Biden’s inflation plan means blaming shipping, not the White House

Everything from Kids toys as well as furniture to guacamole became more expensive, so it is not surprising that inflation is the most important thing for many Americans. But with the midterm elections approaching, and the Republicans a hammer White House on rising consumer prices – President Joe Biden believes that voters should direct their discontent in another direction. He says they should be angry at a critical but often overlooked part of the US economy: the shipping industry.

“There are nine—nine—large maritime shipping companies that ship cargo from Asia to the United States. Nine. They form three consortia. These companies have raised their prices by as much as 1,000 percent,” Biden said. announced in a speech at the Port of Los Angeles, the nation’s largest port, in June. “There’s no better place to start than right here at the port and let these nine foreign shippers know they’re done with the robbery.”

Right now, shipping cost goods across the Pacific are still more expensive than before the pandemic. This price spike is not only the result of delays and bottlenecks in the supply chain created by Covid-19, but also huge increase in demand for the consumer products that followed. This requirement was much more than what shipping companies or American ports could handle. As a result, shipping costs have increased. creating cost increases for importers and retailers in the United States. Now these costs passed on consumers, which is partly why many everyday items have become more expensive recently. (Rising gas prices, war in Ukraine, and pandemic-era financial policies can also stimulate inflation.)

Experts told Recode that Biden crackdown on the shipping industry is unlikely. significantly reduce the cost of production, even if this significantly improves the work of American ports. A small group of companies that dominate the shipping industry remain extremely powerful: they still enjoy long-standing exceptions to antitrust laws and continue to wield tremendous power.

This situation serves as a reminder that while certain segments, such as shipping, can play a huge role in influencing the prices of everyday goods, they are also involved in a much broader economic system of supply and demand. This system involves all of the companies that build ocean-going ships that shipping companies use parents desperate to buy Barbie houses for their kids. This complexity can make it difficult to contain price increases, even if you are president.

Sea freight explanation

As planned, the shipping industry should not have a significant impact on the prices of consumer goods. Many companies manufacture their products outside of the United States, in places where production is cheaper. This approach only makes economic sense if these companies know they can deliver finished products to their customers at a low cost.

This is where the major ocean carriers come into play: nine companies, including firms such as Maersk, Cosco and Hapag-Lloyd, serve the vast majority of traffic across the Pacific Ocean. These companies have received limited immunity from some antitrust lawsand form powerful shipping alliances who coordinate routes and even share their ships. One ship can stretch hundreds of meters in length, and some can carry over 20,000 sea ​​containers. These ships can ply between ports in several countriespicking up raw materials, spare parts, consumables and finished products throughout the route on behalf of different carriers.

To make sure these ships are filled to capacity, aircraft carriers play their own version of Tetris. Because carriers share their ships, several companies can sell transport services on the same ship. Companies need to figure out which shipping containers should go where, based on where they’re coming from and where they’re going. Once the shipment has arrived at its destination, powerful cranes lift these containers off ships so they can be loaded onto trucks and overland trains and quickly fill empty space on the ship with a new container. This usually turns international freight shipping into an elaborate operation that results in shipping across the Pacific at a fraction of the cost of many of the items we buy every day.

But then the pandemic came. Factories understandably closed due to Covid-19, causing delays in production, disrupting schedules and ultimately resulting in shortages of all types of products. The pandemic has also meant people are spending more time at home, stopping buying services and cutting back on travel. As a result, they began to spend much more about consumer goodsgoods that are usually must be sent to the United States from abroad, primarily from Asian countries. Shipping has become more complex and in demand, causing shipping prices to skyrocket.

Now, these shipping companies are facing much more scrutiny, as well as growing concern that they have used their long-standing antitrust immunity to profit during the crisis. Before the pandemic, these carriers had an average operating margin of just under 4%, but in the third quarter of last year, that margin rose to over 50 percent. This has made it much more expensive to import goods into the US: A 40-foot shipping container traveling across the Pacific costs almost $7,600 at the end of June, up from about $1,300 at the start of 2020, according to the data. one shipping industry index.

