Industry groups react to President Biden’s planned ‘crackdown on container liners

There was no shortage of feedback stemming from President Biden’s comments about the ocean shipping sector made during his State of the Union (SOTU) address earlier this week.

President Biden did not pull any punches in addressing how over the course of the pandemic, about half a dozen or less foreign-owned companies raised prices by as much as 1,000 percent and made record profits. He made the case that it is a situation, which is viewed as untenable, and announced a “crackdown” on those container lines that he said are overcharging American businesses and consumers.

This stance is not new, considering that a White House’s Executive Order focused on promoting competition within the American economy, which was issued last July encouraged the Federal Maritime Commission (FMC) to ensure vigorous enforcement against shippers charging American exporters exorbitant charges.

What’s more, it pointed to how the global shipping market has rapidly consolidated, citing how in 2000 the ten largest ocean shipping companies controlled 12% of the market, and fast-forwarding to 2021, that figure has jumped to more than 80% of the market. This has, in turn, let “powerful container shippers charge exporters exorbitant fees for time their freight was sitting waiting to be loaded or unloaded. These fees called ‘detention and demurrage charges’ can add up to hundreds of thousands of dollars.”

This EO came at a time when container shipping rates are, and still remain, at an all-time high, driven by the various impacts of the container shipping market related to increased consumer demand for goods and products originating overseas, capacity shortages, labor issues, port congestion, and throughput challenges, among other factors.  

The American Trucking Associations (ATA) and its ATA Intermodal Carriers Conference threw their support behind President Biden’s position, calling out what it called the unscrupulous business practices of a monopoly of foreign-owned ocean shipping lines.

“We are pleased that the Biden Administration is taking long overdue steps to limit the power of the ocean shipping cartel to hurt American businesses and consumers,” said IMCC Director Jonathan Eisen in a statement. “ATA and IMCC have long been fighting against the predatory practices of these foreign-owned companies and we appreciate President Biden shining a light on this critical issue.” 

What’s more, ATA officials said that these ocean carrier price increases are coming at a major expense to U.S.-based motor carriers, to the tune of more than $150 billion in profits coming from the trio of truckers, other businesses, and consumers.

And in August 2021, the ATA’s Intermodal Motor Carrier Conference filed a suit with the Federal Maritime Commission, “alleging foreign-owned ocean shipping lines engaged in unjust and unreasonable conduct in violation of the Shipping Act. Their unlawful actions have overcharged truckers and their customers for intermodal container chassis at ports and inland terminals throughout the United States.”  

A Bloomberg report observed that the issue for the Biden administration are the three main shipping alliances, where Asia- and Europe-based rivals share vessel capacity on key trade lanes with immunity from U.S. antitrust laws.

But the World Shipping Council had a decidedly different take, saying that Biden’s comments and position do not reflect the container shipping sector or market dynamics.

“Here are the facts: container shipping is a competitive industry with multiple ocean carriers actively challenging one another in the global marketplace and on the shipping lanes most relevant for U.S. trade,” said John Butler, President and CEO of the World Shipping Council, in a statement. “It is disappointing that unfounded allegations are being levied against an industry that is moving more cargo right now than at any time in history in order to meet the unprecedented demand for imported goods during the pandemic. The truth is that with demand for ocean transportation services into the U.S. at record levels, market dynamics are influencing prices—not carrier alliances.

And Butler added that these vessel sharing agreements (VSA) are what he described as purely operational compacts that enable carriers to share space on one another’s ships, which he said increases efficiency and supports more service to more ports than would otherwise be the case.

“Importantly, the operational agreements do not include commercial cooperation,” he said. “Each member of a VSA or alliance determines its own commercial terms, including prices, which are not discussed between alliance members. Every VSA is filed, reviewed, and continuously monitored by the FMC. The legislative proposals currently before Congress would upend the global transportation system, reducing service for U.S. importers and exporters and raising costs for American consumers and businesses. We urge the administration and Congress to enact measures that will relieve the current congestion and set America’s supply chain up for long-term success.”

In a previous interview, Glenn Koepke, SVP of Customer Success at FourKites , said that the ocean container shipping industry has been consolidating for the last 10-plus years because of historical price wars between shipping lines that put them in a fragile financial state, leading to many bankruptcies and collapses such as the Korean firm, Hanjin.

“With 90% of the ocean trade relying on the top-10 carriers and the major alliances, having more oversight and involvement from the government will not bring immediate relief,” he said. “This is a supply and demand-driven market, and it’s forcing companies to rethink their sourcing strategy. If ocean is a major issue now, looking at your global suppliers from a total cost to serve standpoint is critical. Manufacturing in the U.S. or nearshoring in Mexico may have higher initial costs but logistics, risk and duties can offset the risk of sourcing product from overseas.”

Evan Armstrong, president of supply chain consultancy Armstrong & Associates, noted that the steep pricing increases have been due to market conditions as the economy has rebounded from the depths of the pandemic.

“It is a very different market, and the competitive situation is much different with many competitors to choose from,” he said. “Our opinion is that there is little more regulation would do to help the current situation where we went from overcapacity not much before the pandemic, to the current tight-capacity situation. The market will correct itself as we head back toward equilibrium as more capacity comes online.”