Foreign shipping adds to supply chain woes

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The key to unclogging America’s supply chain issues and curbing inflation may well lie just offshore.

Foreign shipping container conglomerates have been putting the squeeze on U.S. manufacturers and farmers, subjecting them to vastly increased shipping fees or bringing full loads of imports here and returning empty because importing goods offers a far higher return. That has contributed to supply chain issues that have plagued the U.S. economy and become a factor in the highest rate of inflation in 40 years.

Minnesota Sen. Amy Klobuchar, a Democrat, wants to change that. She and Republican Sen. John Thune of South Dakota teamed up recently to push through the Ocean Shipping Reform Act, designed to ease shipping backlogs. Carriers would be barred from refusing U.S. exports without just cause. The Federal Maritime Commission would get badly needed tools to crack down on runaway shipping fees and ramp up enforcement on foreign shipping conglomerates.

The bill recently passed unanimously in the Senate — a rarity these days — and drew praise from Democrats and Republicans alike, along with the White House. A House version passed late last year and the final version could soon be signed by President Joe Biden.

“What’s been happening is an absolute outrage,” Klobuchar told an editorial writer. “Minnesota manufacturers and farmers are seeing dramatic increases in shipping costs. That’s being transferred to consumers who are feeling price increases everywhere from grocery stores to car dealerships. It’s the same across the country.”

Biden addressed the problem in his State of the Union speech to Congress on March 1. “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,” he said.

Biden called out shipping container industry excesses. “During the pandemic, these foreign-owned companies raised prices by as much as 1,000% and made record profits,” he said. Biden announced a “crackdown on these companies overcharging American businesses and consumers,” that would feature a joint task force between the Federal Maritime Commission and the Justice Department’s Antitrust Division. The task force will investigate potential violations of existing U.S. law.

Four major shipping conglomerates dominate the shipping industry, Klobuchar said, essentially creating a monopoly situation that has produced a sevenfold increase in profits to $190 billion.

Meanwhile, the price of shipping containers for U.S. exporters has quadrupled in the past two years, she said. “They are lining their pockets at the expense of U.S. consumers.”

Klobuchar said that imports are now so much more lucrative than exports that container conglomerates don’t want to bother loading U.S. goods to take to foreign ports, sometimes filling only 60% of U.S. orders. “That hurts us with jobs and rising prices,” she said. “It surges through the entire economy.” Minnesota, she said, is especially vulnerable as the fourth-biggest agricultural exporting state in the country.

The shipping container industry, predictably, has pushed back. The World Shipping Council, which represents 90% of container capacity worldwide, said in a statement that instead of creating a level playing field, proposed reforms would tilt the market toward manufacturers and others who require goods to be shipped for export. In a recent statement, it fixed blame on “U.S. landside logjams” that it said were keeping vessels stuck outside U.S. ports. The reforms, it said, would do little to fix the logistic breakdowns it said were at the heart of U.S. supply chain problems and could instead start a protectionist race to the bottom.

Klobuchar has a simpler explanation: “They’re doing what they’re doing because they can.” She noted that foreign container ship companies serving the U.S. have a certain level of antitrust immunity not available to most other companies. The rate agreements and vessel-sharing agreements authorized under that antitrust exemption were intended to guard against overcapacity, stop rate wars and maintain a level of market stability.

In an earlier interview with American Shipper, Rep. Dusty Johnson, R-S.D., pointed out that while the top 10 ocean carriers controlled 12% of the volume 20 years ago, the top 10 now control 80% of the volume, signaling a vast consolidation of the industry. “When you have unreasonable amounts of concentration and merger activity, you give certain market participants asymmetrical power,” he said. “That’s a market failure.”

Klobuchar said, “I would get rid of [the exemption] if I could.” She is hoping the unanimity of the Senate vote for Ocean Reforms “will get the industry’s attention” and result in better compliance. If not, she said, she has another bill waiting that would wipe out the exemption. That is a separate bill, she said, but it’s the next step if the reform act proves insufficient.

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