2022 Ocean Shipping Reform Act: The cure is worse than the disease
Whenever the United States Senate votes unanimously for anything it should be taken as a good sign of cooperation, but sometimes such a vote reflects a rush to judgment and lack of attention to long-term consequences. Such is the case with the recent unanimous vote to approve the Ocean Shipping Reform Act of 2022. In fact, in medical terms, this might be a classic case of proposing a cure that is worse than the disease.
After decades of regulation through filed rates, the 1998 Ocean Shipping Reform Act allowed ocean carriers and their customers to tailor contracts to meet the changing circumstances of global commerce. At the time, I was president of the National Industrial Transportation League, representing shippers of all types who used ocean carriers. Early in the legislative process we recognized the need to work with shippers in other parts of the world so the European Shippers Council and the Japan Shippers Council and others were consulted regularly. We also recognized that even though the ocean carriers and the ports were resistant to our proposed changes, it would be counterproductive to pass legislation that hampered their ability to efficiently move goods around the world. After years of debate and deliberation, Congress removed the heavy hand of Federal Maritime Commission regulation, which in turn allowed for the growth of global logistics.
Now, in response to supply chain disruptions caused by a worldwide pandemic and an uneven return to trade normalcy, Congress is hastily lurching forward and possibly opening the door for a return to unnecessary regulatory interference. Like all legislation, the 2022 Ocean Shipping Reform Act states lofty goals and promises improvements for the general public, but the results are likely to be quite different.
Senate Majority Leader Chuck Schumer (D-N.Y.) said the legislation “will reduce costs for the American people by reforming unfair shipping practices hurting exports and consumers alike.” But, since American consumers rely heavily upon imports, not exports, regulations that focus on exports and interfere with the global market balance will likely increase supply chain congestion and ultimately hurt consumers.
One of the bill’s sponsors, Sen. Amy Klobuchar (D-Minn.), justified the legislation by saying, “Congestion at ports and increased shipping costs pose unique challenges for U.S. exporters.” Is it true the U.S. exporters face unique challenges? If it is true, we should be looking at the root causes of the problem. If other countries are not having similar supply chain congestion and increased shipping costs and are served by the same ocean carriers, why is Congress blaming the shipping lines rather than looking for factors that make the U.S. situation different from the rest of the world? And, if Klobuchar’s premise is incorrect and exporters around the world are experiencing similar difficulties, then balance in global supply chains can only be achieved by shippers and carriers working together, not through individual governments interfering on behalf of one group of participants in those supply chains.
The most troubling feature of the Ocean Shipping Reform Act of 2022, though, is the likelihood of unintended consequences. By allowing the Federal Maritime Commission to launch investigations of carriers’ business practices on their own initiative, apply enforcement measures and write new rules in response to an issue that has arisen due to an abnormal market disruption, I fear those same investigations, enforcement measures and rules will be the cause of even more disruptions when the global market returns to normal operations.
In 1998, disparate groups with competing interests were able to come together for the benefit of the American economy and supply chain efficiency. Since then, we have enjoyed ample ocean transport capacity at reasonable cost, allowing global commerce to boom. The situation we have today is a consequence of the pandemic. Imposing mandates on the ocean carriers will not help. Policymakers need to follow the approach we laid out and engage every part of the supply chain to develop comprehensive, forward-looking solutions.
Ed Emmett is a fellow in Energy and Transportation Policy at the Baker Institute for Public Policy at Rice University.
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