The White House's Plan to Combat Rising Shipping Costs
The Biden Administration is taking steps to combat supply chain issues, specifically ocean shipping. In a White House statement, the administration announced an agreement between the Department of Justice and the Federal Maritime Commission to ensure that ocean freight companies "cannot take advantage of U.S. businesses and consumers."
Shipping prices have risen to 12 times what they were two years ago, the New York Times reported, and transit times have doubled from China to the West Coast. According to the New York Times, the cost of shipping a container from Asia to the West Coast was $16,353 on March 11—almost triple the March 11, 2021 figure.
The White House said a large part of the problem is that three foreign shipping companies have an overwhelming amount of control over freight shipping, which gives them the ability to raise prices for American businesses and customers, and, according to the White House, threaten national security and America's economic competitiveness.
The statement also reads:
Beyond price increases, several specific business practices of many large ocean carrier companies are hurting American businesses and farmers. For example, because of their market power, these alliances are able to cancel or change bookings and impose additional fees without notice. These unpredictable practices undermine American business’ ability to deliver orders on time. All too often, ocean carriers are effectively refusing to take American exports altogether, preferring to speed back to China with an empty ship to make a quick turnaround rather than transport American exporters’ cargo or dock at American ports. This is especially difficult to our farmers, who have spent decades building relationships internationally, only to find that now they can’t transport their agricultural products overseas with any reliability or predictability.
The carriers have also continued to pursue practices that directly contribute to port congestion, such as imposing “box rules” that require truckers to use only certain trailers to haul their containers—thus forcing truckers to wait for the “right” kind of trailer to become available. That leads to lower pay and longer wait times for our nation’s truck drivers, who get paid per box, and allows the ocean carriers to generate even higher detention and demurrage fees.
Under the new partnership, the DOJ will supply attorneys and economists from its Antitrust Division to the FMC for the purpose of enforcing violations of the Shipping Act and other related legislation. In return, the FMC will provide maritime industry expertise and support for Sherman Anti-Trust Act and Clayton Act enforcement.
The Sherman Act allows the federal government to dissolve trusts, and the Clayton Act defines unethical business acts such as price fixing and monopolies.
Last summer, the FMC also established a new audit program to keep an eye on shipping companies charging unfair fees, launching 42 cases to investigate port congestion charges and made it easier to file complaints at the FMC.
Not everyone agrees with the Biden Administration's assessment of the factors driving freight price increases and shipping slowdowns. Unsurprisingly, the shipping industry disputes the administration's claims. According to the New York Times, John Butler, chief executive of the World Shipping Council, which represents major container ship operators including Maersk, called the White House arguments “simply inaccurate."
Butler instead believes the issues stem from simple supply and demand, specifically the pandemic-driven surge in online shopping coupled with COVID-related delays at ports.
“You’ve got the two things at once: reduced effective capacity and increased demand," he told the New York Times. "When you have that situation, something has to give, and that thing is prices."
Some independent analysts and economists agree.
“I think the spike in rates that have taken place during the pandemic is mostly due to an increase in demand for imported goods combined with port slowdowns that functionally act as a reduction in the number of ships operating,” Colin Grabow, a trade analyst at the Cato Institute, also told the Times.
Still, the Biden Administration is pressing forward with its efforts.
In order to address the congestion at major West Coast ports in Los Angeles and Long Beach, the administration also has introduced new fees for shipping companies that let cargo sit at docks for more than nine days. Since the announcement of those fees, the number of ships sitting at the port for long periods of time has decreased more than 70%. There's also been a 25% decrease in empty containers at the Port of Los Angeles following the announcement.
Furthermore, President Biden is asking Congress to pass ocean shipping reforms, including some to address ocean shipping alliances' perceived immunity to antitrust laws. This kind of legislation has bipartisan support, but would likely take time to enact and enforce, making it more longer-term fix than immediate relief.