J. Scott Applewhite/AP Photo
Senate Majority Leader Chuck Schumer (D-NY) talks with reporters about President Joe Biden’s proposed budget, March 29, 2022, at the Capitol in Washington.
There’s a dominant belief reflected in the morning papers and newsletters and tip sheets that the way to cover politics is to go to press conferences and stand outside the chambers in the Capitol and check in with the same self-appointed experts and write down what they all say. That creates many blind spots about what’s actually going on in the coverage that helps shape public opinion. For example, there’s almost no way for people to know that more action was taken on Thursday to re-regulate critical markets, alleviate the current yearslong supply chain dislocations, and put the country on the path to a green transition than at any time over the last several presidential terms.
First off, the Senate passed the Ocean Shipping Reform Act, by voice vote, a few months after the House version of the bill passed with 364 votes. In other words, some form of this bill is going to become law, and that’s welcome news for U.S. importers and exporters, who have been ground up by shipping markets during the pandemic.
The ocean shipping cartel, with three alliances controlling over 80 percent of the market, generated $190 billion in profit in 2021, five times as much as it did in the years 2010 to 2020 combined. The world desperately needed their services amid supply shortages, and they seized the opportunity with both hands. The cost of delays in ocean shipping translate into a de facto tariff of up to 20 percent on every finished and imported good.
Three major issues stand out beyond the usual dynamic of supply and demand. First, any cargo owner not named Amazon or Walmart can’t secure normal space on container vessels and so must pay a premium, which further drives consolidation. Second, companies are being charged “demurrage and detention fees” to get their goods cleared from port terminals and get containers back onto ships, when the ports are so clogged there’s no way for them to actually do that. And third, there is so much profit in China/U.S. shipping that it’s become more profitable for ocean carriers to grab empty containers and chug back eastward than wait to carry exports, particularly agricultural exports. So, as Matt Stoller has written, shipping companies don’t see the financial reward in exporting food from America, “even in the midst of what looks like a global famine.”
All of these issues point back to the last changes in ocean shipping rules, in 1998, which deregulated the industry, allowed secret deals between shippers and cargo owners that could discriminate on price against rivals, made no effort to require ocean shippers to carry U.S. exports, and did nothing to stop exorbitant price-gouging and unconscionable fees.
The bill now passed by both houses of Congress actually seeks to reverse these trends. It would empower the Federal Maritime Commission (FMC) to investigate and regulate ocean carrier contracts, with minimum service standards. It also subjects demurrage and detention fees to regulation (which the FMC has long wanted to do).
The Senate version of the bill is weaker on making sure exporters get their goods picked up. While the House requires ocean carriers to accept cargo if it can be loaded into their containers, the Senate defers to the FMC on that. In addition, the House bill established the FMC’s mission as promoting “reciprocal trade in the common carriage of goods by water”; the Senate removed that. The House bill also allows third parties to challenge contractual agreements; the Senate does not. In general, the Senate bill leaves much to the regulators, who will have to be watched at any rate.
You wouldn’t think this could happen in Washington, on the most important issue Americans care about (inflation), without anyone finding out about it.
Still, even regulator discretion beats the current situation, where the regulator is little more than a ministerial bystander to ocean carrier profit-taking. We don’t see a lot of re-regulation in the U.S.; it’s typically reserved for moments of crisis. But that’s what we have right now in our supply chain, and Congress did something about it on a bipartisan basis, aided by a broad coalition of importers and exporters (farmers in rural districts not being able to get their goods out to ports were a major driver of this). You wouldn’t think this could happen in Washington, on the most important issue Americans care about (inflation), without anyone finding out about it. But it requires paying attention to policy, something that escapes most of our horse race–obsessed media.
Another case in point was Thursday’s announcement by the Biden administration, which the media largely focused on the release of oil from the Strategic Petroleum Reserve for the next 180 days. I’m dubious that will have much impact on gas prices, unless coupled with steps to spur immediate additional production to refill the reserve. The announcement says that refilling will happen “in future years,” which doesn’t provide enough of a signal.
There’s more of a rhetorical play in the announcement, calling on Congress to levy fees on oil companies with leases on public lands that they aren’t using, but again, that’s not likely to change much on energy production. What’s been left under the radar is the third part of the announcement, which is the administration’s most novel use of executive authority to spur a green-energy transition.
In a presidential determination, the administration vowed to use the Defense Production Act of 1950 to require homegrown companies to produce minerals used in the production of large-capacity batteries in the transportation and power sectors. The minerals include lithium, cobalt, graphite, manganese, and nickel, which has been in a commodity crunch of late.
This presents the energy transition as the national-security priority that it is. We are currently reliant on unfriendly states for the raw materials that will drive this transition. The mining of these materials is environmentally sensitive in itself, and will bear watching lest we create our own mini versions of the resource curse throughout America, or sundry pollution disasters. The announcement states that the best labor and environmental standards will be employed.
But DPA authority essentially conscripts companies into service, creating a market for these materials domestically. It also provides the vast resources of the Department of Defense to the task. And there was a hint in the announcement that this would not be the final usage of the DPA in the green-energy space.
For years, climate activists have called for a war-style mobilization on the energy transition. The president is using a law created to spur production of needed materials during the Korean War to stand up more green energy. It’s not a story about “the price at the pump” that you can see on every local news station in America, but if done right, it’s a critical step.
The White House isn’t playing a very good hand right now, and it’s hard to call Congress anything but a disappointment. But understandable cynicism about a broken governmental structure can go too far, especially when the media imposes a blackout on anything with the slightest complexity. The U.S. moved forward on the first major re-regulation of an industry in decades on Thursday, and embarked on a major mobilization of clean-energy production. Things do happen in Washington, and they’re not even all bad.
