The Ultrabulk cargo ship at Oregon, US. — Counter Punch/Jeffrey St Clair
IT IS perhaps a wonder that it was not until experiencing the fallout from a global pandemic that most Americans were forced to read or hear the words ‘supply chain’ or ‘logistics.’ This is surprising because it is on these things that the basic essentials of modern life are dependent and because of the revolutionary changes in these arenas over the past generation. Yet with Covid still haunting the global economy and with inflation at the highest it’s been in decades, uncertainty about supply chains lingers.
Over the past 12 months this uncertainty has assumed many forms. There have been reports of shutdowns of factories in Asia, with workers reluctant to return to their jobs, ships backed up by the dozen at American ports, a shortage of truck drivers, and exploding wealth for the likes of Jeff Bezos. Obviously, the immediate trigger to the crisis would appear to be a mix of Covid and as a result Americans greatly increasing their online shopping. According to US Census Bureau data, e-commerce sales jumped nearly 32 per cent in 2020, and 50.5 per cent since 2019. Overall, online sales now account for 19 per cent of retail.
Given the $400 billion in government stimulus and much of the outdoor service economy locked down, ie, restaurants, movies, sports events, etc., Americans spent nearly $1 trillion more in goods in 2021 compared to pre-pandemic times. Hard to see any supply chain not getting strained. Still, in May 2022, only 11 per cent of shipments from Asia arrived in North America on time, down from 59 per cent in May 2020.
By the end of 2021, the cost of shipping from Asia to the west coast of the United States had risen 330 per cent in one year. According to the Freightos Baltic Index, as of June 22, the average global price to ship a 40-foot container was $7,261, down from a peak of over $11,000 in September 2021, but still five times higher than before the pandemic. The United Nations Conference on Trade and Development estimated that higher shipping rates during the lockdown raised the inflation rate by 1.5 per cent.
Step back further though and a fuller picture emerges, one featuring globalisation, exploitation, and de-industrialisation. It is no secret that the US has lost millions of manufacturing jobs over the past generation — about 7.5 million since 1980. While automation has been a big factor in the decline, so has outsourcing and subcontracting. From 1970 to 2010, the number of manufacturing jobs in East Asia more than tripled from 31 million to 97 million. In the decade from 1997 to 2007, the value of East Asian exports increased from $269 billion to nearly $1.5 trillion. Of course, the emergence of China as the world’s factory played a vital role. Foreign direct investment in China increased from $57 million in 1980 to $114.7 billion in 2010. Imports from China reached $506 billion in 2021, with $151 billion in exports headed the other way, a trade deficit of $355 billion.
Imports from Vietnam have also exploded over the past two decades. In 2020, Vietnam was the 6th largest supplier of US imports, up 21.2 per cent from just 2019, and 436 per cent from 2010. In a way, Vietnam has been the winner of the US trade war with China. The US trade deficit with Vietnam exploded nearly threefold to $90 billion since 2018. As for the effectiveness of the US tariffs, a good amount of the exports from Vietnam originate in Chinese-owned factories. Indonesia imports are up 23 per cent since 2010.
Nothing exemplifies the supply chain crisis quite like the sight of cargo ships backed up by the dozens outside the Ports of Los Angeles and Long Beach. Container ships transport 90 per cent of global trade and these two ports handle about 40 per cent of US imports. A ship from China takes 15–20 days journey to an American port. The process of turning a ship around from China to the US typically takes around 60 days. The process is supposed to be timed for maximum efficiency, one ship in, one out.
Covid fouled up the system. At peak chaos there were over 100 ships waiting to dock. If all the waiting containers had been laid out the line would actually have stretched from Los Angeles to Chicago. The turnover time increased to 100 days. US president Joe Biden eventually ordered the ports to work 24/7 and some ships were diverted to other ports. Ships waiting outside the LA ports fell by half by the beginning of 2022, though this spring a dozen plus ships were often backed up at ports around the US. As of May, nearly 20 per cent of container vessels globally were still waiting outside congested ports, including hundreds in China.
In a perfectly surreal example of built-in absurdity, the price hike made a trip from Asia to the United States 20 times more expensive than a trip going the other way. Therefore, through the pandemic there were reports of ships returning to Asia with many of their containers empty. The shippers have been rejecting US agricultural exports. It is more profitable to simply return to Asia and refill there rather than wait for food to be loaded and carried back. This past holiday season, some of the largest US retailers were chartering their own, smaller ships to get around the backlog, docking at smaller ports around the country. Of course, this option was beyond the great majority of US businesses.
