After hearing testimony from fellow witnesses on how jammed supply chains and exorbitant shipping charges are hammering their businesses, World Shipping Council President and CEO John Butler was asked how some of his ocean carrier members can justify their best financial quarter in decades.
“The price situation right now is entirely unfamiliar to us,” Butler acknowledged during a Senate Commerce Committee hearing on Tuesday. “For the last 20 years, the ocean shipping business has been lucky to make its cost of capital. And what we’re facing today is completely unprecedented.”
However, as Butler has asserted all during the supply chain crisis, the disruptions are purely the result of supply and demand in the market. In addition, much of the “headline” rates — the container rates many times what they were a year ago that grab the headlines — are in the spot market. Pricing under long-term service contracts between the ocean carriers and their customers has not gone up nearly as much as rates obtained today to move a container next week, he said.
“The other piece with respect to pricing, the ocean carriers operating ships are not the only actors in the market,” Butler testified. “There are far more middlemen — non-vessel-operating common carriers — they buy space from our members then resell it. So that part of the market has also driven some of these price increases.”
The hearing was held as the Senate readied companion legislation to the Ocean Shipping Reform Act, which now has 80 co-sponsors in the House. The bill, which expands the power of the Federal Maritime Commission, imposes minimum service standards on carriers and prohibits carriers from imposing “unreasonable” demurrage and detention fees, among other things.
The Senate version, John Thune, R-S.D., one of its sponsors, said during the hearing, “takes significant steps to clarify the authority of the FMC in resolving disputes and curbing anticompetitive behavior. I believe these changes will increase the accessibility of the FMC to smaller shippers, and supply the agency with clearer authority to intervene when unreasonable practices related to the movement of cargo are discovered.”
Mixed messages?
Butler, whose members represent 90% of the world’s container ship capacity, pushed back on the reforms, arguing they are part of a mixed message from policymakers and the Biden administration.
“On the one hand, the administration is pressing us to get our customers to come to the ports and pick up their cargo so that we can get it out of the way and move additional cargo,” he said. “At the same time, we have a House bill, and an expected Senate bill, that would restrict the ability to use detention and demurrage incentives to get that job done.”
In addition, Butler said, provisions in both bills essentially require vessels to load all export containers before being allowed to load empties. However, “it doesn’t work that way. We have to keep both moving. And if we get too restrictive about how we operate our networks, then it’s going to make it worse for everybody.”
A ‘transparent’ solution
Shortly after the hearing on Capitol Hill, the FMC held a meeting kicking off its Maritime Data Infrastructure initiative, which aims to identify data constraints that impede ocean cargo flows.
John Porcari, the port envoy to the Biden administration’s Supply Chain Disruptions Task Force, told meeting attendees that while airlines compete fiercely, they also provide data that’s available on a daily basis and “that’s actionable and usable” to improve service.
“On the maritime side of goods movement, there’s not a long tradition of sharing data, and that’s one of the things we need to get through. Our intention is to jointly, with FMC and others’ input, build a series of data requirements. We want to harmonize that data so it’s usable in a common format nationally, and ultimately internationally.”
Asked about data transparency during the hearing on Capitol Hill, Butler said there’s an impression that “nobody is talking to anyone, and that’s not true. Having said that, the cargo volumes keep going up, the challenges get more and more complex, so we have to improve our communications and information sharing to match that.”
The caveat, he said, is if the government were to take too much control of data-sharing oversight.
“There may be some role in encouraging the exchange of information, but if you’re asking if there should be a federal system to handle that, I think from our industry standpoint we would prefer to keep that in-house.”
