President Joe Biden is expected to take aim at the ocean shipping industry and rising prices during his State of the Union address Tuesday night.
Biden is set to raise concerns about the ocean shipping industry and its consolidation as part of his comments on the economy, projected to be one of the main topics of his much-anticipated speech, along with the Russian invasion of Ukraine.
Biden will tell Congress that three major shipping alliances made up of foreign companies now control 80% of global container ship capacity and 95% on the critical east-west trade lines, according to the White House. He will point out that shipping costs have increased through higher rates and fees since the start of the pandemic.
“The president will note that the foreign carriers are now seeing record profits, while prices for American consumers and businesses have risen,” the White House said in a fact sheet released prior to the 9 p.m. EST speech.
The White House noted that the Ocean Shipping Act, passed about a century ago, provides antitrust immunity for ocean carrier alliance agreements when the alliance is in the “public interest.” The administration is arguing that over the years, Congress further deregulated the industry and expanded that antitrust immunity while weakening ocean carriers’ obligations to disclose prices and fees.
Now the administration is imploring Congress to pass reforms to rein in some of the immunity that alliance agreements have from antitrust scrutiny.
Biden will also announce the launch of a new initiative between the Federal Maritime Commission and the Department of Justice to promote competition in the ocean freight transportation system and highlight efforts by the FMC to ramp up its oversight of the global shipping industry.
The president will likely tie the higher shipping prices to the higher costs that consumers are experiencing in stores. Inflation has been rampant since Biden took office, with consumer prices growing by a staggering 7.5% in the 12 months ending in January — the fastest pace since 1982.
The White House, citing the European Central Bank and the Kansas City Fed, said shipping cost increases are expected to add an approximately 1% increase in consumer prices over the next year.
“Many shippers really want us to do something about the rapid inflation of rates and decline in reliability in the ocean freight system,” FMC Chairman Daniel Maffei said this week at the TPM22 Conference.
Despite concerns about the higher prices, Maffei said there is little evidence to support the notion that these three ocean shipping cartels are driving up the inflation of rates “due to some kind of artificial limitation on the supply of cargo space.”
“But even after we’ve increased the reporting requirements and deepened our analysis so far, we have found no evidence of anything like that that’s actionable, and furthermore, neither has the European Union or China,” he said. “We will continue to scrutinize and keep looking, but so far, we’re seeing the opposite. We’re actually seeing that the carriers are adding capacity and in fact increase number of ships overall.”
World Shipping Council CEO John Butler also pushed back on the White House’s assertion that the industry was not competitive and that the higher costs are because of consolidation within ocean shipping, according to Bloomberg.
The push by the administration to make the industry more competitive will likely be met with skepticism from Republicans, who blame higher prices on the demand created by federal government spending and loose monetary policy last year.
Some on the Left have taken to blaming producers of goods for high prices as rising inflation pulls down Biden’s approval ratings and threatens Democrats’ prospects in the midterm elections.
Sen. Elizabeth Warren, one of Congress’s fiercest antitrust enforcers, raised the idea that major companies with little competition have been also driving up the cost of goods simply to bring in higher profits for their shareholders.
“Dealing with rising consumer prices also involves the [Federal Trade Commission], the Department of Justice, in breaking up monopolies and investigating crooked price-fixing schemes that also increase costs for hardworking families,” Warren said.
The Biden administration has also taken some flak from Democratic economists for placing too much focus on supply chains when it comes to inflationary pressure.
Steven Rattner, a counselor to the treasury secretary during the Obama administration, recently wrote a New York Times op-ed saying Biden’s insistence on blaming the supply chain for inflation woes is “dishonest.”
“Blaming inflation on supply lines is like complaining about your sweater keeping you too warm after you’ve added several logs to the fireplace,” he wrote. “The bulk of our supply problems are the product of an overstimulated economy, not the cause of it.”
A recent Quinnipiac University Poll survey found that inflation is registering as the country’s most pressing problem, topping concerns about immigration and the pandemic.
Additionally, a new Gallup poll from earlier this month showed that just 33% of adults surveyed in the United States are satisfied with the state of the economy, a steep drop from just before Biden took office, when 43% said the same.
