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FMC: Blame High Container Rates on Supply-Demand Imbalance

The Federal Maritime Commission’s (FMC) investigation into rising ocean rates over the past few years has put to bed claims of carriers’ anti-competitive behavior, but concerns around an ever-growing list of fees levied against shippers remain.

The FMC on Tuesday released a report on the conclusions drawn from a two-year investigation into how the pandemic impacted goods movement by sea, focusing on shipping costs, late fees such as detention and demurrage and the broader supply chain bottlenecks.

Shippers’ voices grew louder over the past couple years in response to price hikes on containers and spot rates, or non-contract pricing. That’s occurred amid more skipped port calls, or blank sailings as they’re known in the industry, and record carrier profits.

The FMC report by Commissioner Rebecca Dye ultimately found the price increases to be the result of a supply-demand imbalance, an unsurprising conclusion given FMC Chair Daniel Maffei had said about as much earlier this year at the annual TPM Conference.

“The historically high freight rates experienced recently by U.S. exporters and importers have been devastating to many, but I want to emphasize that the Commission has done its job during the COVID-19 pandemic to enforce our competition authority,” Dye said in a statement announcing the report’s conclusions. “Our markets are competitive and the high ocean freight rates have been determined by unprecedented consumer demand, primarily in the United States, that overwhelmed the supply of vessel capacity. Congestion further constrained available capacity.”

The study involved hundreds of conversations between the FMC and importers, exporters and trucking companies.

The investigation employed “antitrust analytical tools” used by the Department of Justice and Federal Trade Commission to ultimately determine ocean service in the Trans-Pacific is “not concentrated.” Meanwhile, service in the Trans-Atlantic is “minimally concentrated,” the report said.

“Competition among ocean common carriers, among the three major alliances and among the members in each of these alliances, is vigorous,” the report said in its conclusions.

Dye went on to say in the report that “although certain ocean transportation prices, especially spot prices, are disturbingly high by historical measures, those prices are exacerbated by the pandemic, an unexpected and unprecedented 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 report, notably, went on to address the various fees charged to shippers, another area of contention, particularly in the past couple of years. The findings raised some concerns around compliance and also the FMC’s lack of “regulatory tools to deal with the numerous new charges imposed on U.S. shippers and truckers.”

The commissioner went on to offer a dozen recommendations based on the investigation’s conclusion, which comes after the eight interim recommendations released last July.

Among the newer suggestions is the need for clarity around the return of empty containers, a further investigation into charges by carriers and terminals, addressing blank sailings, information availability and equipment challenges across the country.

At the same time, the report pointed to the need for stronger shipping contracts that are “mutually enforceable and binding.”

Dye expressed concern that the current state of ocean contracts leaves importers and exporters largely unprotected from changes in rates, while carriers are challenged by a lack of forecasting tools that would address capacity constraints.

“I look forward to implementation by the Commission of my final recommendations, which I believe will provide badly needed clarity and consistency in certain port and supply chain operations, especially involving ‘earliest return dates’ and ‘empty container return,’” Dye said.

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