Biden’s inflation plan means shipping, not White House, to blame

everything from kids toys and furniture to avocado has become more expensive, so it’s no surprise that inflation is a top consideration many americans. But as the midterm elections loom — and Republicans hammer White House on rising consumer prices – President Joe Biden believes voters should take their grievances elsewhere. He said they should be outraged at a key but often forgotten part of the U.S. economy: the maritime industry.

“There are nine — nine — major ocean shipping lines shipping from Asia to the U.S. Nine. They form a consortium of three. These companies raise prices by as much as 1,000 percent,” Biden said. Announce In June, delivered a speech at the Port of Los Angeles, the largest port in the United States. “There’s no better place to start than here at the port and let these nine foreign shippers understand that the scam is over.”

at the moment, delivery fee Goods across the Pacific are still more expensive than they were before the pandemic.This price surge is not only Delays and bottlenecks In the supply chain created by Covid-19, but Demand has grown substantially for subsequent consumer products.This need is far greater than what Shipping line or US port can be handled. As a result, shipping costs have gone up, cause increased costs Available to importers and retailers within the United States.These fees are now transfer For consumers, that’s part of the reason why many everyday items are more expensive these days. (Soaring gas prices, the Ukraine war, and financial policy during a pandemic may also drive inflation.)

Biden blow to shipping unlikely, experts tell Recode obviously Lower product costs, even if it would make some meaningful improvements to the operations of U.S. ports.a small group of companies Dominate the shipping industry Still very powerful: They still benefit from longstanding immunity from antitrust laws and continue to wield enormous power.

The situation is a reminder that while specific sectors such as the maritime industry can play a huge role in influencing the prices of everyday items, they also participate in the larger economy of supply and demand.The system involves everyone from the company Construction of ocean-going vessels used by shipping companies For parents desperate to buy Barbie Dreamhouse for their kids. Even if you are the president, this complexity can make price increases extremely difficult to control.

sea ​​freight, explained

By design, the shipping industry should not have a significant impact on the price of everyday items. Many companies manufacture their products outside the United States, where manufacturing costs are lower. This approach only makes economic sense if these companies know they can ship finished products to customers at low cost.

That’s where the major ocean carriers come in: nine companies including Maersk, Cosco and Hapag-Lloyd handle the the vast majority of shipping across the Pacific.These companies are granted limited immunity certain antitrust lawsand form strong shipping alliance Coordinate on routes and even share their boats.A single boat can be hundreds of meters long, and some can carry over 20,000 container. These ships may sail between ports several countriespick up raw materials, parts, supplies, and finished goods throughout the route on behalf of different carriers.

To make sure the ships are filled, operators play their own version of Tetris.because the operator share their ships, several companies can sell transportation services on the same vessel. Companies must determine which containers should go where based on their origin and destination. After the goods arrive at the destination, powerful crane The containers are hoisted from the ship so they can be loaded onto trucks and trains traveling inland, and the ship’s empty space is quickly filled with new containers. Often, this makes international shipping an elaborate operation, and the cost of shipping items across the Pacific is negligible in the cost of many of the products we buy every day.

But then came the pandemic. Understandably, factories were closed due to Covid-19, which caused manufacturing delays, derailed plans, and ultimately led to shortages of various products. The pandemic also means people are spending more time at home, stopping shopping for services and traveling less.As a result, they start spending money More about consumer productscommodity usually need to ship From abroad to the United States, mainly from Asian countries. Shipping has become harder to provide and more in demand – causing shipping prices to skyrocket.

Now the carriers face more scrutiny and growing concerns that they are using their longstanding antitrust immunity to profit during the crisis.Before the pandemic, these airlines had an average operating margin of just under 4%, but in the third quarter of last year, that margin grew to more than 50%That makes it more expensive to import goods in the U.S.: By the end of June, it cost nearly $7,600 to rent a 40-foot container across the Pacific, compared with about $1,300 in early 2020. A Shipping Industry Index.

