Warren Slams Giant Ocean Carrier Conglomerates for Driving Up Consumer Costs While Making Record Profits
“It appears that the opportunistic business practices of Maersk and other major ocean carriers have exacerbated shipping cost increases, hurting consumers and small businesses and driving inflation throughout the entire American economy.”
The shipping industry is highly concentrated: “Just 10 container lines based in Asia and Europe, led by Maersk, MSC, France’s CMA CGM SA, and China’s COSCO Shipping Holdings Co., control nearly 85% of the capacity for shipping goods by sea.”
Washington, D.C. - United States Senator Elizabeth Warren (D-Mass.) sent a letter to the nine shipping companies that comprise the three giant ocean carrier alliances that dominate marine shipping, expressing concern that the companies are exploiting antitrust exemptions and driving up prices during the COVID-19 pandemic. In the letter, Senator Warren calls out the opportunistic business practices by the companies which have exacerbated shipping cost increases and supply chain problems, hurting consumers and small businesses and driving inflation throughout the economy. Senator Warren also highlighted the fact that the container shipping companies are raking in record profits. Earlier this month, President Biden announced a new administration-wide effort to crack down on profiteering by shipping companies, including the formation of a new Federal Maritime Commission-Department of Justice task force to investigate ocean shipping lines for potential violations to the Shipping Act and other U.S. laws.
“I am deeply concerned that container shipping companies have been taking advantage of their exemption from antitrust rules to rake in record profits while imposing grievous financial harm on consumers and the economy,” wrote Senator Warren. “Shipping companies have experienced their best year on record, raking in a combined $190 billion in profits.”
In the letter, Senator Warren asked the shipping companies for information on their shipping rates, their profits and profit margins, and their agreements with competitors that result in higher shipping costs.
High shipping costs imposed by container shipping companies are a major contributor to high inflation. According to a Bloomberg report, the spot rate for a 40-foot container to the U.S. from Asia topped $20,000 last year, including surcharges and premiums, up from less than $2,000 a few years ago, and was recently hovering near $14,000. Tight container capacity and port congestion mean that longer-term rates set in contracts between carriers and shippers are running an estimated 200% higher than a year ago, signaling elevated prices for the foreseeable future.
These price surges allow companies to pass higher costs on to customers and push out smaller businesses, which cannot compete with larger companies for dwindling ship space. This has affected all corners of the economy, inflating prices for the cost of food, durable goods, and other essential needs. According to research conducted by economist Nicholas Sly, for every 15% increase in shipping prices, core inflation increased by 0.10%. This research – in the context of a 137% increase in shipping costs from October 2019 to October 2021 - helps explain the inflation spikes that have hit consumers this year.
The lawmakers note that the root cause of these shipping cost increases is the anti-competitive nature of the shipping market. The U.S. Shipping Act, which was passed by Congress in 1916 in part to protect the country’s shipping lines, has provided container shipping companies an exemption from antitrust rules that apply to most industries. Without guardrails of strong antitrust protections, there have been essentially no barriers to market consolidation and price increases. According to reporting, “just 10 container lines based in Asia and Europe, led by Maersk, MSC, France’s CMA CGM SA, and China’s COSCO Shipping Holdings Co., control nearly 85% of the capacity for shipping goods by sea. Twenty-five years ago, the top 20 companies controlled about half of the global capacity.”
As businesses and consumers feel the pain of higher costs, container shipping companies have had their best year yet. According to the White House, estimates suggest that the container shipping industry made a record $190 billion in profits in 2021, a seven-fold increase from the previous year and five times what it made over the entire period from 2010-2020. Profit margins have increased by even larger amounts. In the third quarter of 2021, the average operating margin of the major carriers was about 56%, compared to an average operating margin of 3.7% two years earlier.
This letter is part of Senator Warren’s ongoing efforts to crack down on corporate profiteering to bring down costs for consumers:
- Last week, Senator Warren introduced the Prohibiting Anticompetitive Mergers Act to help stomp out rampant industry consolidation that allows companies to raise consumer prices and mistreat workers. The bill would ban the biggest, most anticompetitive mergers and give the Department of Justice and Federal Trade Commission the teeth to reject deals in the first instance without court orders and to break up harmful mergers.
- At a hearing in February, Senator Warren called out corporations for abusing their market power to raise consumer prices and boost profits.
- In the past year, Senator Warren has urged the Biden administration to closely scrutinize potential anticompetitive mergers that could lead to higher prices for consumers and accelerate industry consolidation. She led a letter about the proposed mergers of Frontier and Spirit airlines, Sanderson-Wayne, WarnerMedia-Discovery, and Amazon-MGM.
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