US Regulators target carrier fees

Government aims to lower prices and regulate business practices

US government regulators are investigating the practices of the container shipping industry in the wake of international carriers’ record profits in 2021.

US politicians have blamed foreign shipping companies for skyrocketing shipping fees, unprecedented delays, and schedule changes.

Senator Maria Cantwell, chair of the Senate Committee on Commerce, Science, and Transportation called for “bipartisan action to protect our agriculture producers and export businesses from unfair ocean carrier practices so they can get their goods to the global marketplace, and we can further relieve port congestion, reduce supply chain backlogs, and lower prices for consumers.”

In March, President Joe Biden announced an enhanced focus by the US Department of Justice (DoJ), working with the Federal Maritime Commission (FMC) to enforce antitrust laws and stop any abusive practices by the large carriers that were raising costs and hurting American exporters.

The president also called on Congress to pass reforms to the Ocean Shipping Act that regulates the business practices of the carriers.

The US House of Representatives passed an overhaul of the act in December which would provide the FMC with greater authority to regulate the international shipping companies and require additional transparency and reporting from the carriers on fees, export versus empty container volumes, and quarterly volumes entering and exiting U.S. ports. In a statement, the White House said the DoJ and FMC would work together to make sure that large ocean freight companies cannot take advantage of U.S. businesses and consumers.

“Right now, three global alliances, made up entirely of foreign companies, control almost all of ocean freight shipping.”

WHITE HOUSE STATEMENT

“These companies have formed global alliances—groups of ocean carrier companies that work together—that now control 80% of global container ship capacity and control 95% of the critical East-West trade lines.

“Right now, 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 White House said.

“This consolidation happened rapidly over the last decade. From 1996 to 2011, the leading three alliances operated only about 30% of global container shipping. Significant consolidation occurred in the years running up to the pandemic.”

The statement said ocean carrier companies increased spot rates for freight shipping between Asia and the United States by 100% since January 2020, and increased rates for freight shipping between the United States and Asia by over 1,000% over the same period.

“Oftentimes cargo owners are charged fees—known as ‘detention and demurrage’ fees—even when they can’t get access to their containers to move them. The FMC estimates that from July to September of 2021, eight of the largest carriers charged customers fees totalling $2.2 billion—a 50% increase on the previous three-month period.

“Meanwhile, the ocean carrier companies are experiencing elevated profits and soaring profit margins. Estimates suggest that the container shipping industry made a record $190 billion in profits in 2021, a seven-fold increase from the previous year and five times what it made over the entire period from 2010-2020.

“Profit margins have increased by even larger amounts. In the third quarter of 2021, the average operating margin of the major carriers was about 56%, compared to an average operating margin of 3.7% two years earlier.”

Beyond price increases, the government is also taking aim at specific business practices such as cancelling or changing bookings without notice and imposing “box rules” that require truckers to use only certain trailers to haul their containers.

This, the government says, leads to lower pay and longer wait times for truck drivers, who get paid per box, and allows the ocean carriers to generate even higher detention and demurrage fees.

Industry association the World Shipping Council (WSC) said the allegations were unfounded. The carriers were “moving more cargo right now than at any time in history in order to meet the unprecedented demand for imported goods during the pandemic,” said John Butler, WSC president and CEO.

“The legislative proposals currently before Congress would upend the global transportation system, reducing service for US importers and exporters and raising costs for American consumers and businesses,” Butler said. •