If such a picture brings to mind any notions of incompetence or inefficiency from the perspective of the shipping industry, these can be quickly cast aside. In 2021, global shipping earnings equalled the entire industry’s earnings from the previous decade. Last November, the Wall Street Journal ran an article titled ‘For investors in shipping, payoff at last.’ The opening lines read: ‘Global supply-chain bottlenecks are creating headaches for retailers, delays for consumers and big gains for financial firms that invested in container ships before the pandemic upended the logistics business.’
The emergence of Covid-19 has not been the only recent cause of disruption for the shipping supply chain. On March 23, 2021, the 20,124 TEU container ship Ever Given ran aground in the Suez Cancel. TEU stands for twenty-foot equivalent unit, meaning the number of standardised 20-feet containers a ship can carry. Suez Canal is the shortest shipping route between Europe and Asia. Up to 15 per cent of global trade passes through the Suez Canal, including a million barrels of oil a day and roughly eight per cent of the supply of liquefied natural gas. On a given day that means about 50 ships. With Ever Given wedged in the canal for a week, hundreds of ships were backed up in a 60-mile queue waiting to get through. All in all, an estimated $9.6 billion a day worth of trade was held up.
On March 15, 2022, another ship owned by Evergreen Marine Corp, this one named Ever Forward, went aground in Chesapeake Bay. While this blockage did not stop traffic, it took a month to free the ship. The ship CSCL Jupiter did hinder ship traffic when it ran aground for a day outside the port of Antwerp in 2017.
Given that navigational technology has improved in recent years, ship groundings should be becoming less common. Yet there is the sheer size of the current ships. A few months after the Ever Given jam, the largest container ship ever built, Ever Ace, another by the Evergreen Marine Corp, made its way through the Suez Canal in August 2021. Measuring just over 1300 feet — about the size of the Empire State Building — with a capacity of 23,992 TEU to be exact, Ever Ace took the title from the HMM Algeciras, 23,964 TEU, which took its maiden voyage hardly a year earlier. Both ships are just part of expanding fleets of mega-ships of that size soon to be sailing.
For perspective, the largest ships today are 15 times what they were in the late 1960s, around the time when containerisation was standardised. The world’s first commercially successful container trip, Malcolm McLean’s converted tanker, the Ideal-X, took 58 containers from New Jersey to Texas in 1956. When the ship Encounter Bay, one of the early fully cellular container ships, went into service in 1969, its capacity was 1,578 TEUs. Even by the year 2000, ship capacity topped out at around 8,000 TEUs.
Then, when the shipping company Maersk introduced its E-Series of ships in 2006, capacity reached around 15,000 TEUs, basically doubling the capacity of the previous largest ships. Since then, over 130 ships have launched with a carrying capacity between 18,000 and 24,000 TEUs. In the past decade alone or so, capacity has gone up 80 per cent.
Here is where the deregulation comes in. As Matt Stroller described in a Substack piece, for most of the 20th century, US shipping law was based on the Shipping Act of 1916. The act granted shipping companies an exemption from anti-trust laws. They were allowed to form alliances with each other, something that continues today, where they would jointly set routes and prices. However, there was a condition that all prices had to be public, service had to be offered on equal terms, and companies were not permitted to undermine competitors by offering volume discounts or under-the-table rebates.
In addition to the act, there were subsidies for shipbuilding and the Merchant Marine Act of 1920, known as the Jones Act, required all ships carrying goods between two US ports to be American-built, -owned, -crewed, and -flagged. The idea was to protect smaller companies and businesses against predatory moves of larger companies by giving bargaining power, hence the public prices. National security concerns wanted to keep American shipping strong. Stable prices take the edge off a boom-and-bust industry.
The system was tossed aside by the Ocean Shipping Reform Act of 1998. In a sense we were left with the worst of all worlds: the anti-trust exemption was kept and the transparency was scrapped. Predictably, concentration in the industry exploded. Up to 60 of the 1,000 largest ocean carriers have vanished since the early 2000s. Banks were only too eager to provide funding for the megaship race. Shipping companies are good lending targets as valuable ships can simply be repossessed in the event of a default. Plus shipping often receives government subsidies.
