top of page
  • Writer's pictureThe San Juan Daily Star

With inflation surging, Biden targets ocean shipping

Shipping containers at the Port of Savannah in Garden City, Ga., Sept. 29, 2021. President Joe Biden is targeting shipping companies that have jacked up prices during the pandemic, but critics say bigger economic forces are at work.

By Ana Swanson

With inflation surging at its fastest pace in 40 years, President Joe Biden has identified a new culprit that he says is helping fuel America’s skyrocketing prices: the ocean vessels that ferry containers stuffed with foreign products to America’s shores each year.

Shipping prices have soared since the pandemic, as rising demand for food, couches, electronics and other goods collided with shutdowns at factories and ports, leading to a shortage of space on ocean vessels as countries competed to get products from foreign shores to their own.

The price to transport a container from China to the West Coast of the United States costs 12 times as much as it did two years ago, while the time it takes a container to make that journey has nearly doubled. That has pushed up costs for companies that source products or parts from overseas, seeping into what consumers pay.

Biden has pledged to try to lower costs by increasing competition in the shipping industry, which is dominated by a handful of foreign-owned ocean carriers. He has cited the industry’s record profits and directed his administration to provide more support for investigations into antitrust violations and other unfair practices.

Congress is also considering legislation that would hand more power to the Federal Maritime Commission, an independent agency that polices international ocean transportation on behalf of U.S. companies and consumers.

The bill, which has bipartisan support, would authorize the commission to take action against anti-competitive behavior, require shipping companies to comply with certain service standards and regulate how they impose certain fees on their customers. Biden is pushing lawmakers to add a provision that would allow the commission and Justice Department to review applications for new alliances between companies for antitrust issues, and reject those that are not in the public interest.

The House passed its version of the bill in December; it must be reconciled with a Senate version.

But it is unclear to what extent more government oversight and enforcement will actually bring down shipping costs, which are being driven in large part by soaring consumer demand and persistent bottlenecks. Global supply chains are plagued by delays and disruptions, including those stemming from the Russian invasion of Ukraine and China’s broad lockdowns in Shenzhen, Shanghai and elsewhere.

“As a standard matter of economics, if you have inelastic supply and experience a surge in demand, you will see a rise in prices,” said Phil Levy, chief economist at Flexport, a logistics company.

The effect is expected to worsen in the coming months. Shipping rates typically take 12 to 18 months to fully pass through to consumer prices, said Nicholas Sly, an economist at the Federal Reserve Bank of Kansas City.

The cost to ship a container of goods from Asia to the U.S. West Coast surged to $16,353 as of March 11, nearly triple what it was last year, according to data from Freightos, a freight booking platform.

While supply chain congestion showed some signs of easing in January and February, the Russian invasion of Ukraine has quickly worsened the situation along with lockdowns in China that have closed factories and warehouses.

Analysts at Capital Economics, in a research note Wednesday, said it was still possible for China to suppress coronavirus infections without causing widespread disruption to global supply chains. “But the risk that global supply chains links within China get severed is the highest that it has been in two years,” they said.

U.S. businesses that use ocean carriers have been pushing for additional oversight of what they say is an opaque, lightly regulated industry.

One of the main complaints among importers and exporters is that ocean carriers are charging customers huge and unexpected fees for delays in picking up or returning shipping containers, which are often mired in congestion in the ports or in warehouses. American farmers, who have struggled to get their goods overseas, say ocean liners have refused to wait in port to load outgoing cargo or skipped some congested ports entirely. As a result, some have periodically been unable to get their products out of the United States.

“It’s been a lot of turmoil and challenges, a lot of unreliability,” said Patti Smith, CEO of DairyAmerica, which exports milk powder to foreign factories to be made into baby formula. Her company has sometimes been unable to get its products out of West Coast ports, she said, and has racked up extra warehousing costs and unexpected fines because of the delays.

The White House insists its efforts can drive down costs, portraying the measures Biden announced as a way to calm skyrocketing inflation, which has become a huge economic concern among voters. Consumer prices surged 7.9% in the year to February, a 40-year high.

The White House has pointed to rapid consolidation in the industry over the past decade as a driver of higher prices, saying three global shipping alliances control 80% of global container ship capacity, and increased shipping costs would continue to fuel inflation.

“Because of their market power, these alliances are able to cancel or change bookings and impose additional fees without notice,” the administration said in a fact sheet.

Shipping companies have protested those assertions. John Butler, CEO of the World Shipping Council, which represents the biggest container ship operators, including Maersk, Hapag-Lloyd and Ocean Network Express, said the White House arguments were “simply inaccurate.” The industry is not particularly concentrated by measures that antitrust authorities use, he argued, and leading into the pandemic, there was plenty of capacity and rates had been declining.

“Nothing has structurally changed,” he said. “The increased rates coming out of COVID are driven by the fact that we’ve had this massive import surge that’s continued for over 18 months, and the inland infrastructure in the U.S. simply can’t handle it.”

Butler said the line of ships queuing to get into major U.S. ports like Los Angeles had effectively reduced the global supply of vessels.

“You’ve got the two things at once: reduced effective capacity and increased demand. When you have that situation, something has to give, and that thing is prices,” Butler said.

51 views0 comments

Recent Posts

See All
bottom of page