“Today, the top nine companies control 85 percent of the trade. Going back 15 years, the top 10 companies controlled 50 percent of the trade. They basically let the companies go out of business and work from the bottom up,” says Campbell University Maritime History professor Salmer Colliano said. “They got into a very vicious interest rate war, and then all of a sudden there was Covid and interest rates spiked.”

Importers and exporters also accuse the shipping lines of taking advantage of supply chain disruptions, which have left them paying high demurrage and demurrage fees – fines imposed on shippers for not picking up containers on time.Typically, these fees act as an important incentive Ensuring shipments are on time, but some logistics companies and importers say ocean carriers have done it almost impossible so that they can pick up and drop off on time. Ultimately, the costs associated with paying fees are passed on to the customer.

Shipping costs are falling

Inflation is not directly controlled by the President, nor can it be controlled easy to fixAt the same time, most Americans say that the top issue facing the country is rising consumer prices, which means it will almost certainly be a major problem in the U.S. upcoming midterm electionsThese elections will determine whether Democrats retain control of the House and Senate and will determine what Biden can achieve in the second half of his presidency.

With voters keenly aware of the problem, the president is seeking to blame inflation on entities far from the White House. In this case, he took aim at a small group of powerful international companies that controlled Pacific shipping. Biden also wants to appear to be taking action on the issue, especially since it’s something consumers are noticing in their everyday shopping.

“We have things like socks and plastic barrels that get shipped all over the world because it costs almost nothing to ship them,” explains container shipping industry historian Marc Levinson. “Now, if the cost of shipping a pair of shoes goes from 10 cents to 50 cents, that might actually matter because there will be further markups at every stage of the supply chain.”

Enter the shipping reform bill, which the president claims will reduce costs and help fight inflation.This law,This is sign Released in June, Biden authorized the Federal Maritime Commission, the agency responsible for regulating shipping into the U.S., to investigate carrier practices and help create new rules. The government will also create a more formal way to track chassis, the metal frames used to transport containers in ports, and expand the committee’s powers when ports are extremely congested.Finally, the law targets the increasingly common ocean carriers returning empty containers to the Pacific instead of Waiting to fill their cargo with US exportsincluding agricultural products sold by U.S. farmers to Asian customers.

While all of these measures sound like progress, there’s no guarantee they’ll do much to lower prices overall. Likewise, many other factors are driving inflation.

“It’s not like furniture is going to suddenly get cheaper overnight, right away. That’s not how the system works, and frankly, that’s not how the economy works,” said Federal Maritime Commission chairman Daniel Maffei. “Everyone wants a panacea for inflation.”

The Ocean Shipping Reform Act does lay the groundwork for addressing growing concerns about carriers engaging in harmful, anticompetitive practices. (One recent survey A commissioner from the agency found no evidence of illegal conduct or collusion leading to high shipping rates. ) The legislation comes as the FMC ramps up its investigations of carriers, including pushing Fight unfair charges The committee started last year, and new partnership The Justice Department announced in February.

But the law, it’s not that radical another proposal in the House of Representatives, does not change the fact that Shipping still dominated by three alliancesdespite growing calls for reduce their power. It also does not give FMC the ability to set shipping rates.Perhaps most importantly, it doesn’t address one of the main problems that make shipping expensive: the surge in demand for the product need to shipGene Seroka, executive director of the Port of Los Angeles, told Recode that whether the legislation will help lower prices “is yet to be determined.”

“A drop in demand will help,” said Willisch, a professor of management at Harvard Business School. “If we go into a recession, then demand will drop and then everyone has time to catch up, maybe even more.”

Global supply chains are made up of many different countries, companies and people, which means that the price of a single commodity is affected by a myriad of factors that are difficult to control. That means, for now, you shouldn’t expect Joe Biden’s growing efforts to regulate the shipping industry to have an immediate impact on the price of what you’re buying.

In fact, the best way to keep shipping costs down is for people to stop buying so much that needs shipping.Given that current economic conditions do not appear to be good, this may happen sooner rather than later. Value for money, imported to the US seems to be decliningwhile U.S. consumers appear to be returning to their pre-Covid spending habits.

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