In the years following the Global Financial Crisis there was an uptick in shipping company margins.Īt its postcrisis peak in Q3 2010, the average operating margin for ocean shipping companies reached 16 percent, up from an operating loss of nearly 20 percent in Q1 2009. The 100 percent increase in shipping prices between Asia and the United States and 1,000 percent increase between the United States and Asia are a function of unprecedented demand. Similar trends were seen after the Global Financial Crisis, when shipping demand resumed after a prolonged decline. They are also not a function of newfound corporate greed. The higher prices in the market today are not a function of industry concentration. Finally, we will analyze the shipping landscape in a post–Jones Act world and show how the federal government, through deregulation, has ample tools to unleash competitive pressures on the American economy, dramatically lowering prices and increasing the supply of shipping services. Next, we will turn to the ways that the Jones Act distorts shipping markets and decreases competition and consumer welfare. Second, we will discuss the market structure of the ocean-based shipping industry and dispel the myth that concentration is a primary, or even relevant, force driving higher prices. In this policy brief, we will first dispense with the idea that the higher prices and increased profits seen now in the shipping industry are due to corporate greed and propose instead an explanation based on quasi-rent extraction and demand-based pricing for shipping companies. In a recent policy brief for the Mercatus Center, we discuss market-distorting federal regulations, and prominently featured on our list is the Jones Act. Holding aside for the moment the assertion that concentration alone is a main factor leading to supply chain disruptions, the federal government has in place a significant barrier to entry in shipping markets that has disrupted water-based transportation for the past century. Included in the administration’s “whole of government” approach is the idea that all transportation sectors are concentrated to an anticompetitive extent, and large, multinational shipping companies have been colluding for decades to raise prices, reduce output, and reap enormous profits. The Biden administration has blamed increasing prices on the concentration in ocean-based shipping markets, alleging that “global alliances” among the largest shipping firms are harming American consumers while the international shipping companies rake in record profits. The administration has pointed to concentration in shipping markets as the key driver of both shipping delays and inflated shipping prices. Wait times for basic goods have increased too, with staple home appliances such as dishwashers and refrigerators taking months to arrive in stores. In the wake of a pandemic that, as of this brief’s publication, has not yet fully ended, shipping costs have skyrocketed. Despite these facts, and despite multiple recessions, wars, and even a life-altering pandemic over the past 100 years, the Jones Act has enjoyed steadfast bipartisan support.Īlthough 2022’s monumental supply chain disruptions are not entirely the fault of the Jones Act, it is not a stretch to say the act has played a pivotal role in exacerbating the crisis. Without the law, shipping would be less expensive gas prices and highway congestion might be less too. This brief’s title, especially the latter part, may seem puzzling at first: How can a policy that makes everyone worse off have stayed around for 100 years basically unaltered? The title portrays a bigger picture, though: American shipbuilders, mariners, and shipping company owners are better off because of the law, but the rest of the population-those not employed in the building or sailing of US-built, -owned, -flagged, and -crewed ships that carry domestic goods by water-is worse off.
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