series of news articles over the past six months have revealed that the shipping industry often acts like an international bully. Producers, trucking companies, stores, and consumers have all felt the impacts of disregarded contracts, exorbitant prices, and general mayhem in the supply chain. Each of these crucial links in the supply chain are at the mercy of three shipping company alliances that are exacerbating inflation and shortages. This is a global issue, but as with other pitfalls of market economies, some countries are hurt more than others.
Existing analysis primarily highlights how the abuses of the shipping industry are hurting large, U.S.-based corporations. An investigation by ProPublica found that shipping companies purposely hinder truckers’ ability to load and unload containers in order to charge them for demurrage and detention, two types of late fees. Trucking companies pass the burden onto suppliers with higher costs for their service, who then pass it on to consumers with rising prices. All the while, the shipping industry’s collective profits increased by $41 billion from 2020 to 2021.
Lower and middle-income countries (LMIC)—especially LMICs that are small islands—face similar challenges but at greater costs. Research by the International Monetary Fund found that landlocked, low-income countries pay higher freight rates and experience more inflation when shipping costs rise than is the case for other countries. Small island developing countries, which are particularly dependent on imports, pay two to three times more for transported goods. These countries can expect to see consumer prices rise by 8.1 percentage points this year. LMICs will see a 2.4 percentage point increase, and the rest of the world will see a 1.6 percentage point increase.
These figures translate into suffering. The war in Ukraine is already worsening the food crisis in Africa. Nearly half of the wheat imports to Cameroon, Tanzania, Uganda, and Sudan come from Russia and Ukraine. Now LMICs face surging prices for grain, and oil and gas too.
In some cases, there are no goods to price in the first place. The number of ships making the trip from China to North America and Europe has increased at the expense of countries in Africa and Latin America. In East Africa, manufacturers can wait up to two months for a shipment of raw materials from China. The decreased and late flow of shipments to East African ports puts businesses and ultimately peoples’ jobs on the line. Fewer imports also means there are fewer containers for exporters to fill with manufactured goods and agricultural products.
The shipping industry disproportionately hurt LMICs well before the pandemic made things worse. Shipping pollutes oceans with oil, non-biodegradable solid waste, and other toxins. In addition to polluting waterways, dumping ships’ ballast water can introduce invasive species to new regions of the world. The climate crisis exacerbates existing vulnerabilities, meaning LMICs already grappling with food and drinking water scarcity are often the first countries to absorb climate shocks.
This is not to dismiss the pain the shipping industry has caused in the U.S. and other high-income countries, particularly for lower-income families and small businesses. In December 2021, 45% of Americans reported financial hardship due to inflation. For 10% of these respondents, the hardship was severe enough to threaten their standard of living. Inflation has steadily increased since then.
But the U.S. government is finally getting involved, ensuring the Federal Maritime Commission has the resources and power to stop monopolistic behavior in the shipping industry. Further regulations will certainly reign in the rampant abuses affecting American companies and consumers.
Cracking down on monopolistic behavior will likely help all countries to some extent, but it won’t stop shipping companies from prioritizing the Asia to North America trade route or dramatically lower freight rates for LMICs. Those LMICs, especially those that are landlocked, have long paid more for shipping and transportation than high income countries. This is because of greater uncertainty around timing and a greater risk of corruption.
Shipping is an industry where market economics just won’t cut it. Country-by-country regulation of and investment in the shipping industry is not only unethical but short-sighted. Support for extreme right political parties in Europe has tripled since the 1990s, primarily because of these parties’ anti-immigrant platforms. Passively watching the shipping industry hurt LMICs will only accelerate migration.
There needs to be a unified international effort to both regulate and develop the shipping industry. One way to lower shipping costs for LMICs is to invest in the infrastructure and technology that make transportation more efficient. Developing shipping technology that reduces water, air, and noise pollution, and continuing the shift from reactive to preventative environmental regulation measures will help LMICs indirectly.
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Shipping Industry Expands the Gap between the Haves and Have Nots
Photo by Jaanus Jagomägi via Unsplash.
