Demand, Not Ocean Carriers, Causing Supply Chain Problems

Congress has a golden opportunity to solve the delays in the international supply chain, but so far, they are missing the mark. The legislation passed by the House of Representatives takes the wrong approach to shipping reform. The good news is the Senate can fix the mistakes in the House passed bill, but the bad news is some Members of Congress continue to agitate to repeal ocean carrier antitrust immunity, which combined with a problematic House bill, will only worsen the current difficulties with the supply chain.

As the pandemic spread and prices spiked in response to unprecedented consumer demand, some conveniently pointed fingers at ocean carriers claiming monopolistic behavior. These allegations were dispelled by the European Union (EU) which investigated the issue last year and found, in November of 2021, that with regard to price increases for container shipping, the EU has “not received evidence or identified anti-competitive behaviour in relation to these price increases.” The argument that the ocean carrier companies collude or otherwise act in an anti-competitive manner is simply not true.

First, Congress needs to understand is the limited antitrust immunity provided in the Shipping Act allows carriers to share vessel space through so-called vessel sharing agreements (VSA) and should not be changed. VSAs were designed to increase efficiency and expand the number of ports which can be serviced, with participating carriers competing for customers. Ultimately, these agreements allow ocean carriers to provide services to consumers a lower cost and more efficient service.

The bottom line? If Congress removes immunity for ocean carriers, it will mean less efficient and fewer services to a shrinking number of ports - raising prices, because ocean carriers would be restricted to using their own ships. This “new” regulatory scheme would resemble the inefficient way carriers operated before passage of the Ocean Shipping Reform Act of 1998. The law transitioned ocean carriers towards a more consumer friendly free market and away from a heavy regulatory model.

If the government reverses course on regulating ocean carriers, while not addressing labor shortages and underfunded port construction, the supply chain issues consumers currently experience will continue. Regulating and restricting carrier operations will not help and, paradoxically, are likely to harm the U.S. economy and American consumers. 

It would be incorrect to assume that the container shipping industry is highly concentrated and is not competitive. The truth is that regulators in the United States and Europe have studied the industry and have found no anti-consumer impact. Simply put, ocean carriers are not the cause of supply chain congestion and the resulting increase in prices for consumer goods.

In fact, unprecedented competition in shipping has kept supply chain issues from getting even worse. If Congress were to roll back the deregulation of the shipping industry, the “new” regulatory schemes will make it impossible for markets to function properly. Furthermore, COVID-caused labor related slowdowns and shutdowns at ports have further slowed the entry of goods into the United States.  Additionally, the metal import containers are stacking up in U.S. maritime terminals causing problems accessing and unloading ships. The real causes of supply chain issues have zero to do with ocean carriers.

One way to address the issues facing ports is to improve capacity through increased investment. The delivery mechanisms for goods are not designed for current demand of American consumers and further private investment driven by the market can help - if not disrupted by legislation targeting ocean carriers.

The reality is that the biggest cause of bottlenecks in the international supply chain is increased demand because of the COVID-19 pandemic. Consumers have been stuck at home – with more time and sometimes, more money – demanding new products.  This demand, not the carriers, caused these capacity problems. Ports, trains, warehouses, and delivery trucks have yet to adjust to deal with the massive hike in demand for more and more consumer goods shipped from overseas.

The House passed H.R. 4996, the Ocean Shipping Reform Act of 2022, takes the wrong approach to dealing with our supply chain challenges by imposing new bureaucratic requirements on ocean carriers and fail to address the underlying issues. The Senate version has a chance to make the situation better. In contrast to the House bill, the Senate bill still sets guardrails of fairness, but does not pick winners and losers among different types of shippers and does not fundamentally disrupt ocean networks. The Senate bill, with some improvements, could be far better than the House approach which undermines the transportation system and hurts the economy.

Congress needs to do a better job of studying and understanding the true causes of supply chain disruptions and rising costs rather than just pointing fingers at ocean carriers. There are better solutions available than those being considered, and Congress ought to explore other ways to end disruptions in the international supply chain and relieve the financial pressure on consumers.

Peter Mihalick is former legislative director and counsel to former Reps. Barbara Comstock, Virginia Republican, and Rodney Blum, Iowa Republican.