US lawmakers targeting liner shipping unfairly

ON MONDAY last week, US president Joe Biden made the following comments: “Lowering prices for Americans is my top priority, and I applaud the Congress for passing the Ocean Shipping Reform Act on a bipartisan basis, which will help lower costs for American retailers, farmers and consumers.”

He also said: “In my State of the Union address, I called on Congress to address ocean carriers’ high prices and unfair practices because rising ocean shipping costs are a major contributing factor to increased costs for American families. During the pandemic, ocean carriers increased their prices by as much as 1,000 per cent. And, too often, these ocean carriers are refusing to take American exports back to Asia, leaving with empty containers instead. That’s costing farmers and ranchers — and our economy — a lot of money.”

He concluded: “This bill will make progress in reducing costs for families and ensuring fair treatment for American businesses —including farmers and ranchers. I look forward to signing it into law.”

There we have it, a new law designed to sort out those terrible liner-shipping companies. The US Federal Maritime Commission is being given the power to carry out investigations of carriers’ business practices, apply enforcement measures and introduce regulations governing commercial practices, all in the hope that regulation can sort out the underlying problems on the country’s west coast.

The US-based World Shipping Council (WSC, which represents liner companies) initially responded with a statement that, at least in its initial paragraph, was diplomatic in tone.

It said: “Today’s vote on the Ocean Shipping Reform Act (OSRA) marks the conclusion of the legislative phase and transition to the Federal Maritime Commission rule-making process. We appreciate the time and effort that Congress has put into crafting this bill, and look forward to engaging in productive conversations with the Federal Maritime Commission to implement OSRA in a way that will minimise disruption in the supply chain.”

After that, though, the WSC stopped pulling its punches: “Throughout the Covid-19 pandemic, ocean carriers have gone all-out to keep goods moving, deploying every vessel and every container available, increasing sailings, and investing for the future. In 2021, carriers ordered a record-breaking 555 vessels worth US$42.5 billion, and 208 vessels worth US$18.4 billion have been ordered this year to date. But as long as America’s ports, rail yards and warehouses remain overloaded and unable to cope with the increased trade levels, vessels will remain stuck outside ports, to the detriment of importers as well as exporters.

“We are appalled by the continued mischaracterisation of the industry by US government representatives, and concerned about the disconnect between hard data and inflammatory rhetoric. The 22 (not 9) international carriers that serve the American people, industry and government in Asia-United States trade are part of the global supply chain that has built this country, importing and exporting food, medicine, electronics, chemicals and everything else we depend on. The increased rate levels we have seen over the past years are a function of demand outstripping supply and landside congestion, exacerbated by pandemic-related disruption.”

The United States’ own Federal Maritime Commission’s recent Fact Finding 29 investigation conducted over the past 2 years drew the same conclusion: “Our markets are competitive and the high ocean freight rates have been determined by unprecedented consumer demand, primarily in the United States, that overwhelmed the supply of vessel capacity. Congestion further constrained available capacity.

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“Until the import congestion is remedied, export congestion will persist. The World Shipping Council will continue to work with federal and state policymakers, as well as other parties, to pursue the necessary lasting solutions – such as continued investment in port infrastructure – that can have real impact in strengthening the intermodal transportation system that has supported the US economy through the pandemic. Ocean carriers continue to move record volumes of cargo and have invested heavily in new capacity – America needs to make the same commitment and invest in its landside logistics infrastructure.”

Later last week, when President Biden had actually signed the bill into law, MSC doubled down on its main points with a second statement. It largely covered the same points but included: “There is no dispute that carriers, after 2 decades of low or no margins and cheap and abundant capacity for shippers, are actually making profits.” And again, it stressed that those profits were being invested, primarily into new vessels.

This is the crucial point, which readers of this column will be all too familiar with, since I keep on mentioning it. The advent of containerisation and the abolition of the price-setting liner conferences created a situation where, in general, liner shipping made no significant money for many years. This was mainly because of oversupply of tonnage as competing shipping companies order tonnage in amounts that almost always ended up exceeding demand.

Until the current spike in rates, containers were being transported around globe for far less than the real cost of providing those services. Unduly cheap shipping services are not really in anybody’s best interests. It has meant, for example, that imports into America (and the rest of the developed economies) have been able to undercut domestic production to a greater extent than if the transport element reflected true cost.

Yes, right now freight rates are probably well over current costs, but that could change rapidly. The WSC refers to the 208 new ships ordered this year. If history repeats itself, the current very high freight rates could soon become a fleeting memory.