June 29, 2022
The abuses of the shipping industry are exacerbating inflation and supply chain shortages. This is a global issue, but low and middle-income countries are hurt more than others, requiring a unified international effort to both regulate and develop the shipping industry, writes Millie Brigaud.
A
series of news articles over the past six months have revealed that the shipping industry often acts like an international bully. Producers, trucking companies, stores, and consumers have all felt the impacts of disregarded contracts, exorbitant prices, and general mayhem in the supply chain. Each of these crucial links in the supply chain are at the mercy of three shipping company alliances that are exacerbating inflation and shortages. This is a global issue, but as with other pitfalls of market economies, some countries are hurt more than others.
Existing analysis primarily highlights how the abuses of the shipping industry are hurting large, U.S.-based corporations. An investigation by ProPublica found that shipping companies purposely hinder truckers’ ability to load and unload containers in order to charge them for demurrage and detention, two types of late fees. Trucking companies pass the burden onto suppliers with higher costs for their service, who then pass it on to consumers with rising prices. All the while, the shipping industry’s collective profits increased by $41 billion from 2020 to 2021.
Lower and middle-income countries (LMIC)—especially LMICs that are small islands—face similar challenges but at greater costs. Research by the International Monetary Fund found that landlocked, low-income countries pay higher freight rates and experience more inflation when shipping costs rise than is the case for other countries. Small island developing countries, which are particularly dependent on imports, pay two to three times more for transported goods. These countries can expect to see consumer prices rise by 8.1 percentage points this year. LMICs will see a 2.4 percentage point increase, and the rest of the world will see a 1.6 percentage point increase.
These figures translate into suffering. The war in Ukraine is already worsening the food crisis in Africa. Nearly half of the wheat imports to Cameroon, Tanzania, Uganda, and Sudan come from Russia and Ukraine. Now LMICs face surging prices for grain, and oil and gas too.
In some cases, there are no goods to price in the first place. The number of ships making the trip from China to North America and Europe has increased at the expense of countries in Africa and Latin America. In East Africa, manufacturers can wait up to two months for a shipment of raw materials from China. The decreased and late flow of shipments to East African ports puts businesses and ultimately peoples’ jobs on the line. Fewer imports also means there are fewer containers for exporters to fill with manufactured goods and agricultural products.
The shipping industry disproportionately hurt LMICs well before the pandemic made things worse. Shipping pollutes oceans with oil, non-biodegradable solid waste, and other toxins. In addition to polluting waterways, dumping ships’ ballast water can introduce invasive species to new regions of the world. The climate crisis exacerbates existing vulnerabilities, meaning LMICs already grappling with food and drinking water scarcity are often the first countries to absorb climate shocks.
This is not to dismiss the pain the shipping industry has caused in the U.S. and other high-income countries, particularly for lower-income families and small businesses. In December 2021, 45% of Americans reported financial hardship due to inflation. For 10% of these respondents, the hardship was severe enough to threaten their standard of living. Inflation has steadily increased since then.
But the U.S. government is finally getting involved, ensuring the Federal Maritime Commission has the resources and power to stop monopolistic behavior in the shipping industry. Further regulations will certainly reign in the rampant abuses affecting American companies and consumers.
Cracking down on monopolistic behavior will likely help all countries to some extent, but it won’t stop shipping companies from prioritizing the Asia to North America trade route or dramatically lower freight rates for LMICs. Those LMICs, especially those that are landlocked, have long paid more for shipping and transportation than high income countries. This is because of greater uncertainty around timing and a greater risk of corruption.
Shipping is an industry where market economics just won’t cut it. Country-by-country regulation of and investment in the shipping industry is not only unethical but short-sighted. Support for extreme right political parties in Europe has tripled since the 1990s, primarily because of these parties’ anti-immigrant platforms. Passively watching the shipping industry hurt LMICs will only accelerate migration.
There needs to be a unified international effort to both regulate and develop the shipping industry. One way to lower shipping costs for LMICs is to invest in the infrastructure and technology that make transportation more efficient. Developing shipping technology that reduces water, air, and noise pollution, and continuing the shift from reactive to preventative environmental regulation measures will help LMICs indirectly.
