Shipping giants under fire for record profits, fees as pandemic continues

Shipping giants have come under fire from U.S. business groups and watchdogs for raking in record-breaking profits on the backs of skyrocketing prices driven by unprecedented port congestion. 

Each of the largest ocean carriers saw their profits more than triple over the last year, according to research from liberal watchdog group Accountable.US, which noted that all of the firms upped their prices substantially amid surging demand.  

The industry, which is dominated by a handful of large freight companies, is currently lobbying senators to reject a bipartisan House-passed bill that aims to crack down on anticompetitive shipping practices, which carriers argue would only worsen supply chain issues.

“Many highly-profitable industries are using the pandemic as an excuse to gouge consumers or tack on sky-high fees, and the shipping industry is no exception,” Accountable.US President Kyle Herrig said in a statement.  

“Despite shattering previous profit records last year, big shippers are trying to convince Congress that their abusively high fees are essential even as they fan the flames of inflation.” 

New contracts with carriers to transport goods are roughly twice as expensive as they were in 2020, when the pandemic momentarily caused demand to drop off. With the U.S. now importing roughly three times as many goods as it sends out, and with clogged ports forcing ships to wait weeks to unload their shipments, there’s never been so much demand for ocean carriers. 

Such circumstances have led to record profits. 

Denmark-based carrier Maersk expects to report $24 billion in 2021 earnings before taxes and depreciation, triple its 2020 haul. Shanghai-based Cosco Shipping reported $14 billion in annual profits, nine times its 2020 earnings. Germany’s Hapag-Lloyd AG said Tuesday that its pre-tax income more than quadrupled to $12.8 billion last year. 

Experts say that rising transportation costs contribute to soaring U.S. inflation because they get passed down to customers. Consumer prices climbed 7 percent in 2021, the largest increase in roughly four decades, according to Labor Department data. 

The White House has bemoaned that the shipping industry is heavily concentrated and expressed concern that carriers could use their market power to charge higher prices. Today, just nine carriers control 80 percent of the global shipping market.

U.S. exporters, already angered by soaring prices, say that carriers are hitting them with unfair fees for failing to return cargo containers that they cannot deliver to ships due to intense congestion at ports. Exporters also claim that carriers are increasingly leaving U.S. ports without taking their goods back with them. 

“In many cases, shippers are being charged through no fault of their own,” said Brian Whitlock, a logistics expert at consulting firm Gartner. “They can’t physically return the containers back to the ports.” 

In response, agricultural and business interests are pushing lawmakers to prioritize the Ocean Shipping Reform Act, a bill that would empower the Federal Maritime Commission (FMC) to develop new rules to require carriers to take U.S. exports and prevent carriers from slapping exporters with unfair fees for failing to return containers. 

The bill, sponsored by Reps. Dusty Johnson (R-S.D.) and John Garamendi (D-Calif.), sailed through the House with the support of more than 360 lawmakers in December. 

The Senate is expected to unveil its own bill within the next two weeks. 

Carriers are lobbying lawmakers to oppose the bill, arguing that it won’t do anything to remedy supply chain issues that are driving up prices. Port congestion is caused by a shortage of truck drivers and truck chassis, along with scarce warehouse space, among other issues. 

“The problems that are causing the congestion are on the land side, not the ocean side, so the bill by its very structure isn’t capable of fixing the operational problems we’re facing,” said John Butler, president and CEO of the World Shipping Council, which represents large carriers. 

“The sooner we return to more normal cargo flow and resolve those inland congestion issues, the sooner we’ll get that fluidity back, and that’s what is going to drive prices down,” he added. 

The World Shipping Council spent nearly $222,000 on federal lobbying in 2021, up 150 percent from the previous year, according to OpenSecrets. The group paid Crossroads Strategies $50,000 in the fourth quarter to dispatch 13 lobbyists on the issue, including former Sen. John Breaux (D-La.).  

Still, the council is competing with dozens of influential and better-funded lobbying groups that back the bill, including the National Retail Federation, American Farm Bureau Federation and Consumer Brands Association.  

Some business and farming groups say the legislation doesn’t go far enough, arguing that lawmakers need to strip shipping giants of an antitrust exemption enacted by Congress more than a century ago that allows carriers to share vessels to deliver products to ports they might otherwise avoid on their own. 

Gary Shapiro, president and CEO of the Consumer Technology Association, which represents tech and electronics firms such as Amazon and Samsung, said in a December statement that the exemption “gives foreign shippers a free pass to collude and raise prices to the detriment of U.S. consumers.” 

The Justice Department has previously urged lawmakers to remove the exemption, arguing that the industry doesn’t need it to function properly, a request that Congress has largely ignored until recently.

Sen. Amy Klobuchar (D-Minn.), a member of the Senate Judiciary Committee who is pushing several anti-monopoly bills, is working on antitrust legislation related to the shipping industry, according to her office.

The Biden administration, meanwhile, has emboldened the FMC to go after anticompetitive shipping practices through executive action. The White House in November said that the agency can challenge antitrust agreements if they “produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost or … substantially lessen competition.”