US FMC explains high container freight rates

It has not received much attention, however, the US Federal Maritime Commissioner, Rebecca Dye, concluded her investigation into the problems of container shipping last week. The enquiry started in March 2020 in response to calls from US shippers to investigate the congestion and high freight rates triggered by the outbreak of COVID-19.

Although Rebecca Dye delivered an interim summary last year, her final report is more definitive. The key finding addresses the issue of competition and prices, stating that “the historically high freight rates experienced recently by U.S. exporters and importers have been devastating to many” but “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.”

This is an important statement as it gives a fairly impartial view of why freight rates are as high as they are. The assertion that vessel capacity has been “overwhelmed” and that congestion made the shortage of capacity worse goes to the heart of the matter. The underlying driver of trade imbalances is “unprecedented consumer demand”.

The American government has been under pressure from some shippers to intervene in the market in order to drive-down prices. Many have accused the container shipping sector of having insufficient competition, with the shipping companies happy to reap the consequent high profits. However, the Federal Maritime Commission is not convinced this is the case.

This does not mean that the container shipping sector is out of the woods. The US in particular has a legal sector which looks to competition law as an important part of its business model. There are many law firms eager to work with shippers who feel that they have been paying too much for freight and will attempt to gain recompense through the courts. The shipping lines will need to make their arguments clear if they are to avoid attempts to levy heavy recompense on those upset by both high prices and shipping lines’ unusually large profit margins.

Source: Transport Intelligence, 7th June 2022

Author: Thomas Cullen