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Biden executive order could bring more scrutiny to rising container shipping costs

Highlights

Sweeping EO targets anti-competitive practices in some sectors

Also focuses on charges exporters pay to shipowners

The US government took aim at the ocean shipping industry in a sweeping executive order President Joe Biden signed July 9 that also targeted anti-competitive practices in the healthcare, internet service, and agribusiness sectors.

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The executive order specifically encourages the US Federal Maritime Commission "to ensure vigorous enforcement against shippers charging American exporters exorbitant charges," according to a fact sheet the White House released July 9.

The fact sheet noted that the ocean container shipping industry has consolidated rapidly since 2000 when the 10 largest shipping companies controlled just 12% of the market.

"Today, it is more than 80%, leaving domestic manufacturers who need to export goods at these large foreign companies' mercy," the fact sheet said. "This has let powerful container shippers charge exporters exorbitant fees for time their freight was sitting waiting to be loaded or unloaded."

Although the detention and demurrage charges paid to shipowners by US exporters were the focus of this section of the executive order, it could more broadly bring attention to escalating shipping rates for US importers that have contributed to higher consumer prices.

Platts Container Rate 5 – North Asia to East Coast North America – was assessed on July 9 at $8,100/FEU, up 140% from $3,375/FEU a year ago, as shipping lines and ports were overwhelmed by unprecedented cargo volumes from Asia to the US since lockdowns and social distancing took effect during the coronavirus pandemic.

But rates, including premium service fees some priority shippers paid on the North Asia-to-East Coast North America route, have climbed even more dramatically into the $18,000-$20,000/FEU range to secure prompt loading on a ship leaving Asia, where cargo volumes have greatly exceeded carrying capacity.

The Consumer Price Index, provided by the US Bureau of Labor Statistics, showed prices for all items across the index rose 5% in the 12 months to May, the strongest one-year increase on record since the period to August 2008.

"COVID[-19] and its effects have created record demand for shipping and record freight rates as well," FMC Chairman Daniel Maffei said in June 15 testimony to the US Congress. "The demand for imports will likely not diminish until 2022. But the supply of space on ships has not increased enough to keep pace even though virtually every usable ship is in service."

The executive order could discourage container shipping lines from further increasing rates in the months ahead despite strong demand, similar to the way trans-Pacific rates were largely stable from January through April after a review by China's Ministry of Transport, a US freight forwarder said.

"The order doesn't seem to give the FMC any legal authority to regulate shipping rates, but it is definitely unwanted attention for the shipping lines," the freight forwarder said. "They might just be more cautious about the rate increases they are passing through going forward."