Tonight, in the State of the Union Address, President Joe Biden will discuss the rising costs of shipping goods across the Atlantic to the U.S. and the actions his administration has taken to address it.
This is how the White House has presented it to the press in this memo:
The President will explain that most traded goods—everything from the housewares you buy online to the agricultural products that American farmers market overseas—are transported by oceangoing vessels. Only a few large, foreign-owned corporations dominate the ocean shipping market. Three global alliances—groups of ocean carriers that work together—now control 80% of global container ship capacity and 95% on the critical East-West trade lines. These international alliances have been raising shipping costs since the start of the pandemic by increasing rates and fees. While foreign carriers have been making record profits, prices for American customers and businesses are on the rise, President Obama will be able to point out that these international carriers are seeing unprecedented profit levels.
The White House then posted an even longer memo informing us that the Department of Justice will be involved with antitrust enforcement activities. This was to lower prices, improve quality of services, and strengthen the resilience of supply chain.
These memos quickly point out the amount of money shipping companies are making from this crisis, and they deem it unfair. During the pandemic these companies’ operating margins jumped from 3.7% to 56 percent. However, the memos refuse to acknowledge how federal protectionist laws have made a shipping market that is far less competitive.
The words are not found anywhere in these memos. Jones Act appear. Shipping prices can be explained by the Jones Act (also known as The Merchant Marine Act of 1920). It is a set of extremely restrictive, protectionist rules.
The Jones Act stipulates that all goods transported between U.S. port must be carried on ships built in America and owned or operated by U.S. employees and businesses. This old law’s purpose was to provide U.S. marine companies with an edge over foreign rivals. The law was disastrous in reality. Because it is cheaper to construct ships in foreign countries than the domestic industry, a few companies have monopoly on this market. The Jones Act is not applicable to most of the new ships, making it difficult for companies trying to enter the domestic market. Due to the Jones Act, only 2 percent domestic freight from the United States can be transported via sea.
This also makes it extremely expensive to import goods into isolated areas of the U.S., such as Hawaii and Alaska or territories like Puerto Rico. The Jones Act compliant ships cost up to three times as much to construct and five times to run than their foreign counterparts. Colin Grabow, Cato Institute Policy Analyst, notes that these calculations are based on analyses by our federal government.
In essence, the Jones Act created an uncompetitive domestic market that is being blamed by the Biden administration. In response to the administration’s complaints, Grabow observes that just two domestic carriers are responsible for almost all Jones Act–compliant ocean shipping to Hawaii, Alaska, Puerto Rico, and Guam. Consumers in these countries have to fork out a lot of money for their goods.
In essence, all of us are Alaskans today. The absurdly high shipping costs to the U.S. for international shipping are a humorous reflection of how certain regions of the country have been treated for decades by the Jones Act.
Grabow shares ReasonIt is likely that overseas shipping prices rose due to the many logistical problems that occurred when all was shut down.
“[It]It seems that the most likely scenario would be a combination of a surge in demand and port delays (thereby reducing supply of ships), which drove up prices,” Grabow says. Reason. It’s pretty straightforward stuff.
The administration discusses using antitrust tools in order to pursue foreign shipping companies. It is remarkable considering that Biden has repeatedly stated his support for Jones Act. This Jones Act has driven up shipping costs and fuelled noncompetitive behavior.
Biden’s White House memo and possibly any other remarks he will make tonight regarding shipping costs is an attempt at deflecting criticism over inflation, the huge and costly inefficiencies of our ports that allowed cargo ships to float in the Pacific. Solving these issues would involve Biden having to actually address how the union resistance to the modernization and automation of our ports has gotten us to this point. This is not what he’s going to do.
Grabow says, “That Biden’s administration charges foreign shipping companies with excessive rates and market concentration, while simultaneously supporting strict domestic shipping competition limits and high rates, is hypocrisy at its finest.” The outdated law must be repealed in order to make ocean shipping more efficient.