Debunking the myths around liner shipping
Recent moths have seen several attempts to demonize ocean carriers by deploying ‘us versus them’ rhetoric. That is not only inaccurate but dangerous, as it undermines the ability to understand and work towards solving the root causes of America’s and the worlds supply chain problems.
Here we will put the facts on the table, to dispel some of the most common myths and fallacies circulating about international liner shipping and container carriers.
CLAIM: The Ocean carrier industry is highly concentrated.
FACT: Ocean carriers actively compete against one another in the global marketplace, including on the shipping lanes most relevant for U.S. trade. Regulators in the U.S. recently reported on this fact, and European authorities have repeatedly and recently confirmed that this is the case. Concentration levels in many other U.S. industries are markedly higher than those in container shipping.
You don’t have to take our word for it. The expert U.S. regulator that oversees international shipping – the Federal Maritime Commission – just completed a two-year investigation into the international ocean supply chain, finding that ocean carrier competition is ‘vigorous’ and that while ocean freight prices are high, they are ‘exacerbated by the pandemic, an unexpected and unprecedent surge in consumer spending particularly in the United States, and supply chain congestion, and are the product of the market forces of supply and demand.’ The FMC also stated that ‘Competition officials of the European Union, China, and the Federal Maritime Commission regularly discuss our ocean shipping markets and we have, to date, observed no indication that the current prices for liner shipping are a result of collusive or illegal conduct on the part of the major ocean carriers in our markets.’
Experts from across the political spectrum agree that demand-driven disruptions are the root cause of price increases – not anti-competitiveness. The numbers speak for themselves: Since the start of the pandemic, the market share of the largest carrier alliances has decreased while the non-alliance share has doubled. Since 2021, ten new carriers have started serving the Asia - North America trades making it a total of 22 carriers serving the trade.
CLAIM: Vessel sharing agreements are a smoke screen for anti-competitive cartels.
FACT: Vessel sharing agreements – or VSAs, frequently called Alliances – enable carriers to share vessel space on one another’s ships, which increases efficiency and creates more service to more ports than would otherwise be the case. All Alliances that serve the U.S.A are registered with and monitored by the Federal Maritime Commission (FMC).
Alliances do not include pricing. Every carrier independently prices its services. Therefore, carriers in an Alliance compete with each other, and with other carriers, when selling their services to customers. In addition, carriers offer and add their own services outside of the Alliances to which they are a member. During the pandemic we have seen several examples of carriers adding capacity outside Alliances and new players entering trades.
Regulators in the U.S. and across the world recognize that Alliances increase service levels and operational efficiency which benefit all supply chain users and reduce emissions.
CLAIM: Ocean transportation pricing is not market driven.
FACT: The market for container shipping has many price makers – carriers, freight forwarders, agents, exchanges – and as a well-functioning, transparent market is very sensitive to demand and supply changes. With demand for ocean transportation into the U.S. at record levels, ocean carriers are deploying all available ships and equipment, but bottlenecks on land are preventing ships from unloading imported cargo and then loading exports. Ships that are forced to wait offshore to get into port are neither moving cargo nor satisfying demand – thus reducing effective supply. These and other market dynamics influence prices and are the reason why prices are what they currently are.
Importantly, the margins and profitability that the liner shipping industry are realizing today are a new phenomenon due to these temporary market factors and pandemic-driven disruptions. Over the past two decades, the industry has struggled to cover its cost of capital. In fact, container carriers have mainly been in the red since 2010 due to supply exceeding demand in the market. Many experts predict that the industry’s financial performance will fall back as the pressures on our supply chain are lessened.
CLAIM: Ocean carriers oppose common-sense reforms that would help resolve disruptions in the supply chain.
FACT: Ocean carriers are working with members of Congress, the Biden administration, the Federal Maritime Commission (FMC), and all partners in the global supply chain to find solutions to the current congestion and help get American goods to global markets. We appreciate the time and effort that Congress put into crafting the Ocean Shipping Reform Act (OSRA) and look forward to engaging in productive conversations with the FMC to implement OSRA in a way that will minimize disruption in our supply chain.
Unfortunately, until the import congestion is remedied, export congestion will persist. Ocean carriers continue to move record volumes of cargo and are investing profits to increase future capacity on land and sea. In fact, carriers in 2021 ordered a record-breaking 561 vessels worth 43.4 Billion USD, and 208 vessels worth 18.4 Billion USD have been ordered year-to-date in 2022. But as long as landside capacity remains stretched, vessels will remain stuck outside ports to the detriment of importers as well as exporters.
Lawmakers should continue to focus their efforts on boosting landside logistics infrastructure to handle the ever-increasing demands put on our nation’s supply chains. With millions of good-paying jobs at stake, public officials shouldn’t demonize ocean carriers but instead work with them to solve supply chain challenges and make critical investments to strengthen the intermodal transportation system that has supported the U.S. economy through the pandemic.
CLAIM: There are only nine shipping lines who ship from Asia to the United States
FACT: While nine lines in and of itself is evidence of competition and not concentration, there are an additional thirteen ocean liner companies that operated over 30% of the sailings from Asia to the U.S so far this year. In fact, competition increased during the pandemic, with new shipping services entering the market and the share of the largest alliances dropping.
CLAIM: Ocean carriers have hiked rates to line their own pockets.
FACT: The market for container shipping has many price makers – carriers, freight forwarders, agents, exchanges – and as a well-functioning, transparent market is very sensitive to demand and supply changes. With demand for ocean transportation into the U.S. at record levels, ocean carriers are deploying all available ships and equipment, but bottlenecks on land is causing congestion. Ships that are forced to wait offshore to get into port are neither moving cargo nor satisfying demand – thus reducing effective supply. These and other market dynamics influence prices and are the reason why prices are what they currently are.
There is no dispute that carriers, after two decades of low or no margins and cheap and abundant capacity for shippers, are actually making profits. These profits are invested in building capacity for the future on land and sea. In 2021, carriers ordered a record-breaking 561 vessels worth 43.4 Billion USD, and 208 vessels worth 18.4 Billion USD have been ordered year-to-date in 2022.