The United States is going to pursue legal action against companies it says colluded to raise shipping prices during the pandemic.
In his state of the union address to the U.S. Congress on March 1, President Joe Biden announced that the Justice Department (DOJ) is naming a chief prosecutor for pandemic fraud.
Under the new initiative, DOJ will provide the Federal Maritime Commission (FMC) with attorneys and economists from the Antitrust Division for enforcement of violations of the Shipping Act and related laws. The FMC will provide the Antitrust Division with support and maritime industry expertise for enforcement actions.
The agencies’ announcement explains that competition in the maritime industry is integral to lowering prices, improving quality of service, and strengthening the resilience of supply chains.
The measure is part of Biden’s plan to cut costs and reduce inflation for American consumers.
“Lowering your costs also means demanding more competition. I’m a capitalist, but capitalism without competition isn’t capitalism,” Biden said. “It’s exploitation — and it drives up prices. 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.”
Biden claimed in his speech that during the pandemic, these foreign-owned companies raised prices by as much as 1,000 percent and made record profits.
Claims untrue, say carriers
The shipping industry disputes the Biden administration’s claims, saying they are not indicative of the industry 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 (WSC).
“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.
A White House backgrounder elaborated on the claims in Biden’s speech, saying: “Three global alliances, made up entirely of foreign companies, control almost all of ocean freight shipping, giving them power to raise prices for American businesses and consumers, while threatening our national security and economic competitiveness.”
The backgrounder noted that since the pandemic began the carriers have increased spot rates for freight shipping between Asia and the United States by 100 percent since January 2020, and increased rates for freight shipping between the United States and Asia by over 1,000 percent in the same period.
The White House cited soaring profits, as well as business practices that hurt American businesses. Specifically, it accused them of refusing to carry US exports, “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.”
Agreements for efficiency
The WSC disputes this as well. “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. These vessel sharing agreements (VSA) are purely operational compacts that enable carriers to share space on one another’s ships, which increases efficiency and supports more service to more ports than would otherwise be the case,” Butler said.
The WSC points out that the operational agreements do not include commercial cooperation. Each VSA member 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.
Biden wants Congress to pass reforms to the ocean shipping industry, including reforms that address the current antitrust immunity for ocean shipping alliances. He is calling on Congress to also address the immunity of alliance agreements from antitrust scrutiny under current law.
“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,” Butler said.
“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.”