“Today, nine leading companies control 85 percent of trade. Go back 15 years ago, the top 10 companies controlled 50 percent of the trade. They basically took companies out of business from the bottom up,” said Sal Mercogliano, professor of maritime history at Campbell University. “They had a pretty brutal rate war and then all of a sudden Covid hits and prices skyrocket.”

Importers and exporters have also accused these shipping companies of taking advantage of the chaos in the supply chain, causing them to pay exorbitant delay and demurrage fees — penalties levied on shippers who don’t pick up and drop off containers on time. Usually these fees act as important incentive to make sure shipping is on schedule, but some logistics companies and importers say ocean carriers have done it almost impossible so that they pick up and unload cargo on time. And ultimately, the costs associated with paying fees are passed on to customers.

Shipping cost is reduced

Inflation is not something the president directly controls, and it’s not something that can be easily fixed. Meanwhile, most Americans say the main problem facing the country is rising consumer prices, meaning that it will almost certainly be a major issue in the upcoming midterm elections. This election will determine whether Democrats retain control of the House and Senate and determine what Biden can accomplish in the second half of his term.

Because voters are well aware of the issue, the president hopes to blame inflation on organizations far from the White House. In this case, he is pointing the finger at the small but powerful group of international companies that control shipping in the Pacific. Biden also wants to make it seem like he’s taking action to address the issue, especially since consumers are noticing it in their daily purchases.

“We have socks and plastic buckets and the like that ship all over the world because they cost next to nothing to ship,” explains Mark Levinson, container shipping industry historian. “Now if the cost to ship a pair of shoes has gone from 10 cents to 50 cents, that could be significant because there will be an additional markup at every stage of the supply chain.”

Pass the Maritime Reform Act, which the president claims will cut costs and help fight inflation. lawthat was signed Biden in June authorizes the Federal Maritime Commission, the agency that regulates US shipping, to investigate carrier practices and help develop new regulations. The government will also create a more formalized way to track chassis, the metal frames that are used to transport cargo containers in ports, and expand the commission’s powers when ports are extremely busy. Finally, the law targets the increasingly common practice of shipping empty containers back across the Pacific Ocean instead of waiting to fill their cargo with American exportsincluding agricultural products sold by American farmers to buyers in Asia.

While all of these measures sound like progress, there is no guarantee that they will help drive down prices overall. Again, many other factors are also driving inflation.

“This does not mean that furniture will suddenly become cheaper overnight. It’s not how the system works, and frankly, it’s not how the economy works,” said Daniel Maffei, chairman of the Federal Maritime Commission. “Everyone would like a silver bullet against inflation.”

The Maritime Reform Act does lay the groundwork for addressing growing concerns that carriers are engaging in harmful, anti-competitive behavior. (BUT recent investigation no evidence of illegal behavior or collusion that led to high shipping prices was found by one of the agency’s authorized officers.) Legislation is passed as the FMC ramps up its efforts to investigate carriers, including a push to fight unfair fees that the commission began last year, and new partnership with the Department of Justice announced in February.

But a law that was not as aggressive as another suggestion in the house does not change the fact that shipping still dominated by just three alliancesdespite growing calls for cut back their strength. It also prevents FMC from setting the shipping price. Perhaps most importantly, it does not solve one of the main problems that has led to high shipping costs: the growing demand for products that need to send. Gene Seroka, chief executive of the Port of Los Angeles, told Recode that “it will be determined if the legislation will help bring prices down.”

“Reducing demand will help,” said Willie Shea, a professor of management at Harvard Business School. “If we go into a recession, demand will fall, and then everyone will have time to catch up and even more.”

The global supply chain is made up of many different countries, companies and people, which means that the price of a single commodity is influenced by many factors that are incredibly difficult to control. This means that 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 the items you buy.

In fact, the best way to reduce shipping costs is to stop buying so many things that need to be delivered. Given that the economy is not in the best condition right now, this could happen. sooner rather than later. For what it’s worth, US import seems to be decliningand American consumers appear to be returning to their pre-pandemic spending habits.

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