Noah Berger/AP
Trucks line up to enter a Port of Oakland shipping terminal in Oakland, California, on November 10, 2021.
The bout of recent inflation has been mistakenly blamed by some economists on President Biden’s program of economic stimulus. The reality is that Americans need this economic recovery, and most of the price hikes are the consequence of bottlenecks in the global supply chain.
The supply crunch in turn reflects the interaction of just-in-time production and extreme offshoring with a privatized and deregulated logistics system. More on that in a moment.
Biden’s defenders have aptly pointed out that if we want to repair the supply chain mess and reshore American production, we need to maximize outlays on infrastructure and under Build Back Better. That’s surely true. But there is concern that these overdue investments will take years to bear fruit.
In the meantime, voters are blaming inflation on Biden, going into a crucial midterm election year. With congressional action on Biden’s key legislation, his overall approval rating has rebounded somewhat to 44 percent, but just 33 percent approve of his performance on inflation.
On this front, however, there is some good news. Even before we bring more of the supply chain home and rebuild the national logistics system as a kind of public utility, there is a lot the administration can do, and is doing.
For instance, the deregulated logistics system has permitted ocean shipping companies to take their own sweet time unloading massive container vessels. That clogs ports.
Retailers make matters worse by using scarce port facilities as cheap warehouses and not moving products out ASAP. During normal times, this laxity is merely inefficient; but when the added product flows of an economic recovery push port capacity to its limit, these practices gum up the entire system.
The congestion that has caused inconvenience and inflation for the rest of us has been a source of increased market power and price-gouging for the ocean shipping cartel—price hikes that are part of the inflation.
For example, the ideal time for shipping out an unloaded container is two days. But at the Ports of Los Angeles and Long Beach, which together account for almost half of the nation’s port shipping, as recently as November 1 more than 127,000 unloaded containers were sitting on the docks for more than nine days. This takes up scarce dock space and delays other ships from loading.
The White House, working with port directors, announced fines of $100 a day per container for every container that stays on a dock for more than nine days. In just two weeks, by November 15, the number of containers sitting for more than nine days was reduced by more than a third, to 87,000, and is continuing to decline.
The ocean carriers, a cartel of eight large shipping companies that have been allowed to control so much of what goes on in our ports, have also been very lax at clearing out empty containers sitting on truck chassis—the frames that ride behind a truck to carry a container. Truck chassis and containers have piled up on docks, both taking up scarce space and leading to shortages for truckers.
Here again, the White House working with port officials has put pressure on the ocean carriers to clear empty containers and chassis faster. Some 60,000 containers have been cleared out in the last few weeks, according to port statistics and the White House.
As a result of these and other measures, the great supply chain clog is starting to loosen. According to the Ports of L.A. and Long Beach, 849,000 loaded containers were landed in October, a dramatic increase. The total number of containers imported between January and October was 8.6 million, compared to 7.1 million for the comparable months in 2020 and the record pre-pandemic total of 7.4 million for the same months in 2018.
This is all welcome news. The deeper problem is the deregulation and excessive offshoring and the resulting abuse of private corporate power that produced these bottlenecks.
American consumers and workers may be suffering, but the cartel of shipping companies that control the terms of this global trade (none of them U.S.-owned) have never been more profitable. The container ship industry booked net profits in the third quarter of 2021 of a mind-blowing $48.1 billion, a ninefold increase over profits in the third quarter of 2020, which were already a record.
The industry reported that net profits were a staggering 42 percent of gross revenues, also a record. Basically, the congestion that has caused inconvenience and inflation for the rest of us has been a source of increased market power and price-gouging for the ocean shipping cartel—price hikes that are part of the inflation.
This is the system that the Biden administration inherited. It is the consequence of the orgy of deregulation of industries that are part of what should be a kind of public utility—the nation’s logistics system.
Disgracefully, most of that deregulation occurred under Democratic Presidents Carter and Clinton. Under Carter, the Motor Carrier Act of 1980 deregulated over-the-road trucking and turned a industry of well-compensated, mostly unionized, reliable blue-collar workers into a patchwork of independent contractors with less reliable trucks and much lower incomes. The shortage of truckers is entirely the result of this deterioration.
Under Clinton, Congress and the White House, after extensive industry lobbying, passed the Ocean Shipping Reform Act of 1998. This law removed the public safeguards that required ocean shippers to operate with transparent rates for all users, and allowed them to operate like a private cartel. As container ships became ever larger, clogging ports and reducing the number of ports that could accommodate them, government maintained a hands-off posture.
Also under Clinton, China was allowed to join the WTO with no enforceable conditions, increasing the whole trend of outsourcing ever more production to China, and setting us up for a supply chain catastrophe. Obama only doubled down on globalization.
Biden has begun to reverse the corrupt folly of his Democratic predecessors, as he is seeking to reverse so much other bad corporate-driven public policy. He deserves the public’s thanks, and not false blame for the mistakes of others.
