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I don't think you are quite getting the correct nuance here. International shipping has long been a business like airlines, incredibly tight margins, often losing money. They've been in the dumps for a decade. But right now, with COVID and all the stimulus, there is an insatiable appetite for Amazon and online crap.

Therefore freight rates from the sellers ports (China) to the buyers (LA) have literally 10X'd. It went from about $1,400 USD for a container to $14,000k.

So your comments about "shipping times" and "being unable to export" aren't quite getting to the truth of the matter.

Before all this, ships would collect exports from all around Asia, then head over to the US, unload them, then load up for the return trip. They'd stop off in Korea, Japan etc unloading as they went.

Now, the money making play is loading up a pile of home gyms and XBoxes and breadmakers and other shite that people bought online, rushing across to LA, dump them, then rush back "shipping air" (ie empty) to grab another load. They're simply making hay while the sun shines. They're trying to do that one-way run as fast as possible, as many times as possible, while the market still supports 14k per container.

They don't want to stop off around Korea or Malaysia picking up and dropping off stuff. They don't want to spend 3 days in LA loading up US goods. They don't want to struggle back fully loaded. They don't want to give up their empty containers, they want to keep them.

They can save days and days in waiting and travelling distance and speed doing it like that. Back to Shanghai! There's another pile of consumer crap waiting! Chop chop, time is money!!

So yeah, your broad outlines are correct, but....whose fault is it really? *Just* the shipping companies?

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What you're describing is a dysfunctional unregulated industry prone to booms and busts, spurts of ridiculous under-investment and over-investment, as well as consolidation of ports, ships, and warehouse infrastructure. The question isn't why the industry operates that way, the question is why we structured the law to enable this kind of ridiculous industry structure. We didn't used to. The answer is legislation in 1984 and 1998 that removed the public utility rules imposed precisely to stop this kind of dynamic.

https://mattstoller.substack.com/p/too-big-to-sail-how-a-legal-revolution?s=w

https://mattstoller.substack.com/p/the-worlds-most-profitable-traffic

Right now Congress is negotiation legislation to stop the worst of this, like the refusal to pick up agriculture exports (which is bad when there's a global famine on the way.) But the point is that the current industry structure is a specific political choice made by, among others, the administration in which Larry Summers was a key economic architect.

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Mar 31, 2022·edited Mar 31, 2022

Well sure, but in your previous articles you mention things like the Korean shipping line that went bankrupt and the increasing size of the cargo ships. These sorts of things are related. As I said, shipping, like airlines, is a cut-throat business, always in a race to the bottom to provide the cheapest service.

People gripe about the "golden age of air travel" remembering the good old days of proper cutlery in Economy and complain about baggage allowances, while at the same time the most common internet search is "cheapest air tickets". You can't have both.

That (f-ing massive by the way) Korean shipping line that went bankrupt is a good case in point. They were running at a loss for a decade, despite running full, all the time. How?

Well, the shipping industry is a bit different from the air industry, in as much as people basically bid for container space. Once you factor in the margins for the owners of the ships, the owners of the containers (who aren't the same), the freight forwarders, the agents, aggregators etc etc everyone with the ability to influence the price, it becomes a type of auction basically.

I want to send my wine to Australia, I dig around until I find someone who will give me the cheapest price. An aggregator who has container space free, or knows of a boat going empty or a container being shipped back or whatever. Constant downward price pressure.

Until something like now, when Amazon wants to get a shipment of X-Boxes over to the couch whales in Idaho. And they just do the opposite and bid the price up. They'll just pay more than everyone else. It's that simple.

No shipping line ever said "Wow, you know what, let's just double prices." No, their *customers* did it for them, because their customers *had* to get this shipment in LA by next Friday and would pay whatever it took.

So yeah, you are correct, but what's the solution? Nationalised shipping lines? Price controls? Moving the X-Box factories back to the States?

Because protectionist laws will then be in place after the China-LA route price collapses as well. That would be fine if everyone was happy to pay an extra $30 for their X-Box or the price of Californian wine in Osaka went up by four bucks a bottle because of shipping........

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The solution is return to the original Shipping Act. I really wish you would read the pieces I wrote.

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Apr 1, 2022·edited Apr 1, 2022

I read both of your articles. I wouldn't comment if I hadn't. My opinion hasn't changed. I don't think you are accurately describing the problem in this case.

Maybe the broad strokes of your views have validity. I can't say either way as I am not an expert on anti-trust law in international shipping. I do not know how things would pan out were America to try and break up the international "shipping cartels" you claim are holding us hostage.

Shipping rates sometimes spike up and down in time of crisis, but have been in a general worldwide steady down-trend for 50 years. They spiked up in 2007/8 when Lehman collapsed, yet in 2016 hit nearly the lowest they have ever been. Apart from that, they really remain rather flat on most routes. I would also assume cartels are meant to be in the business of colluding to drive prices up, not down, but I digress.

Your traffic jam story misses the elephant in the room. Dockworkers, ship crews, and truck drivers, none of whom one would describe as generally "pro-vaxx" or excited about masking up against COVID, were all in fact coming down with COVID in droves. It doesn't matter if you pay a truck driver by the mile or the hour, if half the workers meant to be unloading the ships are off sick with The Corony(tm) and the boat they are meant to be unloading is a quarantine zone because the entire crew had it. That was the source of the "traffic jam".

You are picking extreme outliers and trying to make the case that it's always like this. It's not.