In the midst of all this came the economic crash of 2008. The downturn meant there was not enough freight to fill the growing ship capacity. With shipping prices at rock bottom, the remaining large carriers formed alliances. The top 10 shipping companies had 40 per cent of the market in 1998. Today it is over 80 per cent. All 10 companies are part of one of the three company alliances that dominate the industry — 2M, Oceans Alliance, and The Alliance. The megaships also keep up a nice barrier to entry. New companies have a hard time breaking in with such upfront costs as a megaship. Infrastructure — railroads, ships, social media networks — tend to require a huge amount of investment to build, but not much to operate. This makes it inefficient for many companies to build competing networks. As a result it is often owned by the state of too-big-to-fail monopolies.
The larger the ship the more the shipping company is supposed to be able to squeeze out savings on construction, fuel, and staff. Larger ships with consolidation and alliance also give companies leverage over other parts of the system. This led to a race among the ports. Ports in Baltimore, Miami, and Norfolk began dredging projects to deepen their harbours. The port authority of New York and New Jersey spearheaded a project to raise the Bayonne Bridge 64 feet to accommodate larger ships. The project cost $1.7 billion.
Such works are quite convenient for the carriers as they get almost all the savings while the ports, and the taxpayers that often contribute funding, foot the bill. As larger ships are unable to service as many ports as smaller ones, they lead to increased concentration of terminal operators and, therefore, port traffic — one reason the Ports of Los Angeles and Long Beach handle so much traffic and are, therefore, prone to backups.
A few weeks ago, in view of the rising inflation, US president Joe Biden ranted about ‘foreign-owned’ shipping companies which raised their prices by ‘as much as 100 per cent.’ He chimed, ‘Every now and then something you learned makes you viscerally angry.’ On June 16, he signed the Ocean Shipping Reform Act of 2022. Legislation that breezes through Congress nowadays promises not to be too earth-shattering. The act empowers the Federal Maritime Commission to limit ocean carriers refusing American and limit port fees. It is questionable how thoroughly it can be enforced.
Another facet to the shipping world is flags of convenience. For a fee, ship owners can simply register their ships with a willing country. Countries without a nationality or residency requirement for ship registration are described as having open registry. This form of paper globalisation works the same as other forms. The obvious goal is to take advantage of places with low wages and less regulation. Thus, in 1960, the US flag merchant fleet had almost 3,000 ships. By 2019, the number was 182. Almost three-quarters of the world fleet are now flagged under a country different from the ship owners. For a long time, the places with the largest registries have been Panama, Liberia, and the Marshall Islands.
In her book Ninety Percent of Everything, Rose George explains: ‘There are few industries as definitely opaque as shipping. Even offshore bankers have not developed a system as intricately elusive as the flag of convenience, under which ships can fly the flag of a state that has nothing to do with its owner, crew, or route.’
While the International Maritime Organisation, a UN agency, has passed plenty of regulations since its inception, and the International Labour Organisation has adopted standards for seafarers — the Maritime Labour Convention was ratified in 2006 by 80 countries and came into effect in 2013 — the ocean has a tendency to dissolve such paper. As with many things, the Covid pandemic brought the underbelly to light.
In September 2020, as 300,000 workers were stranded on ships, a Bloomberg report found dozens of labour violations. Of the 40 seafarers interviewed for the story, half did not have current contracts and others had not been paid for months, meeting the ILO’s definition of forced labour. Shipping lines and staffing agencies — as in other industries such as meatpacking, shippers often outsource hiring to agencies — determine when and how workers return home, even holding their passports. In an industry rife with middlemen, including networks of owners, operators, and employment agencies, it is difficult to hold parties accountable.
By no means is shipping the only leg of the supply chain that is hellish for workers. In the United States, when goods are unloaded from shipping containers, they are moved onto truck beds. Trucks move around 70 per cent of domestic goods, over 10 billion tonnes of freight a year. Truck drivers’ wages have plummeted over the past four decades. If the adjusted average wage of a truck driver in 1980 was $110,000, by 2019, the trucker earned $45,000 a year — a decline of 60 per cent. From there goods are often driven to warehouses. The turnover rate at Amazon warehouses, for instance, can reach 150 per cent a year. Buy commodities certified ‘fair trade’ as you will, just do not assume such a concept applies to the workers that bring them to you.
CounterPunch.org, July 1. Joseph Grosso is a librarian and writer in New York City. He is the author of Emerald City: How Capital Transformed New York.
