- Most international shipping is controlled by only three cooperative alliances.
- The White House says consolidation has led to higher freight tariffs that boost inflation.
- A new federal initiative will use antitrust laws to promote competition in shipping.
Expensive shipping costs are the target of a new initiative announced by the White House on Monday, which ordered the Justice Department to use antitrust laws to make the largest companies in the industry more competitive with each other.
Approximately 80% of all global shipping capacity – and 95% of east-west trade – is controlled by three alliances that allow freight companies to coordinate tariffs and schedules.
This consolidation largely went under the main radar until the pandemic completely disrupted the global supply chain. Ocean carriers have responded to increased demand and reduced supply by raising tariffs on freight between Asia and the United States by more than 1,000 percent.
As transportation costs rise, consumer prices are also rising, and White House experts estimate that shipping will add a full percentage point to inflation next year.
And it’s not just consumers who remain paying more – exporters are complaining that large companies are not shipping American products to foreign markets.
Some carriers apparently find it more cost-effective to ship empty containers back to Asia for refueling instead of transporting US agricultural goods to other ports.
These rising prices were good for shipping companies’ profit margins, rising to 56% in the third quarter of 2021, from 3.7% in 2019.
For President Biden, such hefty profits in such a low-margin historical business are evidence of anti-competitive practices. He plans to address the issue during a speech on the state of the Union on Tuesday night.
Under the new initiative, a regulatory agency known as the Federal Maritime Commission will coordinate with the Department of Justice to identify and prosecute violations under the Shipping and Basic Antitrust Act, the Sherman Act and the Clayton Act.
“Competition in the maritime industry is an integral part of lowering prices, improving the quality of services and strengthening the sustainability of the supply chain,” Attorney General Merrick Garland said in a statement. “Violators of the law need to know that the Ministry of Justice will provide the Federal Maritime Commission with all the necessary support for litigation, as it is pursuing its mission to promote competition in ocean shipping.
This increased control of the shipping industry follows weeks of political announcements accusing corporate greed of worsening inflation. Other sectors that fall under the microscope include beef producers and oil companies.