Calling King Canute

The Biden Administration today (Friday, June 12, 2022) directed some of its inflation frustration at liner companies. Splash published a summary of a call that recently took place in which Biden disparaged ocean carriers.  Further, the White House also tweeted this past week, “One of the reasons prices have gone up is because a handful of companies who control the market have raised shipping prices by as much as 1,000%.  It’s outrageous – and I’m calling on Congress to crack down on them.” Biden’s conclusion contradicts prior statements by Daniel Maffei, Chair of the US Federal Maritime Commission, who in September 2021 declared that there was no proof of market manipulation between container carriers.  Like the courtiers of King Canute, the Biden Administration believes that a simple command can reduce shipping rates.

One culprit is years of underinvestment.  There are reports of chassis shortages throughout the system.  The Pool of Pools for LA/Long Beach is reporting 20-foot TEU terminal dwell times of 7.5 days, and 40-foot TEU street dwell times of 8.9 days, despite the stated goal of significant improvement in these metrics since last year.  It is concerning, as we have yet to experience peak inbound volumes for the Christmas holidays.  No one complained in 2019 or 2020 when the container lines lost money or cried out that the ports needed automation and work rules appropriate to the 21st century.

There aren’t easy solutions to lower rates, especially given decarbonization.  There are those that want carbon free shipping by 2050, which makes ordering assets with 30-to-40-year asset lives dicey when the soonest delivery is 2025.  Next year, the energy efficient existing ship index (EEXI) and carbon intensity index (CII) schemes are going to reduce ship speeds and capacity. Decarbonization is raising shipping costs for shippers.  Many politicians hope for lower shipping prices, but as in the case of King Canute hundreds of years ago, it is a sentiment and not a strategy.