In his State of the Union last month, President Biden expressed his concerns about shipping lines, accusing them of driving up prices and adding to inflation problems. However, the day before the President spoke, the head of the Federal Maritime Commission (FMC) reported at the Transpacific Maritime Conference (TMC) that there’s no evidence of collusion in the industry or that market concentration is impacting prices.
While the White House wants to break up alliances, the FMC argues that this would only exacerbate the problems. Here are the key arguments made by each side and what to expect going forward.
White House Accuses Shipping Companies of Driving Inflation
On the final day of the Transpacific Maritime Conference the White House put out a statement accusing container lines of adding to the current inflation woes. The statement noted that the cost of ocean freight from Asia to the United States had doubled since January 2020, which would mean a 1% increase in consumer prices this year. That increase would be in addition to the 7.5 % increase from last year.
In his State of the Union, President Biden pledged to crack down on carriers and accused them of overcharging American businesses and consumers. "I'm a capitalist, but capitalism without competition isn't capitalism; it’s exploitation, and it drives up prices,” Biden said. “When corporations don’t have to compete, their profits go up, your prices go up, and small businesses and family farmers and ranchers go under. We see it happening with ocean carriers moving goods in and out of America. During the pandemic, these foreign-owned companies raised prices by as much as 1,000 percent and made record profits.”
The day before, Representative Jim Costa of California introduced legislation that, if passed, would take away carriers’ antitrust immunity. "For far too long, a handful of shipping companies have controlled the ocean shipping industry and employed practices that have caused congestion and delays at American ports,” Costa said in a statement. “If these companies are left unchecked, unfair practices will continue to harm American exporters and US trade interests, which could worsen the supply chain crisis and drive-up consumer prices." If passed, this legislation could end shipping alliances.
FMC and Carriers’ Response
In anticipation of this attack, container lines argued, through the World Shipping Council, that the White House misunderstands competition in the industry. Further, carriers warned that the collapse of alliances would only increase shipping disruptions and further drive-up prices. They argue that the alliances allow carriers to pool cargo and more efficiently use large vessels. Further, they assert that carriers are only allowed to cooperate operationally.
Addressing the TMC, FMC Chairman Daniel Maffei reported no evidence of collusion, and the agency would not undo alliances. “Many shippers want us to do something about the rapid inflation of freight rates and limits on supply,” Maffei said. “Even after increasing our reporting and analysis, there’s no evidence of anything like [collusion] occurring that would be an actionable case.”
The week before, the FMC announced an agreement with the Department of Justice to share antitrust expertise. This signals ongoing and deeper scrutiny into carrier practices.
Takeaways for Businesses
It’s unclear what, if any actions, will be taken in the months ahead to change shipping practices. It appears that there will be increased scrutiny of shipping lines, yet there is currently no evidence of collusion to drive up prices. Even so, pending legislation could impact shipping practices.
At Clear Freight, our team is closely monitoring the situation and any changes that occur. Contact us to learn more about our specialized supply chain solutions and how they can help make logistics easier for you.