This week we got a pre-election October surprise: a widespread strike that, depending on its duration, could lead to commodity shortages, higher prices and, ultimately, layoffs. It is landing at a time when voters are particularly upset about higher prices and in a cycle when the two major candidates are virtually tied.
This could have been avoided. Both President Donald Trump and President Biden briefly grappled with some of the forces that led to it, as did Congress in 2010, but none of these efforts were effective. It is long past time to fix the regulatory regime that created this mess.
Just after midnight on Tuesday, the dockworkers represented by the International Longshoremen’s Association went on strike across ports from Maine to Texas that control about three-fifths of the country’s container shipments. Shippers are scrambling to find alternatives, but the size of the strike is big enough to shock supply chains for agricultural products, automobiles and more.
The two sides are fighting over a big pot. Shipping industry profits exceeded $400 billion from 2020 to 2023. Even though many dockworkers earn as much as $39 per hour and can earn $100,000 or more with overtime and shift work, the workers want more of that pie in the form of a 77 percent pay increase over the next six years. The union is also demanding a total ban on the automation of cranes, gates and container-moving trucks used in the loading and unloading of freight. The union went on strike because its demands were not met.
The substantial profits both sides are fighting over weren’t derived from admirable business practices. They come from century-old government regulations that protect the industry and its ports, and they result in less innovation, less efficiency and higher prices for everybody — even in the best of times.
Over a century ago, U.S. lawmakers threw the industry numerous safety nets, believing that our military might need to someday deploy our nation’s private shipping fleet in a wartime emergency and that shipping was vital to the then-developing economy. That’s why for more than 100 years, ocean carriers have typically enjoyed an exemption that allows them to meet with their rivals and fix rates for a scheduled service on a particular route. That’s also why the 1920 Jones Act decreed that ships stopping at two or more consecutive American ports must be built in the United States, fly the American flag and be mostly owned and operated by American companies and crews.
Our government also began heavily supporting and operating the ports themselves and passed the 1906 Foreign Dredge Act, which required dredges operating in U.S. waters to be built in the United States and be mostly owned and operated by U.S. citizens.
Fears that shipping companies would go out of business competing to fill their cargo holds — the fear that drove the antitrust exemption on rate fixing — no longer applies in a world where everything is now neatly fit into large, stackable containers and so much is shipped globally.
The inefficiencies created by regulations of U.S. shipping carriers have been compounded by inefficient U.S. port operations. As globalization has caused ocean carriers to use increasingly larger ships, numerous American ports have not expanded to accommodate them, forcing everyone to depend on a handful of locations. New ports are not being built for the same reasons the United States has built only one major airport since 1973: There is little economic incentive, and the regulatory and other governmental constraints are formidable. As a result, congestion is increased, shipments are delayed, and carrier operating costs and consumer prices are increased.
The fewer the ports, the greater the leverage of the workers who attend to them. In addition, to maintain the size of the work force, union representatives oppose innovations, such as automated loading and unloading equipment used at foreign ports, that could reduce U.S. ports’ operating costs. The unionization of U.S. longshoremen also results in American ports being open for fewer hours per week than many other ports around the world.
How about the 1906 Foreign Dredge Act? It has been estimated that if U.S. ports were allowed to hire European dredging companies, the cost savings could amount to $1 billion annually.
So it shouldn’t come as a surprise that U.S. ports don’t fare well in a global ranking by the World Bank. Los Angeles is 375th of 405, New York and New Jersey clock in at 92nd, and the main U.S. Gulf of Mexico port in Houston comes in at 312th. This is to support the world’s largest economy.
Congress, Mr. Trump and Mr. Biden have all taken modest, at best, swipes at fixing the problem. In 2010, Congress failed to pass legislation that would have repealed the Jones Act. The Trump administration also explored eliminating the Jones Act; Mr. Trump decided against eliminating it for unknown reasons. Mr. Biden took only a small step by signing the Ocean Shipping Reform Act of 2022, which, in particular, pushes the Federal Maritime Commission to act more aggressively to prevent carriers from charging excessive fees in certain cases.
Deregulating U.S. ocean transportation could spur competition among carriers, generate billions of dollars in efficiency gains, reduce shipping rates and improve service. Privatizing ports to stimulate competition could significantly reduce their accumulated cost inefficiencies. Collectively, those policies could improve the efficiency of a critical component of U.S. transportation, reducing costs, prices and the overall rate of inflation. These steps would reduce the threat of future strikes and crippling supply chain shocks because there would be less excess profit for workers and their employers to fight over.
It is unfortunate that it took the risk of a major economic disruption to refocus our attention on a long-festering problem. Hopefully, the next administration will take action that has been too long in coming.
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