(Bloomberg) – President Joe Biden’s attack on shipping companies in crackdown on uncompetitive industries should be welcome news to American companies paying record-high prices for ocean freight, a market that a growing number of importers are complaining of being dominated by few big players becomes.
The executive order published by the White House on Friday targets, among other things, a container shipping industry where 85% of the capacity of around 10 major airlines is controlled. The order encourages the Federal Maritime Commission to ensure vigorous enforcement of the regulations so that exporters are not burdened with “exorbitant fees”.
That’s a shot across the bow of the largest container lines, around half of which are based in Asia like the Chinese Cosco Shipping Holdings Co., while the rest are based in Europe, like the Copenhagen-based AP Moller-Maersk A / S. Nine major airlines are divided among themselves into three alliances in which they share the shipping space, cooperate on trade routes and try to limit excess capacity – similar to the way airlines use code-sharing offers to fill aircraft with passengers.
The pandemic gave container freighters an enormous advantage over their customers: almost all ships are now fully loaded, and there is more demand than capacity for the transport of goods, especially from the USA
“We have stepped up our review of maritime carrier alliances to identify evidence of anti-competitive behavior in terms of pricing and capacity, and we will continue to do so as the Covid-19 and import crisis continues,” said the chairman of the Federal Maritime Commission , Daniel Maffei in a statement on Friday.
American exporters, meanwhile, are falling into a capacity crisis as many containers return empty to Asia so that the freight forwarders can maintain the flow of goods from China to the east. The FMC has already investigated these problems.
However, there are reasons to dampen expectations about the impact of US regulators.
In an interview last month, Maffei, whom Biden selected for the top FMC job back in March, was reluctant to describe the Commission’s powers to overhaul the competitive field. That could make matters even worse, he said. Following Winston Churchill’s line on democracy, he said that “alliances are the worst system in the world, apart from the alternatives.”
Here’s more of what Maffei said in the June interview about competition in the shipping industry:
Describe the scope of the monitoring of the shipping alliances by the MGB:
“We carry out a very extensive monitoring. We request a lot of information from the shippers, which includes all sorts of things, how many containers they are transporting and their fees, what is under contract and what is not, and all sorts of things. “
“We have increased the amount of information, we have increased the number of reporting requirements.”
What are you looking for?
“What we are looking for is not how high the prices are, but whether they would be significantly lower if we weren’t in an environment where the alliances exist. Part of the challenge is one of the reasons why the alliances exist – it’s not about setting prices, they are not allowed to, they still have to compete for price – but rather to enable room layout. The best analogy would be airplanes: when you buy a ticket from United, you suddenly get on a Virgin Atlantic flight. “
What are the challenges you are facing?
“The problem with this is that it actually becomes more efficient and likely, if at all, increases usable capacity. So it’s a challenge to say, ‘If we didn’t have the alliances, we’d have lower prices.’ The other problem, however, is that even if we decide, “oh, maybe we can say that,” we can’t just click a button and say you can’t do the alliance anymore. We would have to go to court and the burden of proof is on the agency. And that’s a pretty demanding standard. So yeah, right now I don’t think we could go to court and prove that, but that doesn’t mean you stop monitoring and carefully monitoring it and maybe even stepping up monitoring if you get wind of it. “
What alternatives are there to alliances?
“One thing that I am warning the audience about – the audience of shippers, the audience of freight forwarders – is that the alliances seem to be part of the problem, but all of the alternatives that would come up, at least in the long run, could change the situation very good make worse. What I mean is that the alliances are not mergers – they still have to compete for price, they are carefully monitored. If you don’t have alliances, you will likely see an increase in the rate of fusion, which has been very high for the past 20 years. If you think about it, we once had 22-24 depending on how you count them, big airlines and now we’re down, depending on how you count them, let’s say nine. Without the alliances, you might have more of it. Then what about the boisterous transport companies – wouldn’t they be good competition? Well they would if they survived. But even with alliances, we still saw Hanjin go under. Further bankruptcies are by no means excluded. “
What impact can you have on the maritime industry?
“One of the advantages of being five independent commissioners on this commission, in my opinion, is that we can reach the shippers informally, see what they are doing, kindly remind them of the rules and how extensively we are monitoring, especially in relation to we imprisonment and demurrage, give them a sense of some of what we hear that they may not hear, just because the corporate hierarchies are working. And I find that helpful. It is certainly something that I am including as one of the things we are doing to manage the crisis. But I’m not going to pretend this moral persuasion we’re making will solve it on its own. But is something we certainly try to do all we can. Even when exporting, we have very limited legal capacity to increase exports, but we can certainly do our best to convince the carriers that it is best in their long-term interest to export as many as they do themselves can feeling You can.”