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Apr 17, 2022·edited Apr 17, 2022

Ok I am confused here as to who is relying on outliers? Matt is attempting to view the system as a whole and you are zooming in. You "maybe" read the articles but not with an open mind. Obviously already with your mind made up. He exhaustively answered almost everything you bring up here. All I can say is think bigger. I get everything you are saying but keep going.

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Think bigger? Shipping freight rates have been steadily dropping for 50 years. They spiked during COVID because of the entirety of Nth America suddenly deciding to renovate their homes and set up home gyms, which they bought online and had shipped from China. Dock workers and truckers, at the same time, were lax at getting vaccinated or wearing masks and were coming down with COVID en masse. Therefore things got totally backed up at the port. Matt seems to be claiming that actually it's always like this. I'm saying it's not. The end.

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What you just described is exactly how constraints give market power.

Fault doesn't really matter when it harms everyone *except* the entity with market power.

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deletedApr 5, 2022·edited Apr 5, 2022
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I'm not saying that this entire situation doesn't suck. I'm not an apologist for the shipping companies. But this whole "regulate them" business is naïve. How, exactly, are the US regulators going to regulate non-US companies? Here, take a look.

https://en.wikipedia.org/wiki/List_of_largest_container_shipping_companies

The biggest US shipping company in the world comes in at an awe inspiring #25. US regulators can yell all they like, they'll just get told to cram it.

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Dunno. But personally I'm of a mind that once The Corony sorts itself out and the US has all the Amazon tat and home gyms it can handle, this will go down again just as fast as it went up. Lowest freight charges on record were only in 2016. They've been dropping, or at least steady, for 50 years.

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Container rates drop 41% month on month. Weird that. https://www.freightwaves.com/news/us-import-demand-drops-off-a-cliff

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I think you're definitely right in saying that shipping delays are effectively tariffs and pushing prices up for Americans.

But are the delays being caused by the shipping companies.. You say they are, but I feel don't really offer any evidence.

Is it possible that the delays are being caused by poor port infrastructure/efficiency in the US? It is well known that the ports of LA and Long Beach are considered some the least efficient ports in the world. On top of that, port productivity for LA/Long Beach deterioated further in 2021 because they were unable to uncommdate the spike in sitting containers. Between underinvestment and pushback against automation, these are probably better explanations for your graph comparing US delays with other countries.

I think the government should actively be monitoring shipping companies for anti-competitive/cartelling behavior. I'm just not sure that they're the primary reason behind the recent shipping problems we're facing.

Would be curious what you thought of

https://noahpinion.substack.com/p/interview-ryan-petersen-ceo-of-flexport?s=r

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The delays are a result of the poor policymaking of the 1980s and 1990s, which enabled consolidation of the shipping industry and the brittle state of that industry. See: https://mattstoller.substack.com/p/too-big-to-sail-how-a-legal-revolution

"In other words, all of the tariff reductions globally since the early 2000s have been undone by deregulation, disinvestment in ports, and the resulting rise of consolidated shipping power. (The key change was legislation in 1984 and 1998 that eliminated most public utility rules that applied to shipping, which I’ve written about.)"

The big shipping lines back then did want deregulation, as did the largest exporters/importers. That's the cause of today's problem. Today they are lobbying to prevent re-regulation.

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Thanks for the follow up. I've read through your articles on the topic and understand the background and narrative.. I agree these are causes for concern and focus, but when you immediately jump to "That's the cause of today's problem", I'm just not sure I see evidence as that being the case.

(You present a good case for it to be a possible cause, but not much evidence that it is the cause?)

Looking at statistics around the number of ships waiting to dock outside LA/Long Beach, **the lengthened amount of time that ships are forced to wait for an open berth**, the reduction in turnaround time for ships, the shortage of dock space for containers, the shortage of chassis for containers.. coupled with the fact that LA/Long Beach are known to be two of the most inefficient ports in the world.. these seem to argue that underinvestment and poor infrastructure are more likely behind the recent delays.

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Apr 17, 2022·edited Apr 17, 2022

But Matt in plenty of other articles shows how deregulation promoted underinvestment and poor infrastucture b/c as is glaringly obvious now all of that benefits the shipping cartel! There are zero incentives to perform well but plenty to perform poorly. This needs to be fixed. For us AND the cartels. Of course I would take andvantage of performing poorly if I could. Sheesh wouldn't we all. If this isn't the result of monopoly market power than what is. AND Matt has also made the point multiple times the goal is also to make the system more fair and resiliant to the black swan boom and bust activity. Something we should all want, no?

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deletedApr 5, 2022·edited Apr 5, 2022
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But when you have a backlog of over a hundred ships waiting for more than two weeks (pre COVID there was almost no wait time) right outside LA/Long Beach to get a docking spot and the docking spots are always full... that doesn't suggest that a shipping cartel is diverting resources to other parts of the world. It suggests that the ports are overwhelmed. There are numbers that back this narrative.

You may be right that shipping companies are diverting their services away from America and its causing problems, but it would help if you could point me to some sort of evidence or concrete numbers/stats to back up this claim.

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Apr 17, 2022·edited Apr 17, 2022

Go back and read other articles. Matt covered this when he talked about the move to mega ships and the very few ports that can handle them. All of this was described and answered already.

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41% month on month drop in container shipping rates. Hmmmmm. https://www.freightwaves.com/news/us-import-demand-drops-off-a-cliff

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Can I comment?

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Yes

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Better that foreigners reap the benefits of tariffs than Americans. No, wait...

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