier alliance agreements only when the alliance was in the “public interest.” But Congress steadily deregulated the industry—broadening antitrust immunity while weakening shipping companies’ obligations to publicly disclose prices and fees and to treat companies and their customers fairly. So we’re at the point where three alliances can dominate the ocean shipping market and put pressure on American businesses and consumers.
The Biden-Harris administration is taking steps to lower consumer prices and level the playing field in shipping:
- Today it is the FMC and the Department of Justice (DOJ). to announce a new joint initiative to promote competition in the sea freight transport system. As part of the new initiative, the DOJ will provide the FMC with the assistance of attorneys and economists from the Antitrust Division in enforcing violations of the Shipping Act and related laws. The FMC will assist the Antitrust Division in enforcing the Sherman Act and the Clayton Act with support and expertise in the maritime industry. The agencies’ announcement explains that competition in the maritime industry is a key factor in driving down prices, improving service quality and strengthening supply chain resilience.
This initiative grew out of the “whole-of-government” approach to the competition established by the July Executive Order of the President promoting the competition. The FMC and DOJ are both part of the White House Competitive Council established by the Order. Their partnership builds on an information-sharing memorandum of understanding signed by the agencies in July.
- The FMC will continue to expand oversight of the global maritime shipping industry. Since last summer, the FMC established a new audit program, supported by an audit team, to address complaints about airlines charging unfair charges, required airlines to justify their charges, opened 42 cases investigating port congestion charges, and took steps to to remove obstacles to filing complaints with the FMC and to prevent retaliation against complainants. It also launched a new data initiative to identify data limitations that contribute to supply chain congestion. This month, the FMC also solicited comments on reforms to how freight forwarders collect shipper fees.
The administration, led by Port Envoy John Porcari, has also worked with the ports of Los Angeles and Long Beach to develop new fees for shipping companies that keep cargo in docks for more than nine days. These long-lingering import containers caused delays in getting goods to shelves while increasing port congestion. Since the proposed fee was announced, the number of permanent containers on the docks has fallen by more than 70 percent. Building on the success of the proposed carrier fee, the administration is working with ports to charge carriers for long-standing empty containers clogging docks. Since that announcement, the number of empty containers at the docks in the Port of Los Angeles has fallen by more than 25 percent.
The need for reform of our ocean freight transportation system to improve fluidity and fairness, particularly for our agricultural exporters, was underscored last week in reports released by the Department of Transportation and the Department of Agriculture (USDA) as part of the government’s six supply chain industrial baseline reports released to mark the anniversary anniversary of the President’s Supply Chain Executive Order.
- The President calls on Congress to pass robust reforms for the shipping industry, including reforms that address the current antitrust immunity for shipping alliances. In addition to the important administrative measures announced today, the President believes that Congress should provide additional tools for the administration to address issues in the shipping industry. The President is encouraged by action in both houses of Congress to address these issues. He urges Congress to also address the immunity of alliance agreements from antitrust scrutiny under current law.