Time to Address Ocean Carrier Greed
This summer Maersk — the world's biggest container shipping company — announced record profits for the second quarter of 2021. Throughout the pandemic, their peers in the ocean shipping industry have achieved similar levels of success by price gouging companies that import ingredients into the U.S., including chemical distributors.
We are not alone in this regard. American businesses have been facing a maritime shipping crisis for more than a year, and there has been little action from our leaders in Washington to address it. From the beginning of the COVID-19 pandemic, there has been an immense strain on the United States logistics system. Ports across the U.S. continue to suffer from severe congestion causing cargo ships to experience significant delays in unloading cargo and, ultimately, delivering product in a reasonable time.
Companies are seeing skyrocketing freight prices and increasing detention and demurrage fees. The spot price for a container from Asia to the west cost of the United States is up by 454% so far this year, and to the east coast, rates are up by 404%. On top of this, ocean carriers have levied exorbitant fees on customers for containers they are physically unable to retrieve from the ports due to congestion, labor shortages, and limited port hours. Severe weather, antiquated port infrastructure, as well as railroad and ocean shipping mergers and consolidations have also worsened the situation.
NACD is an international association of chemical distributors and their supply-chain partners. Our members supply the ingredients necessary for modern life in the U.S., including food production, water purification, pharmaceutical and vaccine development, and much more. Throughout the pandemic, I’ve heard horror stories from members sustaining five-figure losses every month simply because shipping vessels won’t honor their contracts and move their goods. Generally, NACD members are now seeing a refusal from ocean carriers to transport hazardous products that are essential to the everyday lives of Americans. These products are critical to supporting water treatment facilities, hospitals, and municipality operations across the country. Some members consider themselves lucky to book 50 percent of the containers they order — at a premium rate nonetheless. A better word for this would be ransom.
To be clear, what we’re now facing is nothing short of a complete breakdown of the U.S. supply chain. Across the country, hospitals and water treatment facilities are running out of liquid oxygen — which is used in everything from purifying drinking water to treating COVID-19 patients. Failure of a water system to provide drinking water to the community it serves would have cascading impacts, potentially including shutting down hospitals.
Chemical distributors are also having trouble importing lactic acid, a compound used in medical devices such as pins and sutures; glycerin, an essential ingredient in antibiotic products and hand sanitizers; as well as citric acid, an active ingredient in nearly every cleaning product in your bathroom as well as most of the drinks on the shelf of your grocery store.
Our data shows that beyond these examples, chemical inventories have been falling across the board, with 84.5 percent of companies nationwide now reporting being out of stock of at least some imported products, up from 46.6 percent in March. An additional 7.1 percent of surveyed members reported being close to running out of stock, meaning nearly 92 percent will soon be suffering from shortages. With the increased demand for shipping as the holiday season approaches, these shortages are likely to get worse before the year ends.
Despite the decline in reliability, the cost of shipping continues to rise. Previously, 55 percent of respondents reported being charged additional premiums by carriers beyond tariffs and contract rates. Now a whopping 72.6 percent report paying these premiums.
The state of shipping as it sits currently is not sustainable. Costs to consumers are already rising and soon businesses will be forced to close their doors — if they have not already. Our shipping laws have not been updated in decades, and it’s past time for Congress to implement common sense reforms that hold ocean carriers accountable for their anticompetitive practices.
By passing the Ocean Shipping Reform Act of 2021, our leaders in Congress have an opportunity to end this madness by requiring ocean carriers to adhere to minimum service standards that meet the public interest. The legislation would also prohibit ocean carriers from declining opportunities for U.S. exports and give the Federal Maritime Commission greater authority to investigate their business practices.
Prolonged disruptions to the chemical supply chain are having severe effects across the entire U.S. economy. It’s past time to move beyond fact-finding exercises and towards concrete actions before it’s too late.
Eric R. Byer is president and CEO of the National Association of Chemical Distributors, an association of more than 400 member and Affiliate companies which represent over 85 percent of the chemical distribution capacity in the nation and 90 percent of the industry’s gross revenue.